610. Who Wins and Who Loses Once the U.S. Legalizes Weed? AI transcript and summary - episode of podcast Freakonomics Radio

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Episode: 610. Who Wins and Who Loses Once the U.S. Legalizes Weed?

Author: Freakonomics Radio + Stitcher
Duration: 00:43:21

Episode Shownotes

Some people want the new cannabis economy to look like the craft-beer movement. Others are hoping to build the Amazon of pot. And one expert would prefer a government-run monopoly. We listen in as they fight it out. (Part four of a four-part series.) SOURCES:Jon Caulkins, professor of operations research

and public policy at Carnegie Mellon University.Adam Goers, senior vice president of The Cannabist Company and chairperson of the Coalition for Cannabis Scheduling Reform.Yasmin Hurd, director of the Addiction Institute at Mount Sinai.Jared Polis, governor of Colorado.Ryan Stoa, associate professor of law at Louisiana State University. RESOURCES:"Prevalence of and Trends in Current Cannabis Use Among U.S. Youth and Adults, 2013–2022," by Delvon T. Mattingly, Maggie K. Richardson, and Joy L. Hart (Drug and Alcohol Dependence Reports, 2024)."Colorado’s Weed Market Is Coming Down Hard and It’s Making Other States Nervous," by Mona Zhang (Politico, 2024)."Reducing Alcohol Consumption, the Nordic Way: Alcohol Monopolies, Marketing Bans and Higher Taxation," by the World Health Organization (2023)."Economic Benefits and Social Costs of Legalizing Recreational Marijuana," by Jason P. Brown, Elior Cohen, and Alison Felix (Federal Reserve Bank of Kansas City Research Working Paper, 2023)."Competition in the Markets for Beer, Wine, and Spirits," by the United States Department of the Treasury (2022)."Alcohol Monopolies," by Robin Room (Scottish Health Action on Alcohol Problems, 2021)."Craft Beer Is the Strangest, Happiest Economic Story in America," by Derek Thompson (The Atlantic, 2018)."Marijuana Discontinuation, Anxiety Symptoms, and Relapse to Marijuana," by Marcel O. Bonn-Miller and Rudolf H. Moos (Addictive Behaviors, 2009). EXTRAS:"Is America Switching from Booze to Weed?" series by Freakonomics Radio (2024)."Why Do Your Eyeglasses Cost $1,000?" by Freakonomics Radio (2024)."Should You Trust Private Equity to Take Care of Your Dog?" by Freakonomics Radio (2023)."Is Dialysis a Test Case of Medicare for All?" by Freakonomics Radio (2021).

Full Transcript

00:00:05 Speaker_06
In the recent election, it seemed as though the two parties disagreed on just about everything. Economic policies and tax policies, immigration and abortion, the wars in Russia and the Middle East, even garbage.

00:00:19 Speaker_06
If this left you feeling exhausted and dispirited and looking for even one sliver of unity,

00:00:27 Speaker_02
We are here to help. I think what's fascinating is that Americans, Democrat, Republican, Independent, are all supportive of seeing major cannabis change. And why does everyone support major cannabis change? You know, cannabis is quite popular.

00:00:44 Speaker_02
It's polling at 64%. Politicians typically don't take strong positions on things that are so popular.

00:00:51 Speaker_06
The popularity of cannabis these days is significant in terms of public support for legalization, in terms of the number of daily users. Cannabis is even popular among some public health officials who see it as a way to reduce the harms of alcohol.

00:01:06 Speaker_06
But as we've been exploring in this series, there are a lot of problems. The cannabis economy is a mess. We are way behind with research into the drug's potential risks, especially the risks of the most concentrated forms of the drug.

00:01:22 Speaker_06
And there are inconsistencies and contradictions in how individual states have rolled out legalization. All these problems can be traced back to two central facts. Number one, cannabis is still illegal on the federal level.

00:01:37 Speaker_06
And number two, it is still listed under the Controlled Substances Act as a Schedule I drug, meaning it has no accepted medical use and it has a high potential for abuse and addiction.

00:01:50 Speaker_06
But according to the people we've been speaking with, both of these facts are going to change. And what will happen then? There's going to be big winners and losers.

00:01:59 Speaker_06
So today on Freakonomics Radio, in the fourth and final part of this series, we will try to sort out the cannabis winners and losers, and we will get crystal clear answers to all of our questions. Or at least we'll try.

00:02:12 Speaker_01
God, I don't know.

00:02:26 Speaker_04
This is Freakonomics Radio, the podcast that explores the hidden side of everything, with your host, Stephen Dubner.

00:02:43 Speaker_06
The modern American cannabis revolution started in California, where in 1996 it became legal to buy it for medical use.

00:02:51 Speaker_06
The revolution began to mature in Colorado in 2014, which was the first time since the 1930s that you could legally buy cannabis for recreational use. That is now the case in roughly half the states. And how has legalization been working out?

00:03:08 Speaker_06
Three economists at the Federal Reserve Bank of Kansas City recently published a paper called Economic Benefits and Social Costs of Legalizing Recreational Marijuana.

00:03:18 Speaker_06
After a state legalizes cannabis, they found economic indicators tend to rise per capita income, housing prices and population. But they also found significant social costs, more arrests, more homelessness and more substance use disorders.

