Jon Gettman Weighs In On Legalization, Taxation, and Cultivation

A:  I have no idea. While we talk, I can look up something I did on the subject earlier. But the fact is people will smoke 20, 40, 60 tobacco cigarettes in the course of a day. Most people hardly smoke one or two marijuana cigarettes in the course of a day. There are some very heavy marijuana smokers who smoke the equivalent of 4 or 5 cigarettes in a day, but under any comparison, the amount of marijuana that people consume is a small fraction of the amount that tobacco consumes.

Leaving aside the differences in the plants, alone, the amount of acreage involved for marijuana cultivation is a lot lower than tobacco. I mention the plants because marijuana can be a tall, five to seven foot plant with a radius of several feet with lots of branches and budding sights on it. Tobacco is a short squat leafy plant.

A:  No, although the indoor crop has been growing considerably over the last five years. For example, DEA seizures of indoor marijuana crops have gone up three fold over the last five years. The long term trend in marijuana cultivation is sort of interesting. It’s been kind of a cat and mouse game. Originally, of course, circa mid-sixties, mid-seventies, most of the marijuana in the United States was brought in from other countries, from Mexico, from Jamaica, Colombia. Occasionally you’d get some good marijuana from Thailand, at one point Thai sticks were quite exotic and quite valuable.

And after the paraquat scare in the late 1970s when the US government sprayed herbicide in Mexico, and growers were harvesting the crops prematurely, and American consumers were worried that the marijuana they were growing had been tainted with this herbicide, Americans started growing marijuana here themselves. Originally it was grown in just a few states, primarily California and Hawaii and so what happened was first people were growing large fields in a few states, government started eradication programs.

As people started growing in more states, the eradication program spread to more states. Then people started growing smaller plots and getting a greater yield. They started cultivating sinsemilla – seedless marijuana. They started paying attention more to individual plants. They started growing on fence lines, in little groves here and there. The production atomized.

And as the production spread through more states, the eradication program spread through more states. As production got more intensive, the eradication program got more intensive. At one point the government started seizing private lands, so people moved on to public lands, growing in national forests and national parks for example.

As part of this action/reaction cycle between growers and law enforcement authorities, two big developments came out. One, a higher quality, more valuable crop was produced, and second, cultivation moved indoors. And even there, we get this action/reaction cycle. For example, there are federal mandatory minimum penalties for growing over a hundred marijuana plants.

So many growers set up operations that produced 90 plants at one site and 95 plants at another site and so on. What’s happened over time is that operation has decentralized to such tremendous scale that it’s virtually impossible for law enforcement to eliminate domestic marijuana cultivation.

A:  Only really in California. The California Department of Health has a website where they note how many identification cards they have issued verifying how many people are marijuana users. But I don’t know of the dispensaries actually collecting data at this point on their clients and what their consumption levels are.

There’s still this tricky conflict of federal law, and I think there’s a problem producing too much data that might be used against them in some federal case. And of course the medical marijuana trend, while prevalent now in 14 states is still evolving, it doesn’t represent a significant part of the market. The federal surveys, there’s some odds and ends about them, there’s some issues with them. But they do provide a good baseline picture of what consumption is.

A:  That is true, a one gram joint would be a relatively thick one. On the other hand, the half gram joint, which is the standard the feds use all the time in court cases. . . btw in court cases the federal government overestimates the yield of a marijuana plant and they underestimate the amount of marijuana that goes into a joint which creates some interesting exaggerations of potential consumption levels. That’s sort of a sidetrack issue.

Look, the California training materials for police officers identify a matchstick thin joint as being about half a gram. I like the ¾ of a gram figure as being a middle ground and sort of realistic about what I think people use.

A:  Not at all. I mean I’ve been producing papers on domestic marijuana production for, geez, 22 years, so I get a certain level of press attention for those reports every now and then. When the last crop report came out, the report got considerable attention surprisingly around the world. So it’s gratifying that the information I’m putting out is getting out there and getting to people.

But otherwise, as far as what I do, I produce reports like this related to the marijuana industry every year or so and as someone who teaches on the university level, it’s good to have some publications out there. So in that respect, it’s had a positive professional impact. But really what’s gratifying to me is to contribute to this ongoing debate about our marijuana laws and have an impact.

