Taboo Trades
Taboo Trades
Marijuana Legalization with Pat Oglesby
Pat discusses marijuana legalization and disses on the tax academe
Pat Oglesby is a tax attorney and the founder of the Center for New Revenue, a tax policy nonprofit. He worked for the Joint Committee on Taxation of the United States Congress from 1982 to 1988, first as a Legislation Attorney and then as the International Tax Counsel. From 1988 to 1990, under Senator Lloyd Bentsen of Texas, he held the position of Chief Tax Counsel of the Committee on Finance of the United States Senate.
Link to marijuana billboards discussed in this episode.
Excise taxes are like, people in the tax academy think of those like kind of parking fines. I mean, they seem so simple that it's not worth their time. So there has really been almost no attention still after 11 years from the tax academy on the bread and butter marijuana taxes, which are state and local taxes.
SPEAKER_02:Hey, hey, everybody. Welcome to the Taboo Trades podcast, a show about stuff we aren't supposed to sell, but do anyway. I'm your host, Kim Kravick. Hello, everybody. Welcome today's guest, Pat Oglesby, who is the founder of the Center for New Revenue, a nonprofit tax policy organization, formerly a Covington and Burling lawyer. And Pat, you might have to fill in. You've done too much for me to list all of it. Chief Tax Counsel at Senate Finance, International Tax Counsel at the Joint Committee. There's probably 25 other things in there that I haven't even gotten to.
SPEAKER_00:Yeah, I'm too old. I'm too old. I've done too many, wandered here and there.
SPEAKER_02:Well, that's what makes you so interesting.
SPEAKER_00:Okay. I wouldn't go that far, but
SPEAKER_02:anyway. So, you know, one thing that I have that has always fascinated me about you is that how you sort of fell into this line of work of being, you know, one of the nation's leading marijuana legalization experts, because it's not, I understand the transition, but it's not for all of our listeners, perhaps an obvious transition from your role as tax counsel to your role at New Revenue. Can you tell us a little bit about that?
SPEAKER_00:Yeah, thanks. In 2009, I was 62 years old and looking for a project. I was pretty much retired. I'd worked some at UNC and then all these other jobs. And it occurred to me, it was pretty clear to me that marijuana prohibition was not going to stand the test of time. And that when it came, there would be a tax element to legalization. And so being a tax man from the past, I started looking at what might the tax regime look like. So I started writing articles and giving talks. And that's been going on for 11 years now. So that's how I got into it. Obama said, yes, we can. And I thought, yeah, well, what can I do? I've got time on my hands. And it's been a lot of fun. Let me say, in 2009, people kind of ran the other way when I told them what I was doing. I was interested in marijuana legalization and how it was going to be taxed. I was just like, you are crazy. It's like now when I say the nation is going to go bankrupt and the dollar is going to be worth nothing. They have the same feeling. So I hope I'm not right on that one. Right,
SPEAKER_02:right. Hopefully you had your run. Okay. So why, I mean, it sounds like you were an early mover in this. And so are you saying then that sort of your colleagues in the tax world didn't all have this notion that this was the coming thing? spot for the future, or no?
SPEAKER_00:Well, since you're at Duke and in the tax academy, I will point the finger at the tax academy. My friends who are law professors, and I've got several friends who are tax law professors, they wanted nothing to do with this. Marijuana was tainted, for one thing, but that's not the main thing. The main problem with the kind of tax policy work I've been doing is that it involves two fields that are disfavored by the tax academy, state taxes and excise taxes. The brains go to international taxes, which is a step up from even federal taxes. Of course, federal taxes are still the big game. And excise taxes are like, people in the tax academy think of those like kind of parking fines. I mean, they seem so simple. that it's not worth their time. So there has really been almost no attention still after 11 years from the tax academy on the bread and butter marijuana taxes, which are state and local taxes. Now, there's a quirky federal tax, Tax Code Section 280E, which says marijuana-
SPEAKER_02:Tax nerds everywhere, alert.
UNKNOWN:Okay. Okay.
SPEAKER_02:We're talking specific provisions here.
SPEAKER_00:Sorry about that. I'll try not to. No,
SPEAKER_02:no, no. Please do.
SPEAKER_00:It says marijuana tax businesses can't deduct their business expenses. Like advertising, like the rent of their stores, they can deduct only cost of goods sold. Now, that's a relic of the drug war from 1982 when it came in and said federally illegal drugs, if you're selling those, you can't deduct your business expenses. It's still there. So the tax academy has paid a little attention to that since it's a federal income tax rather than a state excise tax, but they're still not interested in what really is going on.
SPEAKER_02:That's interesting. And your comment actually brought up a larger point. And this doesn't perhaps directly relate to taxation. And so if you don't have an answer for it, it's fine. But the feds have been behind in this movement and sometimes have been standing in the way of this movement, not just on taxation issues, but banking and sort of enforcement, a whole range of other issues. Do you have any insight into that? I mean, are they just... But what is it that's...
SPEAKER_00:Oh, well, the federal government moves slowly. As Nixon said, we're a pitiful... Well, he said, we're not a pitiful, helpless giant. But the federal government can't do anything.
SPEAKER_02:Okay,
SPEAKER_00:so
SPEAKER_02:for you, it's more just slowness and not necessarily sort of... some sort of philosophical opposition. I mean, I'm sure some people are philosophically opposed, but there's not some disconnect between the tabooness at the state level versus the federal level.
SPEAKER_00:Oh, the tabooness varies so much among states that California, Colorado, Washington, Oregon, they have a totally different view of drugs than the nation as a whole. I mean, they're out front. Well,
SPEAKER_02:Oregon, my goodness, talk about a pathbreaker on the drug front right now, right?
SPEAKER_01:Everything.
SPEAKER_02:Yeah. Right. So they, they decriminalized basically everything. Is that right? And legalized mushrooms, like psychedelic mushrooms. I don't know. I know there's enough, you know, a more scientific term, but I
SPEAKER_01:don't know.
