Taking Marijuana Out Of The Black Market: Why The Business Community Needs To Lead

COLORADO: The future of marijuana legalization hangs perilously in the balance. While some may view decriminalization as a fait accompli, the reality is that the results of initial implementation efforts in Colorado, Washington, and the other pioneering states of legalization will significantly impact the direction and momentum for subsequent efforts. The stakes could not be greater.

In their current form, the proposed regulations for granting retail licenses in both Colorado and Washington will result in insufficient supply to meet the increased demand of an adult-use regime. This is more than an economic problem. Market shortages in the legal market enable underground suppliers to gain increased market access, thus eviscerating one of the major public policy rationales for legalization reforms. In fact, it is possible to legalize badly.

The easiest way for states to remedy this problematic and dangerous supply deficiency is to authorize internet sales and delivery of cannabis from licensed suppliers to verified customers in state. Delivery services with internet ordering are already commonplace in medical marijuana states, and government-issued identification is verified upon delivery. Delivery sales also have the additional advantage of making the purchasing process slightly less conspicuous for customers concerned about potential social ramifications. The adult-use regime could simply do the same, ideally adding online payment processing to the established procedures. About half the states already authorize in-state internet sales of wine, and the number has only continued to increase.

Aside from the economic benefits, perhaps the greatest advantage of enabling in-state internet-based cannabis sales is to avoid the political hurdles of licensing of additional brick-and-mortar retail locations. In those communities where cannabis-themed modifications to the Town Center fascia are unpopular or outright verboten, internet delivery sales can fulfill demand without compromising perceived local identity.

Retail sales, however, represent only a fraction of the total opportunity created by cannabis legalization. On-premises consumption is just as important, as evidenced by the experience with alcohol. According to industry data, 40% of American alcohol sales (approximately $76 billion of a total $190 billion annually) is generated from bars, restaurants and other on-premises consumption establishments versus retail stores. When it comes to intoxication – alcohol or cannabis – people prefer doing it socially, out with their friends.

Despite this positive precedent, however, neither Colorado nor Washington regulators have authorized licenses for on-premises consumption. Ideally, officials should specifically authorize on-site consumption licenses allowing sales and distribution, the same way it is done with liquor licenses. The additional sales taxes alone could generate millions for city and county governments, and should be seriously considered, perhaps by the next state to pass a legalization initiative.

On-site consumption of cannabis may seem like a controversial issue, but it shouldn’t. This country’s collective experience with alcohol decriminalization provides a useful blueprint for allowing social intoxication as a business model. Every state in the union, even Utah, licenses alcohol establishments for on-premises consumption. From speakeasies to microbreweries, and from dive bars to nightclubs, the diverse array of on-premises options in this country shows how consumer choice and competition leads to greater value. Wine list, anyone?


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