610. Who Wins and Who Loses Once the U.S. Legalizes Weed?

Summary

Freakonomics Radio Episode 610: Who Wins and Who Loses Once the U.S. Legalizes Weed?

Release Date: November 7, 2024
Hosts: Stephen J. Dubner
Featuring: Jared Polis (Governor of Colorado), John Calkins (Drug Policy Researcher, Carnegie Mellon University), Yasmin Hurd (Addiction Researcher, Mount Sinai Health System), Ryan Stoeh (Law Professor, Louisiana State University)

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Introduction

In the final installment of their four-part series on cannabis legalization, Stephen Dubner delves into the multifaceted impacts of legalizing weed across the United States. The discussion navigates through economic benefits, social costs, public health concerns, regulatory challenges, and the future landscape of the cannabis industry.

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Economic Impact of Legalization

Governor Jared Polis provides a comprehensive overview of Colorado's decade-long experience with legalized recreational marijuana. He highlights significant economic advancements alongside emerging challenges:

• Revenue Generation: "There's been over $16 billion in revenue... $2.6 billion in state tax revenue funded everything from college scholarships... to youth recreation centers." [(07:56)]

• Job Creation: "The 31,000 people who work in the industry, whether it's retail, whether it's growing..." [(07:56)]

• Shift from Illegal to Legal Market: Legalization has diverted substantial funds from criminal enterprises to legitimate businesses.

However, Polis acknowledges a recent downturn in the market:

• Market Saturation and Decline: "Sales are down to about 1.5 billion. There have been some layoffs, some closures..." [(08:10)]

He attributes this to reduced cannabis tourism as more states legalize and an overbuilt market capacity.

John Calkins, drug policy researcher, underscores the broader economic implications:

• Coalition Efforts: Calkins speaks about efforts to reclassify cannabis, aiming to unlock economic potential and alleviate social stigmas. "Cannabis companies... unable to deduct their common and ordinary business expenses makes it really hard for them to operate." [(19:09)]

• Tax Benefits Post-Rescheduling: "Businesses can face an effective tax rate of 80 to 90%... that just will not apply anymore." [(19:55)]

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Public Health Impact

The conversation explores the contrasting health effects of cannabis compared to alcohol:

• Governor Polis's View: He posits that cannabis is "far less negative to public health than smoking cigarettes or alcohol." He refers to reduced underage usage and controlled access as benefits of legalization. "Underage usage has gone down since legalization... it's harder for a kid to get marijuana in Colorado." [(09:13)]

• Contrasting Data: John Calkins references recent survey data indicating a rise in daily and near-daily cannabis use, challenging the notion of minimal health impacts. He states, "Of those daily and near daily users, about half report some evidence of having a substance use disorder." [(11:18)]

• Yasmin Hurd's Concerns: She emphasizes the need for more research into the high-concentration cannabis products prevalent today. "What we need to know... about the developing brain... addiction." [(23:38)]

• Cannabis Replacement Theory: Dubner introduces the idea that substituting alcohol with cannabis could yield societal benefits, a notion Polis supports by highlighting cannabis's lower addiction potential and reduced association with violent behavior. "Marijuana is not chemically addictive. Alcohol is." [(12:14)]

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Legal Policies and Federal Rescheduling

The federal illegality of cannabis remains a central barrier:

• Governor Polis on Federal Regulation: He advocates for regulating cannabis like alcohol at the federal level, suggesting renaming the Bureau of Alcohol, Tobacco, Firearms to include Cannabis. "We should rename that the Bureau of Alcohol, Tobacco, Firearms and Cannabis." [(13:56)]

• Rescheduling Efforts: Although the Biden administration planned to shift cannabis from Schedule I to Schedule III, legal delays have pushed this decision to at least early 2025. Former President Trump has expressed support for rescheduling, potentially accelerating changes. "It's getting very, very close." [(14:56)]

• Impact of Rescheduling: John Calkins explains that rescheduling would reduce stigma, allow business expense deductions, and facilitate research by easing regulatory barriers. "Rescheduling alone would be important." [(20:38)]

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Industry Structure and Future Landscape

The episode examines the potential trajectory of the cannabis industry post-legalization:

• Consolidation vs. Small Businesses: Ryan Stoeh expresses concern over large corporations dominating the market, drawing parallels to the craft beer industry's success in combating consolidation. "Let's create some conditions that allow other businesses, small businesses, to survive and thrive alongside that model." [(30:11)]

• Adam Gores's Vision: He envisions a regulated market supporting family farms and local producers, emphasizing sustainability and social equity. "I want at least a part of the cannabis economy to support essentially family farms, local producers." [(31:15)]

• Appellations and Product Differentiation: Gores advocates for a wine-like appellation system to enhance transparency and protect small businesses. "If a cannabis says it comes from Humboldt County, California, it really did." [(33:19)]

• Monopoly Model Proposal: John Calkins suggests a government-run monopoly similar to how alcohol is managed in some countries. This model would prioritize public health over profit. "Suppliers of that good to have as their mission displacing the illegal market... not pushing people to use more." [(37:12)]

• Yasmin Hurd on Market Dynamics: She predicts that national legalization will accelerate consolidation, with marketing prowess becoming a key determinant of success. "You'll see marketing savvy entities being the winners in the cannabis space." [(41:03)]

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Research Barriers and Needs

The classification of cannabis as a Schedule I drug significantly hampers scientific research:

• Yasmin Hurd on Research Challenges: She highlights the extensive regulatory hurdles and the urgent need to study high-concentration products and their effects on different populations. "In order to do this research with a Schedule I drug, there are a lot of regulatory hurdles." [(21:33)]

• John Calkins on Research Pathways: Rescheduling cannabis would "open up new research pathways" and provide critical public health and safety benefits. "It's going to open up new research pathways." [(21:20)]

