The Future of Recreational Marijuana

Male smoking cannabis
This is what you can expect in states following Colorado and Washington in the inexorable march toward legalization.

First, these states will need to have a medical marijuana initiative ballot drive or state-wide general election to implement a program that is regulated and taxed.

Second, there will be need for the state’s citizenry to become aware that the medical marijuana is a viable regulated industry with large tax bases.

Third, the state will have to pass a recreational marijuana ballot or legislation.

Fourth, the state must adopt regulations and a tax regime.

Fifth, legislation addressing packaging, seed-to-sales, and distance regulations must be enacted and signed into law.

Finally, note that, no matter how the state goes about it, retailers and processors may well be waiting another year before opening their doors–after the laws are enacted. Of course, many ancillary services and products, such as consultants and equity crowdfunding platforms, plus marketing professionals, will be in business before any retail stores open.

Obviously, not all states believe capitalism and marijuana should have anything to do with each other, marijuana being so more pernicious than tobacco or alcohol (author jest).

Other states will over-regulate in the putative interest of the public weal. Marijuana businessmen should, if given the chance and if practicable, participate in the drafting of business-friendly laws and regulations.

Here are the key factors when looking at a state’s prospects:

  • Taxation

Washington State’s recreational marijuana taxes are inappropriately high. Colorado’s tax system is also under attack. There is an obvious tension going on here. Most taxes are obviously passed on to consumers. This leads to a larger share of the sales going back into the black market. Hence, lower sales and lower taxes. The same applies to regulations of course.

High taxes will have the salutary effect of proving the industry’s legitimacy and attractiveness. This in turn will lead to more states enacting recreational marijuana laws. The problem, again, is that there is a healthy, established and large black market offering generally good product.

In addition to state taxes, there are municipal taxes. Local tax revenues are a strong incentive for not implementing moratoriums. Denver city officials are literally rubbing their hands.

Each state’s pro-marijuana lobby should anticipate lobbying for local taxes in lieu of moratoriums and other restrictions of business.

  • Numbers

Here is the rub: If a state follows the Washington business model that strictly limits both the number of retail outlets and grow locations each marijuana company (or individual) can operate, production efficiencies are dampened and chain stores are stopped in their tracks. Limiting retailers and growers to a limited number of locations may facilitate an increased number of entrepreneurs, but it strengthens the black market considerably.

  • Product

Some states want to prohibit infused products with more than a specified amount of THC per gram. This potentially stops hash sales, as well as dabs and other oils, which are becoming more popular than smokables and are competing in popularity with edibles.

  • Non-profits

Many medical marijuana retailers are required to be nonprofits. If recreational marijuana regimes require non-profit status of retailers much available outside funding will quickly dry up.

  • Distances under the law

In Washington State, regulations specify how federally mandated rules regarding distances of retail outlets from schools and other public buildings will be applied. These considerations impact commercial real estate decisions as well.

  • Seed-to-sale tracking

Seed-to-sale security requirements track plants from the moment of propagation to the moment of sale. These requirements are meant to reassure local, state and Federal regulators that marijuana products will not re-enter the black market or go into minors’ hands, cross state borders, or profit criminal enterprises.

About Douglas Slain

Doug received a JD from Stanford Law School, a MA from the University of Chicago, and a BA from DePauw University (Phi Beta Kappa). After practicing real estate and finance law at then Pillsbury, Madison & Sutro, he founded four national monthly law reporting titles now owned by Thomson-Reuters. He served two consecutive terms as chairman of the American Bar Association’s General Practice section’s Professional Responsibility Committee. Slain was an ABA-appointed rule of law consultant to the Ministry of Economy for the Republic of Latvia as its secured transactions adviser. He taught briefly at Stanford Law School as an adjunct clinical law professor. Slain has been the managing partner of Private Placement Advisors since August 2009. In January 2013 he founded Outliers Network.

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