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NM cannabis regs should target black market

 A Reynold Greenleaf & Associates cannabis operation in Albuquerque. (Roberto E. Rosales/Albuquerque Journal)

As a recent package of stories in the Journal documented, the legalization of recreational cannabis will be a hot topic in the upcoming legislative session.

But much more is at stake than the yes/no question of legalization versus the status quo. We’re talking business regulation.

The recreational cannabis industry has long been regulated by an elaborate, expensive alphabet soup of federal and state agencies with overlapping responsibilities. The stated regulatory goal – eradication – was never serious and never pursued more than half-heartedly. All the agencies involved were tasked with other, far more pressing duties, anyway.

What we’ve lacked is any regulatory body charged with responsibility for ensuring consumer and worker safety while enforcing fair competition among producers adhering to high standards of quality.

Creating such a regulatory body from scratch won’t be easy, but that’s the job awaiting our Legislature. On the plus side, we can learn from the experience of other states and Canada, avoiding their mistakes and emulating their successes.

On the minus side, some voices in the debate seem to regard legalization primarily as a means for raking in tax revenue. It’s hardly the first time greed and drugs have formed a partnership. But it’s desperately short-sighted.

Our legislators should instead be focused on building a viable, sustainable legal industry that, as it matures, will pay taxes commensurate to its revenue, like any other business.

To do that, the first order of business is to recognize the obvious difference between recreational cannabis and any other new industry that starry-eyed legislators might hope to lure to our state with subsidies: The cannabis industry doesn’t need support. It’s already here.

In New Mexico, anybody who really wants to buy a cannabis product can already do so without much difficulty. Regular users have their sources. Others know somebody who knows somebody. And the rest of us can take the scenic drive to Antonito, Colorado, just over the state line, a village of 781 souls and three dispensaries.

Prohibition hasn’t made cannabis unavailable. But it has saved dealers a bundle on overhead. They don’t pay rent for retail space, they don’t pay gross receipts or payroll taxes, and they don’t buy workers compensation insurance.

Which means any new legal storefront dispensary will begin at a stark competitive disadvantage.

If legislators look at cannabis legalization purely as an opportunity to maximize tax revenue, they might be tempted to impose excessive taxes. If they do, they’ll be guaranteeing the continued existence of the black market, just as high cigarette taxes in New York have long encouraged shady types to import and sell low-tax cigarettes from tobacco-growing states.

A black market means profits flow to organizations that are, by legal definition, criminal. That’s something the government should be striving to prevent, not perpetuate. Misha Glenny’s highly entertaining book “McMafia” gives example after colorful example of organized crime cleverly exploiting market distortions caused by prohibition, over-taxation or over-regulation.

Prohibition means that participants in the black market have no access to the civil justice system. They can settle commercial disputes only by taking direct action.

Albuquerque’s high crime rate imposes monetary costs on businesses directly, in losses and security measures, and indirectly, scaring off customers and investors and discouraging expansion. It slows population growth, as young people bail and potential customers move to neighboring states instead.

A significant slice of that violence is dispute resolution. It will be a great triumph for civilization when distributers can just sue defaulting retailers instead.

New Mexico should learn from California and Canada, where legalization has so far failed to displace the black market. California’s local option, which allows municipalities to ban dispensaries, was a gift to unlicensed, unregulated and untaxed local dealers. Exorbitant license fees discourage established dealers from coming in from the cold.

If we could just forget all the old hippie associations and ancient resentments regarding the 1960s (which were nowhere near as great/terrible as our cultural myths insist), we would be able to see the value of bringing so much entrepreneurial energy into the commercial mainstream.

Who knows what further business successes might follow? Richard Branson’s empire began with a record shop, after all.

Oklahoma’s business-friendly, hands-off approach may provide a useful guide here. Deep red Oklahoma now has more than 9,000 marijuana businesses, according to a November Politico article by Paul Demko. That’s a lot of jobs. That’s the market breaking free of artificial barriers.

Thinking of cannabis legalization in terms of tax revenue is exactly backward. What we need is a thriving industry with low barriers to entry, vigorous competition, sensible regulation, and unfettered access to the justice system. Once we have that, the tax revenue will follow.

Joel Jacobsen is an author who in 2015 retired from a 29-year legal career. If there are topics you would like to see covered in future columns, please write him at legal.column.tips@gmail.com

 

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