Previewing Regulation of Recreational Marijuana in California

It’s no secret that medicinal cannabis is big business in California. The Golden State was the first to legalize medicinal marijuana back in 1996, and to date there are more than 1,000 dispensaries serving over 1 million clients.

Translated into tax revenues, the state collects, by some estimates, between $60 million and $110 million per year.

Big business.

And if a ballot initiative legalizing recreational marijuana passes in November 2016, business is going to get astronomically bigger.

Here it is straight from a fiscal analysis by the office of California Attorney General Kamala Harris:

“Reduced costs in the low hundreds of millions of dollars annually to state and local governments related to enforcing certain marijuana-related offenses, handling the related criminal cases in the court system, and incarcerating and supervising certain marijuana offenders. Potential net additional tax revenues in the low hundreds of millions of dollars annually related to the production and sale of marijuana, a portion of which is required to be spent on education, health care, public safety, drug abuse education and treatment, and the regulation of commercial marijuana activities.”

Little surprise then that a Stanford Law class took it upon themselves to draw up a report analyzing what steps the state ought to undertake to ensure that, if the initiative becomes law, it is prepared to properly regulate and tax the manufacture and distribution of recreational marijuana.

The 109-page report, entitled “Legalizing Marijuana in California: A Review of Policy Considerations,” is intended as an informational road map, rather than a positional paper.

“In this paper, we do not attempt any conclusions or recommend policy, we aim only to inform the public debate and bring attention to these important issues so that they may be better understood and more widely recognized,” the students wrote in the paper.

The report, presented by Stanford Law Professor Robert J. MacCoun‘s law practicum, Analyzing Alternative Laws & Policies for Psychoactive Drugs Seminar, concluded that, “If recreational marijuana becomes legal, state policymakers should follow the adage of ‘measure twice, cut once’ and ensure that the regulatory system reflects the values and objectives of Californians.”

The comprehensive report covered three main areas: regulation, taxation and labor relations, raising the following wide-ranging issues:

  • What agency (or agencies) would be best equipped to regulate such an industry?
  • What are the implications of different ways of taxing marijuana, and how could they be adjusted over time?
  • What kinds of labor regulation issues would be raised in an industry that involves everything from agricultural work to retail service?

While they did not adopt any specific positions, the nine students in the practicum developed a report that reached specific conclusions. For starters, they state that “the single most pressing issue is the tension between the federal prohibition and state legalization.”

The report went on to conclude that the most prudent way to regulate and enforce any new laws is either through a single, integrated agency – an existing state organization or a newly formed independent commission – or drawing on the relative strengths of multiple agencies. While it made no specific recommendations, the report seems to lean towards the idea of an independent commission.

“California’s troubled history with the regulation of medical marijuana reveals how powerful a well-informed, thoughtful agency choice would be,” the students wrote. “The regulation of medical marijuana in California is widely seen as, at best, subpar and disjointed. These complications demonstrate that deliberate and proactive agency choice is critical to the success of the regulation of marijuana in California.”

As such, because an independent commission wouldn’t be beholden to once specific state agency, but would rather draw upon the strengths and specialties of each of several of the state agencies affected by the legalization of recreational marijuana, it may work best within an integrated decision-making system.

Regarding taxation, the report cited the numerous tax bases utilized in Colorado and Washington, where recreational marijuana is legal, and the resultant revenues; for example, according to the report, Colorado has generated over $91 million in tax revenues in 11 months. As well, the report brought a germane point regarding taxation and societal behavior.

“On the one hand, a high tax rate will likely limit the amount of marijuana consumed, which would also limit the extent and severity of the negative consequences associated with marijuana consumption,” the report states. “However…if the tax rate is prohibitively high, the legal recreational market may not eliminate the black market for marijuana, and consumers would still purchase marijuana from drug dealers and expose themselves to other harmful drugs and more serious crimes.

“Although low taxes are typically more efficient, the government may not be able to extract a meaningful amount of revenue with a low tax. Also, a low tax rate would encourage more consumption of marijuana while limiting the amount of government revenue. Conversely, a…low tax rate would [increase] the likelihood of eliminating the black market.”

Regardless, California has one of the most complex taxation structures in the country, as some taxes can only be enacted after a popular vote, while others can be mandated by the state government. This, then, may be the biggest hurdle to effectively implementing any new recreational marijuana laws.

Furthermore, the students conclude that those who work in the industry would be able to unionize and be protected under the auspices of the National Labor Relations Act.

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