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Jon Gettman

A wise man once offered this valuable life advice: “Show up. Pay attention. Have no expectations.” Ignoring the last advice, I was definitely harboring expectations for Cannabis Commerce’s 04/05/2010 interview with Jon Gettman, past director of NORML, author of at least two all-time great studies, High Times columnist, and longstanding marijuana authority. That expectation was to hear, with the benefit of three years hindsight, how far Gettman had revised his figures upward from the $31 billion in lost taxes he revealed in 2007’s Lost Taxes and Other Costs of Marijuana Laws.

After well over an hour talking all things pot, Gettman humored us with a few billions here and there in actual increases. Nothing sensational to compare with the release of Lost Taxes, which shattered the oft-referenced $7 billion MPMTR (maximum potential marijuana taxation revenue) forecast in The Miron Report.

Bummer, right? Wrong. What we got was a treasure trove of commentary by a formidable intellect in top form – and plenty of background on how economists play the game of calculating MPMTR. Of course, according to Gettman, “I’m not an economist, I’m only an adjunct professor at Shepherd University in Shepherdstown, West Virginia.” Sure.

Let us know whether you think he’s an economist after reading this extensive treatise. No 10-second sound bites for Cannabis Commerce. This is the mother lode of marijuana lore from a longtime activist. . .

Q:  Where have we reached you?
A:  I’m in my home office in Lovettsville, Virginia, in Loudoun County.
Q:  What’s that near or not near?
A:  Not much, which is why it’s nice. I’m just down the Potomac river from Harper’s Ferry VA. It’s about as far north as you can be in VA and still be in the south.
Q:  You’re in a part of VA where tobacco is king?
A:  No, that’s elsewhere in VA. It’s more in the central and the southern part of the state.
Q:  Have you heard anything about the tobacco industry’s participation in the marijuana industry? They seem awfully tight-lipped.
A:  No. You know, I don’t have the figures in front of me, but it wouldn’t take a lot of land to grow all the marijuana that people currently consume. Because of the yields per plant available through modern farming, it wouldn’t necessarily be as wide-spread as tobacco farming. On the face of it, people smoke a lot less marijuana than tobacco.
Q:   Would that area be smaller or larger than the state of Rhode Island? How many acres do we need?

A:  I have no idea. While we talk, I can look up something I did on the subject earlier. But the fact is people will smoke 20, 40, 60 tobacco cigarettes in the course of a day. Most people hardly smoke one or two marijuana cigarettes in the course of a day. There are some very heavy marijuana smokers who smoke the equivalent of 4 or 5 cigarettes in a day, but under any comparison, the amount of marijuana that people consume is a small fraction of the amount that tobacco consumes.

Leaving aside the differences in the plants, alone, the amount of acreage involved for marijuana cultivation is a lot lower than tobacco. I mention the plants because marijuana can be a tall, five to seven foot plant with a radius of several feet with lots of branches and budding sights on it. Tobacco is a short squat leafy plant.

Q:   It’s sounds like you’ve been up close and personal with a lot of plants. Do you have more hands-on experience than some other people who have written studies?
A:  I’m familiar with marijuana, it’s not something that I have a great background and experience in. I testify as an expert witness in criminal trials about marijuana cultivation and in my past work for NORML over a period of time I have met some growers and talked to some growers and so forth. But it’s not really something I have hands-on expertise with.

My expertise comes when I talk about marijuana cultivation in court. It really comes from, aside from being around the marijuana community for quite some time and talking with people – I used to sell drug paraphernalia decades ago in my work with NORML – and also from research I’ve done keeping up with government reports on marijuana cultivation as the DEA has reported various trends in cultivation over time.

Q:  In your report, Marijuana Production in the United States from 2006, you say that at the time you wrote it, most of the production was outdoor crops as opposed to indoor crops. Has that ratio changed in 2010?

A:  No, although the indoor crop has been growing considerably over the last five years. For example, DEA seizures of indoor marijuana crops have gone up three fold over the last five years. The long term trend in marijuana cultivation is sort of interesting. It’s been kind of a cat and mouse game. Originally, of course, circa mid-sixties, mid-seventies, most of the marijuana in the United States was brought in from other countries, from Mexico, from Jamaica, Colombia. Occasionally you’d get some good marijuana from Thailand, at one point Thai sticks were quite exotic and quite valuable.

And after the paraquat scare in the late 1970s when the US government sprayed herbicide in Mexico, and growers were harvesting the crops prematurely, and American consumers were worried that the marijuana they were growing had been tainted with this herbicide, Americans started growing marijuana here themselves. Originally it was grown in just a few states, primarily California and Hawaii and so what happened was first people were growing large fields in a few states, government started eradication programs.

As people started growing in more states, the eradication program spread to more states. Then people started growing smaller plots and getting a greater yield. They started cultivating sinsemilla – seedless marijuana. They started paying attention more to individual plants. They started growing on fence lines, in little groves here and there. The production atomized.

And as the production spread through more states, the eradication program spread through more states. As production got more intensive, the eradication program got more intensive. At one point the government started seizing private lands, so people moved on to public lands, growing in national forests and national parks for example.

As part of this action/reaction cycle between growers and law enforcement authorities, two big developments came out. One, a higher quality, more valuable crop was produced, and second, cultivation moved indoors. And even there, we get this action/reaction cycle. For example, there are federal mandatory minimum penalties for growing over a hundred marijuana plants.

