Washington, Colorado, and the Headaches of a Legal High

When Colorado and Washington State passed ballot measures legalizing marijuana last November, they weren’t just the first states in the country to do so—they were the first governments in the world to do so. While other nations and states, most notably the Netherlands and California, have decriminalized marijuana possession, the drug is still technically illegal. That means that while it’s tolerated by law enforcement, the government need not concern itself with a full-scale system for regulation and taxation. But there are advantages to legalizing the drug; Washington and Colorado can have a hand in making the product safer while they benefit from tax revenues. Both states are in the early stages of creating systems for taxation and regulation; the Washington State Liquor Control Board released a set of standards earlier this month, while Colorado’s state legislature has passed a series of recommendations from a task force. The differences between the two states' approaches will offer the first two case studies on how marijuana legalization can work—and what can go awry.

Both states want to prevent companies from encouraging more drug use—no repeat of Big Tobacco—and keep the drug away from minors. There’s also a looming worry about the federal government. Both state laws conflict with federal law, which trumps state law according to the Supreme Court. So far, there's no word on whether the Justice Department or U.S. attorneys will decide to interfere. But Colorado and Washington will try to keep the drug within their borders, so there’s no interstate trafficking that could get the feds involved. But just how to address such problems isn’t always clear—for instance, how can the government both legalize use and tamp down on drug abuse or prevent the product form getting into the hands of teens?

The differences between Colorado and Washington come largely in the nitty-gritty of regulation and taxation. While Colorado will require venders to grow 70 percent of what they sell, for instance, Washington will forbid anyone selling the drug from growing it. The Washington system was designed to mimic alcohol policies, including the “tide house” rules that prevent a brewery from owning a bar. The policy might prevent a few companies from dominating the industry. Different businesses will have to specialize and choose which parts of the process to handle—growing the marijuana, processing it to make it consumable, testing for safety or retail. Colorado’s rule, meanwhile, is meant to limit the marijuana coming in from the black market—through "vertical integration," the licensed retailer is also the grower, and consumers know where the marijuana is coming from. Among the other major differences between the states is that Colorado will allow people to grow their own marijuana (home cultivation), while Washington will not.

Some of the differences stem from the states' histories with medical marijuana. While both had medical marijuana laws already on the books, Colorado has long had a highly regulated system, with providers licensed by the state to sell the drug. The state is now partially converting that system; those who already own medical marijuana dispensaries will have first dibs at applying for licenses as general providers. Washington’s medical marijuana regulations were much more lax. It’s easy to get permission to grow up to 15 marijuana plants, but while medical marijuana is legal, counties that allowed retail stores did so largely by looking the other way, instead of actually overseeing their activity. That means Washington is starting much more from scratch in creating a regulated retail system.

Taxation will also be slightly different. Colorado’s task force proposes to have an excise tax when the produce moves from the folks growing the drug to the company who processes it and makes it consumable, and then a sales tax when someone actually buys the drug—combined, it will be about 30 percent. However, because of Colorado’s Taxpayer Bill of Rights, those proposals will have to be approved by voters in November. Washington is taking a different approach and will tax 25 percent each time the drug moves to a different phase—from the seller, to the processor, to retailer. Altogether, that will result in an effective tax rate of 44 percent on consumers, according to the Washington Liquor Control Board.

Cost is a critical part of competing with the black market. Marijuana may end up costing about $200 per ounce more in Washington than in Colorado. According to Mark Kleiman, a drug law scholar at the University of California-Los Angeles whose company, Botec, is consulting with Washington on guidelines, both states wants to get costs low enough to compete with the black market. That part is easy enough; by legalizing the drug in the first place and decreasing the risk growers face, the state is already likely to make marijuana significantly cheaper. But if prices go too low, it could inadvertently encourage drug abuse and use by minors, as well as selling homegrown marijuana to other states—all of which could draw federal ire. 

The implications of what happens in Washington and Colorado are enormous—not just for the states themselves, but for the growing legalization effort across the country. In a New York Times column last Sunday, former editor Bill Keller noted that the “question is no longer whether marijuana will be legalized—eventually, bit by bit, it will be—but how.” Polls show a majority of Americans now support legalization, and according to the Marijuana Policy Project, a group advocating de-criminalization at the state level, lawmakers in 13 states introduced legislation to regulate and tax marijuana for adult use this year. Internationally, Uruguay is also considering legalization. Since Colorado and Washington passed ballot measures last year, the movement has gone fully mainstream; the D.C.-based Brookings Institution, known for helping set centrist policy agendas in the capital, began a series of papers and events on the implications for legalization, both for state-federal relations and internationally.

California might have seemed a more likely place to pioneer legalized marijuana than Colorado or Washington, but the two smaller states may have some advantages as they experiment with a whole new set of laws. California, which pioneered medical marijuana back in 1996 and has effectively decriminalized the drug, is a giant in terms of size and cultural impact. Colorado and Washington are relatively isolated and small in population. That's a plus for professor and consultant Mark Kleiman. “I’m glad it’s Colorado and Washington and not California,” says Kleiman. “The chance of getting it right are bigger and size of the disaster if they get it wrong is smaller.”

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