Why Not Let Beer Distributors Sell Marijuana

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Mark Kleiman’s students at UCLA have devised an ingenious plan for taxing and regulating marijuana at the state level that won’t provoke a massive federal crackdown.

Hope this finds its way to Daylin. Full summary of the plan is after the jump.

Designing State-Level Cannabis Legalization

Design objectives:

  • Cannabis available without legal penalty to adults
  • Minimum law enforcement activity and incarceration
  • No large increase in problem use
  • No massive export across state lines
  • Revenue

Feasibility constraints:

  • Administratively workable in the face of Federal prohibition
  • Acceptable to the voters

Prop. 19 failed in part because its backers made promises that couldn’t have been kept. In particular, they promised large amounts of revenue, without being able to explain how it would be possible to collect taxes on a set of activities that would remain a felony under federal laws.  What is to prevent the federal government from obtaining the list of licensed facilities and getting an injunction to forbid each one of them from selling cannabis? Without such a list, how is it possible to tax and regulate cannabis commerce?

A simple repeal of all the cannabis laws, leaving behind only bans on sales to minors and driving under the influence, would be far less subject to criticism than Prop. 19 was. (Such a proposal could include authority for the legislature to tax and regulate cannabis after the repeal of the Federal law.)With an adequately-funded campaign, that proposition might even pass. But it would be purely negative, with no promise either of regulation or of revenue. And the resulting free-for-all market – with California (or Colorado) potentially the cannabis supplier for all of North America – might well draw in massive federal enforcement.

An alternative that could actually deliver both regulation and revenue would start from the existence of licensed sellers of intoxicants:  bars, restaurants, package stores, and, in some states including California, grocery stores, convenience stores, and drugstores. With the appropriate license, all are permitted to sell alcoholic beverages, and there is an existing administrative mechanism to enforce some basic rules such as “no sales to minors.” That enforcement activity is simplified because the licenses themselves are valuable, and can be suspended or revoked for license violations. No one would hold out alcohol regulation as anything like ideal, but it’s basically workable and familiar.

If the law were changed to allow sales of cannabis by any holder of an alcoholic-beverage license, that would create a large but finite number of sales venues. The current set of state and local licensing authorities could be delegated the power to regulate cannabis sales by any alcohol seller who wanted to make use of its new permission. (Some convenience stores might change ownership as a result.) The sellers would still be at risk of federal enforcement. But no one would have applied for or received a license to sell cannabis, and there would therefore be no list of applicants for the Justice Department to enjoin.

Tax collection could be managed though physical tax stamps, each authorizing the sale of a fixed dollar amount of cannabis. Assume for illustration that the state decided to set the tax on each sale equal to the pre-tax price: thus a vendor selling cannabis for a total retail price of $100 would have to pay $50 in tax. The vendor would purchase tax stamps from other businesses licensed to sell them, as bait shops now sell fishing licenses (for a 5% commission). That transaction could be open, as selling a state-issued stamp is not a crime and no cannabis would be present. Each stamp would be numbered and counterfeit-proofed.

When a retail customer comes to buy $100 worth of cannabis, the vendor would physically cancel a $100 tax stamp (which, in the illustration, would cost $50) and give the cancelled stamp, along with the cannabis, to the buyer. To enforce tax collection, the state could send “mystery shoppers” to make purchases; any transaction not involving a valid cancelled tax stamp would lead to a citation for tax evasion and either a hefty fine or the revocation of the seller’s valuable alcoholic-beverage (and implicitly cannabis) license. This would not eliminate evasion, but it could reasonably be expected to generate a reasonable level of compliance. The resulting revenue to California might in fact be several hundred million dollars per year.

A substantial tax would also prevent the sort of drastic reduction in retail prices that might otherwise lead to a large increase in the number of heavy cannabis users, including minors to whom the legal product would leak just as alcohol and tobacco leak around their age barriers.

That leaves the question of production. It could either be left illegal, as is the case in the Netherlands, with or without provisions for reduced penalties and enforcement, or made legal, perhaps by allowing holders of alcoholic-beverage licenses to grow the material on land they own or lease. In either case, there would need to be enforcement against “exports” across state lines.

The result would be far from the ideal taxation-and-regulation system, but it would be possible to describe and defend it with a straight face.

Either a straight-repeal proposition or an alcohol-sales-based proposition could reasonably be written in less than two pages of legalese. In practice, either new system would compete with the dispensaries, but neither proposition needs to mention them in its text.