So many growers set up operations that produced 90 plants at one site and 95 plants at another site and so on. What’s happened over time is that operation has decentralized to such tremendous scale that it’s virtually impossible for law enforcement to eliminate domestic marijuana cultivation.

Q:  Jon, is your degree in criminal justice?
A:  I have a Masters in Criminal Justice and my PhD is in Public Policy with attention to regional economic development.
Q:  How does your background in criminal justice help you process seizure statistics?
A:  In general, it’s just being familiar with social science. I’m familiar with data and analysis and doing research. Part of it is also knowing where to look for data.
Q:  Where would you look for data in 2010 that you didn’t look in 2007?
A:  It’s not a big detective problem to find data, it’s really a question of which federal agency is starting to publish it. There used to be a National Narcotics Intelligence Consumers Committee, interesting name, referred to as NNIC. Nowadays we have something called the National Drug Intelligence Center. So for example there’s this website where they have drug threat assessments, and every year or two they put out a threat assessment about cannabis production.
Q:  In 2010, wouldn’t there be actual statistics available from dispensary data, rather than using data from questionable DEA surveys that are sometimes a decade old?

A:  Only really in California. The California Department of Health has a website where they note how many identification cards they have issued verifying how many people are marijuana users. But I don’t know of the dispensaries actually collecting data at this point on their clients and what their consumption levels are.

There’s still this tricky conflict of federal law, and I think there’s a problem producing too much data that might be used against them in some federal case. And of course the medical marijuana trend, while prevalent now in 14 states is still evolving, it doesn’t represent a significant part of the market. The federal surveys, there’s some odds and ends about them, there’s some issues with them. But they do provide a good baseline picture of what consumption is.

Q:  Was the exact weight of an average joint you reported in Lost Taxes something like 7.5 or 8 grams?
A:  I used both figures. Actually. . . in medieval times, they’d have debates about how many angels can dance on the head of a pin, and sometimes I think that deciding what the size of a joint is sometimes matches that discussion. There’s some context in which we use a gram as the standard because sometimes in a court case and someone’s caught with a pound of marijuana they ask how many joints will that produce? And in that context, we have to allow for seeds and stems which aren’t smoked but which are discarded and have to get averaged in to figure out how many “doses” of marijuana come from that pound.
Q:  I think if a joint was one gram, the scientific term would be “fatty.”

A:  That is true, a one gram joint would be a relatively thick one. On the other hand, the half gram joint, which is the standard the feds use all the time in court cases. . . btw in court cases the federal government overestimates the yield of a marijuana plant and they underestimate the amount of marijuana that goes into a joint which creates some interesting exaggerations of potential consumption levels. That’s sort of a sidetrack issue.

Look, the California training materials for police officers identify a matchstick thin joint as being about half a gram. I like the ¾ of a gram figure as being a middle ground and sort of realistic about what I think people use.

Q:  I have exciting news for you.
A:  What’s that?
Q:  I have a Colorado Medical Marijuana card, and that is the average weight of a joint that I’ve seen in about 7 or 8 dispensaries that I can walk to from my house.
A:  There you go, ethnographic proof! Yeah, I’ve sat down with some people and asked them to roll some joints and throw them on a scale and see what they are. Interestingly, the US Government rolls joints. They grow marijuana in Mississippi.
Q:  At Oxford?
A:  Exactly. And they provide marijuana in cigarette form for researchers. Those researchers write scholarly articles on their research, and one of the things they do is they say we’re using NIDA – National Institute on Drug Abuse – produced marijuana and they give out joints that are 800 milligrams.
Q:  Does your own scholarly research include personally testing some of the samples?
A:  No. I have spoken to five or six patients who get marijuana legally, from the federal government, for medical use. They were in a program that was discontinued decades ago, but their supply of marijuana is secure.
The government produced marijuana is not the kind of stuff that most people would want to consume. I’ve been in rooms where they’ve smoked it, it smells rank, it’s a mixture of leaf and bud, it’s just not really the best stuff compared to what the private market produces. It’s once again conservatives have it right about a few things but the market does it better than the government in some areas.
Q:  What’s your favorite that you find more alluring?
A:  To be honest, I used to use marijuana but I stopped several years ago so I don’t have as much direct experience with it. There’s a nice, I don’t want to call it a sweet smell, almost kind of a skunky smell, there’s some nice. . . characteristics of pot when you use it a lot you begin to recognize. . . it really comes from the resin content and there’s a great amount of variety in types of marijuana produced around the world.

Q:  I didn’t give you much of an introduction, let me give you an introduction 10 minutes into our interview. We’re speaking with Jon Gettman who has written Marijuana Production in the United States in 2006 and Lost Taxes and Other Costs of Marijuana Laws in 2007. Jon Gettman is probably the second most often quoted authority about marijuana production and lost taxes.

One thing I’m curious about – did writing those two white papers make you rich beyond your wildest dreams?

A:  Ha ha, no I don’t think I received a penny on either one! Sometimes I get some research grants for some of the work I do, but no, I’ve yet to cash in on the burgeoning marijuana industry.
Q:   How did writing those papers change your life, if it did?