A:  Well that’s a question of what date and time we’re talking about. It looks like we’re getting some in Washington DC some time in the next 12 months. That’ll be a very interesting development. People have usually associated dispensaries with the west coast. Now that the DC program is finally going into effect, it’ll be the first dispensary program on the east coast.

It’s going to be particularly interesting and influential because it’s going to be here in our nation’s capital. It’s going to provide the eastern media and the eastern political establishment and, more importantly, congressional staffs and representatives with direct exposure to this new policy information, if you will.

A:  Yes, that’s just a discretionary policy of the Department of Justice. Now there is a very important development that’s shaping up right now. I’m working with some non-profit organizations like California NORML, Americans for Safe Access, we have filed an administrative rule-making petition to have marijuana rescheduled.

Now this is not a well-known process, but administrative rule making is how regulations get made by our government. Congress a long time ago created provisions by which the president or his agencies could change the rules when it comes to federal marijuana policy. The Controlled Substances Act have five schedules. Marijuana’s in Schedule 1, the most restrictive schedule. The other schedules do recognize medical use. There’s a different level of regulation based on the abuse potential of the plant.

Anyway, we petitioned the government many years ago to have marijuana removed from Schedule One. The petition itself is actually a statement of scientific findings. We filed this in 2002. It’s a very lengthy process, in fact the FDA has spent three or four years examining all of the science that we brought to bear in this petition, and they’ve recently transferred this matter back to the DEA and they’ll make a decision on it within the next year. I have no idea what the government is going to decide to do.

We’re hoping that they will recognize that it’s time to start providing some regulations and start accepting the fact that marijuana does have an accepted medical use in the United States. But if they don’t recognize this, if they reject our petition, we get to go to court over it and have this reviewed in the administrative proceedings or judicial review by the federal courts. So the Obama administration will have the opportunity in the next two years, they’re reviewing this right now, to reconsider federal policies toward medical marijuana.

We’re hoping that they continue to move in this direction. They’ve already indicated support for some of these state-level innovations and we hope that they’ll start narrowing the gap between federal law and state law.

A:  (laughs) Simply a matter of retail vs. wholesale. First of all, I used a slightly different estimation model. In the earlier paper, estimating domestic production, the idea there is to compare the price farmers get for marijuana with the price farmers get for crops like corn, wheat, soybeans, etc. So it’s the wholesale price to make this real simple. And also, that earlier paper was based on just American production of marijuana.

Lost Taxes produced an estimate of the size of the entire marijuana market, imported plus domestic, and also at a retail price. So the two figures aren’t as widely different as they may look at first glance. Again, I use a little bit of a different model to estimate the amount. But $35 billion domestic wholesale. . . you add in the marijuana brought in from overseas and then you go to a retail price. . . and you get something quite similar to $113 billion, the figure I have in the Lost Taxes report.

And frankly, given the estimates of how much marijuana is on the market, I think in Lost Taxes I use the figure of about 13,000 metric tons of marijuana. With the prices that are quoted by police officers, you can go to Google News and put marijuana there and on any given day you can come up with dozens of articles about police seizures and arrests of marijuana users and inevitably there’ll be someone in there talking about how marijuana is a $4,000  plant or plant commodity. I think that’s a high price, not necessarily an average price. . .

A:  I still think that there’s between 10,000 and 15,000 metric tons on the US market. The 24,000 metric ton figure you mentioned. . . the MAWG was a government panel and they used. . . there aren’t too many estimation techniques out there for this stuff.

They used the same one that I’ve been using for domestic marijuana production for a long time. We seize a certain number of plants, and we make an estimate as to whether we seized 10%, 20% or what percent of the whole crop did we get. Now one of the things that people do when they make these models is, they come up with a low estimate, a medium estimate, and a high estimate – no pun intended. The 24,000 was their high estimate. I think that was based on the premise that only 10% of the crop was seized. Then they have a lower estimate based on the premise that a higher proportion of the crop was seized.

The figure that I came up with in Lost Taxes. . . I looked at the different reports that were available and I took the average from them. One of the things that we do when we do model is we say OK, we’ve tried to come up with an estimate that’s consistent with all the available data. We don’t know what we don’t know – sounds like an obvious thing, but it’s an important principle of modeling.