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Global Perspectives and Models

The discussion touches upon international approaches to cannabis regulation:

• Canada's Model: Yasmin Hurd references Canada's coherent legalization framework, which mirrors alcohol regulation with a focus on public health. However, she notes that Canadian producers remain for-profit. "The Canadian cannabis regime starts out looking a lot like the alcohol regime." [(43:04)]

• Cannabis Clubs in Europe: She mentions Spain and Belgium's models, where communal growing permits allow groups to cultivate without commercial exploitation. This method undercuts illegal markets without fostering excessive commercialization. "It's going to be a hobby... just provide a legal alternative." [(43:27)]

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Long-Term Societal Effects

The episode concludes with predictions on cannabis's broader impact:

• Yasmin Hurd's Optimism and Cautions: She believes cannabis legalization won't drastically alter prison populations or public health negatively compared to alcohol. However, she remains cautious about its addictive potential and emphasizes societal resilience. "We will adapt, we'll roll with it." [(45:25)]

• Dubner's Reflection: He poses critical questions regarding the differing expert opinions but ultimately leaves the audience to ponder the complex balance between economic benefits, public health, and regulatory frameworks surrounding cannabis legalization.

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Notable Quotes

• Jared Polis: "Marijuana is not chemically addictive. Alcohol is. So is nicotine." [(12:14)]

• John Calkins: "Of those daily and near daily users, about half report some evidence of having a substance use disorder." [(11:18)]

• Ryan Stoeh: "Everybody wants to be that company. And eventually someone might be." [(30:02)]

• Yasmin Hurd: "We are a full generation in and we still haven't even legalized at the national level." [(47:38)]

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Conclusion

This episode of Freakonomics Radio provides a nuanced exploration of cannabis legalization in the U.S., balancing economic incentives with social and health concerns. Through expert insights and empirical data, Dubner paints a comprehensive picture of a rapidly evolving landscape poised for further transformation as federal policies inch closer to reform.

Transcript

[Stephen Dubner]

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[John Calkins]

I think what's fascinating is that Americans, Democrat, Republican, Independent are all supportive of seeing major cannabis change.

[Stephen Dubner]

And why does everyone support major cannabis change?

[John Calkins]

You know, cannabis is quite popular. It's polling at 64%. Politicians typically don't take strong positions on things that are so popular.

[Stephen Dubner]

The popularity of cannabis these days is significant in terms of public support for legalization. In terms of the number of daily users, cannabis is even popular among some public health officials who see it as a way to reduce the harms of alcohol. But as we've been exploring in this series, there are a lot of problems. The cannabis economy is a mess. We are way behind with research into the drug's potential risks, especially the risks of the most concentrated forms of the drug. And there are inconsistencies and contradictions in how individual states have rolled out legalization. All these problems can be traced back to 2 central number one, cannabis is still illegal on the federal level, and number two, it is still listed under the Controlled Substances act as a Schedule 1 drug, meaning it has no accepted medical use and it has a high potential for abuse and addiction. But according to the people we've been speaking with, both of these facts are going to change. And what will happen then?

[John Calkins]

There's going to be big winners and losers.

[Stephen Dubner]

So today on Freakonomics Radio, in the fourth and final part of this series, we will try to sort out the cannabis winners and losers, and we will get crystal clear answers to all of our questions. Or at least we'll try.

[Yasmin Hurd]

Gol I don't know.

[Stephen Dubner]

This is Freakonomics Radio, the podcast that.

[Ryan Stoeh]

Explores the hidden side of everything with your host, Stephen Dubner.

[Stephen Dubner]

The modern American cannabis revolution started in California, where in 1996, it became legal to buy it for medical use. The revolution began to mature in Colorado in 2014, which was the first time since the 1930s that you could legally buy cannabis for recreational use. That is now the case in roughly half the states. And how has legalization been working out? Three economists at the Federal Reserve bank of Kansas City recently published a paper called Economic Benefits and Social Costs of Legalizing Recreational Marijuana. After a state legalizes cannabis, they found economic indicators tend to rise per capita income, housing prices and population. But they also found significant social costs. More arrests, more homelessness, and more substance use disorders. And the economic benefits diminish for states that are later to legalize, which the researchers attribute to a decline in cannabis tourism. To break down these costs and benefits, we thought it made sense to speak with this man.

[Jared Polis]

Jared Polis, Governor of Colorado.

[Stephen Dubner]

I've seen you described as America's most pot friendly politician. Is that a title you accept?

[Jared Polis]

Well, I don't know who they're comparing me to, but here in Colorado, we value freedom. If you want to have a beer, if you want a smoke pot, that's none of the government's business.

[Stephen Dubner]

Before getting into politics, Jared Polis was an entrepreneur. He was a founder of the E greeting card company BlueMountainArts.com of the delivery service ProFlowers, and the venture capital firm Techstars. In 2008, he was elected to Congress, and in 2018, he was elected governor of Colorado. All along the way, he has been in favor of loosening cannabis restrictions.

[Jared Polis]

I've never used marijuana myself. I might have like one glass of wine a year and maybe one beer, but I don't really drink. But I've always had friends that smoke pot recreationally and I've had friends that drink recreationally. I could care less. Right? I mean, I, I might not want to be around them when they're drunk or high, But I don't care what they do in their spare time. Colorado is really a place where you can be who you want to be and live life the way you want to live in. We're pioneers in legalizing cannabis. Most recently psilocybin mushrooms. Voters voted to legalize. We're working on implementing that again. As long as it doesn't interfere with anybody else's business, as long as you're not bothering your neighbor, it shouldn't be any of the government's business to tell you how to live your life.

