Predicting the Uncertain Future of Legal Marijuana Comments based on many collaborations.
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1 Predicting the Uncertain Future of Legal Marijuana Comments based on many collaborations dprc.rand.org
2 Prediction #1 Consumption will be concentrated among daily/near-daily bluecollar users, not among youth.
3 Daily & Near-Daily Users Dominate Consumption 100% 90% 80% 70% 60% 50% 40% 30% 20% PY not PM % 0% PY Users PM Users Days of Use Consumption
4 Most MJ Used by Demographics that Shop Walmart 100% Proportion of Past-Month Days of Use 80% 60% 40% 20% Years Old Less than High School HS Graduate Some College College Graduate 0% Alcohol Cigs MJ (USA) MJ (WA) Cocaine
5 Youth Themselves Think Legalization Will Increase Their Use 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Responses to: If MJ were legal, I'd be more likely to use it. Never used in life (n=2109) Have used before (n=1769) Heavy user (20+ times per month) (n=270) Disagree Strongly Disagree Somewhat Agree Somewhat Agree Strongly
6 250 But Use Is No Longer Concentrated Among Youth Millions of Days of MJ Use : 35 or Older 6: Years Old 5: Years Old 4: Years Old Year olds
7 100% 90% 80% 70% WA s Users Even Older than Elsewhere 60% 50% 40% 30% 20% 50 or Older Years Old Years Old Years Old Years Old 10% 0% USA WA OR USA WA OR USA WA OR Past Year User Past Month User Heavy User (20-30 dy/mo)
8 Can Marijuana Be Branded as a Baby Boomer Drug (so Millennial's Shun It?)
9 Prediction #2 Production costs will fall sharply.
10 Professional Industrial Farming Could Produce Marijuana for Almost $0 Production costs for comparable plants No more than $5,600 - $18,500 per acre per year Yield Sinsemilla equivalent weight: ~1,000 lbs per year Processing costs w/ scale-economies very low $20,000 / 1,000 pounds = $20 per pound < 1% of current price ~5 cents per day for a fairly heavy user Distribution, marketing, regulatory, & retailing costs would swamp production costs
11 Production Cost per lb. Legal Production Far Cheaper than Current Wholesale Prices $3,500 $3,000 $3,000 $2,500 $2,000 $1,500 $1,000 $1,075 $500 $- $30 OUTDOOR FARM $125 GREENHOUSE $260 $205 RESIDENTIAL GROW-HOUSE INDUSTRIAL WAREHOUSE DUTCH FACILITY CURRENT WHOLESALE Sources: Altered State? (RAND 2010), interview with medical marijuana cultivator, Kilmer (2012)
12 (Corollary: Expect Product Differentiation) Will be hard to make money on basic intoxicant Think organic vs. generic vegetables
13 Prediction #3 Taxes cannot offset full decline in price. If taxes are too high, there will be evasion In CA, pay ~$2/oz in tobacco taxes BOE (2007) estimates evasion >14% Need something akin to a state monopoly to stay close to black market prices
14 Consumption from Smuggling Cross Sectional Relationship Between Tobacco Tax and Evasion; CA is Red Square 50% 45% 40% y = x R² = % 30% 25% 20% 15% 10% 5% 0% $0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 Excise Tax ($ per pack)
15 Consumption from Smuggling 450% 400% 350% Placing a $50 per Ounce MJ Tax on the Same Scale 300% 250% 200% 150% 100% 50% 0% $0 $10 $20 $30 $40 $50 $60 Excise Tax per Ounce
16 Prediction #4 Status Quo is not stable. No state is an island unto itself for products with high value to weight ratio.
