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Colorado's May Not Be the Best Way to Legalize Pot

Leonid Bershidsky is a Bloomberg View columnist. He was the founding editor of the Russian business daily Vedomosti and founded the opinion website Slon.ru.
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Marijuana is less of an issue in the 2016 election campaign than could be expected: This is, after all, the first presidential race after Colorado and Washington state legalized the recreational use of pot. That could be because the costs and benefits of legalization are not obvious yet, or because it's already too late to strangle an entire emerging industry that is taking its first steps toward political influence. 

Marco Rubio and Ben Carson are the only candidates still in the race who say unequivocally that as president, they would enforce federal laws against marijuana possession in the states that have legalized recreational use. Donald Trump, Ted Cruz and John Kasich say it’s a states' rights issue. Bernie Sanders would even allow marijuana businesses to use federal banks. Hillary Clinton says she's watching the Colorado and Washington experiments with an open mind.

QuickTake Up in Smoke

Andrew Freedman, Colorado's director of marijuana coordination, told me the jury is still out on the Colorado experience. "We need long-term data," he said. "Short-term it's mostly good news, though there are some worrying trends. Last year, there was a slight crime uptick, but we can't be sure of the causation. Emergency visits by out-of-staters have gone up. What's clear is that it's paying its own way as far as the immediate costs are concerned, but we need to watch it for five to 10 years to be sure."

Denver has had a sharply growing crime rate since 2013, the year after Amendment 64, which permitted the sale of marijuana for recreational use. But causation, indeed, is hard to establish. There's anecdotal evidence that legal pot has made Denver a magnet for the homeless, and they are a highly visible presence, but statistically speaking, Denver has a lower homelessness rate than many other big U.S. cities -- 17 per 10,000 inhabitants, compared, for example, with 44 in New York. 

The prevalence of marijuana use is higher in Colorado than the U.S. average, but that doesn't mean much without matching data on any health costs associated with it. The number of hospitalizations and emergency room visits with marijuana-related diagnoses or billing codes has grown rather sharply, but there's not a huge number of them. In the first half of 2015, there were 592.6 of them per 100,000 hospitalizations and ER visits, compared with 437.5 in 2013. 

Colorado police didn't have statistics on driving while high until 2014, but in 2015, the number of drivers charged with having used marijuana dropped slightly compared with the previous year. The police reported 665 such cases in 2015, about 15 percent of all driving-under-the-influence cases. 

The statistics are so inconclusive that both marijuana proponents and opponents can use them to prove their point. And the debate is far from over: What's happening with legal marijuana in Colorado is not quite the paradise imagined by pot enthusiasts in countries where it's still criminalized or merely tolerated. Amendment 64 has fostered an industry, and the way it's developing is not necessarily great for marijuana users and the community.

Anyone coming to Denver with expectations of a lively coffee shop scene, like the one in the Netherlands, or wide tolerance for smoking in bars or on the street, as in some areas of Berlin, will be disappointed. Pot is banned in most public places. Even private clubs can't sell pot: That is the business of about 1,000 retail stores that look like hybrids of a pharmacy and an Apple store. You can't sample the goods in them.

One reason for this is continued wariness on the part of local authorities and the restaurant industry. Last year, legalization advocates had to withdraw a ballot initiative to legalize the use of pot in clubs after meeting with more resistance than they counted on.

"We haven't really figured out what to do on social use," says Brian Vicente of the law firm Vicente Sederberg, one of the drafters of Amendment 64. "That's the next big issue. We're doing it one step at a time, allowing for communities to set their own rules. To do it right, people need to be comfortable with it."

Another reason is that cannabis clubs are not particularly interesting business-wise. Patrick Rea, founder of CanopyBoulder, the first cannabis startup accelerator in the U.S., says Canopy won't consider such projects. "There are better opportunities elsewhere," Rea told me. "You can't scale clubs and there's a problem with differentiation and protecting the business."

In the Netherlands, where cannabis isn't technically legal, just tolerated, there's a mild, social, unthreatening marijuana scene. Locals and tourists sit in pot-selling coffee shops as they do in bars. For the most part, they smoke. Some vape.

In Colorado, legalizing retail pot sales without a matching relaxation in public-use rules has spawned an industry in so-called edibles -- chocolate bars, gummies, cookies and a range of other projects infused with tetrahydrocannabinol, pot's active substance. Edibles made up about 45 percent of all Colorado marijuana sales in 2014 and probably at least as much in 2015.

