The Green (And Winding) Road

3/1/2015

STATE LEGISLATURES MAGAZINE | march 2015

It’s been a year since Colorado and Washington legalized recreational marijuana, and not all that was predicted has come to pass—with some surprises along the way.

By Suzanne Weiss

Shortly after 8 a.m. on New Year’s Day 2014, amid a throng of reporters and photographers from across the nation, a 32-year-old former Marine named Sean Azzariti walked into a small shop just north of downtown Denver and purchased 3.5 grams of Bubba Kush cannabis and a bag of pot-infused chocolate truffles.

With that $59 transaction, Colorado’s first-in-the-world commercial marijuana market was up and running.

One year (and roughly $280 million in sales) later, the Centennial State’s experiment with legalized pot remains very much a work in progress, as does the more-limited commercial marijuana market in Washington, which was launched in mid-2014.

Both Colorado and Washington have wrestled with a variety of unanticipated problems, which have been amplified by the close scrutiny the two states are under.

“We aren’t jumping to any conclusions about how we’re doing—the issues are too complex, and there’s not enough data,” says Andrew Freedman, who was appointed by Governor John Hickenlooper to coordinate Colorado’s marijuana policies. “We believe this is a five- to 10-year conversation.”

Time Will Tell

Representative Jonathan Singer (D), one of only two legislators who endorsed the legal-pot initiative approved by Colorado voters in 2012, feels the state has, so far, done a good job of handling a major shift in public health and social policy.

“Only time will tell, but at this point I would give us a B-plus,” Singer says, while conceding that, “there were things we didn’t focus enough on to start out with that I wish we had.”

The biggest misstep, by most accounts, was a lack of attention to regulating the potency and packaging of edible cannabis, a large and fast-growing segment of the commercial pot market, says Singer. He notes that establishing a coherent set of regulations for edible products is high on the agenda of both parties in the 2015 legislative session.

Other problems that have emerged range from flawed tax-revenue projections, to the fact that growers and sellers are dealing almost exclusively in cash because of banks’ reluctance to accept money from the sales of a drug still classified as illegal under federal law.

The most recent headache is a lawsuit filed in December by the attorneys general of two neighboring states, Nebraska and Oklahoma. It claims that Colorado “has created a dangerous gap in the federal drug control system,” and the drugs flowing through that gap “undermine plaintiff states’ own marijuana bans and place stress on their criminal justice systems.”

The challenges Colorado faces are to be expected, says House Minority Leader Brian DelGrosso (R). “We can’t point to other states and say this or that hasn’t worked out for them. We’re breaking new ground. I don’t think many of us are happy we’re in this position, but we are. And we’ve got to figure it out.”

Building From Scratch

As for Washington, legalization has been hampered by a host of logistical and policy problems. While Colorado used its highly regulated, 12-year-old medical marijuana system as a guide for its new recreational market, Washington decided to build its market from scratch, which took more than six months. And when a regulatory framework finally was in place, it did not include the network of dispensaries that had been serving medical marijuana patients—with little state oversight—for more than a decade.

“We need to take a whole new look at this in the 2015 session,” says Senator Jeanne Kohl-Welles (D). “Right now, we have a legal system in place for recreational use, but we have really no legal system for medical marijuana growing, processing and selling. So we’re left in a bit of a mess.”

Kohl-Welles has introduced a bill that would incorporate unregulated dispensaries into the system that has been created for recreational customers.

Her bill is also designed to address another emerging challenge: unexpected and widening opposition at the local level. During the past year, nearly half of Washington’s municipalities have enacted bans on retail marijuana outlets. The primary reason: Local communities do not get a cut of the hefty 25 percent state excise tax imposed at each of three levels—growing, processing and retail sales. So, to them, the cost of licensing and regulating startup cannabis growers and sellers, while also ensuring public safety, is an added burden with few benefits.

Kohl-Welles’ proposal calls for cutting marijuana taxes, consolidating them into a single levy collected at the retail level, and allowing cities and counties a share of the revenue.

Half the Tax

The financial windfall to be reaped from commercial marijuana sales was a major selling point of the legalization initiatives approved by voters in Colorado and Washington. But annual tax revenues from recreational pot sales—initially projected to top $100 million within a couple of years in both states—are on pace for only about half that figure.

In Washington, that’s primarily because of how long it took to put regulations in place, which caused bottlenecks in licensing and a serious mismatch between supply and demand. At one point last summer, many retail shops in Seattle were open only a couple of days a week because of growers’ inability to fill orders.

But forecasting revenue for a new market—particularly for something that was previously illegal—is a tricky undertaking. In Colorado, one reason that recreational marijuana sales have been lower than predicted is that fewer people than expected have shifted from medical marijuana, which isn’t subject to the 15 percent excise tax and 10 percent retail sales tax imposed on non-medical pot. (Medical marijuana, however, is still subject to state and local general sales taxes.)