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6 Responses to Why Not Let Beer Distributors Sell Marijuana

  1. The amount of taxes being charged is enough to leave a market for cheaper marijuana,,therefore reducing the flow of money to the cartels and street gangs while not stopping it.

    Any legalization must allow cannabis users the ability to control the market by allowing them to grow their own,appx 6 flowering plants per adult in household,or you just allow greed to run the market, greed from legislators and the legal market,we have had enough GREED used on this plant already.

    • jongeeting says:

      Kleiman also had an interesting plan to decriminalize possession of small amounts, let people grow up to 6 plants, but keep the sale of marijuana illegal. Would keep big business from getting in the game.

      • The marijuana business is estimated to be as large as the beer business – about 100 billion dollars per year. That's big business, any way you slice it. We can pretend that the problem can be solved by everyone growing six plants, but that is absolute fantasy. That's like assuming that you can eliminate the tomato market by everyone growing their own.

        The choice isn't whether there will be big business in marijuana. The choice is who will run that business — organized crime or legitimate business people.

    • It is a 100 billion dollar market. Exactly when do you expect that people will stop being interested in money?

  2. malcolmkyle says:

    Maybe many of the early Prohibitionists did not really intend to kill hundreds of thousands worldwide, or put 1 in every 30 American adults under supervision of the correctional system. But similar to our "Great Experiment" of the 1920s, the prohibition of various other drugs has once again spawned rampant off-the-scale criminality & corruption, a bust economy, mass unemployment, a mind-boggling incarceration rate, a civil war in Mexico, an un-winnable war in Afghanistan and an even higher rate of drug-use (both legal & illegal) than in all other countries that have far more sensible policies.

    Maybe it's high time we all stood up and told our government that we're pooped at being beaten and jailed in order that unconscionable Transnational Corporations, and their Media Enablers, can continue to abuse, addict and poison us for obscene profits.

    And maybe we shouldn't wait for a complete economic collapse to regain our unalienable­ rights?

    According to the CATO Institute, ending prohibition would save roughly $41 billion of expenditure while generating an estimated $46 billion in tax revenues. – http://www.cato.org/pubs/wtpapers/DrugProhibition

    Thanks to Prohibition we now have far more people locked in cages than would normally be the case. Apart from the fact that these extra prisoners are not contributing economically to society, it also costs 50,000 dollars per annum to incarcerate them. Additionally their families often go on government assistance, and it's again the average tax payer who has to pick up the bill. Their kids may be taken into care or raised by foster parents, again with tax payer money. Now add to all this the court costs, jail costs, and the salaries of all those people that have to deal with the enforcement of prohibition, like police officers, judges and public defenders and you'll start to get a fair idea of why "Black Thursday", October 24, 1929 happened during the period of another of our great experiments – Alcohol Prohibition.

    * The United States has the highest incarceration rate in the world.
    * 743 adults incarcerated per 100,000 population at year-end 2009.
    * 2,292,133 adults were incarcerated in federal and state prisons, and county jails at year-end 2009, that's approx. 1% of US adults.
    * Additionally, 4,933,667 adults at year-end 2009 were on probation or parole.
    * In total, 7,225,800 adults were under correctional supervision (probation,parole, or incarcerated) in 2009 — about 3.1% of adults in the U.S. resident population.

    Prohibition has helped fill our Prisons and Jails to capacity. Violent criminals, murderers, rapists and child molesters are released early to create space for so called 'drug offenders'. Half of court trial time and also a huge chunk of police officers time is pointlessly wasted. Enormous untaxed profits from illegal drugs fund multi-national criminal empires which bribe law enforcement authorities and spread corruption faster than a raging bush fire. Prohibition takes violent criminals and turns them into multi-billionaires whilst corrupting even entire countries, including our own. Our drug laws are also funding the Taliban and al-Qaeda whose illegal opium profits allow them to buy weapons and pay it's fighters more than $300 a month, compared with the $14 paid to an Afghan policemen.

    Prohibition is nothing less than a grotesque dystopian nightmare; if you support it you must be either ignorant, stupid, brainwashed, insane or corrupt.

    "If the campaign is protracted the resources of the state will not be equal to the strain"
    "There is no instance of a country having benefited from prolonged warfare" – Sun Tzu, The Art of War

  3. Kleiman's students didn't invent those techniques. I did. I brought these ideas up on the Drug Policy Forum of California e-mail list about a year ago. That's one of the reasons Kleiman didn't get any big reaction from marijuana activists when he contacted them with the ideas. They already knew about these ideas.

    In addition, there are a number of other ideas that would accomplish the same thing.