LEGALISING MARIJUANA IN THE U.S.:THE ECONOMIC HIGHS(AND LOWS) / THE FINNCIAL TIMES OP EDITORIAL

Legalising marijuana in the US: the economic highs (and lows)

Wall Street is rushing into a field already worth an estimated $10bn

Gillian Tett





This week, William Barr, Trump’s nominee for attorney-general, has endured the ritualistic Washington grilling that is a confirmation hearing. Predictably, topics that grabbed the headlines were those linked to the Mueller investigation into Donald Trump and other matters of constitutional law. But to my mind there was another telling moment – one that concerned the debate about marijuana. When Barr was asked whether he wanted to legalise the drug, he said that while he did not want to make pot legal in the US, he did not plan to halt the fast-growing business of selling the drug, since “investments have been made”.

Confused? We ought to be. For if you want to see how contradictory American policy making can sometimes be, marijuana is a potent case in point. In theory, as Barr said, the use of the drug is still illegal from a federal perspective. Thus banks and credit card companies will not touch the industry; it is illegal to move pot across state borders; and the nation’s prisons are crammed with people, disproportionately black, convicted for past marijuana “offences”.

Yet, earlier this decade, states such as California and Colorado legalised the drug for recreational use, and acceptance of it in some places is so widespread that you can order weed to be delivered to your house as easily as pizza. Other states are following suit: this week Andrew Cuomo, New York state governor, laid out plans to legalise the drug for recreational use. Indeed, a quarter of the US now has access to legal recreational pot, and as many as two-thirds can access the drug for medical purposes.

Unsurprisingly, this has sparked an investment boom, as Wall Street rushes into a field already worth an estimated $10bn. But since the business is not legal on a federal basis, retail purchases are conducted almost entirely in cash. And if you ask mainstream asset management groups about their marijuana strategies, most will not discuss it in public. The sensation of cognitive dissonance, in other words, hangs confusingly in the air – not just in the pot world but in Washington DC too.

Is this situation likely to change? Marijuana evangelists argue that it will – for cultural reasons, as much as anything. After all, the topic of weed, like gay marriage, has become a case study in just how fast public opinion can change. According to the Pew Research Center, in 2010 the proportion of voters who supported legalising weed was 40 per cent; today it is nearer to 60 per cent.

While it is these cultural issues that grab the headlines, there is another crucial factor that receives less attention: economics. Benjamin Hansen, Keaton Miller and Caroline Weber, a group of economists, have done fascinating research in this area recently. They looked at weed sales in the neighbouring states of Washington and Oregon, where stores had been legally selling recreational marijuana since July 2014 and October 2015 respectively.

Before Oregon passed this law, sales in Washington were booming, particularly near the border, indicating a massive cross-border smuggling operation. But after Oregon legalised selling in stores for recreational use in 2015, sales along the Washington border immediately fell 36 per cent. What is even more notable is that the economists have extrapolated backwards to calculate that by taxing legal weed, Washington “has earned between $64m and $100m in tax revenue from cross-border shoppers to date”.

Furthermore, the economists concluded that when you multiply this across the country, the result is that “cross-border incentives may create a ‘race to legalise’”. Cuomo’s announcement came at around the same time as New Jersey politicians made a similar pledge: politicians on both sides of the Hudson know that if they do not act, they risk losing potential tax revenues to each other.

This will cheer the hearts of libertarians, who have long supported full decriminalisation; after all, decades of patrolling the Mexican border has not stopped heroin flooding in. Indeed, if you want to see the power of economic incentives in action, consider that marijuana investors believe weed is now flowing freely across the Mexican border, but from north to south – not the other way around – because of the increased supply in the US.

Of course, this situation will also horrify the many who are opposed to the drug on religious or moral grounds. It may worry some doctors too. There is some evidence that marijuana can have medical benefits for many users but there is also evidence that over-use among teenagers can be harmful for brain development.

Many like me will also worry that the peculiar half-legal framework means labelling is still partly self-regulated. Thus pot stores can sell products that look exactly like kids’ candy, without any clear indication of the dosage.

I hope that in the coming years the US starts to talk more openly about this strange situation and act – ideally, by embracing federal legalisation but with proper regulation (and product labelling). Barr wants more clarity too. “If we want to have a federal approach, then let’s get there and let’s get there the right way,” he said. Don’t bet on this happening soon, not least while the Republicans are so dependent on the evangelical vote. For the moment, this confusing fog suits all sides; never mind that it might make heads spin.