00:03:36 Speaker_06
And the economic benefits diminish for states that are later to legalize, which the researchers attribute to a decline in cannabis tourism. To break down these costs and benefits, we thought it made sense to speak with this man.

00:03:50 Speaker_06
Jared Polis, governor of Colorado. I've seen you described as America's most pot friendly politician.

00:03:57 Speaker_00
Is that a title you accept? Well, I don't know who they're comparing me to, but here in Colorado, we value freedom. If you want to have a beer, if you want to smoke pot, that's none of the government's business.

00:04:08 Speaker_06
Before getting into politics, Jared Polis was an entrepreneur. He was a founder of the e-greeting card company BlueMountainArts.com, of the delivery service ProFlowers, and the venture capital firm TechStars.

00:04:21 Speaker_06
In 2008, he was elected to Congress, and in 2018, he was elected governor of Colorado. All along the way, he has been in favor of loosening cannabis restrictions.

00:04:32 Speaker_00
I've never used marijuana myself. I might have like one glass of wine a year and maybe one beer. I don't really drink, but I've always had friends that smoke pot recreationally, and I have friends that drink recreationally. I could care less, right?

00:04:43 Speaker_00
I mean, I might not want to be around them when they're drunk or high, but I don't care what they do in their spare time. Colorado is really a place where you can be who you want to be and live life the way you want to live it.

00:04:53 Speaker_00
We're pioneers in legalizing cannabis, most recently psilocybin mushrooms. Voters voted to legalize. We're working on implementing that.

00:05:00 Speaker_00
Again, as long as it doesn't interfere with anybody else's business, as long as you're not bothering your neighbor, it shouldn't be any of the government's business to tell you how to live your life.

00:05:08 Speaker_06
So you've had legal recreational marijuana sales in Colorado for 10 years now. Legislation passed a couple of years before that. Could you just summarize it for me, the surprises, the disappointments, the positive effects and negative effects?

00:05:23 Speaker_00
There's been over $16 billion in revenue. That's revenue that would have gone to drug dealers, criminal enterprises, the underground market if we weren't doing it legally. Because it's not like in states where it's illegal, people aren't buying it.

00:05:33 Speaker_00
They are. They're just buying it from criminals. So $16 billion that went to legitimate business people rather than criminals.

00:05:40 Speaker_00
about $2.6 billion in state tax revenue, funded everything from college scholarships for kids in Pueblo to a great new youth recreation center in Aurora, all kinds of great projects, ongoing funding for capital construction.

00:05:53 Speaker_00
And then, of course, the 31,000 people who work in the industry, whether it's retail, whether it's growing,

00:05:59 Speaker_00
It's been good for safety for people who enjoy recreational marijuana, right, especially with the dangers of fentanyl and other drugs, you know, well-regulated supply chain, just like there is for alcohol or food.

00:06:08 Speaker_00
You don't have to worry about, if you're buying through official channels, you know, bad or tainted marijuana.

00:06:13 Speaker_06
I understand that your marijuana industry in Colorado has softened a bit the past few years. In 2020, the market was a little over $2 billion, but sales are down to about $1.5 billion.

00:06:26 Speaker_06
There have been some layoffs, some closures, some downsizing, and that means less tax revenues for the state as well, down 30% I've read from a couple years early. Can you talk to me about that? What's going on with the market there?

00:06:38 Speaker_00
From the early days, I always said as a American, I hope that every state legalizes marijuana as a Colorado, and I hope that we are the only state that does. So we were more unique for a long time. Absolutely.

00:06:48 Speaker_00
So people would come from New Mexico where it's now legal, our neighboring states, they'd fly from other places. That tourism and visitor piece, we're not as novel anymore.

00:06:56 Speaker_00
And while it's good for the country, that's of course going to cut into Colorado's business. The other thing is they overbuilt the capacity a little bit, and now there's a normalization to meet the demand.

00:07:05 Speaker_06
Considering that your tax revenues from marijuana fall in the past couple of years, are you doing anything about that? Are you trying to induce demand perhaps in your state?

00:07:15 Speaker_00
No, no. I mean, of course not. People are spending their money on something else, and maybe that's a net benefit from a public health perspective. I hope it's not alcohol. I hope it's sporting events or restaurants or concerts. I mean, it's a free market.

00:07:26 Speaker_00
It's an economy.

00:07:28 Speaker_06
For some people, marijuana may be replacing alcohol. For some people, it's new. Some people are concerned that marijuana is a gateway drug to others, including to alcohol, actually, is one concern we've heard.

00:07:39 Speaker_00
So how do you think about the public health impact generally? We don't show any demonstrable negative public health impact. One of the things we watch is underage uses.

00:07:47 Speaker_00
There's dangers in cannabis to developing brains, you know, 14, 15, 16, 17 year olds. Underage use has gone down since legalization. It's gone down nationally, but it's also gone down here in Colorado.

00:07:56 Speaker_00
I think part of the reason is it is harder to buy cannabis in the illegal underground market, meaning if you're 15 years old, it's harder to get today in Colorado than it was 15 years ago, because guess what?