A:  Not at all. I mean I’ve been producing papers on domestic marijuana production for, geez, 22 years, so I get a certain level of press attention for those reports every now and then. When the last crop report came out, the report got considerable attention surprisingly around the world. So it’s gratifying that the information I’m putting out is getting out there and getting to people.

But otherwise, as far as what I do, I produce reports like this related to the marijuana industry every year or so and as someone who teaches on the university level, it’s good to have some publications out there. So in that respect, it’s had a positive professional impact. But really what’s gratifying to me is to contribute to this ongoing debate about our marijuana laws and have an impact.

Q:  Are you still writing monthly for High Times?
A:   Quasi-monthly, I write two columns for them. I try to get them something every month, sometimes it’s every 6 to 8 weeks, but that’ primarily for the online edition of High Times. The primary column I produce is the cannabis column and I also contribute to a feature online called the 420 project.
Q:  What classes do you teach at Shepherd University?
A:  I teach at three different universities in the Washington, DC area. For Shepherd, I teach Public Administration. In Winchester, VA, I teach criminal justice classes for Shenandoah University, and I teach a number of courses for them. This semester, I’m teaching courses on the Virginia Criminal Justice system and another course on criminal procedure. Next fall I’ll teach a course on drugs and crime and also a course on organized crime. I also teach graduate level management courses for Maryland University as part of their MBA program.
Q:  If you wanted to go to a medical marijuana dispensary, how far would you have to travel?

A:  Well that’s a question of what date and time we’re talking about. It looks like we’re getting some in Washington DC some time in the next 12 months. That’ll be a very interesting development. People have usually associated dispensaries with the west coast. Now that the DC program is finally going into effect, it’ll be the first dispensary program on the east coast.

It’s going to be particularly interesting and influential because it’s going to be here in our nation’s capital. It’s going to provide the eastern media and the eastern political establishment and, more importantly, congressional staffs and representatives with direct exposure to this new policy information, if you will.

Q:   Do you think now that President Obama has had a little bit of time to address the giant concerns of a nation, in the next year or two he might train his guns on legalization?
A:   Well, no. I think the President has other things on his agenda. Now his administration has already made some significant change in national marijuana policy, primarily de-emphasizing federal law enforcement against medical marijuana users and providers in states that have medical marijuana laws.
Q:  That’s not a law or an executive order, that’s actually just a memo, correct?

A:  Yes, that’s just a discretionary policy of the Department of Justice. Now there is a very important development that’s shaping up right now. I’m working with some non-profit organizations like California NORML, Americans for Safe Access, we have filed an administrative rule-making petition to have marijuana rescheduled.

Now this is not a well-known process, but administrative rule making is how regulations get made by our government. Congress a long time ago created provisions by which the president or his agencies could change the rules when it comes to federal marijuana policy. The Controlled Substances Act have five schedules. Marijuana’s in Schedule 1, the most restrictive schedule. The other schedules do recognize medical use. There’s a different level of regulation based on the abuse potential of the plant.

Anyway, we petitioned the government many years ago to have marijuana removed from Schedule One. The petition itself is actually a statement of scientific findings. We filed this in 2002. It’s a very lengthy process, in fact the FDA has spent three or four years examining all of the science that we brought to bear in this petition, and they’ve recently transferred this matter back to the DEA and they’ll make a decision on it within the next year. I have no idea what the government is going to decide to do.

We’re hoping that they will recognize that it’s time to start providing some regulations and start accepting the fact that marijuana does have an accepted medical use in the United States. But if they don’t recognize this, if they reject our petition, we get to go to court over it and have this reviewed in the administrative proceedings or judicial review by the federal courts. So the Obama administration will have the opportunity in the next two years, they’re reviewing this right now, to reconsider federal policies toward medical marijuana.

We’re hoping that they continue to move in this direction. They’ve already indicated support for some of these state-level innovations and we hope that they’ll start narrowing the gap between federal law and state law.

Q:  Congratulations. I know you’ve been championing this cause for a while and I believe our listeners can find a youtube clip of you discussing it?
A:  There’s a brief clip on youtube. I spoke at a medical marijuana conference in California a few years ago and provided a brief summary of the rescheduling process. There’s also a lot more about this matter, as well as the petition at my web site,
Q:  I’d like to ask you some specific questions about the data that appears in Lost Taxes. Would that be OK?
A:  Sure.
Q:  In Marijuana Production, you found total sales in the year 2005 of $35 billion. In Lost Taxes, a year later, you found $113 billion. How did this escalate so much in one year?

A:  (laughs) Simply a matter of retail vs. wholesale. First of all, I used a slightly different estimation model. In the earlier paper, estimating domestic production, the idea there is to compare the price farmers get for marijuana with the price farmers get for crops like corn, wheat, soybeans, etc. So it’s the wholesale price to make this real simple. And also, that earlier paper was based on just American production of marijuana.

Lost Taxes produced an estimate of the size of the entire marijuana market, imported plus domestic, and also at a retail price. So the two figures aren’t as widely different as they may look at first glance. Again, I use a little bit of a different model to estimate the amount. But $35 billion domestic wholesale. . . you add in the marijuana brought in from overseas and then you go to a retail price. . . and you get something quite similar to $113 billion, the figure I have in the Lost Taxes report.

