Wednesday, January 15, 2014

Coming Changes in Marijuana Policy

When I first began practicing law I spent a lot of time in criminal courts all over southern California and in some places not in southern California. I was hungry and there was money to be made, justice to be done. I spent a lot time doing minor drug cases most of which were pot cases. On one occasion early on I remember being in a courtroom waiting for my case to be called. I was brought up to attention when the court called the case of one of the sons of a prominent California officeholder. I listened intently to the colloquies between the DA and defendant's lawyer. It was a discussion about terminating proceedings and sending the defendant off to drug school and bringing him back in a year or so and dismissing the case when he comes back to court. That was my very first exposure to pre-trial drug diversion for minor drug cases that had heretofore been treated as serious life changing felonies. That also marked the beginning of the changes in California law that ultimately resulted in the1996 passing by the electorate of the Compassionate Use Act which created the affirmative defense of a treating physician's recommendation. In the almost 18 years since its enactment it has created a booming new industry in California the medical marijuana industry. California may yet join the company of Washington and Colorado by the legalization of marijuana for recreational use. We shall see.
Colorado's model for legalization is an integrated model in which 70% of what each retailer sells must be produced on site. This has not yet been called the Tenant Farmer model but that is really what it is. One of the consequences of this regulation seems to me to result in an artificial shortage and consequently higher prices to the consumer. Perhaps allowing a retailer to sell up to 30% from non on-site sources is an attempt to ameliorate that economic fact of life. Colorado's scheme went into effect on January first and by all accounts was a bigger success than the first days of signup for the ACA. It will be fun to see how Washington handles the distribution issue later in the year when its system goes live.
Washington's model is more like California's alcohol model of the package store in which alcohol of mostly any brand and type is available for purchase. This plan would seem to be one that may result in cheaper prices for the consumer. However we should note that part of selling point in the legalization of recreational mota was the pocket book.
Both states share a single problem. That problem is how do we collect the taxes? Who is ultimately responsible to pay the taxes? There are a couple of models. The excise tax model in which the tax is imposed on the manufacturer and it is recovered by the seller by folding this tax and some administration fees into the price of commodity like the federal excise tax on automobile tires is one that may be used by Colorado. Another example of the excise tax model is the proof based tax on beverage alcohol paid to the federal government by a distiller of liquor. Then there is the transaction-based tax more commonly called the “sales and use tax” model. Under this model the ultimate consumer is liable to pay directly the sales or use tax imposed on the commodity. This tax is generally collected by the seller and remitted to the tax collector at regular intervals.
There is nothing to prevent either of those two states, Colorado or Washington from using one or the other method other than some proscriptions in the Constitution that forbids taxation of goods made in another and forbidding excise taxes or 'imposts' on the goods of another state. Thus neither Colorado nor Washington could tax the mota produced in the other state simply because it was produced elsewhere. There is also nothing to prevent either state from utilizing a double taxation scheme. Either or both of them could impose both an excise tax on each pound (or other unit) produced and a percentage based tax on the transaction with the ultimate consumer. Greed is not an unheard of phenomenon.
Once the federal government comes to its senses about the issue of marijuana (misspelled by the feds as “marihuana” because of the lack of Spanish language skills of a congressional clerk) and realize what the phrase “the marijuana industry is a $25 billion underground economy” means it will join the feeding frenzy also.
There is one issue that all of us should be concerned about and that is the danger that the new lawful industry in states doesn't end up becoming monopolized by large corporations so that Americans are forced to buy prepackaged mota from only specified and licensed providers. There needs to be some sort of safety valve because a monopolized industry is always bad economically and qualitatively for the consumer. If you doubt this look at your utility bills including your cable and internet bills and you will instantly see what I mean. This problem bothers me a lot. The only way I can see to solve this problem in these opening years of a new economy for mutual benefit is to permit each person to grow a certain amount of marijuana for his or her own personal or household use and for gifting purposes.
I suppose we shall see what we shall see once the lobbyists and special interests are heard from.

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