SPEAKER_02:Okay. And so what, Do you think that will actually be the next wave, or do you think that that's going to be limited to the kooky West Coast?
SPEAKER_00:I think, well, the kooky West Coast has led the way on so many things, and I don't mean kooky as a...
SPEAKER_02:I don't either. My first tenured job was at the University of Oregon, and I loved it there. They're
SPEAKER_00:leading the way for right or wrong, but I expect that kind of thing will move across the country very slowly. And across the world. I mean, prohibition hasn't worked very well.
SPEAKER_02:Right, right, right. Well, so we can talk about that some more because this is, prohibition is one of my favorite topics, as you know. Okay, so, well, we've talked about Oregon a little bit, but can you give us just sort of a brief overview of sort of where we are now in terms of marijuana legalization specifically across the states. I mean, I know, so it's completely legal in some states, medical marijuana in others, decriminalized in some, and then, you know, others like for the two of us in North Carolina, it's still completely illegal. So can you give us a brief rundown of what the, what we're looking at right now?
SPEAKER_00:Yeah, and I will be brief. There are now, I think, 15 states that have legal recreational or adult-use marijuana. There are 30-some that have medical marijuana. But what's so interesting is that Canada has legal recreational marijuana. Is that all
SPEAKER_02:of Canada, or does it vary across provinces? All of Canada.
SPEAKER_00:All of Canada. And the provinces have different schemes for regulating marijuana. But it's nationwide, and they did a very good job of putting together experts, studying the thing, and having legislation that reflected kind of the best policy around, at least in tax. I haven't seen what they've done in other things. Canada is... has done a great job. And that's a model in probably in many other ways. Uruguay has legalized-
SPEAKER_02:So much. Canada's a role model in so much.
SPEAKER_00:Uruguay has legalization too, but Canada's the place to watch. I think it's slowly moving across the country and more states will legalize over time. Most of the states, almost all of them that have legalized have come through ballot initiatives. And that's another thing about the West. And in the Oregon psilocybin and decrem ballot initiative, you mentioned that we don't have that in North Carolina either. People can put together a bunch of money and have a vote on whatever idea they have. And that's how it started. It wouldn't have started in the legislatures.
SPEAKER_02:Interesting. I want to come back and ask you about medical marijuana, but I just want to follow this thread for a minute, which is you said it wouldn't have gotten started without ballot initiative. Where and how did it start? Because I no longer remember, although I think at one time I was following it.
SPEAKER_00:Well, every state that has recreational started with medical except Alaska. Okay. Medical is always, whether it's the foot in the door or the Compassionate Use Act, And California started that in 1996 with a ballot initiative.
SPEAKER_02:Okay, so they were the first one to legalize medical marijuana?
SPEAKER_00:Yeah, and it was largely, it was spearheaded to a large extent by AIDS activists who said medical marijuana is good for people with AIDS, with HIV, and so let's let them have it. And then other states followed with medical marijuana. And then in 2012, Colorado and Washington followed with recreational. Those were the first two recreational states.
SPEAKER_02:Okay. Got it. Can you say which were the first two recreational states again?
SPEAKER_00:Colorado and Washington.
SPEAKER_02:Colorado and Washington state. And were those both ballots?
SPEAKER_00:Yes. Okay. The first eight or nine were all ballots.
SPEAKER_02:Okay. Have there been any states that have legalized recreational through the legislature as opposed to ballots?
SPEAKER_00:Yes. Illinois. Yes. Oh, I can't remember how Vermont came out now. I think the legislature passed it this year, and there may be another one. I'm sorry, Kim. It's okay.
SPEAKER_02:No, no, no. It's fine. It's
SPEAKER_00:happening. Oh, New Jersey passed by ballot this time, but some states are getting ready to... go via legislation there. New York, Pennsylvania, Connecticut, they're all looking at it very carefully.
SPEAKER_02:Okay, okay. So I wanted to ask you a little bit about the sort of medical marijuana exception, which, as you said, is how it all started. In the states that still have only medical marijuana and not recreational use, I mean, I assume that that's not an effective distinction, but am I wrong about that? I mean, my sense is that it's just a pretense.
SPEAKER_00:I hate to give such a short answer, but, and I will stipulate that medical marijuana is real.
SPEAKER_02:Well, I agree. I'm not being critical of it, but it just seems there's a lot of bleeding into the recreational market is all I mean by it.
SPEAKER_00:Figuring out who's sick is not something we really want the government to do. And so in many cases, in California, it was a sham. It was pot docks lined up and ready to hand you a piece of paper that said you qualify. Other states have tried to be more restrictive, and maybe they are, but it's a very, very hard line to draw, especially if pain is one of the qualifying conditions. I don't feel so good right now, and maybe I deserve a medical recommendation.
SPEAKER_02:And so this leads me to another question. And again, you can just say, hey, that's not tax. So I don't want to answer it. But what sort of data do we have on marijuana uses for medical purposes and I mean, I know pain is probably a hard one to study, but I mean, do we have sort of good study? Sometimes when things are illegal, we don't have good data on them. Now that marijuana has become legal, I'm just wondering sort of what, do we know more now? And what
SPEAKER_00:do we know? Not much. The U.S. government really doesn't allow studies. So what we have, we have their studies from Israel and the Netherlands. but they're not particularly conclusive. What we do know is that there are some forms of childhood epilepsy that respond very well to some marijuana compounds. And that has been the leading edge for getting medical marijuana or forms of it legalized, and it's kind of the foot in the door. But there's not a lot of great data, certainly not on pain,
SPEAKER_02:Okay. So, you know, one of the things I wanted to talk to you about, one of the things that I'm very interested in is sort of movements from illegal markets to legal markets or taboo markets to accepted markets. And, you know, marijuana is a really interesting industry. case study for that purpose. And I get the sense, and I'd like you to sort of elaborate on this and sort of give me your take. My sense is that it has not been across the board successful in this sense. My impression, and again, you correct any of this that I'm saying that's wrong, that some states intended this to be a revenue generator, and it has not generated the revenue that they intended, and that it was intended to sort of stamp out the illegal market and move people to a legalized market, and that that hasn't happened either in a lot of states, or at least not at the level that policymakers and, I guess, the legal industry presumably would like. And so I would be interested, first of all, in hearing your take on whether that sort of assessment is correct. And if so, what you think is going on there? What's the problem?