And frankly, given the estimates of how much marijuana is on the market, I think in Lost Taxes I use the figure of about 13,000 metric tons of marijuana. With the prices that are quoted by police officers, you can go to Google News and put marijuana there and on any given day you can come up with dozens of articles about police seizures and arrests of marijuana users and inevitably there’ll be someone in there talking about how marijuana is a $4,000  plant or plant commodity. I think that’s a high price, not necessarily an average price. . .

Q:  That wouldn’t be marijuana grown on national forest land which would have males and a lot of seeds for example. . .
A:  It depends. But police are frequently indicating that marijuana has an extremely high retail value. And that price is inevitably between $2,500 and $4,000 a pound. When you look at all the marijuana they say that’s on the market, it’s clear that based on that data, how accurate that data is of course the open question. But based on what police reports provide, and I mean DEA reports, state police reports, price estimates from all sorts of sources, there is some consensus of what the price of marijuana is these days. Again, we’re looking at $100 billion a year retail valued market based on these reports.
Q:  We’ll get to the metric tons in a second. Can we get back to the wholesaling?
A:  Yeah.
Q:  There’s nothing to say there’s just one level of wholesalers. How many wholesalers or resellers do you estimate there would be between a grower and a consumer who is buying a couple of grams?
A:  I have no actual data on that. Marijuana coming in from overseas or from Mexico, you have a lot more links in a chain, you also have people that grow marijuana and sell to their friends. You have people who grow marijuana and sell in bulk to someone and they sell to a network of people. It’s a very decentralized market. One of the things about using models to estimate this is you have to simplify things. One of the ways I approached this was simply by looking at what retail prices are. The government actually keeps data on what police pay when they go out and make buys.
A:  Yes. The STRIDE (System To Retrieve Information From Drug Evidence) data set. Also we have a great benchmark provided by High Times which has readers send in data every month on what they pay for marijuana in various places.
Q:  Here’s what I think is missed by the surveys, and I think it’s a real big thing. It has to do with wholesale vs. retail. It seems almost all the surveys I’ve examined are what did you, Joe Blow, buy last time. How about questions for wholesalers? How many pounds have you sold in the last year? What did you buy 100 pounds for and what did you sell them for?
A:  Yeah, but it’s hard to get what amounts to incriminating data about illegal activities. You’re absolutely right. If this were a legitimate industry, we would have much more refined data about the economic transactions. But it’s very difficult to get people to self-report that kind of information. And it’s very difficult for any academic to locate enough sources and get even trust from them to get people to report that kind of data.
Q:   I understand that, but it’s just like an orange. An orange is going to go through a couple of layers of wholesalers before someone plucks it from the supermarket shelf.
A:   Sure.
Q:  And I think the fact that this hasn’t been addressed in a lot of these surveys really throws things off because a lot of these transactions really are big transactions and not just a couple of people buying a couple of grams. There’s lots of people moving a Winnebago’s worth of pot.
A:  Absolutely. But the retail price still provides the outer boundary of what the market is worth.
The real area that we’re missing good information on is not so much the intermediate pricing structure, it’s what production actually is, how much marijuana is really on the market. That’s the area we just don’t have exact data on, and sometimes it’s like the old story about a dozen blind men trying to figure out what an elephant is. One of them touches the trunk, one of them touches the leg, one touches the tail. They all have a different idea what kind of animal they’re groping around trying to size up.
Q:   Let’s get into the metric tons now. The figures vacillate a little bit in your reports, not that you’re personally vacillating, you draw from a number of sources. Some of the figures I see are 24,000 metric tons in 2000 according to MAWG (Marijuana Working Group). In Lost Taxes you came up with an average of 14,439 by averaging four other estimates. First of all, how can people out there imagine what a metric ton looks like?
A:   Well it’s 2,235 pounds. So it’s an American ton plus 10%. It’s 1,000 kilograms, a kilogram is 2.2 pounds.
Q:  What would that amount of pot fit in?
A:  I have no idea. The problem is most of the world uses the metric system, we use of course the English system. A lot of drug data falls back into metric units.
Q:  What’s your best guesstimate today in 2010?

A:  I still think that there’s between 10,000 and 15,000 metric tons on the US market. The 24,000 metric ton figure you mentioned. . . the MAWG was a government panel and they used. . . there aren’t too many estimation techniques out there for this stuff.

They used the same one that I’ve been using for domestic marijuana production for a long time. We seize a certain number of plants, and we make an estimate as to whether we seized 10%, 20% or what percent of the whole crop did we get. Now one of the things that people do when they make these models is, they come up with a low estimate, a medium estimate, and a high estimate – no pun intended. The 24,000 was their high estimate. I think that was based on the premise that only 10% of the crop was seized. Then they have a lower estimate based on the premise that a higher proportion of the crop was seized.

The figure that I came up with in Lost Taxes. . . I looked at the different reports that were available and I took the average from them. One of the things that we do when we do model is we say OK, we’ve tried to come up with an estimate that’s consistent with all the available data. We don’t know what we don’t know – sounds like an obvious thing, but it’s an important principle of modeling.

Q:  Can you define what an economic model is for us?

A:  A model is a mathematical formula, based on a relationship between certain variables, between certain concepts. You know how long it takes to drive to the grocery store based on the speed limits, based on the speed of the car, based on the amount of traffic at the time of day you’re traveling. You can estimate that by some kind of equation that uses the relationships between those concepts. An example pertaining to marijuana would be quite simple.