00:08:05 Speaker_00
Your corner drug dealer is not carding you. A dispensary is. Of course, it didn't drive every corner marijuana dealer out of business, but there's way less, so it's much harder for a kid to get marijuana in Colorado That's a good thing.

00:08:17 Speaker_00
The way most people use marijuana, it's far less negative to public health than smoking cigarettes or alcohol. I mean, most people might just smoke a joint a week or whatever it is.

00:08:26 Speaker_00
It's not like something they drink every day that ruins their liver or they smoke a pack a day and it ruins their lungs. I mean, if you're using marijuana at that level, that's a problem user, right?

00:08:35 Speaker_00
If you're using it every day all the time, you're probably not able to function very well. Most people just use it periodically and there's very little health impact to that.

00:08:44 Speaker_06
But the most recent data tell a different story about cannabis use. We heard about this in part one of our series.

00:08:52 Speaker_01
If we do a pie chart of who's using cannabis, it's absolutely dominated by daily and near daily users. That's John Calkins.

00:09:01 Speaker_06
He is a drug policy researcher at Carnegie Mellon University. For many years, Calkins has been tracking survey data that asks people about daily or near daily use of cannabis and alcohol.

00:09:13 Speaker_01
Back in 1992, there were 10 times as many Americans who self-reported daily or near-daily drinking as daily or near-daily cannabis use.

00:09:23 Speaker_01
But after the 2022 survey data became available, that was the first year in which the cannabis line crossed the alcohol line.

00:09:34 Speaker_06
So if more people are using cannabis more routinely than Colorado Governor Jared Polis says, How about his claim that there is very little health impact? Here's how Culkin sees it.

00:09:46 Speaker_01
Of those daily and near daily users, about half report some evidence of having a substance use disorder.

00:09:54 Speaker_06
I went back to Governor Polis to get his thoughts on the main theme of our series.

00:10:02 Speaker_06
Alcohol has been around for a long time, used by billions of people for all kinds of reasons, but also the evidence is clear that there are big societal costs to alcohol use.

00:10:11 Speaker_06
Cannabis has also been around a long time, but for the past century in the U.S. at least, it's been illegal and now a partial reversal, maybe heading toward a total reversal.

00:10:20 Speaker_06
So the thesis of this series we're working on, we're calling it the Cannabis Replacement Theory, that if you could swap out cannabis for alcohol whenever possible, if it could satisfy the

00:10:31 Speaker_06
the desires that alcohol is satisfying, that societally it would be a big gain. Now, I'm not saying we're going to actually do that or we have the power to do that, but what do you think of that idea?

00:10:41 Speaker_00
It's obvious. Like, yes, of course. I mean, first of all, marijuana is not chemically addictive. Alcohol is. So is nicotine.

00:10:49 Speaker_00
Secondly, you know, alcohol chronic use is very destructive to the body and marijuana use is not healthy by any means, but not nearly as destructive to the body over time as alcohol is.

00:11:02 Speaker_00
Number three, domestic violence and many other crimes are related to alcohol. You don't see that kind of correlation with marijuana. We know this anecdotally.

00:11:09 Speaker_00
I'd love to see more statistics about this, but basically you're going to, you know, eat corn chips in your basement and watch a movie when you're on marijuana. You're not going to go on a spree throwing rocks into windows.

00:11:19 Speaker_00
Everything you take can, you know, obviously have a negative health impact, especially if you use it in excess. But I think your thesis is very sound in general, and I'm not for banning alcohol, to be clear.

00:11:29 Speaker_00
I think that's a choice people make too, and they're entitled to do that. But if suddenly you flip the two and marijuana was the more popular and alcohol was less popular, I think there would be a net societal benefit to that.

00:11:42 Speaker_06
I hate to keep picking on Governor Polis's assessments. He's plainly thought deeply about the issue.

00:11:48 Speaker_06
But many public health researchers say that cannabis can be addictive, although some people do make a distinction between chemical addiction, which may not apply to cannabis, and psychological addiction, which may.

00:12:03 Speaker_06
So one reason I was really excited to speak with you, Governor Poulos, is because I see that while you were in Congress, you introduced a couple bills, including the Regulate Marijuana Like Alcohol Act. This was 2017.

00:12:14 Speaker_06
Can you just walk me through the planks of that, what you were hoping to accomplish? And I know it didn't get through, but I'm curious to know how much of that has happened on its own.

00:12:23 Speaker_00
Well, sure. I'm not arguing that marijuana should not be a controlled substance. It should be. Twelve-year-olds shouldn't be able to get it. It should be regulated to make sure it's safe and not tainted.

00:12:32 Speaker_00
So the way that we do that federally, we have the Bureau of Alcohol, Tobacco, and Firearms.

00:12:36 Speaker_00
So I said we should rename that the Bureau of Alcohol, Tobacco, Firearms, and Cannabis, and it should basically have that similar kind of regulatory authority federally that they have over things like alcohol, over something like marijuana.

00:12:49 Speaker_06
this act would have regulated marijuana like alcohol by inserting it into the section of the U.S. code that governs intoxicating liquors. What would that entail?

00:12:57 Speaker_00
Just as with alcohol, we have a age limit. It's sort of nominally up to the states. But of course, the federal government withholds highway funds if you don't make it at least 21.