SPEAKER_00:This is the transition from illegality to legality is just so complicated. There's so many rules you need and so many people need to change their behavior. But one of the things that happens, I mean, the optimal, and I'll see if you agree with this, Kim, the optimal amount of crime is not zero.
SPEAKER_02:Yes.
SPEAKER_00:We're never going to stamp out the last bootlegger in the hills of Western North Carolina who does it for fun. He's not competing with the commercial market. He can't produce a product of the quality and price that you can get at the liquor store. So he's still going to be there.
SPEAKER_01:Right.
SPEAKER_00:But the, the legal market in marijuana takes years to, to, it takes years for it to deplace or displace the illegal market. We saw that with alcohol prohibition.
SPEAKER_02:I was just going to ask you that. Was it a similarly long process with alcohol
SPEAKER_00:prohibition? It was, I think it was three to five years when victory was declared and the kind of the, the, big scale operators were put out of business and all that's left is these little guys with no teeth in the back woods. And what's happening with marijuana and in different States at different rates, California is a, is a special case. It's tax rate. It's tax burden is lower than that of Washington or Colorado, but it still has a thriving black market for, for a couple of reasons. One reason is that There's a legacy. There are a lot of folks back in the hills of Humboldt County and the Emerald Triangle who did this for years. They supplied the nation. And for them to go out of business because there is a competitor, they're not going to do that. Now, a lot of their production goes out of state, but some of it goes in state to retail. And for a couple of reasons there, too. One is that California has been very slow to license people and has huge regulatory barriers. I mean, you've got to get not only a state license, you've got to get a local license. You've got to get... Is
SPEAKER_02:there some capture going on with that perhaps? I mean, is that part of this? Are they just being cautious or is there an industry capture problem?
SPEAKER_00:There's some of that, but mostly it's... people who want licenses and probably would qualify are still jumping through the hoops. They're still making it happen. And another aspect of that is law enforcement is very tentative in California. They are not going after people and prosecuting them for tax cheating, for selling illegally. The most they're doing is trying to shut down the storefront. And they go in and they shut down the storefront. The business pops up somewhere else. They've resorted to cutting off water and electricity. And that's a far cry from indicting somebody and putting them before a jury. So it's a... Now, efforts, things are moving in the right direction. There are more legal suppliers coming online all the time. The law enforcement is having some success in shutting down. People there are flagrantly... open retail dispensaries in los angeles that that people know they're there um they're not quite they're not advertising themselves as illegal i mean you look at the front you don't know you're the customer you don't know but law enforcement's just having a hard time keeping them from popping back up but they're working on it
SPEAKER_02:okay so i mean i that is very interesting and leads me to a couple of questions i mean i guess one is why law enforcement is so timid. I mean, is part of it that after decades of basically not enforcing marijuana laws, it's kind of hard to come in and say, okay, now, you know, now, now enforce it. We've checked, you know, I mean, that's a pretty big change. And I, I guess the other, you know, we had talked about the comparison to alcohol prohibition, but you know, you bringing up the stories of sort of Humboldt County and these people who have, you know, been in this illegal industry as suppliers for much longer, I think than perhaps some of the illegal, um, alcohol providers were, right? I mean, does that impact sort of the difficulty and the timeframe that we're seeing?
SPEAKER_00:Yeah, I mean, to the last part of that question, yes. Alcohol prohibition lasted only 13 years.
SPEAKER_01:Right.
SPEAKER_00:These folks have been back in the hills for generations.
SPEAKER_02:Right, right.
SPEAKER_00:The first part, you had another point I forgot, Kim.
SPEAKER_02:Just sort of questioning why law enforcement in California, which is what we were talking about, are as timid as they are. It's not surprising to me, given that, I mean, you know, they're not the only jurisdiction that sort of didn't enforce it. many of the marijuana laws anyway, about small possession and the like.
SPEAKER_00:I don't have a very clear answer on that. And one of the things we talked about beforehand was getting some other experts who see it from a different angle than I do. I kind of have a... public policy view, but there are some folks who would, who would give you totally different answers. I
SPEAKER_02:can't. So alert to the listeners. We're going to have another version of this podcast where we're going to have a debate between some folks on different sides. So tune, tune in for that, but okay. Give us in the meantime, Pat, you feel free to give us your view.
SPEAKER_00:My guess is that they, they, I don't think juries want to see marijuana cases now. I don't think they want to, I mean, the industry would like to, the legal industry would like to shut down these rogue operators. But people are, I heard one government official say, you know, people are saying marijuana is legal now. Why are we going after these people? It's legal. And so it's a tough case to bring. That's a partial answer. And I think that's probably true, but I think there's more to it than that. That's resources. And what are they going to, what's law enforcement going to focus on?
SPEAKER_02:Yeah, right.
SPEAKER_00:I wish I knew more.
SPEAKER_02:Okay, right. That's a good answer. We've been talking about California and, again, making the comparison to the alcohol industry where– I mean, so is your sense that outside of California, we're at the level of sort of the– the people in the hills of North Carolina with a still in the backyard? Or are we at the level of sort of real competitors to the legal industry, big producers? It sounds like in California, we've still got big producers, but other parts of the country?