For example, the government has seized about 100 pounds of marijuana and the government concedes that they seize about 10% of all that comes into the country. Therefore if 100 pounds are 10%, therefore 1000 pounds came into the country. When you look at how much the government seizes, you can multiply that by 10 to come up with a fair estimate of what the total supply is.

Another model is the government seized 100 pounds of domestic marijuana and that might be one fourth of all that was grown, so again, the same process applies. These are very simple models. And I’ll tell you something, the more complex a topic is, the more useful simple models become.

There’s something called the Law of Large Numbers – at some point, a lot of things cancel out. You can come up with a dozen factors that might affect this, 6 might be negative, 6 might be positive, they kind of balance each other out. Now one of the things that people do when they play with statistics in this fashion, and I’m sorry, but it is play, it’s what we call an educated guess we also say “we know that the number we’re trying to estimate is in this general region – another cliché is a “ballpark estimate.” Sometimes we know the maximum size of the ballpark.

That’s where the issue of marijuana consumption comes in. Like right now we’re talking about estimates of supply. Generally these are assumptions based on very limited data. We have to balance whatever we come up with in this supply estimate context with whatever estimates we have of consumption.

If we’re going to say, as I do, that there’s 14,000 metric tons of marijuana on the market, then we have to reconcile that with survey data to say “how many people are consuming marijuana” “How much are they consuming and can we account for all that marijuana. It is kind of a funny thought. Like OK, we got 30,000 pounds of marijuana here, how long will it take x amount of people to consume it? Well, gosh, to have such problems!

But that’s the nature of the intellectual exercise, if you will, what data do we have about supply, what data do we have about demand or consumption, and how can we link them together? The problem is, we don’t have an inventory, an audit, a census – of all the marijuana that’s coming into the country or grown here. It’s not like it’s registered in a warehouse and it’s brought to market. At the same time we have better, but very limited data, about how many people consume marijuana.

Q:  What is your latest data of the total number of consumers in the US?

A:  The official estimate is about 25 million. We have about 15 million people who use marijuana regularly on a monthly basis and about 6 or 7 million that use it on a daily basis. I think that’s a solid estimate, it’s produced by an excellent survey. I do think it’s a bit low. I think non-reporting is a problem. I think a lot of people who use marijuana frequently are not likely to be a part of that overall survey sample.

There’s some evidence with studies of people reporting tobacco use, that people are hesitant to admit to an unpopular practice. Tobacco surveys underestimate usage by about 25%. I’m telling you that this model doesn’t account for all the marijuana that is on the market. It’s a challenge to bridge these demands and these supply estimates. So I think that this surveys by NSDUH (National Survey on Drug Use and Health), is an excellent survey, it’s one of the best in the world. I think it provides a minimum estimate of how many people use pot.

Q:   I know that you don’t consider yourself an economist, but a lot of economists including Caulkins rely on that survey. But let’s just say for an example that all that data is correct even though it was taken almost a decade ago. Let’s hypothetically say that it’s all correct. I’m wondering why you’ve become more conservative since 2007 in your estimate.

Back then you said that you thought there could be about $31 billion in lost taxes available. . . you’ve since revised that to say that you currently think the real figure is somewhere between that and Jeff Miron’s figure which is $7 billion, which makes it around $24 billion. I’m curious why, with all this activity – and I should say I live in a hotbed of medical marijuana dispensaries. This whole town has gone berserk for it. With so much evidence of people going ga-ga for ganja, why have you become more conservative over the last three years?

A:  Well, I haven’t. But let me address your question in more direct fashion. Look, my report is based on “now.” It’s based on a status quo. It’s based on the taxes lost by marijuana being illegal. It’s “what does this policy cost taxpayers today?” It’s not really meant to be the taxes available from legal marijuana tomorrow. It would be nice if it were tomorrow or whatever point in the future it is.
Q:  Do you mind looking into the future?

A:  Yeah. But let me give you a perspective on this. Let’s look at it in a very broad, general sense recognizing all these little hair-splitting issues with the data and so forth. Right now, for the purposes of this conversation, let’s say that marijuana is a $100 billion retail-valued consumer industry. Now, if marijuana were legalized, the price would drop. Usage probably would go up. And to what extent those two forces interact with each other, this is the issue that economist call elasticity. . . I tell you it’s anyone’s guess.

We have surveys with tobacco users that show that when we raise the price of tobacco, usage goes down. This is basic economics. Prices go up, consumption goes down, prices go down, consumption goes up. So there’s equilibrium there. My argument is that the marijuana market is so inflated because of it’s illegality. I mean the costs of production of pot are miniscule compared to the prices people are paying for it.

So legalization’s gonna collapse the market by bringing the price down. It’s gonna bring it down considerably. I would and do argue that there’s a number, I don’t know what it is, people can talk about it and speculate about it. There is a number that people will pay for pot that’s a lot higher than the actual production cost and a lot lower than the price of marijuana is today.

And to be more specific, we can deflate the marijuana market from $100 billion to say $50 billion. And that $50 billion, half of that might go to the growers, and half of it might be a tax to the government. There’s some numbers that the marijuana consumers are willing to pay government, in taxes, in exchange for legal marijuana. And I suggest that we can find a number that is large enough to be an incentive for the government to adopt legalization but it’s low enough that marijuana consumers will be better off because they’ll be paying less for marijuana.