17 Exports market could be 50 times greater than in-state sales 17
18 How Would Legalization in Colorado Affect Prices in New York? Sinsemilla diverted from CO production could be sold in NY for a little over $1,000 per pound Current prices 2 5 times higher than that $2,500 - $6,000 in New York City $3,250 - $5,000 in Albany CO Amendment #64 has a smurf protection clause retailers banned from recording IDs 18
19 Over Time, Trafficking Diverted MJ Could Depress Prices Across U.S. 19
20 Prediction #5 Federal government will not fill in for all state & local enforcement??? State & local police make 90+% of MJ sales arrests 99% of all MJ arrests
21 Arrests for Marijuana Sales Can/Will DEA Make Up for Eliminated State and Local Arrests? 16,000 14,000 12,000 10,000 8,000 Other than DEA DEA 6,000 4,000 2,000 0 National CA MI MO WA CO OR MT 21
22 Federal Dilemma: Attacking Regs Could Be a Double-Edged Sword Quashing a regulatory structure would be easier than replacing missing enforcement, but Exacerbate price decline by eliminating taxes Shift profits from regular business to illegal businesses Undermine public health aspects regulations Encourage advocates to focus on Repeal Only propositions 22
23 Prediction #6 More states will legalize Some may do so less responsibly
24 10 States Considered Legalization in
25 National Support Exceeds 50% May 2012 Rasmussen Poll: Would you favor or oppose legalizing marijuana and regulating it in the similar manner to the way alcohol and tobacco cigarettes are regulated today? 56% support 36% oppose, MOE +/-3 with 95% CI March 2013 Pew Research Poll: 52% yes, 45% no vs. 41% yes in % 90% 80% 70% 60% 50% 40% Year Do not support legalization Support Legalization legalization Sources: Gallup and GSS, Rasmussen 30% 20% 10% 0% 25
26 Not All Legalization Proposals Are Alike: There Are Three Broad Categories Repeal Only Repeals state laws pertaining to marijuana OR, MT and CA explicitly allow the legislature to regulate All set an age limit Repeal and Delegate A regulatory body shall develop specific regulations NE delegates to the legislature, OR and CA to a new body and MO to an existing body Few details Repeal and Regulate All Specify Regulatory body Tax/fee structure Licensing Process Personal growing limits Model regulations (alcohol) Workplace rules DUI regulations Penalties for violations 26
27 Examples of WA 502 s Good-Faith Efforts to Regulate Responsibly Allows for quality control testing Restricts storefront advertising to simple signage Regulates other advertising Requires employees to be 21 or older Forbids establishments from locating within 1,000 feet of a school, park, or daycare center LCB empowered to limit the # of retail outlets and regulate many aspects of production and sale Earmarks money to evaluate effects and costs
28 Oregon s Cannabis Tax Act Differed OR Cannabis Commission (OCC) regulates industry Regulatory capture built in: 5 of 7 members elected by growers State stores monopoly on non-medical sales Licensed private contractors would be paid 15% of the OCC store s gross sales to produce & sell to OCC Pharmacies could sell medical marijuana at cost OCTA would not allow local opt out fully replace and supersede all statutes, municipal charter enactments, and local ordinances AG shall vigorously defend this Act and any person prosecuted for acts licensed under it
29 Prediction #7 Interactions with alcohol are key. Billion dollar question is whether MJ will substitute for or complement alcohol And cigarettes Fight over impaired driving may be just beginning.
30 A Goodly Share of MJ Is Used by People Who Abuse Alcohol 100% MJ Users and PM Alcohol Use 90% 80% 70% 60% 50% 40% 30% 20% No PM Alcohol Use PM Use But Not 'Binge' Binge' But Not Heavy Use (5 or more drinks 1-4 times in the past month) Heavy Alcohol Use (5 or more drinks on 5 or more days in the past month) 10% 0% USA WA USA WA USA WA USA WA Past Year User Past Month User Heavy User (20-30 dy/mo) Population 30
31 Will MJ Legalization Affect Tobacco Use? 70% Proportion in WA Using Tobacco 60% 50% 40% 30% 20% 10% 0% Use MJ in Past Month Did not use MJ in PM 31
32 One Final Prediction Time Will Prove Me Wrong (on at least some of this) Prediction is very hard, especially about the future. Yogi Berra Prediction is very hard, especially about marijuana legalization. JPC
33 Back up Slides
34 MJ Use by Income 100% MJ Users by Income Bracket 90% 80% 70% 60% 50% 40% 30% 20% 5: >$100,000 4: $75,000-$100,000 3: $50,000-$75,000 2: $20,000-$50,000 1: <$20,000 10% 0% USA WA OR USA WA OR USA WA OR Past Year User Past Month User Heavy User (20-30 dy/mo)
35 MJ Use and Tobacco 100% MJ Users and PM Tobacco Use 90% 80% 70% 60% 50% 40% 30% No PM tobacco use PM tobacco use 20% 10% 0% USA WA OR USA WA OR USA WA OR Past Year User Past Month User Heavy User (20-30 dy/mo)
36 20,000,000 18,000,000 16,000,000 14,000,000 12,000,000 10,000,000 8,000,000 6,000,000 4,000,000 2,000,000 Number of Past Month Users Heavy Medium Light
37 Emergency Department Mentions 250, ,000 DAWN 2004 DAWN , ,000 50,000 0 Cocaine Marijuana Heroin Meth Oxy etc.
38 Mexican Imports Getting More Potent Average THC Potency of Kilobrick Observations in the UMISS Data Avg + 2 SE Average Avg - 2 SE
39 Sinsemilla s Market Share Appears to Be Rising Sinsemilla's share of all Obs Has Grown Sinsemilla Other
40 Commonalities of CO & WA props Embrace a free market approach Govt. regulates but does not participate in trade Regulators making a good faith effort E.g., WA Restricts storefront advertising to simple signage Forbids establishments from locating within 1,000 feet of a school, park, or daycare center Ad valorem taxes CO: 15% at wholesale (excluding medical MJ) WA: Three 25% taxes at different market levels Earmark tax revenue for popular causes CO: Public schools WA: Prevention, research, ed, and health care
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