Pubdate: Tue, 05 Aug 2014
Source: New York Times (NY)
Copyright: 2014 The New York Times Company
Contact: http://www.nytimes.com/ref/membercenter/help/lettertoeditor.html
Website: http://www.nytimes.com/
Details: http://www.mapinc.org/media/298
Author: Vikas Bajaj
Note: Editorial Series 
http://www.nytimes.com/interactive/2014/07/27/opinion/sunday/high-time-marijuana-legalization.html

RULES FOR THE MARIJUANA MARKET

As voters and lawmakers in more states decide to legalize marijuana, 
policy makers will have to answer a fresh and difficult question: How 
should governments regulate the production and sale of the drug?

Beyond keeping marijuana out of the hands of minors, a good 
regulatory system has to limit the increase in drug abuse that is 
likely to accompany lower prices and greater availability after 
legalization. It should protect consumers from both dangerous and 
counterfeit products, reducing the physical risk from a psychoactive 
substance. And a well-regulated system should undermine and 
eventually eliminate the black market for marijuana, which has done 
great damage to society.

The experiences of Colorado and Washington, where sales of 
recreational marijuana started this year, will prove instructive. 
While there are important differences in their approaches, both 
states have licensed businesses to grow, process and sell marijuana 
while imposing strict rules and high taxes on them. Other states that 
legalize will probably adopt a similar model, because it resembles 
how the federal and state governments regulate tobacco and alcohol.

A Better Way to Tax

Policy makers trying to regulate the drug will face challenges 
similar to the ones American lawmakers faced at the end of 
Prohibition in 1933. Like alcohol during Prohibition, marijuana is 
widely available across the United States today. But it will become 
much more accessible after legalization, when businesses engaged in 
its production and sale no longer operate in the black market nor 
engage in violence. The pretax price of the drug could fall by 90 
percent after legalization, according to Robert MacCoun, a law 
professor at Stanford, and fellow researchers. Moreover, marijuana 
businesses will have a financial incentive to get a broad population 
to use the drug regularly. A recent report prepared for the Colorado 
Department of Revenue concluded that nearly 90 percent of the demand 
for marijuana in the state this year would come from only 30 percent 
of users, those who use the drug 21 to 31 days a month.

Regulators will have to design policies that allow licensed 
businesses to undercut the illegal market but keep prices high enough 
so dependence on the drug does not increase a lot. One important way 
to curb use is to tax marijuana heavily, following the 
post-Prohibition template of replacing criminalization with 
regulation and taxes. Colorado and Washington have imposed high tax 
rates that are based on price, much like existing sales taxes. But 
Mark Kleiman, a public policy professor at the University of 
California, Los Angeles, rightly warns that those taxes will lose 
their bite when prices inevitably decline as marijuana businesses 
become more efficient at production. A better approach would be to 
tax the drug based on its potency - which can be measured in various 
ways, including by the amount of the component THC in a batch - and 
increase the rate over time to keep up with inflation.

Lawmakers should not repeat the mistakes they made on alcohol in 
recent years, taxing it too lightly and allowing the industry to 
become highly concentrated. (Just two companies control about 75 
percent of the American beer market today.) Federal excise taxes on 
alcohol are levied at fixed rates by volume; there are different 
rates for liquor, wine and beer. For example, the tax on a 31-gallon 
barrel of beer is $18, or 5 cents per 12-ounce can. But those tax 
rates were last increased in 1991, even though the Consumer Price 
Index has increased 75 percent since then. Most states have also kept 
their excise taxes steady in recent years, in part because of the 
heavy lobbying and big money of the beverage industry. The median 
state excise tax on beer is 20 cents per gallon, or about 2 cents per 
12-ounce can.

States with an existing medical marijuana market will also have to 
make sure that users are not abusing it to evade taxes. In Colorado, 
for example, there are more than 111,000 people with medical 
marijuana cards. Those users can buy the drug at much lower tax rates 
than people buying recreational marijuana; in Denver, cardholders pay 
combined city and state taxes of 7.62 percent, compared with the 
21.12 percent in taxes paid by recreational users.

The problem is that almost anyone can get a card on a doctor's 
recommendation. Regulators need to tighten access to cards and 
penalize doctors who churn out recommendations by the hundreds. 
Otherwise, tax rates on recreational marijuana will be easily subverted.

Don't Market to Minors

One of the most important lessons from the country's long battle with 
the tobacco industry is advertising's outsize role in creating and 
sustaining an addiction to nicotine, particularly among teenagers and 
young adults. Though marijuana is far less addictive than tobacco, 
states that choose to legalize it must impose limits on the 
promotional activities of marijuana businesses. The controls should 
emulate the restrictions on targeting young people, banning outdoor 
advertising and product placements that the tobacco industry accepted 
as part of its settlement with state attorneys general in 1998.

States must require proper labeling and packaging of products that 
contain mind-altering substances. Beau Kilmer, a drug policy expert 
at the RAND Corporation, said regulators can restrict the sale of 
foods like candies, beverages and cookies made with marijuana or 
limit how much of the drug's active ingredients are in each serving. 
The ingredients should also be distributed evenly throughout the 
product, and regulators must test samples for harmful levels of 
pesticides, mold and other impurities often found in illicit cannabis.

To discourage the use of marijuana with alcohol, states can require 
that they be sold in different places and ban the use of cannabis at 
bars and restaurants. Experts say using marijuana and alcohol 
together is much more dangerous than using them separately. One study 
on the effects of marijuana use on driving published in the American 
Journal on Addictions in 2009 found that combining the two drugs 
"results in impairment even at doses which would be insignificant 
were they of either drug alone."

Growers Shouldn't Be Sellers

States should keep the production and retail sales of marijuana 
separate to ensure that the industry does not evolve into a group of 
politically and financially powerful vertically integrated 
businesses. After Prohibition, American lawmakers adopted a 
three-tier system for the alcohol industry to make sure the country 
did not see the return of "tied houses," or bars that were either 
owned or beholden to brewers through loans and other financial 
arrangements. Tied houses had encouraged excessive drinking by their 
customers, which helped to galvanize the temperance movement. 
Colorado initially required growers to also be retailers in the 
interest of getting the legal market going quickly but has since 
allowed them to specialize.

Over time, the state should consider dividing production and sales, 
as Washington has done. But states should not blindly copy-and-paste 
alcohol regulations onto marijuana, either. State beer distribution 
rules, for example, have unfairly prevented craft brewers from 
selling their products in many places, a situation that shouldn't be 
replicated in the marijuana business.

For each level of the industry, licensing systems ought to discourage 
the concentration of market power in the hands of a few businesses. 
It's important for regulators to recall the American experience with 
the tobacco industry, which is dominated by a handful of large 
corporations. For decades, those big cigarette companies undermined 
scientific research into the damage their products were causing and 
blocked sensible regulations. If states allow marijuana businesses to 
become too big, they could face corporate juggernauts that may be 
hard to regulate.

States should also monitor each level of the industry closely, 
including tracking how drugs move through the system. This should 
help to keep legal marijuana from being diverted to other states or 
countries that have not legalized the drug.

Whatever states decide to do, it is important that they stand ready 
to modify policies as legal marijuana markets evolve. Policy makers 
have little experience regulating a fully commercial market in this 
drug. It makes sense for states to proceed with caution and reserve 
the right to change course as they learn more.
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MAP posted-by: Jay Bergstrom