Q:  Would that number be under or over 50% sin tax?
A:  I have no idea what that figure’s going to be. Let me give you a proposed tax. $10 per 1% of marijuana per ounce. So an ounce of marijuana at 5% thc would have a $50 tax on it. I think that would produce a retail price for an ounce of pot, maybe $100.
Q:  There’s very little marijuana at 5% thc. Medical marijuana’s all up around 20% to 25%.
A:  Again, one can play with these numbers, but 5% thc, $125 an ounce. . . that would be a lot less than people are paying today and a $50 an ounce tax would be lucrative for government. Now I don’t know what’s practical here. There are going to be political fights over this in time, there are going to be arguments over what the price of marijuana should be.
The bottom line is when marijuana is made legal, the taxes have to be high enough to give the government an incentive to legalize. They have to be low enough that we have a legal market.
Q:  Do you believe outlaw growers will to put up with an excise tax anywhere near 50%?

A:  This is the point I’m getting at. Whatever the tax structure is, it has to come up with a price at which producers and consumers both prefer a legal market to an illegal market. Because we can’t control the market through arresting people. So we need voluntary compliance. And there’s a point where market forces are going to determine all of this.

But I’ll tell you something. I live in a rural area, there’s land. People can grow their own marijuana. But when you’ve got major cities like LA, like Dallas, like Miami, cities like NY, like Boston, like Detroit, yeah, people can grow marijuana indoors. People can grow a lot of tomatoes indoors. They grow a lot of tomatoes. There’s going to be a retail market for marijuana. And market forces are going to create a price by which everybody is happy.

There’s a tax that the government collects on it, producers make adequate amounts of money, if not generous amounts of money, and consumers are paying less for marijuana than this crazy, illegal market that we have now. And that scenario – a legal market with a fair profit and a reasonable tax and a lower retail price makes a lot of economic sense. And it doesn’t matter whether it’s a $100 billion market now, or a $50 billion market or a $10 billion market now, the fact is this scenario makes a lot better economic sense than what we have happening now.

What we have happening now is too expensive. It’s too expensive for consumers, it’ too expensive for taxpayers, it’s too expensive for society, and depending on what one’s values are, perhaps worse of all, it’s too expensive for medical patients. Medical patients should not be paying these prices.

Q:  What about going back to imports from countries like Columbia? That used to cost like $300 a pound. Wouldn’t that generate a lot of tax revenue with a lot of imports taxes coming in?
A:  It would be better for us if we grew it here. Why send the money to Columbia when we could send it to Kentucky?
Q:  True. But how about exports? Couldn’t we raise tax money through exports?

A:   Perhaps. I’ll tell you, when you get into global trade, why do we buy TVs from Japan and shoes from Indonesia? We sell a lot of corn, rice, and wheat around the world. Well, we can grow corn, wheat, and rice cheaper than most countries. Other countries can make TVs and shoes cheaper than we can. Countries have a comparable advantage with different commodities. The market’s going to determine a lot of this stuff.

Now, if we can grow marijuana more efficiently and economically than other countries, then we’ll be exporting it. On the other hand, if other countries can grow it cheaper than we can, then we’ll be importing it. We produce wine grapes here and we also buy wine from France. You’re going to have a similar situation with marijuana if it were legal. But generally speaking, Americans can grow marijuana, and if we can grow it for our own market, I don’t see us importing much.

By the way, I found the data we were looking at a while ago. If you assume a production of 775 pounds of bud per acre, and you assume that Americans go through 37.5 million pounds of marijuana a year, that would take about 48,000 acres to grow. That’s 12% of America’s idle crop land. Basically, 50,000 acres could supply all the marijuana that Americans consume today. Now, again, these are really general estimates, and they’re based on certain assumptions about how many plants per acre, how much space between rows, based on the premise that you’re growing outside while some people might prefer marijuana grown inside.

Q:   There’s a lot of good growing land in red states, isn’t there?
A:  We have a lot of crop land in this country. We have capacity. So, yeah, we could do it.
Q:  I believe you mention that you feel legalization is more in line with a conservative agenda than a liberal agenda?

A:  Yeah. Beause conservatives are much more free-market oriented than liberals are. Conservative tend to reject the “nanny state,” the idea that government should decide what’s best for us and make decisions for us because we’re not capable of making those decisions for ourselves. That’s a pretty standard conservative statement of their values. Prohibition in some respects is a progressive policy. It came out of the progressive era of the ’20s and ’30s. It was based on the premise that marijuana is bad for people so we shouldn’t be allowed to use it or sell it.

We call it prohibition for a reason. It followed alcohol prohibition. Alcohol prohibition was put into effect during the presidency of Woodrow Wilson at the high mark of the progressive politics in the early part of the 20th century. It is a “nanny state” policy. I’ll also point out the fact that when it comes to the constituencies affected by marijuana prohibition, this becomes a liberal issue. Marijuana arrests impact on minorities at a far greater rate. The arrest rate for blacks I think is about 3-5 times higher than it is for whites.