A:  A model is a mathematical formula, based on a relationship between certain variables, between certain concepts. You know how long it takes to drive to the grocery store based on the speed limits, based on the speed of the car, based on the amount of traffic at the time of day you’re traveling. You can estimate that by some kind of equation that uses the relationships between those concepts. An example pertaining to marijuana would be quite simple.

For example, the government has seized about 100 pounds of marijuana and the government concedes that they seize about 10% of all that comes into the country. Therefore if 100 pounds are 10%, therefore 1000 pounds came into the country. When you look at how much the government seizes, you can multiply that by 10 to come up with a fair estimate of what the total supply is.

Another model is the government seized 100 pounds of domestic marijuana and that might be one fourth of all that was grown, so again, the same process applies. These are very simple models. And I’ll tell you something, the more complex a topic is, the more useful simple models become.

There’s something called the Law of Large Numbers – at some point, a lot of things cancel out. You can come up with a dozen factors that might affect this, 6 might be negative, 6 might be positive, they kind of balance each other out. Now one of the things that people do when they play with statistics in this fashion, and I’m sorry, but it is play, it’s what we call an educated guess we also say “we know that the number we’re trying to estimate is in this general region – another cliché is a “ballpark estimate.” Sometimes we know the maximum size of the ballpark.

That’s where the issue of marijuana consumption comes in. Like right now we’re talking about estimates of supply. Generally these are assumptions based on very limited data. We have to balance whatever we come up with in this supply estimate context with whatever estimates we have of consumption.

If we’re going to say, as I do, that there’s 14,000 metric tons of marijuana on the market, then we have to reconcile that with survey data to say “how many people are consuming marijuana” “How much are they consuming and can we account for all that marijuana. It is kind of a funny thought. Like OK, we got 30,000 pounds of marijuana here, how long will it take x amount of people to consume it? Well, gosh, to have such problems!

But that’s the nature of the intellectual exercise, if you will, what data do we have about supply, what data do we have about demand or consumption, and how can we link them together? The problem is, we don’t have an inventory, an audit, a census – of all the marijuana that’s coming into the country or grown here. It’s not like it’s registered in a warehouse and it’s brought to market. At the same time we have better, but very limited data, about how many people consume marijuana.

A:  The official estimate is about 25 million. We have about 15 million people who use marijuana regularly on a monthly basis and about 6 or 7 million that use it on a daily basis. I think that’s a solid estimate, it’s produced by an excellent survey. I do think it’s a bit low. I think non-reporting is a problem. I think a lot of people who use marijuana frequently are not likely to be a part of that overall survey sample.

There’s some evidence with studies of people reporting tobacco use, that people are hesitant to admit to an unpopular practice. Tobacco surveys underestimate usage by about 25%. I’m telling you that this model doesn’t account for all the marijuana that is on the market. It’s a challenge to bridge these demands and these supply estimates. So I think that this surveys by NSDUH (National Survey on Drug Use and Health), is an excellent survey, it’s one of the best in the world. I think it provides a minimum estimate of how many people use pot.

A:  Yeah. But let me give you a perspective on this. Let’s look at it in a very broad, general sense recognizing all these little hair-splitting issues with the data and so forth. Right now, for the purposes of this conversation, let’s say that marijuana is a $100 billion retail-valued consumer industry. Now, if marijuana were legalized, the price would drop. Usage probably would go up. And to what extent those two forces interact with each other, this is the issue that economist call elasticity. . . I tell you it’s anyone’s guess.

We have surveys with tobacco users that show that when we raise the price of tobacco, usage goes down. This is basic economics. Prices go up, consumption goes down, prices go down, consumption goes up. So there’s equilibrium there. My argument is that the marijuana market is so inflated because of it’s illegality. I mean the costs of production of pot are miniscule compared to the prices people are paying for it.

So legalization’s gonna collapse the market by bringing the price down. It’s gonna bring it down considerably. I would and do argue that there’s a number, I don’t know what it is, people can talk about it and speculate about it. There is a number that people will pay for pot that’s a lot higher than the actual production cost and a lot lower than the price of marijuana is today.

