Weed Week

The 4 Things Many States Get Wrong When They Legalize Marijuana

Politicians and bureaucrats in legal states still struggle with the temptation to over-tax and over-regulate their legal marijuana markets.

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Marijuana legalization has gone mainstream. In November, voters in four states approved recreational cannabis, and legislators in Virginia, New Mexico, and New York followed suit in early 2021, sending bills to all three governors' desks.

But the term legalization obscures vast differences in how states regulate marijuana businesses and consumption. Oklahoma arguably passed the most free market medical marijuana rules among the states. Michigan's recreational marijuana regulations largely embrace free and open markets, while Colorado's have steadily liberalized since legalization. Unfortunately, most other states are choosing highly restrictive market structures that undercut their ability to foster economic growth and quash the black market (we're looking at you, California!).

Wielding statutes such as possession limits, allowance for home growing, tax levels, licensing regimes, and testing and labeling requirements, states are targeting real political problems or imagined market ones. But such wrangling ensures that legal markets lose out to black markets. Even in polite Canada, only 28 percent of cannabis consumers buy legally, possibly beating out some U.S. states. Here are the four biggest mistakes states make, time after time, when creating legal marijuana markets.

1. Caps on Licenses

Most states where marijuana has been legalized arbitrarily cap how many businesses can be licensed to grow, manufacture, or sell. Advocates justify these caps to limit excess supply from bleeding into black markets, despite every recreational marijuana program's extensive state-monitored inventory tracking, which uses radio frequency identification on every plant or package and mandatory continuous video surveillance. If each product from every licensed facility is tracked, why cap licenses? 

A more pernicious motivation may lurk under the surface: excluding aspiring competitors. In Nevada, which permits only 120 dispensaries statewide, regulators accepted bribes from applicants, then manipulated the application process in those applicants' favor. In Illinois, which permits only 30 cultivators in a state with more than 11 million residents, license caps created systemic shortages, raising prices well beyond those found on the black market.

2. High Taxes

Studies show consumers react to even small price changes of legal marijuana, retaining readily available black market substitutes if those prices range too high. Following basic supply and demand, high tax rates end up fostering the black market, shrinking the very tax revenues that government bureaucrats seek. In California, where state and local taxes comprise 30 to 40 percent of legal market prices, illegal sellers were projected to rake in $8.7 billion in 2019 sales while legal sellers reported only $3 billion. No wonder California has fallen vastly short of its forecast revenues, leading legislative analysts to advocate reducing tax rates down to 15 percent.

3. Local Opt-Outs

Legislation that blocks access to legal marijuana within a reasonable distance of residential areas denies voters real access to what they voted to legalize. In California, four out of five local governments prohibit dispensaries within their jurisdictions, with some consumers living over 100 miles from one. Such NIMBY ("not in my backyard") attitudes ensure there will be rampant black market alternatives. More reasonable efforts, like New Mexico's, would allow local governments to set some restrictions on zoning and hours of operation, but don't outright prohibit sales.

4. Imagined Market Failures

Policy makers preemptively "solve" marijuana market failures without waiting to see if they occur. For example, many states weirdly don't allow food or drink sales at marijuana dispensaries or stores (because we've all seen the horrors that occur at Walgreens where they sell food and drink along with prescription meds).

Government bureaucrats and regulators also seem obsessed with THC levels in legal marijuana products. Florida lawmakers are in their third year of trying to impose a 10 mg THC cap per dose of legal medical marijuana flower, over the objections of doctors, with no scientific or medical basis for picking that nice round number. Oregon limits THC in edibles to no more than a total of 50 mg per package.

Legalization recognizes Americans' increasingly strong and widely shared opposition to marijuana prohibition. But, unwilling to get out of their own way, states that insist on over-taxing and over-regulating could foolishly reverse all gains.

NEXT: School Choice Picks Up Steam After Pandemic Closures

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  1. “Florida lawmakers are in their third year of trying to impose a 10 mg THC cap per dose”

    Science deniers. That number was mathematically derived from the 6 foot (anti)social distancing figure, using scientific models originally devised for global climate warming change. It is absolutely correct.