[Stephen Dubner]

So you've had legal recreational marijuana sales in Colorado for 10 years now. Legislation passed a couple years before that. Could you just suck? Summarize it for me. The surprises, the disappointments, the positive effects and negative effects.

[Jared Polis]

There's been over $16 billion in revenue. That's revenue that would have gone to drug dealers, criminal enterprises, the underground market, if we weren't doing illegally. Because it's not like in states where it's illegal. People aren't buying it. They are. They're just buying it from criminals. So $16 billion that went to legitimate business people rather than criminals. And about $2.6 billion in state tax revenue funded everything from college scholarships for kids in Pueblo to a great new youth recreation center and Aurora, all kinds of great projects, ongoing funding for capital construction. And then of course, the 31,000 people who work in the industry, whether it's retail, whether it's growing, it's been good for safety for people who enjoy recreational marijuana. Right. Especially with the dangers of fentanyl and other drugs, you know, well regulated supply chain, just like there is for alcohol or food. You don't have to worry about if you're buying it through official channels, you know, bad or tainted marijuana.

[Stephen Dubner]

I understand that your marijuana industry in Colorado has softened a bit the past few years. That in 2020 the market was a little over $2 billion, but sales are down to about 1 1/2 billion. There have been some layoffs, some closures, some downsizing, and that means less tax revenues for the state as well, down 30%. I've read from a couple years early. Can you talk to me about that? What's going on with the market there.

[Jared Polis]

From the early days, I always said, as a American, I hope that every state legalizes marijuana as a Colorado, and I hope that we are the only state that does. So we were more unique for a long time. Absolutely. So people would come from New Mexico, where it's now legal, our Neighboring states, they'd fly from other places. That tourism and visitor piece were not as novel anymore. And while it's good for the country, that's of course going to cut into Colorado's business. The other thing is they overbuilt the capacity a little bit, and now there's a normalization to meet the demand.

[Stephen Dubner]

Considering that your tax revenues from marijuana have fallen the past couple years, are you doing anything about that? Are you trying to induce demand, perhaps in your state?

[Jared Polis]

No, no. I mean, of course not. People are spending their money on something else, and maybe that's a net benefit. From a public health perspective, I hope it's not alcohol. I hope it's sporting event or restaurants or concerts. I mean, it's a free market. It's an economy.

[Stephen Dubner]

For some people, marijuana may be replacing alcohol. For some people, it's new. Some people are concerned that marijuana is a gateway drug to others, including to alcohol, actually is one concern we've heard. So how do you think about the public health impact?

[Jared Polis]

Generally, we don't show any demonstrable negative public health impact. One of the things we watch is underage usage. There's dangers in Cannabis to developing brains. 14, 15, 16, 17 year olds. Underage use has gone down since legalization. It's gone down nationally, but it's also gone down here in Colorado. I think part of the reason is it is harder to buy cannabis in the illegal underground market. Meaning if you're 15 years old, it's harder to get today in Colorado than it was 15 years ago. Because guess what? Your corner drug dealer is not carding you. A dispensary is. Of course, it didn't drive every corner marijuana dealer out of business, but there's way less. So it's much harder for a kid to get marijuana in Colorado. That's a good thing. The way most people use marijuana, it's far less negative to public health than smoking cigarettes or alcohol. I mean, most people might just smoke a joint a week or whatever it is. It's not like something they drink every day that ruins their liver or they smoke a pack a day and it ruins their lungs. I mean, if you're using marijuana at that level, that's a problem user, right? If you're using it every day, all the time, you're probably not able to function very well. Most people just use it periodically and there's very little health impact to that.

[Stephen Dubner]

But the most recent data tell a different story about cannabis use. We heard about this in part one of our series.

[Yasmin Hurd]

If we do a pie chart of who's using cannabis, it's absolutely dominated by daily and near daily users.

[Stephen Dubner]

That's John Calkins. He is a drug policy researcher at Carnegie Mellon University. For many years, Calkins has been tracking survey data that asks people about daily or near daily use of cannabis and alcohol.

[Yasmin Hurd]

Back in 1992, there were 10 times as many Americans who self reported daily or near daily drinking as daily or near daily cannabis use. But after the 2022 survey data became available, that was the first year in which the cannabis line crossed the alcohol line.

[Stephen Dubner]

So if more people are using cannabis more routinely than Colorado Governor Jared Polis says, how about his claim that there is very little health impact? Here's how Culkin sees it.

[Yasmin Hurd]

Of those daily and near daily users, about half report some evidence of having a substance use disorder.

[Stephen Dubner]

I went back to Governor Polis to get his thoughts on the main theme of our series. Alcohol has been around for a long time, used by billions of people for all kinds of reasons. But also the evidence is clear that there are big societal costs to alcohol use. Cannabis has also been around a long time, but for the past century in the US at least, it's been illegal. And now a partial reversal, maybe heading toward a total reversal. So the thesis of this series we're working on, we're calling it the Cannabis Replacement Theory, that if could swap out cannabis for alcohol whenever possible, if it could satisfy the desires that alcohol is satisfying, that societally it would be a big gain. Now, of course, we're not saying we're going to actually do that or we have the power to do that, but what do you think of that idea?

[Jared Polis]

It sounds, it's obvious, like yes, of course. I mean, first of all, marijuana is not chemically addictive. Alcohol is. So is nicotine. Secondly, you know, alcohol, chronic use is very destructive to the body. And marijuana use is not healthy by any means means, but not nearly as destructive to the body over time as alcohol is. Number three, domestic violence and many other crimes are related to alcohol. You don't see that kind of correlation with marijuana. We know this anecdotally. I'd love to see more statistics about this, but basically you're going to eat corn chips in your basement and watch a movie when you're on marijuana, you're not going to go on a spree throwing rocks into windows. Everything you take can obviously have a negative health impact, especially if you use it in excess. But I think your thesis is very sound in general, and I'm not for banning alcohol to be clear. I think that's a choice people make too, and they're entitled to do that. But if suddenly you flip the two and marijuana was the more popular and alcohol was less popular, I think there would be a net societal benefit to that.