SPEAKER_00:Yeah, I mean, medium-sized producers. Anyway, I think you still have some Mexican cartels. Oregon, Southern Oregon has some of the same players as California. okay but in the in the rest of the country and here i'm going to generalize it's it's not large scale commercial scale growing
SPEAKER_01:okay
SPEAKER_00:it's it's you know a lot of growth renting a house and putting 1200 feet square feet of grow area in there and growing it with lights or growing it out in the out in the countryside but they're not huge operations in the rest of the country much
SPEAKER_02:okay Got it, got it. Okay, so one of the things I wanted to ask you about is that sort of legalizing marijuana, as with legalizing any drug, thing that's previously been forbidden, and especially something that's, you know, a substance like this one, and presumably a substance that we don't want everyone to have access to, in other words, little children, right? I mean, so there must be a variety of issues, policy, legal, and otherwise, that one has to confront. What are some of the issues that these states are having to deal with when it comes to legalization? And, you there must be, hopefully at least there's some diversity in their approach to it. I'd be interested to know. Yeah. So can you, can you tell us a little bit about, about that?
SPEAKER_00:Yeah. Let me, let me think of a couple of them anyway. One, one issue is packaging. Okay. Every state has some rules for what kind of packaging marijuana can go in. And some of them are, it has to be, they want it to be childproof. They want to have dose limits and, They want the warning. They want warnings on there. They want a symbol so that kids can look at it or anybody can look at it and say, well, there's THC. There's the active ingredient inside. This is an intoxicant. They want those warnings to be durable somehow. So that makes a problem for most of the packaging now is very environmentally unfriendly. Because it's so childproof, because it doesn't... It's broken into smaller units so that you can't, states have, some of them have 10 milligrams of THC is the most you can put in a dose. So that makes for small packages.
SPEAKER_02:Okay, so when you said dose limits, is that what you mean when you said dose limits is how much you can sell in any given package?
SPEAKER_00:Correct.
SPEAKER_02:Okay, and okay, you'll have to help me understand the dosing. Is that a lot? Is 10 milligrams a lot, a little
SPEAKER_00:bit? Oh, it's for a medical patient, it's not much at all.
UNKNOWN:Okay.
SPEAKER_00:For a recreational user, it's an afternoon's worth or an evening's worth. I see. Generally, now the drug... tolerance builds up. So the more you use, the more you need. But that's the idea behind it. And whether those Those limits make sense. I have no idea.
SPEAKER_02:And so do you know whether, so if they have these dose limits, as in, you know, a package can only contain 10 milliliters or whatever it is, can you only buy one at a time or are they, can people go in and buy like, you know, a hundred of them at once?
SPEAKER_00:Well, and the states vary on that, but generally, yes, there are limits. Okay. For flour, which is the green part that you smoke, my typical limit is one ounce that you can buy.
UNKNOWN:Okay.
SPEAKER_00:And that led to people, I remember Colorado, so people would go to one store and buy an ounce, and then they'd go to another store and buy another ounce, and then they'd go to another store and buy a third ounce, and then they'd head home to Nebraska. But these are There's a whole game of cat and mouse going on here.
SPEAKER_02:Got it. And so this answer is making me think then that there are different dose limits for different, not sure what the proper word would be, different versions. Yeah, different products, right.
SPEAKER_00:So there are basically two kinds of products. One is flour, which is the green bud that people put in pipes or roll up in joints and smoke. That's typically announced there. The processed products, which are stuff where they take this green plant material and concentrate it. That is, it's no longer green. It's a liquid or a wax. And then they sell it as such, or they incorporate it into brownies or cookies or stuff. And those have dose limits that are typically in the 10 milligrams, 5 milligrams.
SPEAKER_02:Okay. And so vaping products fall into that second category of concentrates, or is that something else entirely? What kind of products? Vaping products. Oh, yeah.
SPEAKER_01:Yeah,
SPEAKER_02:yeah, yeah. Okay. And so that falls into the concentrate. Okay. Okay. So one issue, packaging, that I would not have expected that to be such a big issue, although it makes sense now that you've explained it. What other issues do you see?
SPEAKER_00:Well, where you can sell, and this is almost a, there's so many issues, but this is one that's easy to drill down on. Okay, you can have, where can you sell marijuana? Can you sell it in a 7-Eleven? Well, no. Everybody says now that basically you're a marijuana store only. You can't sell books. You can't, well, maybe you sell marijuana books, but you can't sell alcohol for sure. Everybody agrees on that so far.
SPEAKER_01:Mm-hmm.
SPEAKER_00:It's not, there's no on-premise, typically now, there's no on-premise consumption. That is across the board. Some places, and that may be changing because some places are starting, states are starting to allow lounges where you can consume cannabis on the premises. And that's a new, that's not sweeping the nation yet. That's still pretty controversial.
SPEAKER_02:Are there any states that have done it yet? I
SPEAKER_00:think so. I think there are, and maybe localities. But I think there are lounges in Denver.
SPEAKER_02:So what's the concern about on-premise consumption, that people will drive afterwards? I mean, what's the...
SPEAKER_00:Yeah, and I don't know. Maybe just excessive caution.
SPEAKER_01:It's
SPEAKER_00:that they certainly don't want people to combine it with alcohol. And there are data that show that for driving, certainly combining the two is much worse than either together. By the way, alcohol is much worse for driving than cannabis alone. But combined, they're better. They're worse for driving.
SPEAKER_02:Oh, interesting. So if we have to choose between people drinking and driving and smoking and driving, we would prefer them to smoke and drive.
SPEAKER_00:Absolutely.
SPEAKER_02:Interesting. Why is that? I've never heard that before.
SPEAKER_00:It's a different drug. It has different psychoactive properties.
SPEAKER_02:And ones that don't impair your driving ability
SPEAKER_00:as much. Right. In fact, it makes people drive slowly.
SPEAKER_02:Right.
SPEAKER_00:That can be a danger too.
SPEAKER_02:Right, right. Especially in California, right? Well, Southern California anyway. Okay.