    1. If the climastrologists are involved we know the science is settled!

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    2. 10 mg per dose is actually a reasonable number.
      For a drug naïve person, 5 to 10 mg is the recommended dose.
      So making each gummy contain 10 mg, the average person can take 1/2 or the entire thing.
      Experience stoners can go ahead and take two or three or more gummy‘s.
      It’s the same thing with alcohol.
      A glass of wine, or a shot of alcohol contain a reasonable single dose for a non-alcohol tolerant person.
      Experienced drinkers are free to drink 2, 3 or more glasses of wine, or take two or three shots of tequila.
      if wine or tequila were to contain contain unpredictable amounts of alcohol, it would be very easy to take an overdose.
      Wine is usually 12% alcohol and hard liquor is about 40%.
      It seems reasonable to make one dose of marijuana 10 mg.
      Go ahead and take five shots of vodka, or eat five gummy ‘s.
      You are going to regret that in the morning.

  2. It is not legalization when growing the plant for its produce to be sold in commerce is regulated more than that of {here pick your favorite truck farm crop}. #NotBindingInConscience

    1. You should see how many laws and regulations control corn crops.

      1. Absolutely none control mine.

        Of course, it’s just a raised bed garden, and even then it’s more about fun than food production. I get about enough ears for three family dinners.

        Growing your own MJ supply is easy compared to growing your own corn supply.

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  3. It ain’t MERICAN MADE unless there is a string of taxes and regulation attached!!

    1. Exactly. Specifically, as to taxes, wasn’t that one of the primary arguments for legalization? As to “over” taxing — as well as over-regulating — government doesn’t know the meaning of that word.

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  4. we’ve all seen the horrors that occur at Walgreens where they sell food and drink along with prescription meds

    It doesn’t even take Rx. You may have heard about that kid who ate a whole bottle of enteric-coated aspirin tablets, having confused it with his bag of Skittles.

    1. If only one dumbass is saved…

    2. is THAT what happened to Trayvon, then?

  5. Lot of good points in the article. I suspect that many are just problems in the roll out and will be settled in time. I think what lawmakers miss is the model they have in liquor stores and sales. Tax like any other sin tax, regulate locations and outlets like they do liquor sales. Address problems like they do when they have a bad liquor store operator.

    1. Oh yes, a very successful free market system that is.

      1. M4e is not remotely a libertarian.

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      2. You’re not wrong, but frankly, an actual free market system here is about as likely as a herd of unicorns delivering a passel of gorgeous horny virgins to my door. Emulating the alcohol model is probably an improvement over what will actually be available.

        Ok, maybe if it’s not the alcohol regulation model from Pennsylvania, but that place is sorta uniquely fucked on alcohol sales.

        1. I am really thinking more Wisconsin. We like our alcohol here and are pretty lenient with sales. Sorry I forgot some states still have blue laws.

    2. My state used to control ALL retail outlets, and insisted every bottlepassed through THEIR OWN warehouse system. We voters ended their hand in selling hootch at any level.Sothey taxed it into oblivion (I refuse to buy hard liquor in my home state, partly on principle but mostly because afterpaying teir taxes I got nuffum left to pay for the booze. Tax is literally close to 70% the total cost of the bottle of booze.

      So when we voters ALSO decided our state would legalise marijuana, that same agency, the Liquor CONTROL Board, insisted they figure out the regulations, restrictions, taxation, etc, on the weed. I don’t use that stuff anyway, but it still makes me mad these unelected burro-crats can make such an unholy mess out of anything. I know a number of folks who grew and sold, legally, medical use marijuana before the everyday use got legalised. Da Gummit have made a disaster of the trade. I also know a handful who WERE growing prior to full legalisation, but the new Liquor Board imposing over the top caused them to earn their living elsewise. I KNOW there is a thriving black-market for thi product thorughout the state.