So as far as who’s getting affected by prohibition, those are constituencies of the Democratic party and liberal politicians but when it comes to the ideology and the economic impact of this it’s very consistent with conservative policies and many of the policies of the Republican party though not ones that are a priority in this climate. It’s an odd contradiction. And it might be one of the reason that its taking medical marijuana states to move this issue along, because left to their own devices, our political leaders don’t want to touch this. They have other priorities. They wish that we would just go away and not force this issue. Fortunately, many people aren’t taking that advice, and they’re standing up for their rights, and they’re trying to find new policy approaches to this issue.

Q:  I love the surprise attack aspect of Republicans running on a pro-legalization platform. I don’t think they need Karl Rove to offer them that strategy, I’ll hand it to them right here.

A:  Remember, Libertarians are some of the best friends marijuana reformers have in the political area. Libertarians don’t have much political influence, but they are a significant force in conservative politics. Ron Paul, for example, has been a stalwart supporter of marijuana legalization for many years. In fact he spoke at a NORML conference when I was NORML’s director, it must have been 20 years ago.

So there are a lot of supporters in conservative circles. The National Review has been extremely consistent in supporting marijuana law reform over the years. Many people don’t realize that. But there are a lot of conservatives who acknowledge the convergence of these ideas and theirs.

Q:   I believe they have a Coalition for Compassionate Care which Penny Bachhiochi, a Representative from Connecticut, is all for. She’s a Republican.
A:  They’re out there. They’re not leading the party right now. The Republican party’s going through an interesting transition these days and the political environment has moved a long way away from drug policy. Whether it circles back remains to be seen, and it’s going to be a function of if activists force the issue and bring it before the public.
Q:   What effect do you think the mountains of free publicity the marijuana industry has received lately will have? There seems to be no end to the cover stories, it’s just gone crazy with TV news covering it, Hollywood’s all over it. .. I know there’s not a scientific way to measure the boost this creates, but do you or don’t you feel that gives cannabis commerce a huge boost to have unlimited amounts of free advertising and publicity?

A:  Well, we’re talking about economics here, and in economics there are always limits. But I think it is an incredible boost. I think it is changing public opinion, and I disagree with the notion that we can’t measure it. We do measure it. We measure it in opinion polls about marijuana legalization. And those polls show that the issue has taken great strides. Public support for marijuana legalization is growing. I think the legalization is virtually at a 50-50 level. I think half of Americans now support legalization. When it comes to medical marijuana, I think we’re at 70-75% level of public support.

Translating that into political support remains a challenge. But I think we are getting our message out into the public. Part of that is the demographics. . . I mean I’m in my 50s now, and a lot of people my age who are now “the establishment,” we grew up in the 60s and 70s and whether we use marijuana or not we have, in my opinion, a much more sensible outlook about it. It’s not as foreign, strange, odd, peculiar, or unfamiliar as it was to people say 20 or 30 years ago. And the more this issue is “personalized,” to borrow a phrase from a different civil rights movement, the more it comes out of the closet the more human and humane people are about this, the more tolerant and supportive they are of reform.

I think most Americans are somewhat ambivalent about adult marijuana use. I think the only thing people are concerned about is teenage drug use, marijuana use in particular, and I think that many American adults think that the laws we have, as contradictory as they are, they think that’s the best way to keep drugs away from kids. Now I disagree with that. I think the profit incentive, the high prices for marijuana encourages teenagers to sell pot to each other. It makes the situation worse in high schools and I think that eventually that’s going to be the factor that changes public opinion.

I think that’s the remaining obstacle, that people think that saying it’s bad, saying it’s illegal, exercising more discretion when it comes to arrests and sentences for people , they think that’s the best way to send a successful signal to young people. I disagree with that but I think that’s the crux of the challenge before us right now.

Q:  Do you think the reform movement could use a good march on Washington?

A:  It never hurts to have a couple hundred thousand people on a demonstration in DC. But I don’t know if that’s feasible to do. Look, there are people in the movement that have been arguing about this for 25 years. When you get thousands of people together in support of marijuana laws of course. . . a lot of them smoke pot. And on one hand civil disobedience has an illustrious history in our culture. On the other hand, it distracts the media from the content of the demonstration to “oh, look at this circus.”

I remain more supportive than I am critical of demonstrations. I think they’re useful. They demonstrate public support. They demonstrate solidarity and commitment by activists. They indicate momentum. They provide a rallying point for what I call the “natural constituency” for this issue. At the same time, the challenge is as much an intellectual issue, that is to take this media interest and use it to communicate with different groups, to communicate with people who don’t use marijuana but who have an interest in this issue based on their values, based on their concerns for their kids, based on their concerns about the economy, based on their concerns about our growing national debt and even the immediate problems that states have balancing their budgets each year.

And I think the challenge is really is to reach out to other Americans and say, look, this issue is something that we need to attend to now. It’s not a low priority. And if you’re concerned about education budgets, if you’re concerned about drug abuse, if you’re concerned about fiscal sanity, if you’re concerned about having enough police resources to go after child molesters or people who commit violent crimes, there are a broad list of issues that would benefit from marijuana reform. We need to reach out to these other constituencies.

I think we need to generate some money to address all the shortages you talked about. First of all, are you going to write another big paper any time soon?