[Stephen Dubner]

I hate to keep picking on Governor Polis assessments. He's plainly thought deeply about the issue. But many public health researchers say that cannabis can be addictive, although some people do make a distinction between chemical addiction, which may not apply to cannabis, and psychological addiction, which may. So one reason I was really excited to speak with you, Governor Polis, is because I see that while you were in Congress, you introduced a couple bills, including the Regulate Marijuana Like Alcohol act. This was 2017. Can you just walk me through the planks of that, what you were hoping to accomplish? And I know it didn't get through, but I'm curious to know how much of that has happened on its own.

[Jared Polis]

Well, sure. I'm not arguing that marijuana should not be a controlled substance. It should be. 12 year olds shouldn't be able to get it. It should be regul to make sure it's safe and not tainted. So the way that we do that federally, we have the Bureau of Alcohol, Tobacco and Firearms. So I said we should rename that the Bureau of Alcohol, Tobacco, Firearms and Cannabis. And it should basically have that similar kind of regulatory authority federally that they have over things like alcohol, over something like marijuana.

[Stephen Dubner]

This act would have regulated marijuana like alcohol by inserting it into the section of the US Code that governs intoxicating liquors. What would that entail?

[Jared Polis]

Just as with alcohol, we have a age limit. It's sort of nominally up to the states, but of course the federal government withholds highway funds if you don't make it at least 21. And I think there'd be a similar age for recreational marijuana, probably some allowance for medicinal under the supervision of a physician for younger. But in terms of recreational, I would be on board with the same age as alcohol.

[Stephen Dubner]

Now, another of your objectives was to remove marijuana as a Schedule 1 drug. That is happening, yes.

[Jared Polis]

It's close. It's getting close. It's not full legalization, but it's a good step. I'm for it. I rounded up a number of governors that have specifically asked for this, both sides, Republicans and Democrats. And we're hoping that that will occur in the final days here of the Biden administration. And it's getting very, very close.

[Stephen Dubner]

That timeline no longer seems likely. The Drug Enforcement Agency had planned a public hearing for early December to address the rescheduling of cannabis but the key judge just delayed the hearing until at least early 2025. You can see why it might make sense to push this decision until the start of a new presidential administration. That said, President Elect Donald Trump has expressed support for the rescheduling of cannabis and easing restrictions at the federal level. Here, for instance, is what he posted in September. We will continue to focus on research to unlock the medical uses of marijuana to a Schedule 3 drug and work with Congress to pass common sense laws and including safe banking for state authorized companies. So coming up after the break, what would these legal changes mean for the cannabis economy?

[Adam Gores]

This company tries to bill itself as the Amazon of weed or the Starbucks of weed.

[Stephen Dubner]

I'm Stephen Dubner, this is Freakonomics Radio. We will be right back. Freakonomics Radio is sponsored by LinkedIn. When you're hiring for your small business, you want to find quality professionals that are right for the role. LinkedIn Jobs has the tools to help find the right professionals for your team faster and for free. LinkedIn isn't just a job board. LinkedIn helps you hire professionals you can't find anywhere else, even those who aren't actively searching for a new job but might be open to the perfect role in a given month. Over 70% of LinkedIn users don't visit other leading job sites. So if you're not looking on LinkedIn, you're looking in the wrong place on LinkedIn. 86% of small businesses get a qualified candidate within 24 hours. Hire professionals like a professional on LinkedIn. Post your job for free at LinkedIn.com that's LinkedIn.com freak to post your job for free. Terms and conditions apply. Freakonomics Radio is sponsored by Anthropic. Anthropic's Claude family of models is AI backed by uncompromising integrity. Claude is run by responsible leadership who have an ethical approach to the development of AI while providing strong data security and putting humanity first. Whether you are brainstorming alone or building with a team, Claude can help many leading companies build with Claude. Claude can help you do your best work too. Claude can perform complex cognitive tasks, quickly, translate between various languages, and even generate code. Plus, users love Claude's softer, more humanistic interactions. Want to take Claude with you? Claude app is available on Apple and Android app stores. Discover how Claude can transform your work and [e-mail] Claude that's anthropic a N T H R o P I C.com Claude C L A U D E.

[Ryan Stoeh]

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[Stephen Dubner]

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[John Calkins]

Yeah, I founded and I lead the Coalition for Cannabis Scheduling Reform that's been working with the Biden administration. You know, political research stakeholders, doctors, organizations that are supportive of reclassifying cannabis. We've put out a number of reports to the fda, to the dea, worked with dozens of members of Congress and governors and attorneys general showing that cannabis is actually a winning issue for either Democrats or Republicans.

[Stephen Dubner]

This type of effort seems to have paid off. In 2022, President Biden announced plans to rethink federal cannabis policy and to shift it from a Schedule 1 to a Schedule 3 drug under the Controlled Substances Act. Many Republicans have signaled a similar interest.

[John Calkins]

And there's some really important benefits from that one the lessening of stigma that cannabis is no longer classified next to heroin. It's also for cannabis companies big and small, social equity and otherwise, that are currently because they're classified under Schedule 1, unable to deduct their common and ordinary business expenses makes it really hard for them to operate. Businesses can face an effective tax rate of 80 to 90% once this reclassification is done. That just will not apply anymore.

[Stephen Dubner]

But it's worth pointing out that a federal rescheduling of cannabis under the Controlled Substances act is not the same as declaring the drug legal. Here again is John Calkins from Carnegie Mellon.