SPEAKER_00:Some more issues in stores is how close can a... to a school? Can it be, how close to another cannabis store? Can it be, how about delivery? How about, and now just until COVID came along, there was no curbside pickup was not on the menu anywhere. And now
SPEAKER_02:that's right. I remember hearing in the sort of early, in the early months of COVID about, um, I don't know if it was statewide or just localities that were permitting delivery that, and they had not permitted that before. You think that will persist after, after we're thankfully at the end of the, the current pandemic?
SPEAKER_00:Yeah. I don't see why it won't. Okay. One more thing. This is kind of an anecdote. The first conference I ever went to was in 2010 and I went to, to, it was in Aspen, Colorado. The, NORML, the National Organization for the Reform of Marijuana Laws, and it was a legal continuing education deal. I got 12 hours of credit for this. One of the lawyers there said, you know, we used to be criminal defense lawyers, and now we are zoning lawyers.
SPEAKER_01:Interesting.
SPEAKER_00:Even in Colorado in 2010, that with medical only law, There were all these local disputes about where can this dispensary, this retail store go. And that's still going on everywhere.
SPEAKER_02:Interesting. So, I mean, some of these, it's interesting. These seem to be some of the issues that confront, I mean, almost anything, either that we are, cautious about, or that we don't want the entire population to have access to, or that we think might bring other externalities with it. Right. So I, I assume that the rules about like how close to another dispensary you can be, um, would have to do with sort of neighborhood, um, concerns. Is that correct? Yeah.
SPEAKER_00:Okay. There's people are, people are, are, there's a huge difference. uproar now about what is this doing to the people who suffered from the drug war from minorities and people of color and disadvantaged populations and do we think of it as a good thing that they have marijuana stores in their midst or do we think that it's a bad thing that they are suffering from the negative externalities by having the store there or that they are benefiting from the economic benefits and It's a dispute.
SPEAKER_02:So I'm actually really glad you brought that up because I probably would have forgotten to ask you about it. And it strikes me as being a really important issue, right? Which is, I'm going to assume, again, I'm sure you know the answer to this, so you can correct me, that people of color disproportionately were affected by the illegal market, right? In terms of enforcement and prison sentences and all. Is that correct?
SPEAKER_00:It is correct. And what data we know about illegal use was that Black folks and white folks usually tended to use about the same amount, but Black folks got arrested a lot more. And the white folks aren't out on the street corner. They've got a big house. They can consume the doors.
SPEAKER_02:Right, right. So that had been my assumption based on the data that we have about other Yeah.
SPEAKER_00:Now, this is the issue of the moment. When Colorado and Washington legalized, this was not on the table. Nobody was talking about social equity, social justice. And now it is the holdup. New York would have legalized last year if it hadn't been for a dispute about who gets the licenses.
SPEAKER_02:Ah, interesting.
SPEAKER_00:There are a couple reasons. ways of figuring out who gets licenses. And this is just the topic of the day. I mean, let me go down a couple of them. One way is that you have the high bidder. Well, that helps wealthy people. Nobody's really gone that way. Another way is a lottery. Just everybody who wants a license, put your name in the hat and we'll draw some. That gets to be tricky for the same reason that what they call on the merits is tricky. That if you set up some government agency to say okay we're going to find the best people to be sellers of marijuana then there are and they pick people and there's there are always appeals and disputes that even happens when lotteries when every lottery has a qualifying threshold that you have to pass to be eligible for the lottery so people and some government official says you're okay and you're not and the ones who said who get told they're not they want to appeal that decision
SPEAKER_02:So the ones that are using this quote on the merit system, what are those merits that they're, what are the things that would cause any of these agencies to think that you're a good marijuana seller?
SPEAKER_00:Well, there are a variety of factors and that is a very hard question to answer. Yeah. Capitalization is one experience in whatever you're doing, whether retailing or agriculture, um, What else is there? There's more to it than that, Kim. I don't have a long list.
SPEAKER_02:That's okay. That's okay. Can you– I mean, is there any talk– okay, so what about the folks who have been operating and supplying illegally? Is there talk about whether they should– I mean, I can imagine arguments that they should get priority in such a system. I can imagine arguments that they should be excluded from the system because they were engaging in criminal behavior. I mean, that, you know, sounds really tricky to me.
SPEAKER_00:And it is. And you, both of those arguments are made. Nobody has really gone in and get, well, I'll back up. Some people have said, yeah, exclude them. That, that a, a, any conviction is, I mean, there are a lot of licenses that it's harder for you to get the license if you have conviction. And so some states are saying, well, if it's a marijuana conviction, we will disregard that. You're on an equal people playing field with everybody else. Some states and localities are saying that is a plus for you, that we are going to evaluate your application with more favor than somebody who doesn't because you're you're among the victims of the war on drugs. So it goes both ways.
SPEAKER_02:Interesting.
SPEAKER_00:And there is a whole social equity movement goes beyond just ex-offenders to people of color, people in certain neighborhoods. Right. People of color that there are, we want to give these folks a leg up. And what happens there is that this is turns out to be this here i'll go out on the limb here and say this is fool's gold in many cases these folks who you know you've got an ex-offender who gets a license to compete with somebody who's got an mba and a trust fund and experience in retail and he gets wiped out uh-huh the the the one the person you're you're trying to favor loses his investment
SPEAKER_01:and
SPEAKER_00:comes up empty handed.
SPEAKER_01:That
SPEAKER_00:is a, it's a huge problem for the idea that let's give these social equity licenses to folks who deserve them as reparations really for the wrong. Right. Go ahead.
SPEAKER_02:No, no. Well, so I was just going to say, I was going to ask you whether like one thing that could, one way that this could go wrong would be, as you said, people who, you know, they put up their capital and then they just can't compete with, you know, the people who have more money, more experience and legitimate business or whatever, more, more networks. But the other thing I, I, would think that could happen and that happens in other areas, right, where we give priority or require, you know, some countries that require a local person that only license their own nationals. They wind up being fronts for some other business.
SPEAKER_00:That's it. You put your finger on it.
