Taking Marijuana Out of the Black Market: Why the Business Community Needs to Lead
The future of marijuana legalization hangs perilously in the balance. While some may view decriminalization as a fait accompli, the reality is that the results of initial implementation efforts in Colorado, Washington, and the other pioneering states of legalization will significantly impact the direction and momentum for subsequent efforts. The stakes could not be greater.
In their current form, the proposed regulations for granting retail licenses in both Colorado and Washington will result in insufficient supply to meet the increased demand of an adult-use regime. This is more than an economic problem. Market shortages in the legal market enable underground suppliers to gain increased market access, thus eviscerating one of the major public policy rationales for legalization reforms. In fact, it is possible to legalize badly.
The easiest way for states to remedy this problematic and dangerous supply deficiency is to authorize internet sales and delivery of cannabis from licensed suppliers to verified customers in state. Delivery services with internet ordering are already commonplace in medical marijuana states, and government-issued identification is verified upon delivery. Delivery sales also have the additional advantage of making the purchasing process slightly less conspicuous for customers concerned about potential social ramifications. The adult-use regime could simply do the same, ideally adding online payment processing to the established procedures. About half the states already authorize in-state internet sales of wine, and the number has only continued to increase.
Aside from the economic benefits, perhaps the greatest advantage of enabling in-state internet-based cannabis sales is to avoid the political hurdles of licensing of additional brick-and-mortar retail locations. In those communities where cannabis-themed modifications to the Town Center fascia are unpopular or outright verboten, internet delivery sales can fulfill demand without compromising perceived local identity.
Retail sales, however, represent only a fraction of the total opportunity created by cannabis legalization. On-premises consumption is just as important, as evidenced by the experience with alcohol. According to industry data, 40% of American alcohol sales (approximately $76 billion of a total $190 billion annually) is generated from bars, restaurants and other on-premises consumption establishments versus retail stores. When it comes to intoxication - alcohol or cannabis - people prefer doing it socially, out with their friends.
Despite this positive precedent, however, neither Colorado nor Washington regulators have authorized licenses for on-premises consumption. Ideally, officials should specifically authorize on-site consumption licenses allowing sales and distribution, the same way it is done with liquor licenses. The additional sales taxes alone could generate millions for city and county governments, and should be seriously considered, perhaps by the next state to pass a legalization initiative.
On-site consumption of cannabis may seem like a controversial issue, but it shouldn’t. This country’s collective experience with alcohol decriminalization provides a useful blueprint for allowing social intoxication as a business model. Every state in the union, even Utah, licenses alcohol establishments for on-premises consumption. From speakeasies to microbreweries, and from dive bars to nightclubs, the diverse array of on-premises options in this country shows how consumer choice and competition leads to greater value. Wine list, anyone?
On-site consumption may create number of particular challenges, but each of those challenges, under a proper rule structure, can become mitigated, if not transformed into opportunities for substantial market innovation.
One way to allow on-site cannabis consumption while protecting public safety is to combine on-site consumption cafes with hotels and lodging establishments. Cannabis-focused hotels and resorts could provide customers with an enjoyable experience without implicating public safety concerns. By providing shuttle transportation to guests, the exclusivity and convenience of such a hybrid establishment would certainly attract local cannabis connoisseurs as well as curious tourists from around the world. Think of it as the adult Disneyland. Or Americamsterdam. Like all great American spinoffs, our on-site consumption industry should take what’s useful from the Dutch model, but applied to local conditions, with a unique capitalist twist.
Cannabis users’ well-documented affliction known as the “munchies” presents an obvious yet untapped market opportunity. Licensing food vending services within on-site consumption establishments, or even licensing entire cannabis-focused eateries, would create significant tax revenue and local jobs. However, in addition to state licenses, local zoning codes and county health regulations would have to be adjusted in nearly every jurisdiction to properly allow for this new form of culinary experience.
Entertainment venues would benefit from a similarly targeted regulatory approach. One of our companies sponsors annual cannabis-themed concert events in medical marijuana states. Based on this experience, we believe that licensing designated entertainment venues to sell cannabis for on-site consumption would be extremely successful. Even restricting on-premises sales to personal-use sizes (such as one joint or blunt per customer), would generate revenue for all stakeholders in addition to enhancing the overall market share of the legalization regime.
The potential impact of marijuana legalization on tourism can be seen in Amsterdam. It is estimated that 10% of the tourists come specifically for the “coffee shops”, and another 40% just happen to drop in for a bit. Beyond that, as you walk around the city, most of the souvenir shops have their cannabis-themed schwag upfront. It is a part of the contraband culture.
A complete cannabis legalization ecosystem must consider the impact on all communities, particular the most vulnerable and disenfranchised. A productive use of legalization revenue would be to fund transitional programs to help new parolees (incarcerated for marijuana offenses) acquire useful skills to transition back into the workforce.
Most of all, we should keep in mind how much more we have to learn about cannabis from a basic scientific perspective. The global ban on possession has eviscerated the ability for researchers to understand the plant and its psychoactive effects. Rather than diverting licenses fees to the general fund for the whims of politicians, officials should use the revenue to support scientific study on the effects and impact of cannabis in all its forms. From grant programs to develop clinically-proven methods and devices to determine the physiological indicia of cannabis impairment, to university studies isolating the neurological impact of cannabinoid release, the acquisition of useful and accurate knowledge about cannabis should be the highest priority.
The drive to end marijuana prohibition is gaining momentum every day for a variety of reasons, but if it is left to the politicians and the prohibitionists, the result will be a prolonged mess when it is time for a clean break from the past. We believe that the time has come for the business community to take the lead in the drive to legalize marijuana, and in a realistic way that creates jobs, without excessive taxes and regulations.