"These edibles look like candy, and the industry has fought against putting clearly visible stop signs on it," says Dan Caplis, an injury lawyer and talk radio host who has campaigned against legalization. "They are made to hide use at school, at work, from family members."

Eating a THC chocolate gave the New York Times journalist Maureen Dowd a near-death experience in 2014. These things are notoriously hard to dose, and even experienced smokers sometimes have trouble figuring out how much to eat. With smoking, you can always skip the next drag if you're beginning to feel queasy. But once you've swallowed a chocolate, there's not much you can do.

Children can accidentally swallow the edibles, too. In nine years starting in 2000, only one in 100,000 hospitalizations and emergency room visits by children under the age of 9 resulted from marijuana exposure. In 2014 there were 10 such visits per 100,000, and in the first half of 2015 there were 13.

Colorado has stepped up the regulation of edibles recently, making producers mark them in 10-milligram doses and putting some warnings on the packages. Still, the edibles are to smokable pot what hard liquor is to beer and wine. It's tempting, especially when social use is still stigmatized, to swallow a big dose in seconds so that no one is the wiser. Caplis says he deals with multiple cases in his legal practice where marijuana use isn't even diagnosed at the scene of a traffic accident. There are no discernible traces of a driver having eaten a cookie, no telltale smell, no smoking implements or residual traces in pockets.

Vicente, whose 40-lawyer firm only does marijuana work, says the industry is already overregulated. "There are rules that set a certain size of the font used on the packaging of brownies and the number of pixels used in security cameras at the retail and production facilities," he said.

The marijuana business is already an economic force. Last year, $1 billion worth of marijuana products were sold in Colorado. A plethora of ancillary business and services has also sprung up, including security and financial services that make up for the industry's inability to use banks with a federal infrastructure, a software business of creating marketplaces, and production firms making smoking and vaping implements. Vicente and Rea both say the combined volume of these businesses is at least as big as the pot sales.

Colorado collected $135 million in marijuana taxes and license fees in 2015. That's about three times the revenue the state received from excise taxes on alcohol. The amount covers a tiny share of the state's financial needs (Colorado state and local authorities spent $56.4 billion last year), but that's not the only kind of economic benefit politicians can expect from the cannabis industry.

Cannabis is still a risky field for investors. Both Rea and Vicente say they are working almost exclusively with wealthy individuals, angel investors who are interested in getting in on the ground floor. No major institutions, not even tobacco companies, have shown interest so far. Rea says his accelerator only accepts projects that "don't touch the plant," otherwise the legal risk for investors might outweigh the benefits. The industry's fast-growing revenues and its need for more favorable regulation easily translate into generosity.

Industry leaders organized a fundraiser for Governor John Hickenlooper, a Democrat, in 2014. The governor was once against Amendment 64, calling it "reckless," but he has since become more upbeat about the experiment. Caplis sarcastically calls the governor "the biggest pot supporter since Bob Marley."

Last September, Vicente's firm organized a meeting with activists and industry leaders for former Maryland Governor Martin O'Malley, who was entertaining presidential hopes. "It was fascinating," Vicente remembers. "There was this presidential guy here, with security and all that, the governor of a state."

This wasn't a fundraiser, just a policy session, but another presidential hopeful at the time, Senator Rand Paul of Kentucky, had no qualms about raising money from cannabis industry leaders in Denver. His libertarian program would have let the states decide on legalization with no federal interference.

In other words, the fledgling industry's political power is growing, while marijuana users are still viewed with suspicion. The businesses, not the users, are the more important constituency for politicians. The regulation that emerges from this typically American setup appears to favor the industry's emerging preference for a kind of fast-food model that may eventually undermine the very idea of marijuana legalization.

Vicente says the genie can no longer be put back in the bottle: Marijuana has become too important as a business and too widely accepted. Polls have showed continued support for marijuana legalization in Colorado. Caplin, however, still says he believes "a reversal is inevitable" as more people realize the danger of pot, particularly in edible form, for children and adolescents.

It will become clearer during the next presidential term which parts of the Colorado experiment have been a success and which haven't. Marijuana could perhaps become more of an issue in the next campaign than it is in the current one. Colorado regulators may be making a negative contribution to that future debate by regulating font sizes more rigorously than the use of edibles, and by not doing enough to help marijuana users create a comfortable social environment for themselves, the way alcohol drinkers have done.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Leonid Bershidsky at lbershidsky@bloomberg.net

To contact the editor responsible for this story:
Jonathan Landman at jlandman4@bloomberg.net