00:13:05 Speaker_00
And I think there'd be a similar age for recreational marijuana, you know, probably some allowance for medicinal under the supervision of a physician for younger. But in terms of recreational, I would be on board with the same age as alcohol.

00:13:18 Speaker_06
Now, another of your objectives was to remove marijuana as a Schedule 1 drug. That is happening, yes? It's close.

00:13:24 Speaker_00
It's getting close. It's not full legalization, but it's a good step. I'm for it. I've rounded up a number of governors that have specifically asked for this, both sides, Republicans and Democrats.

00:13:34 Speaker_00
And we're hoping that that will occur in the final days here of the Biden administration. And it's getting very, very close.

00:13:41 Speaker_06
That timeline no longer seems likely. The Drug Enforcement Agency had planned a public hearing for early December to address the rescheduling of cannabis, but the key judge just delayed the hearing until at least early 2025.

00:13:55 Speaker_06
You can see why it might make sense to push this decision until the start of a new presidential administration.

00:14:02 Speaker_06
That said, President-elect Donald Trump has expressed support for the rescheduling of cannabis and easing restrictions at the federal level. Here, for instance, is what he posted in September.

00:14:14 Speaker_06
We will continue to focus on research to unlock the medical uses of marijuana to a Schedule 3 drug and work with Congress to pass common sense laws, including safe banking for state authorized companies.

00:14:27 Speaker_06
So coming up after the break, what would these legal changes mean for the cannabis economy?

00:14:33 Speaker_05
This company tries to bill itself as the Amazon of weed or the Starbucks of weed. I'm Stephen Dubner. This is Freakonomics Radio. We will be right back.

00:14:55 Speaker_06
Adam Gores is an executive with the Cannabis Company, which operates in several states. He is also a Democratic political consultant. These two roles often dovetail.

00:15:06 Speaker_02
Yeah, I founded and I lead the Coalition for Cannabis Scheduling Reform that's been working with the Biden administration, you know, political research stakeholders, doctors, organizations that are supportive of reclassifying cannabis.

00:15:22 Speaker_02
We've put out a number of reports to the FDA, to the DEA, worked with dozens of members of Congress and governors and attorneys general, showing that cannabis is actually a winning issue for either Democrats or Republicans.

00:15:35 Speaker_06
This type of effort seems to have paid off. In 2022, President Biden announced plans to rethink federal cannabis policy and to shift it from a Schedule 1 to a Schedule 3 drug under the Controlled Substances Act.

00:15:50 Speaker_06
Many Republicans have signaled a similar interest.

00:15:53 Speaker_02
And there's some really important benefits from that. One, the lessening of stigma that cannabis is no longer classified next to heroin.

00:16:01 Speaker_02
It's also for cannabis companies, big and small, social equity and otherwise, that are currently, because they're classified under Schedule 1, unable to deduct their common and ordinary business expenses, makes it really hard for them to operate.

00:16:15 Speaker_02
Businesses can face an effective tax rate of 80 to 90 percent. Once this reclassification is done, that just will not apply anymore.

00:16:24 Speaker_06
But it's worth pointing out that a federal rescheduling of cannabis under the Controlled Substances Act is not the same as declaring the drug legal. Here again is John Calkins from Carnegie Mellon.

00:16:36 Speaker_01
The dysfunction of having the inconsistency between states legalizing and the federal government still having cannabis on the Controlled Substances Act, that's a big problem.

00:16:46 Speaker_01
And moving cannabis from Schedule 1 to Schedule 3 does not fundamentally solve that problem.

00:16:52 Speaker_06
Still, you can imagine that rescheduling and changing the legality of the drug may wind up going hand in hand. The benefits to the cannabis industry would be large. Adam Gores says there is another big potential benefit.

00:17:08 Speaker_02
I'll just say it very bluntly, no pun intended. The research for cannabis is nowhere near where it needs to be. In this regard, rescheduling alone would be important.

00:17:20 Speaker_02
It's going to open up new research pathways as well as providing a whole bunch of public health and safety benefits.

00:17:28 Speaker_03
The regulatory aspect does make it more challenging for research.

00:17:31 Speaker_06
And that is Yasmin Hurd, an addiction researcher at the Mount Sinai Health System in New York.

00:17:37 Speaker_03
I remember when we did our first clinical studies with CBD, our clinical research coordinator had to be escorted by the guard. You know, crazy.

00:17:46 Speaker_06
We also spoke with Hurd earlier in this series.

00:17:49 Speaker_06
She thinks that the legalization of cannabis has outpaced the scientific research, and she would like to see what she calls an army of researchers studying the drug's effects and its potential for addiction. But that hasn't been easy.

00:18:05 Speaker_03
In order to do this research with a Schedule 1 drug, there are a lot of regulatory hurdles that you have to jump through.

00:18:11 Speaker_03
Cannabis being changed from a Schedule 1 to a Schedule 3, that will help in some ways for research, but not all, because the regulatory hurdles are still there in terms of just the administrative bureaucracy of working with a scheduled drug.

00:18:27 Speaker_06
What are some of the most important things that you and other researchers need to find out about cannabis?

00:18:33 Speaker_03
What we need to know right now are the aspects of the high concentrated products, because that's what is out there in the public.

00:18:43 Speaker_03
The ratios of some of the cannabinoids that are being put into these products are really important to understand and understand in regard to the developing brain.

