Will California Marijuana Legalization Make Cannabis Prices Too LOW?

California cannabisThe last couple of weeks have been good for cannabis. First, the Salk Institute released some promising data on the effect cannabinoids have on combatting Alzheimer’s plaque. Then, California’s Secretary of State announced that the Adult Use of Marijuana Act (AUMA) officially made it onto the California ballot for this November. The AUMA looks somewhat similar to the marijuana business regulations in Washington, Oregon, and Colorado, with a few of its own wrinkles, as we’ve written before. Prognosticators are generally positive about its chances of passage, and the would-be law has received mostly positive press so far.

But Mark Kleiman, an outspoken distruster of corporate cannabis, is not on board. In a blog post critiquing various parts of the law, he called the AUMA a “horrible, awful, very bad, no-good drug policy.” Kleiman is well-known in Washington State for being the leader of the consulting team to which the Washington State Liquor and Cannabis Board turned for advice and data as it implemented Washington’s marijuana legalization initiative. It seems unlikely Kleiman will be applying for the same position in California.

In a nutshell, Kleiman’s argument is that the AUMA does not do nearly enough to keep the price of cannabis high. The amount of marijuana people use is directly affected by its price, and AUMA’s tax structure of 33 cents per gram of flower, plus a 15% excise tax on value (in addition to the state and local sales tax), is significantly lower than the tax rates in places like Washington State, where customers can get an ounce of marijuana flower for as cheap as $3.50 per gram at retail (though most prices are still double or triple that). Kleiman thinks that within three years of the law passing, California prices will be even lower than that.

According to Kleiman, this is a bad thing because cheaper marijuana increases “cannabis use disorder,” which isn’t an acute “disease” as much as it is the presence of a number of factors that show cannabis is having a negative effect on someone’s life, e.g., using more than intended, having problems at work or home because of it, unable to cut back, etc. Kleiman views cheap marijuana, pushed by corporations that profit more when more people use more marijuana more consistently, as a societal negative.

There are a couple of avenues to push against some of Kleiman’s arguments. Though it is possible his data team has already crunched the numbers and has concluded California’s cannabis market is going to be significantly cheaper than other legal cannabis markets, there are cost-increasing parts of the AUMA Kleiman does not mention. California is going to have nineteen distinct types of licenses that a business can get under the AUMA, including a required intermediate distribution level between the cultivators/processors and the retailers. This type of market fragmentation pushes prices higher than they would otherwise be. Many believe alcohol’s convoluted distribution rules help keep its prices high.

Additionally, California regulators, part of the yet-to-be created Bureau of Marijuana Control, still haven’t taken their turn at the AUMA. They may increase restrictions across the board in ways that could have huge effects on price and market participation by big out-of-state corporate actors. Finally, the largest scale growing operations won’t even be allowed to operate in California until 2023, so we have years of data to look forward to at the smaller levels before significant economies of scale can take hold.

What Kleiman does get absolutely right, however, is that the only reason AUMA is an issue is because California’s elected officials have failed to attack recreational marijuana with legislation. Marijuana legalization, with a few exceptions, has been largely voted for by the public at large in ballot initiatives. And ballot initiatives get funded, in part, by people interested in the business side of the marijuana industry.

The majority of voters aren’t concerned with the intricacies of business regulation when they vote on them. To most voters, the simple question is whether they want to legalize or not. And as long as the business interests don’t laughably overstep like they tried to do in Ohio, those who do not want marijuana users to go to jail or don’t want to buy marijuana from shady dealers will vote yes. In any state with a ballot level process for voters, legislatures owe it to their constituents to tackle the issue in a nuanced way, instead of relying on voters to do their jobs for them. This is doubly true for legislators that agree with Kleiman that real negatives accompany corporate cannabis.

For more on California’s potential new cannabis laws, check out the following:

I also urge you to read the posts that are relevant to you in our ongoing series, California Cannabis Countdown, in which our lead California cannabis attorney, Tiffany Wu, writes about the laws of individual California cities and counties.

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California, Licensing