And to be more specific, we can deflate the marijuana market from $100 billion to say $50 billion. And that $50 billion, half of that might go to the growers, and half of it might be a tax to the government. There’s some numbers that the marijuana consumers are willing to pay government, in taxes, in exchange for legal marijuana. And I suggest that we can find a number that is large enough to be an incentive for the government to adopt legalization but it’s low enough that marijuana consumers will be better off because they’ll be paying less for marijuana.

A:  This is the point I’m getting at. Whatever the tax structure is, it has to come up with a price at which producers and consumers both prefer a legal market to an illegal market. Because we can’t control the market through arresting people. So we need voluntary compliance. And there’s a point where market forces are going to determine all of this.

But I’ll tell you something. I live in a rural area, there’s land. People can grow their own marijuana. But when you’ve got major cities like LA, like Dallas, like Miami, cities like NY, like Boston, like Detroit, yeah, people can grow marijuana indoors. People can grow a lot of tomatoes indoors. They grow a lot of tomatoes. There’s going to be a retail market for marijuana. And market forces are going to create a price by which everybody is happy.

There’s a tax that the government collects on it, producers make adequate amounts of money, if not generous amounts of money, and consumers are paying less for marijuana than this crazy, illegal market that we have now. And that scenario – a legal market with a fair profit and a reasonable tax and a lower retail price makes a lot of economic sense. And it doesn’t matter whether it’s a $100 billion market now, or a $50 billion market or a $10 billion market now, the fact is this scenario makes a lot better economic sense than what we have happening now.

What we have happening now is too expensive. It’s too expensive for consumers, it’ too expensive for taxpayers, it’s too expensive for society, and depending on what one’s values are, perhaps worse of all, it’s too expensive for medical patients. Medical patients should not be paying these prices.

A:   Perhaps. I’ll tell you, when you get into global trade, why do we buy TVs from Japan and shoes from Indonesia? We sell a lot of corn, rice, and wheat around the world. Well, we can grow corn, wheat, and rice cheaper than most countries. Other countries can make TVs and shoes cheaper than we can. Countries have a comparable advantage with different commodities. The market’s going to determine a lot of this stuff.

Now, if we can grow marijuana more efficiently and economically than other countries, then we’ll be exporting it. On the other hand, if other countries can grow it cheaper than we can, then we’ll be importing it. We produce wine grapes here and we also buy wine from France. You’re going to have a similar situation with marijuana if it were legal. But generally speaking, Americans can grow marijuana, and if we can grow it for our own market, I don’t see us importing much.

By the way, I found the data we were looking at a while ago. If you assume a production of 775 pounds of bud per acre, and you assume that Americans go through 37.5 million pounds of marijuana a year, that would take about 48,000 acres to grow. That’s 12% of America’s idle crop land. Basically, 50,000 acres could supply all the marijuana that Americans consume today. Now, again, these are really general estimates, and they’re based on certain assumptions about how many plants per acre, how much space between rows, based on the premise that you’re growing outside while some people might prefer marijuana grown inside.

A:  Yeah. Beause conservatives are much more free-market oriented than liberals are. Conservative tend to reject the “nanny state,” the idea that government should decide what’s best for us and make decisions for us because we’re not capable of making those decisions for ourselves. That’s a pretty standard conservative statement of their values. Prohibition in some respects is a progressive policy. It came out of the progressive era of the ’20s and ’30s. It was based on the premise that marijuana is bad for people so we shouldn’t be allowed to use it or sell it.

We call it prohibition for a reason. It followed alcohol prohibition. Alcohol prohibition was put into effect during the presidency of Woodrow Wilson at the high mark of the progressive politics in the early part of the 20th century. It is a “nanny state” policy. I’ll also point out the fact that when it comes to the constituencies affected by marijuana prohibition, this becomes a liberal issue. Marijuana arrests impact on minorities at a far greater rate. The arrest rate for blacks I think is about 3-5 times higher than it is for whites.

