Mises Institute: Colorado’s New Cannabis Economy

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This article, written by Mises Daily editor Ryan W. McMaken, was originally published by the Mises Institute on Feb. 20. 

What would have happened if one or two States had somehow managed to legalize alcohol during Prohibition? Most likely, those States would have become centers of entrepreneurship with retail outlets, medicines and innovation in equipment, machinery and other forms of capital related to alcohol-related industries.

With the recent legalization of recreational cannabis use in both Washington State and Colorado, we’re able to see a similar experiment in action.

While the 18th Amendment prohibiting alcohol production and sales precluded State-level legalization, Federal drug laws enjoy no such Constitutional backing. On Nov. 6, 2012, Amendment 64 to the Colorado State Constitution was approved by Colorado voters in the form of a popular ballot initiative. The amendment mandated that “the use of marijuana should be legal for persons twenty-one years of age or older and taxed in a manner similar to alcohol.”

Moreover, the amendment mandated that industrial hemp be legal and that “all parts of the plant” plus seeds, oils, extracts and other forms of cannabis be legal as well.

Also legalized were “marijuana accessories,” including “any equipment, products or materials of any kind which are used, intended for use, or designed for use in planting, propagating, cultivating, growing, harvesting, composting, manufacturing, compounding, converting, producing, processing, preparing, testing, analyzing, packaging, repackaging, storing, vaporizing, or containing marijuana, or for the ingesting, inhaling, or otherwise introducing marijuana into the human body.”

The amendment was certified by the Governor or Colorado on Dec. 10, 2012, and the recreational use of cannabis has been legal under Colorado law ever since.

Amendment 64, with all its language covering “equipment, products, [and] materials,” hints at the economic complexity that has always existed behind recreational drugs, but which now, in a limited case in a limited jurisdiction, has emerged from the black market and underground operations into the light of the larger marketplace. The cannabis market is not simply a matter of putting some leaves in small bags. The new legal market, instead, is a market with far better quality control and accountability on the part of merchants. And it means economic growth for many industries that have never traditionally been connected with recreational drugs.

Supporting the cannabis merchants are a wide variety of enterprises from distribution warehouses to financial institutions, attorneys, short-haul truckers and more. The new demand for commercial real estate to serve the needs of both producers and retail outlets has created a need for real estate brokers who can specialize in the cannabis industry, while attorneys assist with the drafting of legal documents and accountants must be hired to keep track of the money. Unfortunately, many of these industries must continue to be wary of Federal law, even when State law is clear on the matter. Banks, specifically, which are regulated at the Federal level, only recently were given the green light by Federal regulators to open accounts for cannabis-related businesses. The legality of this sort of banking remains on shaky ground, however, and many banks remain loath to participate, thus crippling the financial and banking opportunities for the cannabis industry in Colorado and Washington.

All of those private-sector actors, from retail clerks to insurance brokers, are making money from the cannabis economy; yet many business leaders and politicians still mock and disregard this new entrepreneurial activity with a dismissive wave. This includes the Metro Denver Chamber of Commerce, which unconvincingly claims to work for the expansion of business opportunities in the region. The Chamber chose to support the ongoing heavy-handed prohibition of cannabis businesses because legalization in Colorado, according to the Chamber, is an effort to “to profit from the legalization of marijuana at the expense of… children.”

On what grounds is this attitude by politicians and anti-cannabis activists justified? Their activism against cannabis is, the overwhelming majority of the time, purely arbitrary.

Suppose for example, that a pro-cannabis activist were to compile information on all the jobs, tax revenue and capital that has been created in Colorado and presented such information to other States as an argument for legalization. We can probably guess what would happen. In many cases, the information would be dismissed and ridiculed, with politicians and chamber of commerce executives claiming that they don’t want such unhealthy and “dangerous” products in their State and that people who consume such goods are lazy or criminal.

Yet such people never apply similar analysis to other products that are arguably far more dangerous, costly and counterproductive than anything turned out by the cannabis industry.

There can be little doubt that officials in Texas and Georgia, for example, are extremely happy about having Frito Lay and Coca-Cola in their States, respectively. In each case, State officials and their cronies in the business sector no doubt sing the praises of all the jobs and economic activity brought to the State by the snack-food and soda industries.

Yet one could easily argue that these industries are far more detrimental to American consumers than cannabis is or has ever been. Obesity-related conditions kill nearly one in five Americans, and cannabis kills almost none. Using the logic of the opponents of freedom in this matter, could not one argue that such industries provide nothing more than an opportunity for people to ruin their health while receiving virtually no nutrition in return whatsoever? How many hundreds of millions of taxpayer dollars are wasted each year through Medicare and Medicaid to finance the diabetes drugs for the soda and snack-food consumers (including children) who are sent to their graves far more quickly by the good people at Frito Lay and Coca-Cola? Indeed, Coca-Cola Corporation once explicitly sought to convince consumers to drink fewer healthy beverages such as milk and water, and drink soda instead.

Likewise, Missouri officials don’t seem keen on disparaging Budweiser beer in spite of that product’s many connections to domestic violence, alcoholism and fatal car accidents.

We can be fairly certain that the Metro Denver Chamber of Commerce would fall all over itself to welcome any of those industries to Colorado.

Meanwhile, however, the cannabis refugees who move to Colorado to buy real estate, invest in local enterprises or seek better healthcare for their children are simply regarded as borderline criminals and not as serious economic actors. The industry that attracted that capital, both human and otherwise, is to be regarded with suspicion.

I don’t mention drunk driving and obesity because I think government can or should solve those problems, of course. I simply point out that the standard by which the cannabis-haters measure the cannabis industry is rarely applied to other industries that can be shown to have economic benefits, but which can also be shown to impose heavy costs on society in other forms.

And naturally, none of this analysis even touches on the many other benefits not directly connected to the cannabis economy. For example, those of us who have no interest in consuming cannabis no longer have to worry that some imprudent house guest might leave cannabis on our property or in our cars, thus exposing us to criminal charges (at the State level). The industrial hemp economy, which we don’t even have room to discuss here, offers myriad other economic benefits totally unrelated to recreational drug use.

In a free society, it’s not up to business “leaders,” politicians, or the arbiters of public decency as to which industries shall be lauded and welcomed, and which shall be ignored and shunted aside. It is the market, which far more reliably reflects the true preferences and desires of the population than any political process, that is the one objective and honest measure of what it is that the consumers and taxpayers want. If consumers don’t want the cannabis industry in Colorado, it will surely shrink to insignificance. If, on the other hand, consumers do in fact want it, lawmakers possess no economic or moral grounds to declare otherwise.

–Ryan W. McMaken

Ryan W. McMaken is the editor of Mises Daily and The Free Market. Send him mail. See Ryan McMaken’s article archives.

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