SPEAKER_02:Okay. And so we have reason to think that that's happening
SPEAKER_00:here. It is happening more or less. I mean, sometimes, you know, and sometimes you don't. There's a whole lot of fronting and management contracts. And so the profit really flows out of the owner who is, in fact, the owner to somebody who's getting paid by him.
SPEAKER_01:And
SPEAKER_00:there are all kinds of shenanigans that keep that from being a useful model.
SPEAKER_02:Right. And so, I mean, I can imagine an argument that, you know, well, that's better than nothing, right? Because at least the front is getting something, right? As compensation. But I mean, I can also imagine arguments that there are more efficient ways to make reparations than through that sort of system.
SPEAKER_00:And picking one or two, even if it did work.
SPEAKER_01:Yeah.
SPEAKER_00:Picking one or two winners to become marijuana millionaires.
UNKNOWN:Right.
SPEAKER_00:I was on a panel in Connecticut and this young woman said, I'm going to be a marijuana millionaire. And I thought, I don't know, but even if you are, what about the other people? I mean, how does, I'm sure you'll spend broadly in your community, but that's not a, a real solution to the problems that we're facing to have a different set of millionaires.
SPEAKER_02:Right, right, right. Okay. Well, this is, this is fascinating. Any, any other issues that hit you that strike you as being sort of,
SPEAKER_00:of the moment. Yeah. Well, let me, let me back up to a couple of things about licenses and having some, some of my friends have voted for Bernie and, and say that let's have government stores. Let's as we do for alcohol in her liquor in North Carolina. Now there are, there are a lot of problems with the liquor stores in North Carolina. So that gives us an opportunity to start over and make a a better government sale model. Kim, maybe you can work with me on that when the time comes.
SPEAKER_02:Yes, I would love to talk to you about that. This is one of my many pet peeves with the North Carolina system. Are there some states that have gone the government store route or
SPEAKER_00:no? No, there's a little town in Washington that has, but several of the Canadian provinces have. Okay. From Quebec on down. And there are a handful. I can't remember which ones there are. But they are... Canada, by the way, has every... Maybe there's one little province that doesn't do this, but they all have government wholesale operations so that monopoly so that every ounce that's that sold goes from the farmer to a government wholesaler to a retailer which in most in most cases in canada it's a private retailer but in many cases it's a government retail store
SPEAKER_02:okay i didn't realize so it goes from So in all cases, it goes to a government wholesaler, and then in some but not all cases, to a government retailer.
SPEAKER_00:And I think there's one province that it's at one of the western, it's not British Columbia, but it's Alberta or Saskatchewan, one of those, where they have the real libertarian and wild west that they haven't gone that way. But all the others have government wholesale.
SPEAKER_02:Interesting. And so... What's the rationale there, just if the government is the whole– I mean, part of it just could be money. But, I mean, is there some thinking that it will be easier to standardize or something like that if the government has a monopoly?
SPEAKER_00:Yeah, and that you'll have more control over the whole thing, which is seen as a good thing. Another issue is price and that the government can keep the price kind of where it wants it. The whole public health school of thought on this is don't let weed get too cheap. Partly for the kids, that if you can buy it with pocket change, that's not a good thing. Partly for folks who have substance use disorder, who really overdo it, who are... Nobody's addicted is not addicted is a taboo word. So I'm maybe you could bring that up in your terminology. Overdo it and who who would be better off consuming less.
SPEAKER_02:Well, so, I mean, You tell me. I mean, I guess my first response to those people would be to ask them whether we know that those people wouldn't be substituting into something that's worse for them, such as opioids or whatever it is, right? So, I mean, the notion that we don't want weed to get too cheap seems to me it can't take place without considering what the alternatives are and what people's behavior will be in terms of substituting.
SPEAKER_00:Absolutely. And alcohol. leads the list almost i mean you've got opioids too but but right right most of the you'll find it hard to find a public health scholar who says that weed is worse than alcohol
SPEAKER_02:okay right right right um and Speaking again of the COVID crisis, my understanding is that people are drinking much more. And certainly that's the pattern in our house.
SPEAKER_00:And weed consumption, weed prices have gone up too. Yes, okay. The moon market. Well,
SPEAKER_02:people, people have to ease their stress.
SPEAKER_01:Let's not get onto those opioids.
SPEAKER_02:Right, right.
SPEAKER_01:I don't want to tell you what to do.
SPEAKER_02:Let's keep it in the safe stuff. Okay. So, so very little use of government stores, at least so far in the U S it sounds like with this one small exception. Part of it is the notion
SPEAKER_00:that it's federally illegal to, And some of my, I wrote a big report for the state of Vermont. I was a coauthor with eight other people, none of whom were lawyers. And they were the view that, oh, you can't have state stores because it's federally illegal. And I thought, hmm, well, that's not exactly right. I mean, you have, you're collecting taxes, you're setting out regulations. The federal government, my take is that they're not going to come and arrest state employees and put them on trial for send them to jail for selling marijuana at a state weed store, that that was a preposterous argument and it really wouldn't happen. They would say, the federal government would say cease and desist. The state would cease and desist.
SPEAKER_02:I mean, just to play devil's advocate, I suppose one could say that the state might be excused for not wanting to invest in a large operation that remains federally regulated. illegal, even if you're right, and I'm sure you are, that the feds aren't going to come in and arrest you. If they say cease and desist and, you know, the state has opportunity costs and they've invested in this, I can imagine that being a deterrent.
SPEAKER_00:Yeah, there's more deterrent and that it will, long story, LSU in Louisiana and the historically black university there, Southern University, are the growers of marijuana for the state of Louisiana.
SPEAKER_02:Get out of here. I didn't know that. And
SPEAKER_00:they have contracted out, but they are the owners and possessors.
SPEAKER_02:How did that happen? Is that unusual?