Another problem, says Representative Dan Pabon (D), who chaired a special legislative committee on marijuana revenue, is a provision in Colorado law that allows “caregivers” to grow medical marijuana for other people. “What we’ve seen is caregivers may be diverting product from their patients and putting it onto the black market,” he says, adding that the committee is considering legislation aimed at tightening regulation of caregivers.

Mason Tvert, who led the pro-legalization campaign in Colorado and currently serves as communications director for the Washington, D.C.-based Marijuana Policy Project, shrugs off criticism about the flawed revenue projections.

“We didn’t make those estimates,” says Tvert. “They were just complete guesses that were put out there by some people in state government and a group called the Colorado Center on Law and Policy.”

Moreover, the structure and scope of Colorado’s recreational marijuana industry is still evolving, Tvert and others point out.

Tight Market

Until recently, only owners of existing medical marijuana businesses could apply to open recreational stores, and all businesses had to be generalists, growing the pot that they sold.

But now the Colorado Department of Revenue is accepting applications from newcomers to the recreational marijuana industry, and they will be allowed to specialize—as wholesale growers without a storefront, for instance, or as stand-alone stores that don’t grow their supply. The only requirement is that owners be Colorado residents.

It’s uncertain whether the market has room for such new businesses. Many cities and towns still have bans on recreational pot shops. Denver, which is home to the majority of Colorado’s nearly 600 dispensaries and retail shops, currently has a moratorium on applications from new businesses until 2016.

The Sky Isn’t Falling

Whatever lessons have been learned to date in Colorado and Washington, it is clearly far too soon to draw conclusions about the long-term impact of legalized marijuana in a variety of areas—crime, public health, traffic fatalities, teenage drug abuse and school expulsions, to name a few.

In Colorado, proponents of legalization argue that critics are cherry-picking anecdotes to tarnish a young industry that has been flourishing under intense scrutiny. The vast majority of the state’s medical and recreational marijuana stores are living up to stringent state rules, they say, and the stores have sold marijuana to more than 400,000 customers without incident.

And despite some of the thorny issues that have cropped up, public support for legalized pot remains strong, proponents say. In a Denver Post/Survey USA poll in December 2014, 92 percent of the respondents who voted for Amendment 64—which passed 55 percent to 45 percent—say they would vote the same way today.

“Every major institution says this would be horrible and lead to violence and blood in the streets,” says Brian Vicente, a Denver attorney who helped draft Amendment 64. “None of that’s happened. The sky did not fall.”

Kevin Sabet, executive director of Smart Approaches to Marijuana, an advocacy group opposed to legalization, begs to differ. “I think, by any measure, the experience of Colorado has not been a good one unless you’re in the marijuana business,” he says.

“We’ve seen lives damaged. We’ve seen deaths directly attributed to marijuana legalization. We’ve seen marijuana slipping through Colorado’s borders. We’ve seen marijuana getting into the hands of kids.”

At the same time, Sabet says, “We are now able to point to what legalization looks like in practice, not just in theory. That’s actually very valuable.”

One point on which both sides agree is that Colorado’s and Washington’s successes and failures with regulating marijuana will shape perceptions of legalization for voters considering similar measures in other states.

Last fall, voters in Alaska, Oregon and the District of Columbia approved legalizing cannabis for adult use. The measures in Alaska and Oregon were similar to Colorado’s and Washington’s, but D.C.’s measure is a bit different. It decriminalizes the possession of a small amount of pot or a few marijuana plants.

Campaigns are also under way to legalize recreational marijuana through ballot initiatives in several states, including Arizona, California, Maine, Massachusetts and Nevada.

A Better Approach?

To Mark Kleiman, a professor of public policy at the University of California, Los Angeles, who has studied and written extensively on marijuana legalization, the measure approved by District of Columbia voters, Initiative 71, is particularly noteworthy.

“It embodies a different—and perhaps better—approach to cannabis legalization than systems that involve more or less the same policies that now apply to alcohol: private, for-profit production and sale, regulated and taxed by the state,” Kleiman wrote in a recent article on the Slate website.

By contrast, Initiative 71 won’t allow any commercial activity. District residents will be able to grow a limited number of plants, possess a limited amount of the yield, and give away—but not sell—whatever they don’t want to use themselves. The system is called “grow and give.”

In the commercial models approved by Colorado, Washington, Alaska and Oregon, “the imperative to move the product in volume gives the cannabis industry the same incentive the alcohol industry has to encourage excessive use,” Kleiman says. “Eliminating organized marketing would likely lead to a much smaller increase in cannabis abuse than we would expect if we sell pot the way we now sell beer.”

So Many Options

The “grow and give” model isn’t the only option between full-on prohibition and commercial legalization, Kleiman says. “We could restrict production and sale to consumer-owned cooperatives, or to nonprofit enterprises, or to public-benefit corporations whose chartered purposes include the promotion of moderate consumption.”

He applauded Initiative 71’s focus on “experimenting with something other than the tired commercial formula that serves us so badly when it comes to alcohol.”

Suzanne Weiss is a frequent freelance contributor to State Legislatures magazine.

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