[Yasmin Hurd]

The dysfunction of having the inconsistency between states legalizing and the federal government still having cannabis on the Controlled Substance act. That's a big problem. And moving Cannabis from Schedule 1 to Schedule 3 does not fundamentally solve that problem.

[Stephen Dubner]

Still, you can imagine that rescheduling and changing the legality of the drug may wind up going hand in hand. The benefits to the cannabis industry would be large. Adam Gores says there is another big potential benefit.

[John Calkins]

I'll just say it very bluntly no pun intended, the research for cannabis is nowhere near where it needs to be in this regard.

[Stephen Dubner]

Rescheduling alone would be important.

[John Calkins]

It's going to open up new research pathways as well as providing a whole bunch of public health and safety benefits.

[Unknown]

The regulatory aspect does make it more.

[Stephen Dubner]

Challenging for research, and that is Yasmin Hurd, an addiction researcher at the Mount Sinai Health System in New York.

[Unknown]

I remember when we did our first clinical studies with cbd, our clinical research coordinator had to be escorted by the guard. You know, crazy.

[Stephen Dubner]

We also spoke with Herd earlier in this series. She thinks that the legalization of cannabis has outpaced the scientific research. And she would like to see what she calls an army of researchers studying the drug's effects and its potential for addiction. But that hasn't been easy.

[Unknown]

In order to do this research with a Schedule 1 drug, there are a lot of regulatory hurdles that you have to jump through. Cannabis being changed from a Schedule 1 to a Schedule 3. That will help in some ways for research, but not all, because the regulatory hurdles are still there in terms of just the administrative bureaucracy of working with a scheduled drug.

[Stephen Dubner]

What are some of the most important things that you and other researchers need to find out about cannabis?

[Unknown]

What we need to know right now are the aspects of the high concentrated products, because that's what is out there in the public. The ratios of some of the cannabinoids that are being put into these products are really important to understand and understand in regard to the developing brain.

[Stephen Dubner]

Developing brain going up to about age 25 or so.

[Unknown]

Yeah, absolutely. We know the increase in cannabis use has been higher in recent years in that population. So what does that mean to me the research needs to be done? What are the flavorings? What is the impact of all the chemicals that they use in converting hemp to these thc, intoxicating like products? We also see that more seniors are using cannabis, so that's another age group to really understand the impact on whether or not it may indeed improve cognitive function in that age group, while we see the opposite in early development, but also what may be the negative health impact.

[Stephen Dubner]

So that was a really interesting list. One thing you didn't mention, there was addiction.

[Unknown]

So for me, the high dose, I include addiction in that. We know that for every addictive substance, the higher the concentration of that particular chemical, the greater the addiction risk. The nih, they're trying to really support more research on cannabis, but when we have so many people playing, you know, chemists, it is very, very difficult and to ask scientists to Figure out what percentage of THC percent to CBD and to other terpenes may be beneficial as medicine or may cause harm. That does take a huge army.

[Stephen Dubner]

So the benefits from rescheduling alone, the research benefits would be substantial. And after that, I think that reclassifying.

[John Calkins]

Cannabis is a really pragmatic first step in the path to legalization.

[Stephen Dubner]

That's Adam Gores again.

[John Calkins]

When legalization happens, a whole lot of constituents are going to have a lot to say about it. Traditional alcohol and tobacco companies are very anxious to get into this marketplace. Thus far, we've seen very little entry from alcohol and tobacco companies into it. And in the process, we've seen a growth of these broad cannabis market ecosystems with hundreds and hundreds of businesses operating in sometimes small states. That's in contrast to the large amounts of consolidation that happen in the alcohol and tobacco space. So I think as public policy leaders are making a choice eventually in how they legalize, that's going to be one a lot of politicians talk about growing economy from the bottom up and the middle out. And then I think there's a large movement in this of maybe tobacco shouldn't be involved in the cannabis industry. Cannabis is a health and wellness measure. Physicians and researchers are involved in this as promising treatment for Americans that are suffering, in many cases debilitating life conditions. And for a lot that's inconsistent with having tobacco be involved in the industry going forward. So I think that's going to be a very interesting piece to watch is how and if they're able to enter the marketplace eventually when federal legalization comes, because it's not an if, it's a when. It's going to be its own new transformational moment. But there's going to be big winners and losers in that transition, just like there have been winners and losers in this state by state siloed marketplace that exists now.

[Stephen Dubner]

Coming up after the break, not everyone wants to break down those silos.

[Adam Gores]

I like the idea of spreading the benefits of legalization as widely as we can.

[Stephen Dubner]