SPEAKER_00:Oh, yeah, absolutely. Now, they don't own the stores, but the legislature wanted to do it in a very– this is medical only– They wanted to do the most conservative approach to legalizing they could, medical only and state growing. So there was a lot of back and forth. This is hearsay, but I believe it, that the federal government said to LSU and Southern, if you grow marijuana on your premises, we're going to yank your federal funding for this, that, and the other, which would have been crippling. So that they got into this arrangement where they could contract it out still wouldn't have to go back to the legislature and get a new law passed but they hire people to do it and then they they make the state makes the money from this
SPEAKER_02:right right so i mean do you expect to see some movement on the federal front in the coming years i mean And so it's one thing to say, and again, you might have to refresh my memory of the facts, but I mean, it strikes me as being one thing to say, look, the federal government has a hard enough time doing anything and has bigger fish to fry than to focus on this. And another thing entirely to actually bother with enforcement issues. Which I was under the impression that the Obama administration did, right? Or at least threatened to. No? Okay, so you'll tell the story there. But, you know, I mean, but enforcing some of these other regulations, banking or whatever it is that might then continue to have effects, that strikes me as like they could just ignore it all. And maybe they are, and I'm misinformed about what's going on.
SPEAKER_00:Well, they basically, with a broad brush, they are ignoring it. Okay. From a state legal standpoint. marijuana businesses. And that came in under Obama. Obama, Trump didn't really do much to change it. Now they don't want interstate commerce. They don't want shipments from California to New York. They want, but if you're obeying state law, the federal government basically is not doing much. Okay.
SPEAKER_02:Okay. Okay. Good. So that's, that's good to know. Um, and,
SPEAKER_00:but, but,
SPEAKER_02:Do you expect that state of affairs to continue for the immediate future?
SPEAKER_00:Yeah. Well, we have the Georgia runoffs that will determine if we have a 50-50 Senate and if the Democrats take over. In that case, I would expect a lot of flurry of activity. I would expect the Banking Act allowing marijuana businesses to bank. And now, proceeds from marijuana are... proceeds from illegal activity under the, under the banking laws. And so taking them is money laundering. So the banks won't want to deal with that money. Now there are a lot of credit. This is a gray area. A lot of credit unions will take it. And so it's not, people are not necessarily shut out, but there's still the big banks are not coming in. They're not making loans and the$10 million loan. Is
SPEAKER_02:this affecting the industry? I mean, are people being forced to look? I mean, it's one thing if they go to credit unions, fine, but if they go to illegal sources of capital, then it seems to me that we're sort of... going backwards. Well,
SPEAKER_00:what's an illegal source of capital?
SPEAKER_02:Well, I mean, you know, going to, to, to sort of black market money lenders or, you know, sort of the, the same, the same illegal, the same illegal suppliers that were supposedly trying to stamp out with with these legalization measures.
SPEAKER_00:Yeah. I don't think people are too worried about the source of funds and tracing. It's, it's kind of who gets to be an owner. And, and if you're a, If you're lending and you wouldn't be entitled to a license, maybe we're worried about that. But I don't think of that as– people see that as a problem.
SPEAKER_02:But it seems that we should think of that as a problem, right? If we're trying to make this go mainstream, and part of what prevents it from going mainstream is access to all of the same– banking and capital facilities that legitimate businesses have, then it seems to me that we should be concerned about that.
SPEAKER_00:Okay. Well, a couple of things. And one is how mainstream do we want it? And the public health crowd is going to say, let's keep it down. Let's keep it limited so that folks who want it can get it, but not that it be as prominent as the Pepsi and Coke, the soda business. That gets to advertising, which is another huge issue.
SPEAKER_02:Right. Well, so let's come back to advertising. But I mean, it seems to me that restrictions on banking and these other things should have nothing to do with how widely available the product is or to who, and that we should at least want that part of it to be clean.
SPEAKER_00:I hear you. And the only argument against letting these businesses bank, I mean, maybe there are some, is that it's going to make the business bigger.
SPEAKER_01:It's
SPEAKER_00:going to cause it to rise to the level of an ordinary commercial venture. And there are people who'd like to push down against it and keep it small and keep it in the background. And that's a good thing. Also, I think there's an argument that Opening to banking is going to help the big capital and the folks with good credit ratings, as opposed to the poor folks that were trying to help out with these reparations, who probably couldn't qualify for a loan. But that's a good issue. And banking will be the first domino to fall at the federal
SPEAKER_02:level, I think. Okay. Interesting. Well, so you mentioned advertising. And, you know, because I live in North Carolina, I remember the last time you and I talked about this, how shocked I was at some of the advertising that you showed me. Because, you know, obviously I live in a bubble in Chapel Hill. And so can you talk a little bit about advertising and sort of what the different approach Yeah,
SPEAKER_00:so advertising is, once it's, okay, many states have commercial free speech doctrines that correspond to the federal commercial free speech doctrine. Virtually every state has a First Amendment analog. So the question is, well, what does that allow the state to prohibit?
SPEAKER_01:And
SPEAKER_00:in many cases, the states don't have a lot of freedom to prohibit advertising. The federal First Amendment doesn't prohibit... You can't say the federal First Amendment allows me to advertise marijuana. It's free speech, right? Because you can't advertise sale of nuclear weapons. Right, of all
SPEAKER_02:sorts of things. Right, right.
SPEAKER_00:But the states have these... commercial free speech doctrines that in many cases tie their hands. I see.
SPEAKER_02:So some of the, so some of the state, I guess, constitutions or laws are more restrictive of what the government can do than the federal.
SPEAKER_00:Or at least as, even if it's as restrictive, you get, there's a lot of freedom to advertise tobacco and alcohol. People think that tobacco is not advertised, but that's a result of the master settlement agreement where these tobacco companies who had lied to the public said, okay, along with the billions of dollars we're going to pay, we promise we will not advertise again ever.