00:18:54 Speaker_06
developing brain going up to about age 25 or so?

00:18:58 Speaker_03
Yeah, absolutely. We know the increase in cannabis use has been higher in recent years in that population. So what does that mean? To me, the research needs to be done. What are the flavorings?

00:19:10 Speaker_03
What is the impact of all the chemicals that they use in converting hemp to these THC intoxicating like products? We also see that more seniors are using cannabis.

00:19:22 Speaker_03
So that's another age group to really understand the impact on whether or not it may indeed improve cognitive function in that age group while we see the opposite in early development, but also what may be the negative health impact.

00:19:36 Speaker_06
So that was a really interesting list. One thing you didn't mention there was addiction.

00:19:40 Speaker_03
So for me, the high dose, I include addiction in that. We know that for every addictive substance, the higher the concentration of that particular chemical, the greater the addiction risk.

00:19:53 Speaker_03
The NIH, they're trying to really support more research on cannabis. But when we have so many people playing, you know, chemists, it is very, very difficult.

00:20:06 Speaker_03
And to ask scientists to figure out what percentage of THC percent to CBD and to other terpenes may be beneficial as medicine or may cause harm, that does take a huge army.

00:20:23 Speaker_06
So the benefits from rescheduling alone, the research benefits, would be substantial. And after that?

00:20:31 Speaker_02
I think that reclassifying cannabis is a really pragmatic first step in the path to legalization.

00:20:38 Speaker_06
That's Adam Gores again.

00:20:40 Speaker_02
When legalization happens, a whole lot of constituents are going to have a lot to say about it. Traditional alcohol and tobacco companies are very anxious to get into this marketplace.

00:20:51 Speaker_02
Thus far, we've seen very little entry from alcohol and tobacco companies into it. And in the process, we've seen a growth of these broad cannabis market ecosystems with hundreds and hundreds of businesses operating in sometimes small states.

00:21:08 Speaker_02
That's in contrast to the large amounts of consolidation that happened in the alcohol and tobacco space. So I think as public policy leaders are making a choice eventually in how they legalize, that's going to be one.

00:21:20 Speaker_02
A lot of politicians talk about growing economy from the bottom up and the middle out. And then I think there's a large movement in this of, you know, maybe tobacco shouldn't be involved in the cannabis industry.

00:21:32 Speaker_02
Cannabis is a health and wellness measure. Physicians and researchers are involved in this as promising treatment.

00:21:38 Speaker_02
Americans that are suffering in many cases debilitating life conditions and for a lot that's inconsistent with having tobacco be involved in the industry going forward.

00:21:48 Speaker_02
So I think that's going to be a very interesting piece to watch is how and if they're able to enter the marketplace eventually. when federal legalization comes, because it's not an if, it's a when.

00:22:01 Speaker_02
It's going to be its own new transformational moment, but there's going to be big winners and losers in that transition, just like there have been winners and losers in this state-by-state siloed marketplace that exists now.

00:22:14 Speaker_06
Coming up after the break, not everyone wants to break down those silos.

00:22:20 Speaker_05
I like the idea of spreading the benefits of legalization as widely as we can. I'm Stephen Dubner. This is Freakonomics Radio.

00:22:27 Speaker_06
We'll be right back. In recent decades, many sectors of the U.S. economy have become much more concentrated, often driven by private equity investors.

00:22:46 Speaker_06
On this show alone, we have looked at consolidation in the pet care industry, the dialysis industry and the eyeglass industry. Many sectors of our economy are dominated by a few big and powerful players, but that is not true of the cannabis market.

00:23:02 Speaker_06
Even the biggest companies have only a few percent of national market share. Why? Most states cap the number of licenses that any one firm can have.

00:23:12 Speaker_06
Companies have a hard time expanding from state to state because of restrictions created by the federal illegality of cannabis. So there have been a lot of consolidation headwinds, but that hasn't stopped some companies from trying to expand.

00:23:26 Speaker_05
I've seen so many headlines where this company tries to bill itself as the Amazon of weed or the Starbucks of weed or the Apple store of weed. That is Ryan Stoa, a law professor at Louisiana State University.

00:23:39 Speaker_06
Everybody wants to be that company. And eventually someone might be. We heard from Stowa earlier in the series, too. He is the author of a book called Craft Weed, Family Farming and the Future of the Marijuana Industry.

00:23:53 Speaker_06
As you can tell from the title, he is against consolidation in the cannabis industry. He sees the beer industry as something of a success story. Not long ago, just two companies controlled 90 percent of the U.S. market.

00:24:07 Speaker_06
But as the craft beer industry grew, that duopoly lost a big share.

00:24:13 Speaker_05
I think that that model could make a lot of sense. I'm not saying that there won't be big marijuana companies that dominate the marketplace.

00:24:21 Speaker_05
My argument is let's create some conditions that allow other businesses, small businesses to survive and thrive alongside that model.

00:24:30 Speaker_06
So imagine that you could wind back the clock to legalization of recreational cannabis. And further, Ryan, imagine that you were appointed something like secretary of the new cannabis economy.

00:24:44 Speaker_06
What are some basic things you would do very differently than what were actually done?