So as far as who’s getting affected by prohibition, those are constituencies of the Democratic party and liberal politicians but when it comes to the ideology and the economic impact of this it’s very consistent with conservative policies and many of the policies of the Republican party though not ones that are a priority in this climate. It’s an odd contradiction. And it might be one of the reason that its taking medical marijuana states to move this issue along, because left to their own devices, our political leaders don’t want to touch this. They have other priorities. They wish that we would just go away and not force this issue. Fortunately, many people aren’t taking that advice, and they’re standing up for their rights, and they’re trying to find new policy approaches to this issue.

A:  Remember, Libertarians are some of the best friends marijuana reformers have in the political area. Libertarians don’t have much political influence, but they are a significant force in conservative politics. Ron Paul, for example, has been a stalwart supporter of marijuana legalization for many years. In fact he spoke at a NORML conference when I was NORML’s director, it must have been 20 years ago.

So there are a lot of supporters in conservative circles. The National Review has been extremely consistent in supporting marijuana law reform over the years. Many people don’t realize that. But there are a lot of conservatives who acknowledge the convergence of these ideas and theirs.

A:  Well, we’re talking about economics here, and in economics there are always limits. But I think it is an incredible boost. I think it is changing public opinion, and I disagree with the notion that we can’t measure it. We do measure it. We measure it in opinion polls about marijuana legalization. And those polls show that the issue has taken great strides. Public support for marijuana legalization is growing. I think the legalization is virtually at a 50-50 level. I think half of Americans now support legalization. When it comes to medical marijuana, I think we’re at 70-75% level of public support.

Translating that into political support remains a challenge. But I think we are getting our message out into the public. Part of that is the demographics. . . I mean I’m in my 50s now, and a lot of people my age who are now “the establishment,” we grew up in the 60s and 70s and whether we use marijuana or not we have, in my opinion, a much more sensible outlook about it. It’s not as foreign, strange, odd, peculiar, or unfamiliar as it was to people say 20 or 30 years ago. And the more this issue is “personalized,” to borrow a phrase from a different civil rights movement, the more it comes out of the closet the more human and humane people are about this, the more tolerant and supportive they are of reform.

I think most Americans are somewhat ambivalent about adult marijuana use. I think the only thing people are concerned about is teenage drug use, marijuana use in particular, and I think that many American adults think that the laws we have, as contradictory as they are, they think that’s the best way to keep drugs away from kids. Now I disagree with that. I think the profit incentive, the high prices for marijuana encourages teenagers to sell pot to each other. It makes the situation worse in high schools and I think that eventually that’s going to be the factor that changes public opinion.

I think that’s the remaining obstacle, that people think that saying it’s bad, saying it’s illegal, exercising more discretion when it comes to arrests and sentences for people , they think that’s the best way to send a successful signal to young people. I disagree with that but I think that’s the crux of the challenge before us right now.

A:  It never hurts to have a couple hundred thousand people on a demonstration in DC. But I don’t know if that’s feasible to do. Look, there are people in the movement that have been arguing about this for 25 years. When you get thousands of people together in support of marijuana laws of course. . . a lot of them smoke pot. And on one hand civil disobedience has an illustrious history in our culture. On the other hand, it distracts the media from the content of the demonstration to “oh, look at this circus.”

I remain more supportive than I am critical of demonstrations. I think they’re useful. They demonstrate public support. They demonstrate solidarity and commitment by activists. They indicate momentum. They provide a rallying point for what I call the “natural constituency” for this issue. At the same time, the challenge is as much an intellectual issue, that is to take this media interest and use it to communicate with different groups, to communicate with people who don’t use marijuana but who have an interest in this issue based on their values, based on their concerns for their kids, based on their concerns about the economy, based on their concerns about our growing national debt and even the immediate problems that states have balancing their budgets each year.

And I think the challenge is really is to reach out to other Americans and say, look, this issue is something that we need to attend to now. It’s not a low priority. And if you’re concerned about education budgets, if you’re concerned about drug abuse, if you’re concerned about fiscal sanity, if you’re concerned about having enough police resources to go after child molesters or people who commit violent crimes, there are a broad list of issues that would benefit from marijuana reform. We need to reach out to these other constituencies.

I think we need to generate some money to address all the shortages you talked about. First of all, are you going to write another big paper any time soon?