I do this every year or two. I’m not sure when I’m going to return to these economic issues. I just finished in the last year a rather massive report on marijuana arrests. I have some thousand-plus tables on local arrest data regarding marijuana –

Q:  Could we talk about the money and not the arrests?
A:  Sure.
Q:  Where else would you look for additional taxation revenue streams? Let’s assume there’s going to be at least quasi-legalization in more than 14 states. Let’s assume we’re moving toward legalization. What sort of revenue streams would you look at now that you didn’t look at in 2007?

A:  It’s more a question of how could we get better data. There are two revenue streams. One of them is the amount of money being spent on pot being spent on other stuff and the taxes that regular sales produce. Sales tax, payroll taxes, corporate profits, etc. The other revenue stream is what we call sin taxes or excise taxes, the additional taxes that we have on alcohol or tobacco and in this case marijuana.

To address the issue of getting better data, there may be a way to collect data from dispensaries after they’ve operated for a while. There’s potentially a way to see what they’re collecting in sales tax as a way of modeling what would happen if similar policies were in force in other states. There’s a possibility of using data from the dispensary in California and Colorado for example and using that to provide a much more specific and detailed estimate of current tax revenue and projections of tax revenue.

Q:   You should come out to my neighborhood (South Denver). You’ll see lots of cannabis commerce in action. You won’t believe it.
A:  I’ve been to California, and I’ve seen the dispensary movement, and it’s absolutely staggering. When I talk to students here I say it’s a whole other world out there. It’s almost like a foreign country. It’s completely different.
Q:  So are you still sticking to $31 billion, or, given everything that you just said, are you ready to revise upward from that?

A:  Again, I shy away from a revenue number cause I just don’t know what the consumption versus price issue’s gonna be. Right now I’m comfortable with saying it’s costing us $40 billion a year. And I’ll tell you something. We can speculate all we want about the potential money that will come in when marijuana’s legalized, but that’s imaginary money.

One reason I focus on the fiscal costs is that this is money that the government’s losing out on today. It’s not imaginary. This is lost money. This is directly hitting everybody’s wallet. It’s hitting every government’s balance sheet. This is real and it’s now.

The potential tax revenue is important to evaluate as a policy, it’s important to evaluate its economic impact, it’s important to evaluate costs vs. benefits. It’s not a trivial exercise to try to evaluate this stuff, it’s extremely important. But the losses. . . these are tangible. . . these can be estimated with a greater degree of reliability and they show an immediate impact on people. People are paying higher taxes these days, or getting less services, because marijuana’s illegal. That’s the situation as we speak. And that’s not gonna change until marijuana’s legalized. And just by eliminating this incredible drain on government’s revenue, that’s a pretty persuasive argument, at least in my opinion, for legalization.

Q:  Are there ways to measure what corporations could make in a legalized landscape? Big Pharma, for example, releasing a whole series of cannabolids?

A:  Yeah, it’s interesting, there’s a report by the Institute of Medicine About Medical Marijuana, a 1999 report, and in their appendix they report that marijuana’s legal status as a banned drug discourages information about its use in pharmaceutical products. I’m glad you brought this up. I don’t agree with the widespread belief that large pharmaceutical companies are opposed to legalization cause they want to make the money themselves.

My feeling is that the potential of making refined pharmaceutical drugs based on tinkering with the THC molecule and other synthetic cannaboloids that could be developed. . . I don’t think there’s any competition at all between those substances and people being able to grow and have access to marijuana legally.  And as a consequence of that evaluation, there’s a lot of money to be made by developing highly refined pharmaceuticals based on the chemical ingredients in marijuana. Yeah, there’s billions of dollars there.

I don’t have the data or the models to estimate that. That’s a bit beyond my capability at the moment. But I’ll tell you something, the companies that have already done research in this area – they have an idea how to estimate that stuff and frankly I’m sure that quite a few companies have given a lot of thought to what the profit potential of marijuana is. What activists have to do, and those of us who study this issue, we have to create a public climate by which people are more comfortable pursuing their own self interest. I think everything will accelerate.

Q:  If marijuana was rescheduled as you’ve proposed, would that help pharmaceutical companies along?

A: Absolutely. It would lower the security and research costs. For one thing, any cannaboloid now would be a Schedule One or Schedule Two drug and that would be the most restrictive, meaning having the most complex and most costly regulations. For example, there are very, very strict policies for Schedule Two drugs about extending people’s prescriptions. You have to go to the doctor’s office, it can’t be done by phone, things of that nature. And the plants where the drug is developed have to have the highest levels of security. The distribution network has to have the highest levels of security. It’s very very cost prohibitive.

So the more lenient the regulatory burden is the lower the fixed costs. Also, there’s this notion that marijuana is a banned drug. So there’s a stigma attached to it that perhaps puts a drag on the possible profitability of cannaboloid type drugs. So a loosening up of the regulatory environment would increase the prospects and the confidence that companies have in developing cannaboloid drugs. It would lower the risk of development. And developing pharmaceutical drugs is a very investment-intensive operation. There’s a lot of money that goes into R&D and a lot of money that goes into testing. Companies need to have some assurance of recouping investments and making a profit.

Q:   We’re sure rooting for you getting that rescheduled. Thank you so much for visiting with us, Jon, it was really fascinating. We really appreciate it. Is there anything else you’d like to say?
A:  Well, no, we’ve covered a lot of ground here. I appreciate the opportunity. Thank you for having me.

Listen to the audio for this interview

Read Lost Taxes here.

Read Marijuana Production here.