00:24:48 Speaker_05
I want at least a part of the cannabis economy to support essentially family farms, local producers. I want it to be environmentally sustainable. I want it to be socially equitable and just, and then lay out regulations that get us there.

00:25:03 Speaker_05
That might mean that producers on small plots or small farms may have different regulatory requirements than someone who's trying to be the Amazon of weed, for example. What would you loosen for the small ones?

00:25:16 Speaker_05
I think initially what we saw in California in 2016 when they legalized, for example, certain acreage limitations.

00:25:23 Speaker_05
If you had less than an acre of plant canopy, regulations were X. And if you were up to five, it was Y. They've since sort of abandoned that. Now, of course, you can grow on more than five acres.

00:25:33 Speaker_05
But I think that sort of tiered system makes sense all the way down to the bottom level, which is non-commercial at-home cultivation. which is one policy that I think states should maintain, and most have, some have not.

00:25:47 Speaker_05
But I think at-home cultivation remains kind of a safety valve. As long as people can cultivate at home, they sort of say, well, all right, if the market isn't meeting my needs, I'll just do it myself.

00:25:58 Speaker_05
And I think that was one of the factors that really spurred the craft beer movement, too, where loosened laws with respect to at-home brewing that really inspired people and said, you know, I can do this. This is cool. This is fun.

00:26:09 Speaker_05
Maybe I'll do this on a commercial scale.

00:26:12 Speaker_06
Was it really illegal to homebrew beer until like the 1970s in this country?

00:26:16 Speaker_05
You could brew at home, but there were certain restrictions and those restrictions have been loosened.

00:26:22 Speaker_06
So what industry or other agricultural crop would you most like cannabis to resemble?

00:26:29 Speaker_05
I think cannabis is its own unique crop, but there's industries that come to mind. One is the wine industry from a cultivation point of view. One of the things that I think the wine industry does really well is it harnesses the power of appellations.

00:26:44 Speaker_05
Appellations are an agricultural regulatory system that certifies the origin of an agricultural product. Champagne, for instance. Exactly, a champagne.

00:26:56 Speaker_05
When a bottle says champagne, you know it really came from the Champagne region of France, and not the Burgundy region of France, because French authorities ensure that that is the case.

00:27:05 Speaker_06
Although you can buy a bottle of what tastes very much like champagne, but it's made in Spain and it's called Cava.

00:27:11 Speaker_05
Or Italy and it's called Prosecco. I think the advantage to that is that it creates different products. So it's not just sparkling wine as a sort of generic commodity. It's champagne.

00:27:22 Speaker_05
This is something I've advocated for and we've seen some progress towards in California is adopting cannabis appellations in which, you know, authorities would certify that if a cannabis says it comes from Humboldt County, California, it really did.

00:27:35 Speaker_05
And I think that does a couple of different things. Number one, it creates more transparency in an industry that historically really hasn't been transparency.

00:27:42 Speaker_05
If you've been consuming cannabis for a long time, I probably remember the days when you had no idea where your cannabis came from. Number two, it creates more choice for consumers. It creates more products in the marketplace.

00:27:55 Speaker_05
It lends the cannabis industry a more sophisticated air, if you will. And then third, I think it helps protect small businesses.

00:28:02 Speaker_05
There might be some farm somewhere that's growing 10,000 acres of marijuana, trying to flood the market with this more generic strain. That's fine. You're growing a different thing. You're growing Humboldt County certified

00:28:16 Speaker_05
cannabis, and so you're not exactly competing in the same space. So I think the wine industry, the way that they harness appellations and designations of origin, I think that would be really powerful for the cannabis industry as well.

00:28:31 Speaker_06
What do you think of Ryan Stoa's vision for the future cannabis market?

00:28:36 Speaker_01
And what do the experts think? I do know Ryan's arguments well and respect them. And I love that he puts them out there. That, again, is the drug policy researcher John Calkins. I kind of wish Ryan's predictions came true.

00:28:52 Speaker_01
I just believe that in reality, the center of the market is people who just want a lot of THC. I think that the educated elite approach the cannabis product in a way that reflects only a minority of the market.

00:29:11 Speaker_01
I also think that Ryan underestimates the economies of scale in production, but also in brand management and marketing. There are a lot of people cheering for Ryan's vision.

00:29:25 Speaker_01
There are a lot of people who really wish for cannabis to be this opportunity for a large number of small family businesses.

00:29:35 Speaker_01
It would be grand in many respects if it turned out to be so, but my best guess, and it is only a guess, is that it's going to look more like the great majority of it produced by a smaller number of larger firms.

00:29:51 Speaker_06
Calkins has a different vision for how the cannabis industry should be structured. Rather than a decentralized economy with many small and medium players competing against one another, he would like to see a monopoly.

00:30:04 Speaker_06
But a particular sort of monopoly, the kind that is run by a government.

00:30:09 Speaker_01
There are around the world a variety of countries that have products that are provided only by a government monopoly. It's pretty easy to come up with examples of what Calkins is talking about.

00:30:21 Speaker_06
There's the transportation and telecommunications and energy industries in some countries. And perhaps most relevant to this conversation, there's alcohol. That's how it's done today in most of Canada, in the Nordic countries.

