Cannabis legalisation in the United States

With Michigan legalizing marijuana earlier this month, nearly 25 percent of the U.S. population now lives in states that passed ballot initiatives to allow businesses to produce and sell cannabis. And with a new Gallup poll showing that two in three Americans support legalizing cannabis use, other states are sure to follow, likely building pressure to change federal laws.

What’s harder to predict is what legalization will look like. Legalization is not a simple yes-or-no decision, and its consequences for health, public safety, and social equity will be shaped by choices about production, prices, and the enforcement of regulations.

As the next round of states debate legalization, they would do well to contemplate allowing state governments to control the wholesale prices and linking the price of cannabis to its potency.

The market price of cannabis plummets with legalization. Removing prohibition means producers, processors, and retailers no longer need to operate inefficiently in the shadows, and workers and entrepreneurs no longer need to be compensated monetarily for their risk of arrest. That, plus vigorous competition if it is allowed, will drive down prices.

This is already happening. Colorado reports that the average price for a pound of high-potency cannabis at the wholesale level declined nearly 58 percent (PDF) from January 2014 to July 2018. Since stores opened in Washington state in 2014, RAND’s Steven Davenport estimates that retail prices have been falling at 2 percent per month, even as potency (intoxicating power, as measured by its THC content, the cannabinoid most responsible intoxication) continues to rise.

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High-potency illicit cannabis typically costs more than $10 per gram. The average legal-market prices in Washington and Colorado (after taxes) are now well below that (PDF), with highly potent but less fancy “bargain bud” available, with quantity discounts, for less than $3 per gram. Since even a bargain gram of cannabis flower in legalization states contains about 150 milligrams of THC—where 20 milligrams is an intoxicating dose for an occasional user—the cost of getting stoned in those states is less than a couple of dollars. That’s lower than the cost of getting drunk.

Lower prices won’t matter much to casual users, who don’t spend all that much on cannabis. But they can matter to the millions of daily or near-daily users, who account for about 80 percent of total consumption. For some of these individuals, cannabis has become a problem in their lives. The Substance Abuse and Mental Health Services Administration estimates 4 million Americans met clinical criteria for a cannabis use disorder in 2017. Access to cheaper, more potent products probably won’t help them.

Minimum prices on cannabis and the taxes collected by the state could be based on THC content, just as federal taxation of distilled spirits is based on the level of alcohol.Share on Twitter

Of course, lower prices also matter to producers of cannabis. Low prices mean low wages for workers and potential bankruptcy for all but the most efficient producers, with craft-scale production driven out by industrial farming and “mom and pop” retailing driven out by sellers with big budgets for marketing. This price drop is a problem for those who want the legal cannabis market to provide economic opportunities for the individuals and communities that have been disproportionately affected by cannabis prohibition.

One approach for preventing this steep decline in prices—and making it easier to control the price—is for the government to set minimum prices. (Many states already set minimum prices for tobacco and some jurisdictions also set them for alcohol). Those minimum prices, and the taxes collected by the state, could be based on THC content, just as federal taxation of distilled spirits is based on the level of alcohol.

One advantage of a THC tax over the widely used taxation based on a percentage of price is that the THC tax won’t fall as market prices fall. Another is that a THC tax counteracts the tendency of the cannabis market to move toward more-potent products. There is still much to learn about the health consequences of higher-potency cannabis products, but a handful of studies have found the more-potent forms may carry higher risks of negative mental health outcomes and excessive impairment.

As long as cannabis legalization is driven by voter initiatives, these rather complicated ideas are likely to be nonstarters. If you’re running an initiative drive, anything that can’t be explained to a voter in 30 seconds is usually a problem. However, some states have begun to contemplate legalization through the traditional legislative process, which might give subtlety a chance.

National-level legalization, when and if it happens, would require an act of Congress. But if state-level legalization following the current model leads to the growth of large-scale economically powerful cannabis enterprises, that new industry might have the political muscle to freeze the existing model in place.

For most commodities, good policy means bringing consumers the lowest possible price. That’s not true when it comes to “cannabusiness.”


Beau Kilmer is codirector of the RAND Drug Policy Research Center and Mark A.R. Kleiman is professor of public policy at NYU Marron Institute of Urban Management. They are two of the authors of “Marijuana Legalization”(Oxford University Press).

This commentary originally appeared on The Hill on December 4, 2018. Commentary gives RAND researchers a platform to convey insights based on their professional expertise and often on their peer-reviewed research and analysis.

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