  6. I vacationed in Colorado for the first time a couple of years ago. We stayed in Colorado Springs. No recreational marijuana stores are allowed in the city limits of Colorado Springs – an example of local opt-out. I think the city politicians decided to opt-out because the Air Force Academy is there – and they want to keep up appearances. There’s a little village called Manitou Springs about 20 minutes from Colorado Springs that has a recreational weed shop. I heard that the number one Uber destination from The Broadmoor Hotel (a historic high-end hotel in the city) is to that weed shop in Manitou Springs.

    1. Dispensaries are not allowed in most (over half) Colorado locations. At least not recreational ones. For a long time, dispensaries were pretty much limited to Denver/Boulder and the mountain towns with pot tourism. El Paso county (Colorado Springs) itself barely voted No to legalization but the local opt-out in Colorado’s legalization is almost certainly what enabled the amendment to pass. The reason Colorado Springs poobahs still would like it to be illegal is not the military presence but the Focus on the Family presence. They are still lobbying against it and arguing that legalization has failed

      I don’t know about other states but I suspect local opt-out is the only reason legalization initially passes. It immediately deflates the Reefer Madness and junkies-will-invade-the-schools-and-force-your-kids-to-become-junkies narratives.

      It really doesn’t matter if that means there is still some black market or that the liberty to buy pot in your rural neighborhood is ‘infringed’ by not having some top-down mandate requiring those outlets. The author is full of shit. Local control almost always works best – with the exception of fundamental rights which does not include buying/smoking pot. If you live in Colorado and want to have pot sold in your neighborhood – you still need to lobby for that at the local level.

  7. The single biggest mistake is thinking they have any business interfering with people who grow it on their own property and never sell it.

    1. Agree here completely. If you can brew your own beer, you should be able to grow your own weed.

  8. The problem is that many lawmakers have gone along with demonization of this totally harmless plant. Therefore they still feel the need to justify this, by overblowing their concerns, and some even actively trying to sabotage the total normalization of hemp as a plant amongst many. Otherwise it proves how rediculous many of them, including the current president, have been. They loose face, and because of that, they keep creating problems.

    1. Asparagus is harmless, pot is not. Getting stoned has costs beyond the $, obviously.

      As for getting stoned? Have at it. Enjoy all you want, don’t expect me to help support your consumption or over-consumption in any way.

      1. Do I expect you to support my alcohol consumption? No and I would not expect you support others weed consumption. So what is your point.

        1. The point is bifurcated: 1) consuming mind altering substances has a cost b) consume as much of what ever you want, it your choice and your responsibility of the effects of said consumption.

          But not really. In a truly free society junkies et al would not be the poor darlings that we shower with free dope, free food, free accommodation, places to inject and recover and so on. Your life, you choose and leave me the eff alone.

  9. It’s uncommon to go from a regime in which something is prohibited of a vast majority of potential users/doers to a very permissive regime with little regulation.

  10. Gvts are idiots (at virtually everything) and regulating dope and booze magnify the idiocy. It will be a generation or two or three before there is any semblance of thought and intelligence on how dope is legalized or what ever they want to call it. And don’t expect any consistency on how dope is legal across the country; there are still 83 dry counties. And don’t even bother to think about anything stronger, more addictive and dangerous than pot. If you want dope, stick with your supplier, pay cash and keep the idiots out of the loop.

  11. On July 1, I can own weed, but no one can sell me weed. How do I get weed?

    1. Can you order legally from free trade seller markets, by mail?

  12. Keep in mind that you should never, under any circumstances, trust a politician. Any elected official who says they support legalization is lying. Regardless of their stated politics, we know the demographics of politicians. They’re gated community boomers. Nobody in places like that like or use recreational drugs. If they did in the past, they say the same shit about “the weed today isn’t what I smoked when I was your age” as if people can’t be trusted to self-regulate.

    This really is a case of the people vs. the government. The only reason Ds have a sudden change of heart is because they smell the tax revenue, hence the overregulation in almost every single instance of legalization and repeated failure to pass legalization in other states due to Ds not getting the regulatory structure they desire.

    1. I think it’s funny that you think politicians don’t use drugs. It’s about Power and Money like it always is.

      1. If I ran for office to tax the popularly-recognized criminal population … I wouldn’t want to be extorted away from buying contraband that should be licit to obtain.