00:30:36 Speaker_06
In fact, roughly a third of U.S. states have some level of government monopoly involved in liquor sales. So how would Calkins envision a government-run cannabis market?

00:30:46 Speaker_01
The basic concept here is you could allow for-profit production, i.e. farmers to produce it, but you don't allow any for-profit entity to attach its brand to the product.

00:31:01 Speaker_01
And that takes away all of the incentive for marketing, which is particularly important in the United States because our First Amendment prevents us from just passing a law against a company marketing its product.

00:31:14 Speaker_01
One of the other big advantages is the price that consumers are willing to pay is much, much higher than the production cost. In that sense, cannabis is like bottled water.

00:31:25 Speaker_01
But if the government had a monopoly on the selling, then the public could much more easily capture that big gap between the value to the consumer and the production cost.

00:31:39 Speaker_01
And I absolutely support a nonprofit model over a for-profit commercial model.

00:31:45 Speaker_01
The fundamental reason is because I do believe cannabis is a temptation good, that there is some proportion of people who end up using at levels that they subsequently regret.

00:31:55 Speaker_01
So I would like the suppliers of that good to have as their mission displacing the illegal market, providing a quality product, but not pushing people to use more.

00:32:08 Speaker_01
a commercial for-profit industry has as its mission, maximizing consumption, and in fact, even pioneering new markets and modalities of use, the way that the tobacco industry in 1920 said, hey, we've got men smoking, but not women. Let's change that.

00:32:25 Speaker_01
If you had to make an over-under bet on the year of national legalization, what would it be? God, I don't know. One of my favorite quotes was a colleague I respect saying it was going to happen in the second Hillary Clinton administration.

00:32:42 Speaker_01
That just goes to underscore, it's dangerous to make predictions. I'm going to try to duck that one.

00:32:48 Speaker_06
It seems that in the cannabis industry, because it's been legalized by states and because there is not typically interstate transportation or sales or whatnot, that the current situation is acting as a sort of unintentional break on the for-profit industry becoming bigger and more powerful, more leveraged.

00:33:08 Speaker_01
You are 100% correct and you're correct in even more ways than you realize. So absolutely, this dysfunctional state-by-state system has been a break and slowed the spread.

00:33:20 Speaker_01
The key scale economy beyond production is scale economy in marketing and brand management.

00:33:26 Speaker_01
And there are many opportunities for marketing that are foreclosed at present because the First Amendment commercial free speech protections do not apply to something that is illegal under federal law.

00:33:39 Speaker_01
As soon as cannabis is truly legalized at the federal level, the marketing restrictions of the states become unconstitutional. So I absolutely think that even though there's consolidation happening in the industry today,

00:33:52 Speaker_01
that process of consolidation and larger companies emerging will be greatly accelerated with national legalization, in part because at present the alcohol and tobacco companies are sitting on the sidelines.

00:34:05 Speaker_01
The alcohol and tobacco companies have invested in Canadian companies because that's legal, but they're not yet investing in U.S. cannabis companies. It's not that hard to grow cannabis.

00:34:17 Speaker_01
So post-national legalization, the secret sauce that's going to allow some company to emerge as the best is marketing skill. And I think after national legalization, you'll see marketing savvy entities being the winners in the cannabis space.

00:34:37 Speaker_06
What do you see as the significant intersections of an increasingly large legal cannabis market and the pharmaceutical industry? My lay brain thinks, well, you know, there's a lot of anti-anxiety drugs and antidepressants sold.

00:34:53 Speaker_06
There are a lot of pain drugs being sold by these really big firms with big R&D, with big marketing, and they're obviously a very regulated industry. How do you see cannabis intersecting with that industry?

00:35:04 Speaker_01
My best guess is that, at least in the short and medium terms, the FDA-approved true pharmaceutical applications of cannabinoids will be modest. I do say that with a fair amount of uncertainty.

00:35:22 Speaker_01
The largest market might be in pain management because opioids are so horrible. It's tricky to get anything through trials. It's tricky to figure out exactly what you would patent.

00:35:40 Speaker_01
The last point that I'll make here is some people imagine that, oh, we would have instantly found a million wonderful health applications of cannabis if only it weren't for this stupid U.S. federal law. But the U.S.

00:35:54 Speaker_01
federal law does not hamper research in Germany or France or Israel or anywhere else. If there were these fantastic medicines just waiting to be picked up, that would happen in other countries, too.

00:36:08 Speaker_06
What other countries do you look to as a model for U.S. cannabis policy and how close or far is the U.S.

00:36:15 Speaker_01
from that now? U.S. cannabis policy at present is a dysfunctional basket case. Canada has a cannabis legalization regime, which is a coherent, well thought out approach that's broadly modeled on alcohol, but is more public health oriented.

00:36:35 Speaker_01
Are producers non-profits there though? No, no, no. I'm sorry. They are also for profit. So in that sense, the Canadian cannabis regime starts out looking a lot like the alcohol regime that we're familiar with.

00:36:48 Speaker_01
And there's a lot of interest in other places and trying to find something more moderate, something like cannabis clubs. They're fairly common in Spain and Belgium, if I could describe it briefly. Please. Yeah. So the most

00:37:01 Speaker_01
cautious version of legal supply is just you can grow your own, but you can't sell it, you can't give it to anybody else, you can only grow your own.