SPEAKER_02:I see. Okay, so some of what many people, myself included, may have interpreted as being restrictions on advertising are voluntary, actually. Okay, got it. Okay, so tell me a little bit. So are there, well... I assume that many states would like to restrict advertising. You know, at least perhaps they don't want billboards in front of a school or something like that. So what can they do in terms of restrictions? Yeah, and
SPEAKER_00:it depends on the states are trying different things. And some of them have rules that say, oh, and I can't even grasp this, that if over 30% of your audience is under the age of 18 years, or your intended audience, then that's an ad you can't show. How do you figure that? Some of them will ban billboards. Maybe I can't remember some of the restrictions, but they're not as many as you would think. Some of them have the, how big can the sign be in the store? And some of them make you put up a sign saying, you know, This is for people over 21 only, and that there's a sign of a certain size in the storefront that says that. But there's not a lot of restriction of advertising going on.
SPEAKER_02:Interesting. Well, I mean, it makes sense now that you're explaining it, but I do remember, I just had never seen actually the billboards and the things that you showed me.
SPEAKER_00:I have one on my website that's, I couldn't show. I was given a class. I was appearing at a law professor's class and he wouldn't let me show it. He wouldn't let me show this ad.
SPEAKER_02:What, really?
SPEAKER_00:Yeah, yeah.
SPEAKER_02:I sent them to all my students. It's a class about taboo trades. This is peanuts compared to most of what we're talking about.
SPEAKER_00:I wish I had that image I could bring up now, but I'll send it to you.
SPEAKER_02:One of the things I do, though, is put links to relevant stuff in the show notes. If you send me the specific page, and I'll also have a link to the general new revenue website, but if there's anything else you want me to put a link to, just send it and I'll do that. Okay, anything that I've left out so far that is important? I'm sure there is.
SPEAKER_00:Yeah, a couple things. One is that I'm on the soapbox about keeping these advertising expenses non-tax deductible. This is the 280E, back to the one little... We're back
SPEAKER_02:to 280E. Okay, tell me.
SPEAKER_00:If we can't prohibit them, let's at least make them non-tax deductible.
SPEAKER_02:Okay. And so presumably then we can do that. We're not constrained by any of the Or do we not know? It's an open
SPEAKER_00:question. There's a strong argument that tax deductions are a matter of legislative grace. Now, we've got this 280E now bans all business selling expenses, not just advertising, but the rent on your store and the salary of your retail clerk. You can deduct the salary of your gardener who works in the grow house and digs up weeds, but not the salary of your retail clerk that there have been constitutional challenges against that. They've gotten nowhere. Okay. Single out advertising alone and say only that is non-deductible, but you can deduct the retail rent. There are people who say, well, that's singling out content. And I'd be for saying, well, the same for tobacco and alcohol and gambling and maybe sugary drinks. But I, again, some of my, friends voted for Bernie, so maybe I'm more big government than a lot of people. That's one thing that comes to mind.
SPEAKER_02:Okay. Okay. Interesting. So, I mean, I'm taking from this that currently the marijuana business is, I guess, tax disadvantaged in a number of ways. And it seems to me that there's some tension there, right? Then that makes it more expensive, which presumably makes the product more expensive. And as you've already pointed out, some people would say, well, that's a good thing, right? We don't want everybody just, you know, having access to cheap marijuana, but it does seem to be intent, you know, if, there's always this balancing act, right? Between, you know, if you over-regulate things, then people continue to seek out the black market that we're trying to stamp out. And this comes up with, you know, with many things that, you know, we discuss on this podcast from sex work to alcohol, potentially, you know, just sort of, and so this strikes me as something that policymakers are having to balance.
SPEAKER_00:Yeah, absolutely. And if the tax burden is too high, the illegal market will flourish. Right. Even with all the other problems that the legal market has, that's clear. One thing that we've got going for us is that the price comes down over time. When legal markets first open, prices are sky high. There's very few suppliers online. There's pent-up demand. And over time, in every state, the price has gone down. And maybe it's plateauing now, but there is this long-term price decline. So there's room for taxes to take up more of the consumer final price.
SPEAKER_02:Okay, got it. That's a good point. So what that actually causes me to wonder whether we know what happens to demand over time as legal as it, I mean, presumably there are some folks who either aren't interested in the illegal market or just find it too difficult to access with regularity who would be drawn to a legalized market. Do we know anything about that yet?
SPEAKER_00:And it seems like there is here a broad brush again, but there is, there's some increase in demand. Okay.
SPEAKER_02:I think we would expect that. Right.
SPEAKER_00:Yeah. Yeah. Now the legalization advocates, which I'm kind of one of would say that survey data shows that use among teenagers has not gone up, that it's gone down or, or stabilized while use among adults, especially older adults.
SPEAKER_02:Right. I think I did see actually some of those surveys that you're referencing. So do we have, I mean, survey results often have a variety of problems because it's self-reported and, among other things. Do we have reasons for that concern here with
SPEAKER_00:teenagers? Not that I know of. There may be, but not that I know of.
SPEAKER_02:Right. In all of these jurisdictions, is use legal among teenagers?
SPEAKER_00:No, no, no. No. It's 21 everywhere in the U.S. And Canada has a lower age limit in some provinces, but it's never lower than 21 here because of the federal 21 rule for
SPEAKER_02:alcohol. Okay. All right. Anything else, Pat?
SPEAKER_00:Okay, Kim. Thanks. Listen, thanks for having me.
SPEAKER_02:Yeah, thank you. And I intend to have you again, and we'll debate
SPEAKER_00:some of these issues. We'll have somebody who knows more than I do.
SPEAKER_02:There is nobody who knows more than you do. Come on.
SPEAKER_00:Their opinions are no less strong, so I guess that'll qualify them.
SPEAKER_02:Thank you so much for doing this. This has been tons of fun.
SPEAKER_00:Thanks. My pleasure, Kim. Great fun for me. Great fun.
SPEAKER_02:Okay.
SPEAKER_00:Thank you.
UNKNOWN:Bye-bye.
