TX: Mixed Messages For The Marijuana Business

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Photo Credit: Ed Andrieski

January brought some strong but mixed messages to the marijuana business community.

On the one hand, California legalized adult recreational use of marijuana Jan. 1, bringing the scale and business heft of the world’s sixth largest economy to the issue.

On the other hand, U.S. Attorney General Jeff Sessions announced a lifting of the Obama-era “Cole memo,” which had given comfort to marijuana businesses in states that had already voted for legalization.

Sessions did not order any particular sort of crackdown but rather returned the authority to prosecutors to enforce federal drug laws, even in “legalization” states.

Marijuana Business Daily’s Vice President Chris Walsh told me a crackdown remains unlikely in states that have made marijuana legal, but business owners did not appreciate the signal.

Despite those contradictory signs, pot will be legal in Texas much sooner that we expect. Maybe not in two years and possibly not in four. But if it’s not totally legal for recreational adult use in 10 years I’ll eat my hemp-woven shirt. (Note: I don’t actually own one yet.)

At first glance, marijuana legalization seems like a deeply back-burner question in Texas. Compared to other states, Texas has an extremely narrow medical-use legal framework, in which patients with epilepsy can obtain a doctor’s permission to use a low-THC potency extract of cannabis called cannabinoid oil. You can’t get high from this stuff.

But things change fast. I expect medium-term legalization in Texas, although I’ve got no dog in the fight. I’m not a user, and I don’t particularly want my kids to get easier access to pot. Mostly I’m just a guy who believes in the coercive power of money. The money case for legalization is strong. Strong enough to overcome a lot of natural resistance even in, or especially in, Texas.

Advocates for legalization who aren’t users tend to adopt four main lines of argumentation, which I’ll characterize as:

High cost of criminal justice.

Reducing criminal financial power.

Pro-business.

Tax revenue potential.

Among that spectrum of reasons, there’s a coalition waiting to be built. Let’s take them one at a time.

The criminal justice argument is that we have a nasty habit of incarcerating people, and handing down felony convictions, far in excess of the harm caused to society by the sale, possession and use of the drug.

U.S. Senate hopeful Beto O’Rourke, a Democratic congressman from El Paso, embraces legalization as an important platform of his candidacy, precisely for this type of argument.

O’Rourke said he has campaigned all over Texas and met folks for whom a marijuana-related conviction has meant a life sentence to poverty, interfering with their ability to work, go to school or get a loan. O’Rourke isn’t a newcomer to the legalization argument either, as he literally wrote a book on it in 2011, “Dealing Death and Drugs: The Big Business of Dope In the U.S. and Mexico,” with Susie Byrd, then a fellow city council member from El Paso.

“We’ve spent a trillion dollars on the ‘war on drugs’ over the last 45 years,” he told me, “and we’ve achieved zero of our policy goals.”

Harris County’s district attorney announced a policy in March of not arresting folks for small amounts of marijuana possession, a small criminal justice reform that may portend future trends in Texas cities.

The second argument, reducing criminal power, rests on the markets-based realization that criminalizing marijuana – as we learned from Prohibition – greatly increases the power and wealth of criminal gangs. Legalize, the thought goes, and you undercut the profitability and corrupting power of the Mexican drug cartels operating on both sides of our border.

The pro-business case for legalizing marijuana nationally, or in Texas, is undergoing an interesting shift as markets mature. In the early days of legalization, in states such as Washington and Colorado, the mom and pop shops of scrappy entrepreneurs seemed poised to benefit the most.

As Fivethirtyeight.com reported recently, industrial-scale agricultural techniques aren’t far away, however, and wholesale prices are dropping. In a less regulated market, its reporting claims, 10 medium-sized Midwest farms could grow enough product to supply the entire nation. As markets naturally trend toward efficiency, the business of marijuana may morph into something far more “corporate” than anything we’ve seen so far.

Finally, the state tax-revenue potential of marijuana is compelling. Walsh told me the $1 billion estimate of state tax revenue bandied about for California might not happen right away, but likely will be reached a few years down the line. That much tax revenue, plus the businesses built to provide the product, create financial momentum for legalization nationwide.

With four years’ worth of data from Colorado’s retail sales experience, we can project the revenue potential for Texas. Colorado’s state pot revenues hit $247 million last year. If Texas raised the same amount of revenue per capita as Colorado, it would reap more than $1.2 billion per year. That kind of money would matter a lot in a state allergic to income taxes.

Polling firm Gallup reported in October that 64 percent of Americans support legalization. Perhaps even more interestingly for Texans, 51 percent of Republicans nationwide support legalization, up 9 percent from the prior year.

Legalization rolls on. Both Canada and Massachusetts will have legal adult recreational retail sales by summer. For all I know, Texas might be the last state to legalize marijuana. But O’Rourke disagrees and says that as he crisscrosses the state campaigning, the issue comes up in cities and small towns all across Texas.

“If Texas were to move to legalization, it would be over. (Federal) prohibition would end,” O’Rourke said. “I think we could be the first state in the South.”

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