00:37:08 Speaker_01
But not everybody's a good farmer and the nature of the cannabis plant is one cannabis plant produces a lot of cannabis.

00:37:15 Speaker_01
So another approach is you allow some modest number, 20, 30 people to pool their own growing privileges and to say, hey Sam, you actually are good with plants, so we'll let you grow for all 20 or 30 of us.

00:37:29 Speaker_01
And we'll even allow you to charge us what it cost you so we can reimburse you for your cost. But Sam's not allowed to make money. Does that include my hourly work or no? I think that's a good question.

00:37:42 Speaker_01
But the spirit of it is Sam's not going to quit Sam's day job. It's not going to be a professional activity. It's going to be a hobby. And the distribution is only within the 20 or 30 of us.

00:37:53 Speaker_01
That model has the potential to undercut a substantial portion of the illegal market, but it's much less likely to lead to this proliferation of blueberry-flavored vapes and child-appealing gummies and dabs.

00:38:11 Speaker_01
It's much more likely to just undercut the existing market and provide the traditional consumption patterns with a legal alternative.

00:38:21 Speaker_01
So there are countries that are looking at the United States and saying, thank you for showing us what we don't want to do.

00:38:30 Speaker_06
I don't know how you feel about predicting the future of policies and so on, but if you're game, I'm curious to know what kind of downstream effects, and these could range from, you know, law enforcement and prisons to traffic safety to physiological and mental health, et cetera, et cetera.

00:38:50 Speaker_06
But what do you see as being the long term effects on U.S. society, let's say, from the increasing legalization and use of cannabis?

00:38:58 Speaker_01
Well, let me carve out a couple of pieces which are pretty easy. It's not going to have a big effect on prisons. People with a controlling offense related to cannabis were never any appreciable share of people in prison.

00:39:09 Speaker_01
That was a myth told by advocates of legalization. Cannabis generated a lot of arrests. It never generated a lot of imprisonment.

00:39:18 Speaker_01
Likewise, the mental health effects are real and severe for the people that they strike, but my best understanding is that the numbers involved are not going to be of a scale that trumps potential or indirect effects of smoking and alcohol.

00:39:41 Speaker_01
I do think it remains a temptation good and that 30 years from now there will be some number of people who say, boy, I really messed up. And there will be many more people who manage to incorporate it into their life the way we navigate many risks.

00:40:01 Speaker_01
I don't in that sense think that cannabis is a game changer. I have real trepidations about anybody who says, hey, let's legalize crack and methamphetamine. Just because the harms are plainly so much worse?

00:40:15 Speaker_01
They're extraordinarily compelling substances that can truly take over people's lives very easily. Cannabis is just a totally different substance than crack or fentanyl or meth.

00:40:26 Speaker_01
I think the good news, you know, there's some American wisdom in our American dysfunction. This legalization thing, people refer to it like it's a light switch. It's not. The first step really in the modern year was 1996.

00:40:42 Speaker_01
We are a full generation in and we still haven't even legalized at the national level. We are taking our time.

00:40:49 Speaker_01
I am kind of optimistic about just the resilience of people in society to adjust to a new or newish thing, not denying that it's a temptation good, not denying that some people will mess up, but you know, we'll adapt, we'll roll with it.

00:41:11 Speaker_06
Do you share John Calkins' optimism about our resilience and our ability to adjust to new things? Do you share Jared Polis' view that cannabis is fundamentally healthier than alcohol?

00:41:25 Speaker_06
Do you share Yasmin Hurd's fear that the risks of cannabis may be greater than we know? I'd love to know what you think about these questions and everything else we covered in this series. Our email is radio at freakonomics.com.

00:41:42 Speaker_06
I'd also like to thank all the researchers and entrepreneurs and regulators who shared their insights. I learned an awful lot about this big story that we are plainly just a few chapters into.

00:41:54 Speaker_06
As always, thanks for listening and please spread the word about this series and our show. That is the single best way to support the podcasts you love. We will be back next week. Until then, take care of yourself. And if you can, someone else, too.

00:42:10 Speaker_06
Freakonomics Radio is produced by Stitcher and Renbud Radio. You can find our entire archive on any podcast app, also at Freakonomics.com, where we publish transcripts and show notes. This series was produced by Dalvin Abouagy and Zach Lipinski.

00:42:25 Speaker_06
Special thanks to George Hicks for his field recording.

00:42:28 Speaker_06
Our staff also includes Alina Kullman, Augusta Chapman, Eleanor Osborne, Ellen Frankman, Elsa Hernandez, Gabriel Roth, Greg Rippin, Jasmine Klinger, Jeremy Johnston, John Schnarrs, Lyric Bowditch, Morgan Levy, Neil Caruth, Rebecca Lee Douglas, Sarah Lilly, and Tao Jacobs.

00:42:44 Speaker_06
Our theme song is Mr. Fortune by The Hitchhikers. Our composer is Luis Guerra. Thank you so much for joining. I know you've got a busy. I guess you're busy, right? You're a governor.

00:43:00 Speaker_00
Oh, you know how it is. State Fair is on. We're excited.

00:43:08 Speaker_04
The Freakonomics Radio Network, the hidden side of everything. Stitcher.