I do this every year or two. I’m not sure when I’m going to return to these economic issues. I just finished in the last year a rather massive report on marijuana arrests. I have some thousand-plus tables on local arrest data regarding marijuana –

A:  It’s more a question of how could we get better data. There are two revenue streams. One of them is the amount of money being spent on pot being spent on other stuff and the taxes that regular sales produce. Sales tax, payroll taxes, corporate profits, etc. The other revenue stream is what we call sin taxes or excise taxes, the additional taxes that we have on alcohol or tobacco and in this case marijuana.

To address the issue of getting better data, there may be a way to collect data from dispensaries after they’ve operated for a while. There’s potentially a way to see what they’re collecting in sales tax as a way of modeling what would happen if similar policies were in force in other states. There’s a possibility of using data from the dispensary in California and Colorado for example and using that to provide a much more specific and detailed estimate of current tax revenue and projections of tax revenue.

A:  Again, I shy away from a revenue number cause I just don’t know what the consumption versus price issue’s gonna be. Right now I’m comfortable with saying it’s costing us $40 billion a year. And I’ll tell you something. We can speculate all we want about the potential money that will come in when marijuana’s legalized, but that’s imaginary money.

One reason I focus on the fiscal costs is that this is money that the government’s losing out on today. It’s not imaginary. This is lost money. This is directly hitting everybody’s wallet. It’s hitting every government’s balance sheet. This is real and it’s now.

The potential tax revenue is important to evaluate as a policy, it’s important to evaluate its economic impact, it’s important to evaluate costs vs. benefits. It’s not a trivial exercise to try to evaluate this stuff, it’s extremely important. But the losses. . . these are tangible. . . these can be estimated with a greater degree of reliability and they show an immediate impact on people. People are paying higher taxes these days, or getting less services, because marijuana’s illegal. That’s the situation as we speak. And that’s not gonna change until marijuana’s legalized. And just by eliminating this incredible drain on government’s revenue, that’s a pretty persuasive argument, at least in my opinion, for legalization.

A:  Yeah, it’s interesting, there’s a report by the Institute of Medicine About Medical Marijuana, a 1999 report, and in their appendix they report that marijuana’s legal status as a banned drug discourages information about its use in pharmaceutical products. I’m glad you brought this up. I don’t agree with the widespread belief that large pharmaceutical companies are opposed to legalization cause they want to make the money themselves.

My feeling is that the potential of making refined pharmaceutical drugs based on tinkering with the THC molecule and other synthetic cannaboloids that could be developed. . . I don’t think there’s any competition at all between those substances and people being able to grow and have access to marijuana legally.  And as a consequence of that evaluation, there’s a lot of money to be made by developing highly refined pharmaceuticals based on the chemical ingredients in marijuana. Yeah, there’s billions of dollars there.

I don’t have the data or the models to estimate that. That’s a bit beyond my capability at the moment. But I’ll tell you something, the companies that have already done research in this area – they have an idea how to estimate that stuff and frankly I’m sure that quite a few companies have given a lot of thought to what the profit potential of marijuana is. What activists have to do, and those of us who study this issue, we have to create a public climate by which people are more comfortable pursuing their own self interest. I think everything will accelerate.

A: Absolutely. It would lower the security and research costs. For one thing, any cannaboloid now would be a Schedule One or Schedule Two drug and that would be the most restrictive, meaning having the most complex and most costly regulations. For example, there are very, very strict policies for Schedule Two drugs about extending people’s prescriptions. You have to go to the doctor’s office, it can’t be done by phone, things of that nature. And the plants where the drug is developed have to have the highest levels of security. The distribution network has to have the highest levels of security. It’s very very cost prohibitive.

So the more lenient the regulatory burden is the lower the fixed costs. Also, there’s this notion that marijuana is a banned drug. So there’s a stigma attached to it that perhaps puts a drag on the possible profitability of cannaboloid type drugs. So a loosening up of the regulatory environment would increase the prospects and the confidence that companies have in developing cannaboloid drugs. It would lower the risk of development. And developing pharmaceutical drugs is a very investment-intensive operation. There’s a lot of money that goes into R&D and a lot of money that goes into testing. Companies need to have some assurance of recouping investments and making a profit.