Brookings Analysts Debunk Big Marijuana 'Bogeyman'

Two new papers argue that domination by a few large firms is unlikely and that overregulation is as big a risk as underregulation.


Senate Caucus on International Narcotics Control

The raison d'être of Smart Approaches to Marijuana (SAM), the leading organization opposing marijuana legalization in the United States, is "preventing another Big Tobacco," a theme that has been taken up by desperate pot prohibitionists across the country. Two new papers from the venerable Brookings Institution take a skeptical view of the Big Marijuana "bogeyman," arguing that the "caricature" drawn by groups like SAM distracts attention from the real challenges governments face as the cannabis industry moves out of the shadows to which it has been consigned for nearly 80 years.

"Policy should concern itself with harmful practices, not with industry structure, and it should begin with a presumption of neutrality on issues of corporate size and market structure," write John Hudak and Jonathan Rauch, both senior fellows in governance at Brookings. "For policymakers, the concern should be bad marijuana, not big marijuana."

Hudak and Rauch (a Reason contributor) lay out several reasons to doubt that a newly legal marijuana industry will resemble the shifty tobacco oligopoly to which SAM et al. habitually compare it. They note that the marijuana industry features "a staggeringly diverse array of businesses," faces "a policy environment that has been informed and shaped by the country's bitter experience with tobacco," and will be subject to intense scrutiny as it fights to overcome a long history of stigma and criminalization. "For all of those reasons," they say, "the prospect of giant marijuana corporations running amok as giant tobacco companies once did seems farfetched."

Hudak and Rauch also point out that corporatization has its benefits, including professionalism, durability, accountability, easier regulatory compliance, product consistency, and a strong interest in maintaining hard-won reputations. "The best regulation is the one that doesn't need to be imposed," they write, "because reputational accountability or market pressures solved the problem first"—an observation that seems designed to make SAM President Kevin Sabet's head explode.

There is a downside to the ability of big companies to comply with complex and demanding rules: They can use regulation to put smaller businesses at a competitive disadvantage—as Altria (formerly known as Philip Morris) did when it supported the Family Smoking Prevention and Tobacco Control Act, which gave the Food and Drug Administration authority over tobacco products. Because of that tendency, Rauch and Wallach say, Sabet and his allies are wrong to equate corporatization with underregulation. "It is a mistake to see big companies as reliable opponents of regulation," they write. "At least as commonly, they lobby for regulation to sew up markets and collect economic rents." 

In a separate paper that applies "public choice" analysis to marijuana prohibition and legalization, Rauch and Philip Wallach, another Brookings senior fellow, argue that regulatory capture is less of a danger than needlessly complex and self-contradictory rules resulting from the conflicting demands of various special interests, along the lines of the U.S. Tax Code. "Though we do not dismiss the risks of regulatory capture," they say, "we think the risks of regulatory incoherence are greater. In a world of normal (as opposed to disrupted) marijuana politics, overregulation and misregulation are at least as likely to be problems as is underregulation."

Rauch and Wallach note that federalism can help guard against that outcome, allowing a diversity of approaches and limiting the spread of bad policies. "There is little reason why the entire country should live with a single policy when community preferences are so diverse," they say. "Limiting regulatory purview to individual states acts as a firewall against the spread of interest-group depredations or bureaucratic overreactions across multiple states; panicky regulatory overkill or an egregious rent-grab in one state need not reach others." At the same time, a decentralized regulatory system allows imitation of policies that turn out well. 

"The classic 'laboratories of democracy' argument applies well here," Rauch and Wallach write. "Legalizers may want to think twice before wishing for a quick move toward a national marijuana policy. Indeed, the best national policy may be the one already proposed by several Democrats and Republicans in Congress: allowing the states to have their own distinct policies, with federal intervention only on the edges to serve core federal interests."