        Receipts leave paper trails.

      2. Some do, but most don’t and I have no reason to start trusting them when legalization is always conditioned on regulation and taxation.

  13. The things state here are features not bugs. Every State mentioned here has a government run by Democrats. The same thing is happening here as has happened with Stated that have legalized gambling. The money goes to people connected with the Government, which ensures that some of the money flows back to those people in government.

    1. The problem is Republican controlled states seem to only want prohibition. One of those states could lead and show that they can legalize pot with no regulations at all.

  14. Rather than reducing the size, scope, and intrusiveness of their governments too many of these states pervert legalization into a way to increase all three. Statists gonna state.

    Just strip the laws against it from the books. Maybe, have a simple ban against public use to spare we who do not want to be exposed.

    1. have a simple ban against public use to spare we who do not want to be exposed.

      That’s a loophole big enough to generate millions of calls from Nextdoor Karens and to fill hundreds of prisons

  15. This is why we should be decriminalizing instead of legalizing… it keeps the State from making a profit with taxation and the usual oppression that follows.

  16. who cares, only the the weak minded, addicted peasantry cares out this stuff

  17. Marijuana apparently has one indisputable debilitating effect: it causes libertarians to lose all common sense.

    Do you seriously believe that these are all “errors’? They are features, not mistakes. Look at the crony capitalist monstrosity of a “legalization“ law New Jersey just passed. It’s all intent is to squeeze money out of stoners that can then be funneled to Democrat contributors and loyal Democrat constituencies Under the guise of “social justice.” Labor unions get special preferences as do women, notwithstanding the fact that 77% of persons incarcerated for drug offenses in America are men.

    Particularly in blue states, marijuana “legalization” has nothing to do with personal liberty, individual choice, or an admission that the war on drugs is a lost cause, but everything to do with the growth of government and the rewarding of political allies.

  18. Some of this makes sense but a ban on local opt outs does not. It’s ironic that some one who believes you should not tell adults what they can and cannot do seems fine with telling communities of adults what they can and cannot do. Marijuana has a lot of detrimental effects on people and if a community wants to keep stoners from driving around their towns looking for weed, they should be able to. A city or county can vote themselves dry and you can still drink there, just not sell booze there. How is this any different?

  19. Government is a protection racket (pay us money to protect you from vague threats, or we will become a very real threat to you). Intoxicants are just one of the things they over exaggerate the dangers of to justify their existence. Most of the real problems with drugs comes from these things:
    * The inability for those with dependency problems to get help for fear of being arrested for seeking help for problems with and illegal substance.
    * If folks could get help without fear of reprisal, we would have the body of experience to know how to prevent and resolve substance abuse problems.
    The government thrives on convincing us that average folks are not capable of managing their own lives, and we need them to protect us from ourselves. But that is not true, folks that are not coddled are very capable of taking care of themselves.

    When we just keep pointing out where the government lies and fails, we break the mystique.

    1. Oh, the other real problem of substance abuse is getting arrested for consensual behavior and ending up with a devastating impact to one’s ability to earn an honest living.

      1. And, as usual, these are problems created, not solved, by the government.

  20. That is great they are decriminalizing drugs. The biggest drawback is how long it takes pot to clear your system. Most good jobs require a drug test which you will not pass if you smoke legal or illegal pot. As it becomes legal I wonder if there will be concerns about second hand smoke? It does seem strange they are punishing tobacco companies while allowing another carcinogen to be sold. The cartels appreciate legal weed being so expensive. They can now charge more for their weed.

  21. What I don’t get is why they don’t mandate that edible marijuana look peculiar.
    You hear all the time about children eating marijuana gummy ‘s, or thc chocolate bars.
    I would mandate that edible marijuana always be in the shape of a pyramid, or a cylinder.
    That way children could be taught to stay away from eating anything with that peculiar shape.
    It also seems reasonable to mandate that each piece contain 10 mg of THC.
    That is a reasonable dose for a first time user. While experienced users who desire higher doses would just eat more 10 mg pieces.

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