I'm Stephen Dubner. This is Freakonomics Radio. We'll be right back. Freakonomics Radio is sponsored by Sylvania. Sylvania's lighting experts want you to know that headlights dim over time and can lose up to 50ft of visibility before burnout. That's roughly the length of a tractor trailer. So it's important to change them before they burn out. Sylvania headlights deliver a brighter, wider light to improve your visibility on the road and help reduce glare distraction. Learn [e-mail] Freakonomics Radio is sponsored by GiveWell. You like to optimize things. You've chosen the perfect credit card to maximize your travel points. Shouldn't you handle your charitable giving the same way? GiveWell spends 50,000 hours each year doing deep dives into different charitable programs to try to find the ways to do the most good for your dollar. GiveWell wants as many donors as possible to make informed decisions about high impact giving. You can find all of their research and recommendations on their site for free. You can make tax deductible donations to their recommended funds or charities and GiveWell doesn't take a cut. Go to givewell.org to find out more or make a donation. Select podcast and enter Freakonomics Radio at checkout to make sure they know you heard about them from us. Again, that's givewell.org to donate or find out more. Freakonomics Radio is sponsored by Lingo. You know how sometimes a meal leaves you energized and other times sluggish, foggy or even hungrier? That may be your glucose talking. Foods that are sugar and carb heavy cause your body's glucose levels to spike. Lingo by Abbott tracks your glucose 247 so you can see how your body responds to food. And over time, Lingo helps you learn to develop habits to steady your glucose which can support your everyday well being, your metabolism and your long term health. Lingo starts at $49 for a two week plan. For a limited time you can save 10% on your first order with code FREAKONOMICS@Hello Lingo.com the Lingo glucose system is for users 18 years and older, not on insulin. It is not intended for diagnosis of diseases, including diabetes. For more information please visit hellolingo.com in recent decades, many sectors of the US economy have become much more concentrated, often driven by private equity investors. On this show alone, we have looked at consolidation in the pet care industry, the dialysis industry and the eyeglass industry. Many sectors of our economy are dominated by a few big and powerful players. But that is not true of the cannabis market. Even the biggest companies have only a few percent of national market share. Why? Most states cap the number of licenses that any one firm can have. Companies have a hard time expanding from state to state because of restrictions created by the federal illegality of cannabis. So there have been a lot of consolidation headwinds, but that hasn't stopped some companies from trying to expand.

[Adam Gores]

I've seen so many headlines where this company tries to bill itself as the Amazon of weed or the Starbucks of weed or the Apple Store of weed.

[Stephen Dubner]

That is Ryan Stoeh, a law professor at Louisiana State University.

[Adam Gores]

Everybody wants to be that company. And eventually someone might be.

[Stephen Dubner]

We heard from Stoa earlier in the series too. He is the author of a book called Craft Family Farming and the Future of the Marijuana Industry. As you can tell from the title, he is against consolidation in the cannabis industry. He sees the beer industry as something of a success story. Not long ago, just two companies controlled 90% of the US market. But as the craft beer industry grew, that duopoly lost a big share.

[Adam Gores]

I think that that model could make a lot of sense. I'm not saying that there won't be big marijuana companies that dominate the marketplace. My argument is, let's create some conditions that allow other businesses, small businesses, to survive and thrive alongside that model.

[Stephen Dubner]

So imagine that you could wind back the clock to legalization of recreational cannabis. And further, Ryan, imagine that you were appointed something like secretary of the new cannabis economy. What are some basic things you would do very differently than what were actually done?

[Adam Gores]

I want at least a part of the cannabis economy to support essentially family farms, local producers. I want it to be environmentally sustainable. I want it to be socially equitable and just, and then lay out regulations that get us there. That might mean that producers on small plots or small farms may have different regulatory requirements than someone who's trying to be the Amazon of weed, for example.

[Stephen Dubner]

What would you loosen for the small ones?

[Adam Gores]

I think initially what we saw in California in 2016 when they legalized, for example, certain acreage limitations. If you had less than an acre of plant canopy, regulations were X, and if you were up to five, it was Y. They've since sort of abandoned that. And now, of course you can grow on more than five acres. But I think that sort of tiered system makes sense all the way down to the bottom level, which is non commercial at home cultivation, which is one policy that I think states should maintain and most have, some have not. But I think at home cultivation remains kind of a safety valve as long as people can cultivate at home. You sort of say, well, all right, if the market isn't meeting my needs, I'll just do it myself. And I think that was one of the factors that really spurred the craft beer movement too, where loosened laws with respect to at home brewing. That really inspired people and said, you know, I can do this. This is cool, this is fun. Maybe I'll do this on a commercial scale.

[Stephen Dubner]

Was it really illegal to homebrew beer until like the 1970s in this country.

[Adam Gores]

You could brew at home, but there were certain restrictions, and those restrictions have been loosened.

[Stephen Dubner]

So what industry or other agricultural crop would you most like cannabis to resemble?

[Adam Gores]

I think cannabis is its own unique crop, but there's industries that come to mind. One is the wine industry. From a cultivation point of view, one of the things that I think the wine industry does really well is it harnesses the power of appellation. Appalachians are an agricultural regulatory system that certifies the origin of an agricultural product.

[Stephen Dubner]

Champagne, for instance.

[Adam Gores]

Exactly. Champagne. When a bottle says champagne, you know, it really came from the Champagne region of France and not the Burgundy region of France, because French authorities ensure that that is the case.

[Stephen Dubner]

Although you can buy a bottle of what tastes very much like champagne, but it's made in Spain and it's called.

[Adam Gores]

Cava or Italy, and it's called Prosecco. But I think the advantage to that is that it creates different products. So it's not just sparkling wine as this sort of generic commodity. It's champagne. This is something I've advocated for and we've seen some progress towards in California is adopting cannabis appellations, in which authorities would certify that if a cannabis says it comes from Humboldt County, California, it really did. And I think that does a couple different things. Number one, it creates more transparency in an industry that historically there really hasn't been transparency. If you've been consuming cannabis for a long time, you probably remember the days when you had no idea where your cannabis came from. Number two, it creates more choice for consumers. It creates more products in the marketplace. It lends the cannabis industry a more sophisticated air, if you will. And then third, I think it helps protect small businesses. There might be some farm somewhere that's growing 10,000 acres of marijuana, trying to flood the market with this more generic strain. That's fine. You're growing a different thing. You're growing Humboldt county certified cannabis, and so you're not exactly competing in the same space. So I think the wine industry, the way that they harness appellations and designations of origin, I think that would be really powerful for the cannabis industry as well.

[Stephen Dubner]

What do you think of Ryan Stoa's vision for the future cannabis market, and what do the experts think?

[Yasmin Hurd]

I do know Ryan's arguments well and respect them, and I love that he puts them out there.

