Can Legal Weed Win? The Blunt Realities of Cannabis Economics, by Robin Goldstein and Daniel Sumner (University of California Press, 232 pp., $24.95)

Early on, many thought legal weed would be a hit. Analysts predicted market values in excess of $100 billion. The expected tax revenues, state lawmakers insisted, would be just what ailing state and local budgets needed. But today, ten years into the marijuana-legalization experiment, many pot firms remain in the red, marijuana investment vehicles are flagging, and tax revenues are anemic. What went wrong?

Can Legal Weed Win?, the new book by UC–Davis agricultural economists Robin Goldstein and Daniel Sumner, tries to answer that question. The pair have carefully watched the marijuana market since before legalization, and they provide an economic perspective accessible to the lay reader. While Can Legal Weed Win? is a useful corrective to optimism about the marijuana market, however, its commitment to certain tropes about the evils of drug enforcement blinds it to the basic problem of the pot market: nobody is stopping illegal businesses from operating.

To be clear, the legal weed market is growing, but it is supplanting the illegal market very slowly. Three years into California’s legalization, Goldstein and Sumner estimate, only about one-quarter of weed is brought from licensed sellers. In their analysis of “more than 30 million publicly advertised U.S. retail weed prices,” they find that unlicensed prices are up to 50 percent lower than licensed. “In many states,” they dourly note, “it is not clear whether the price of legal weed will ever be competitive with the price of illegal weed for most consumers.”

This is particularly remarkable because legalization has brought with it many of the efficiencies common to lawful markets: vertical integration, diversification of products on offer, and, in this case, big-agriculture growing techniques. As Goldstein and Sumner note, in the pre-legalization era, one product essentially controlled the marijuana market: an eighth of an ounce of the stuff, costing $40. Today, consumers can get marijuana at a range of quality and price points, innovation that almost certainly would not have been possible under prohibition. So why hasn’t that innovation shifted the population into the regulated market?

Goldstein and Sumner’s answer: the only real difference between legal weed and illegal weed is regulation. The two products are, after all, essentially interchangeable—maybe legal weed has better quality control, but marijuana consumers were willing to buy pot from an illegal market, so clearly quality is not a major concern. If the unlicensed market is selling the same product without passing on the costs of burdensome taxes and regulation, they argue, then it is no surprise that consumers prefer it over the licensed market.

The book’s basic thrust is that legal weed equals illegal weed plus regulation. It is padded by an interesting exploration of Goldstein and Sumner’s data, a less interesting history of legalization in California, and a skippable interstate comparison of weed prices. The authors’ policy proposals mostly include deregulation and usurping local decision-making power when “NIMBYs” don’t want pot. In general, the book focuses more on framing the problem than on presenting a comprehensive solution.

The real problem with Can Legal Weed Win? is that it refuses to ask an obvious question: How is an illegal market cheaper than a legal one? Even granting that legal and illegal weed are near-perfect substitutes, prohibition costs should make the latter more expensive. The basic function of drug enforcement, after all, is to increase costs and thereby reduce consumption on the extensive (number of users) and intensive (number of uses) margins. One international comparison estimates that marijuana prices are 50 percent higher in places with strong enforcement compared with those in which it is decriminalized; another estimate suggests that legalization would lead to a more than 90 percent reduction in pretax wholesale prices. Prohibition also constrains innovation and segments the market. Before legalization, there was only one kind of legal weed; now, there are many—which ought to make the legal market more appealing.

Why don’t these enforcement costs show up in the legal market? The simple answer is that in many legalization jurisdictions, no one is enforcing the rules. Data from Washington and Oregon, for example, show that enforcement of marijuana laws fell dramatically even before legalization. More generally, marijuana possession has been decriminalized in many states since the 1970s, while federal law enforcement has not prioritized it in legalization states since at least 2008. Advocates of legalization point to the high number of marijuana-possession arrests each year—226,000 were reported to the FBI in 2020—but many of those are pretext arrests, using possession to bring offenders in for other crimes. More relevant are marijuana sales arrests: just 23,000 in 2020, roughly 1 percent of all arrests, and down two-thirds since 2011.

Consider New York, which legalized weed in 2021. The state currently has no licensed retailers, but dozens of marijuana storefronts have nonetheless popped up since legalization. In Goldstein and Sumner’s telling, the state has been too slow to hand out licenses. (It might say that it’s been focused on “equity.”) But dozens of illegal businesses can operate with impunity because, as one Vox reporter put it, “nobody wants the police to crack down on gray market stores and trucks and start making new cannabis-related arrests.”

Goldstein and Sumner contemplate but reject the possibility of enforcement, claiming that it would “work against central goals of many of the people who voted for legalization and the activists who fought for it, like freeing nonviolent poor people from prisons and reuniting them with their families.” In other words, the unlicensed market operates with impunity because policing pot is thought to be racist and bad. Leave aside the contention that marijuana criminalization is a major driver of mass incarceration (it’s not). What is under discussion is not continuing to prohibit marijuana but requiring that businesses comply with the law and ensuring that those that don’t do so are shut down, and their owners fined or, if frequent offenders, prosecuted.

The public did not sign up for an unregulated free market in pot. The drug has real dangers, and its use, particularly in adolescence, is associated with loss of IQ, depression, anxiety, and later risk of psychosis. It is addictive and debilitating to its heaviest users. It is also unpleasant to be around and tends to bring with it other antisocial behavior—its sale is prohibited in three-quarters of California’s total land area for a reason. The public rightly wants not just a marijuana market but a regulated one. Yet leaders are too squeamish about stopping criminals from running businesses that routinely break the law to deliver such a market.

If we want legal weed to win—a big “if”—then the solution is not deregulating it to the point where its pathologies run rampant. Rather, it is ensuring that those who ignore the new rules of the game are excluded from it, just like with any other business in America.

Photo by Alexi Rosenfeld/Getty Images


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