[Stephen Dubner]

That, again, is the drug policy researcher, John Culkins.

[Yasmin Hurd]

I kind of wish Ryan's predictions came true. I just believe that in reality, the center of the market is people who just want a lot of thc, I think that the educated elite approach the cannabis product in a way that reflects only a minority of the market. I also think that Ryan underestimates the economies of scale in production, but also in brand management and marketing. There are a lot of people cheering for Ryan's vision. There are a lot of people who really wish for cannabis to be this opportunity. For a large number of small family businesses. It would be grand in many respects if it turned out to be so. But my best guess, and it is only a guess, is that it's going to look more like the great majority of it produced by a smaller number of larger firms.

[Stephen Dubner]

Culkins has a different vision for how the cannabis industry should be structured. Rather than a decentralized economy with many small and medium players competing against one another, he would like to see a monopoly, but a particular sort of monopoly, the kind that is run by a government.

[Yasmin Hurd]

There are around the world a variety of countries that have products that are provided only by a government monopoly.

[Stephen Dubner]

It's pretty easy to come up with examples of what Calkins is talking about. There's the transportation and telecommunications and energy industries in some countries. And perhaps most relevant to this conversation, there's alcohol. That's how it's done today in most of Canada, in the Nordic countries, in fact, roughly a third of US States have some level of government monopoly involved in liquor sales. So how would Culkins envision a government run cannabis market?

[Yasmin Hurd]

The basic concept here is you could allow for profit production, that is Farmers, to produce it, but you don't allow any for profit entity to attach its brand to the product. And that takes away all of the incentive for marketing, which is particularly important in the United States because our first amendment prevents us from just passing a law against a company marketing its product. One of the other big advantages is the price that consumers are willing to pay is much, much higher than the production cost. In that sense, cannabis is like bottled water. But if the government had a monopoly on the selling, then the public could much more easily capture that big gap between the value to the consumer and the production cost. And I absolutely support a nonprofit model over a for profit commercial model. The fundamental reason is because I do believe cannabis is a temptation good that there is some proportion of people who will end up using at levels that they subsequently regret. So I would like the suppliers of that good to have as their mission displacing the illegal market, providing a quality product, but not pushing people to use more. A commercial for profit industry has as its mission maximizing consumption and in fact, even pioneering new markets and modalities of use, the way that the tobacco industry in 1920 said, hey, we've got men smoking but not women, let's change that.

[Stephen Dubner]

If you had to make an over under bet on the year of national legalization, what would it be?

[Yasmin Hurd]

Gol, I don't know. One of my favorite quotes was a colleague I respect saying it was going to happen in the second Hillary Clinton administration. That just goes to underscore it's dangerous to make predictions. I'm going to try to duck that one.

[Stephen Dubner]

It seems that in the cannabis industry, because it's been legalized by states and because there is not typically interstate transportation or sales or whatnot, that the current situation is acting as a sort of unintentional break on the for profit industry becoming bigger and more powerful, more leveraged.

[Yasmin Hurd]

You are 100% correct and you're correct in even more ways than you realize. So absolutely this dysfunctional state by state system has been a break and slowed the spread. The key scale economy beyond production is scale economy in marketing and brand management. And there are many opportunities for marketing that are foreclosed at present because the first amendment commercial free speech protections do not apply to something that is illegal under federal law. As soon as cannabis is truly legalized at the federal level, the marketing restrictions of the states become unconstitutional. So I absolutely think that even though there's consolidation happening in the industry today, that process of consolidation and larger companies emerging will be greatly accelerated with national legalization. In part because at present the alcohol and tobacco companies are sitting on the sidelines. The alcohol and tobacco companies have invested in Canadian companies because that's legal, but they're not yet investing in US cannabis companies. It's not that hard to grow cannabis. So post national legalization, the secret sauce that's going to allow some company to emerge as the best is marketing skill. And I think after national legalization, you'll see marketing savvy entities being the winners in the cannabis space.

[Stephen Dubner]

What do you see as the significant intersections of an increasingly large legal cannabis market and the pharmaceutical industry? My lay brain thinks, well, you know, there's a lot of anti anxiety drugs and antidepressants sold. There are a lot of pain drugs being sold by these really big firms with big R and D with big marketing. And they're obviously a very regulated industry. How do you see cannabis intersecting with that industry?

[Yasmin Hurd]

My best guess is that at least in the short medium terms, the FDA approved true pharmaceutical applications of cannabinoids will be modest. I do say that With a fair amount of uncertainty, the largest market might be in pain management. Because opioids are so horrible, it's tricky to get anything through trials. It's tricky to figure out exactly what you would patent. The last point that I'll make here is some people imagine that, oh, we would have instantly found a million wonderful health applications of cannabis if only it weren't for the stupid US Federal law. But the US Federal law does not hamper research in Germany or France or Israel or anywhere else. If there were these fantastic medicines just waiting to be picked up, that would have happened in other countries, too.

[Stephen Dubner]

What other countries do you look to as a model for US Cannabis policy? And how close or far is the US from that? Now?

[Yasmin Hurd]

US Cannabis policy at present is a dysfunctional basket case. Canada has a cannabis legalization regime, which is a coherent, well thought out approach that's broadly modeled on alcohol, but is more public health oriented.

[Stephen Dubner]

Are producers nonprofits there, though?

[Yasmin Hurd]

No, no, no, I'm sorry. They are also for profit. So in that sense, the Canadian cannabis regime starts out looking a lot like the alcohol regime that we're familiar with. And there's a lot of interest in other places in trying to find something more modern, something like cannabis clubs. They're fairly common in Spain and Belgium. If I could describe it briefly, please.

[Stephen Dubner]

Yeah.

[Yasmin Hurd]

So the most cautious version of legal supply is just you can grow your own, but you can't sell it. You can't give it to anybody else. You can only grow your own. But not everybody's a good farmer. And the nature of the cannabis plant is one cannabis plant produces a lot of cannabis. So another approach is you allow some modest number, 20, 30 people to, to pool their own growing privileges and to say, hey, Sam, you actually are good with plants, so we'll let you grow for all 20 or 30 of us, and we'll even allow you to charge us what it cost you, so we can reimburse you for your cost. But Sam's not allowed to make money.

[Stephen Dubner]

Does that include my hourly work or no?

[Yasmin Hurd]

I think that's a good question. But the spirit of it is, Sam's not going to quit Sam's day job. It's not going to be a professional activity. It's going to be a hobby. And the distribution is only within the 20 or 30 of us. That model has the potential to undercut a substantial portion of the illegal market, but it's much less likely to lead to this proliferation of blueberry flavored vapes and child appealing gummies and dabs. It's much more likely to to just undercut the existing market and provide the traditional consumption patterns with a legal alternative. So there are countries that are looking at the United States and saying thank you for showing us what we don't want to do.

[Stephen Dubner]

I don't know how you feel about predicting the future of policies and so on, but if you're game, I'm curious to know what kind of downstream effects and these could range from from law enforcement and prisons to traffic safety to physiological and mental health, et cetera, et cetera. But what do you see as being the long term effects on US society, let's say from the increasing legalization and use of cannabis?

[Yasmin Hurd]

Let me carve out a couple of pieces which are pretty easy. It's not going to have a big effect on prisons. People with a controlling offense related to cannabis were never any appreciation appreciable share of people in prison. That was a myth told by advocates of legalization. Cannabis generated a lot of arrests that never generated a lot of imprisonment. Likewise, the mental health effects are real and severe for the people that they strike. But my best understanding is that the numbers involved are not going to be of a scale that trumps potential or indirect effects of smoking and alcohol. I do think it remains a temptation good in that 30 years from now there will be some number of people who say boy, I really messed up and there will be many more people who manage to incorporate it into their life the way we navigate many risks. I don't in that sense think that cannabis is a game changer. I have real trepidations about anybody who says hey, let's legalize crack and methamphetamine.

[Stephen Dubner]

Just because the harms are plainly so much worse.

[Yasmin Hurd]

There are extraordinarily compelling substances that can truly take over people's lives very easily. Cannabis is just a totally different substance than than crack or fentanyl or meth. I think the good news, you know, there's some American wisdom in our American dysfunction. This legalization thing, people refer to it like it's a light switch. It's not the first step really in the modern year was 1996. We are a full generation in and we still haven't even legalized at the national level. We are taking our time. I am kind of optimistic about just the resilience of people in society to adjust to a new or newish thing. Not denying that it's a temptation good. Not denying that some people will mess up. But you know, we'll adapt, we'll roll with it.

[Stephen Dubner]

Do you share John Culkins optimism about our resilience in our ability to adjust to new things. Do you share Jared Polis view that cannabis is fundamentally healthier than alcohol? Do you share Yasmin Hurd's fear that the risks of cannabis may be greater than we know? I'd love to know what you think about these questions and everything else we covered in this series. Our email is Radio Reakonomics. I'd also like to thank all the researchers and entrepreneurs and regulators who shared their insights. I learned an awful lot about this big story that we are plainly just a few chapters into. As always, thanks for listening and please spread the word about this series and our show. That is the single best way to support the podcasts you love. We will be back next week. Until then, take care of yourself and if you can, someone else too. Freakonomics Radio is produced by Stitcher and Renbud Radio. You can find our entire archive on any podcast app [e-mail] where we publish transcripts and show notes. This series was produced by Dalvin Abuja and Zach Lipinski. Special thanks to George Hicks for his field recording. Our staff also includes Alina Cullman, Augusta Chapman, Eleanor Osborne, Ellen Frankman, Elsa Hernandez, Gabriel Roth, Greg Rippon, Jasmine Klinger, Jeremy Johnston, John Schnarz, Lyric Bowditch, Morgan Levy, Neal Carruth, Rebecca Lee Douglas, Sarah Lilly, and Teo Jacobs. Our theme song is Mr. Fortune by the Hitchhikers. Our composer is Luis Guerra. Thank you so much for joining. I know you've got a busy I guess you're busy, right? You're governor.

[Jared Polis]

Oh, you know how it is. State Fair is on. We're excited.

[Stephen Dubner]

The Freakonomics Radio Network the Hidden side.

[Yasmin Hurd]

Of Everything.

[Unknown]

Stitcher.

[Jared Polis]

If you could hear.

[Stephen Dubner]

Love, what would it sound like? Son, can we talk about your drinking? Yeah, Dad, I think we should Helping those closest to you think about their excessive drinking. Maybe that's what love sounds like. [e-mail] An OHA initiative the kind of.

[Jared Polis]

Burgers you get today tells you a lot about yourself.

[Yasmin Hurd]

You're either someone who settles for sad, same old same old burgers or you're.

[Jared Polis]

Etta Carl's junior Obsessed with a tangy OG Western bacon cheeseburger demanding a house made guacamole, loaded guac bacon fired up for the insanely hot El Diablo or craving a classic Charbold Famous Star. Give in to your flavored cravings. Do your mouth to Carl's Jr. Big Burger good Burger.

[Ryan Stoeh]

How weird does it feel to be called someone's fiance the first time you hear it, you do a double take from there. Let's enjoy this moment. Turns into we're planning a fall wedding. That's where Zola comes in from. A venue and vendor discovery tool that matches you with your dream team to save the dates, websites and an easy to use registry. Zola has everything you need to plan your wedding in one place. Start [e-mail] that's Z O L A dot com.