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

In the recent election, it seemed as though the two parties disagreed on just about everything: economic policies and tax policies, immigration and abortion, the wars in Russia and the Middle East, even garbage. If this left you feeling exhausted, and dispirited, and looking for even one sliver of unity — we are here to help.

Adam GOERS: I think what’s fascinating is that Americans — Democrat, Republican, independent — are all supportive of seeing major cannabis change.

And why does everyone support “major cannabis change”?

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

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 two central facts: number one, cannabis is still illegal on the federal level, and number two, it is still listed under the Controlled Substances Acts 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?

GOERS: There’s going to be big winners and losers.  

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.

Jon CAULKINS: Gahh, I don’t know!

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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.

DUBNER: I’ve seen you described as “America’s most pot-friendly politician.” Is that a title you accept? 

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 to smoke pot, that’s none of the government’s business.

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.

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 have friends that drink recreationally. I could care less, right? I mean, 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 it. We’re pioneers in legalizing: cannabis; most recently psilocybin, mushrooms, we — 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. 

DUBNER: So you’ve had legal recreational marijuana sales in Colorado for 10 years now. Legislation passed a couple of years before that. Could you just summarize it for me — the surprises, the disappointments, the positive effects and negative effects? 

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 it legally. 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 businesspeople 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 in 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, a 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, bad or tainted marijuana.

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 dollars, but sales are down to about $1.5 billion. There have been some layoffs, some closures, some downsizing, and that means less tax revenues for the state as well — down 30 percent, I’ve read, from a couple of years earlier. Can you talk to me about that? What’s going on with the market there? 

POLIS: From the early days, I always said: As an American, I hope that every state legalizes marijuana. As a Coloradan, 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, we’re 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. 

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

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 events, or restaurants, or concerts. I mean, it’s a free market. It’s an economy. 

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 generally?

POLIS: 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 — you know, 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.

But the most recent data tell a different story about cannabis use. We heard about this in Part 1 of our series.

Jon CAULKINS: If we do a pie chart of who’s using cannabis, it’s absolutely dominated by daily and near-daily users.  

That’s Jon Caulkins. He’s a drug-policy researcher at Carnegie-Mellon University. For many years, Caulkins has been tracking survey data that asks people about daily or near-daily use — of cannabis and alcohol.

CAULKINS: 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.  

So if more people are using cannabis more routinely than Colorado Governor Jared Polis says, how about his claim that there’s “very little health impact”? Here’s how Caulkins sees it:

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

I went back to Governor Polis to get his thoughts on the main theme of our series:

DUBNER: 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 U.S. at least, it’s been illegal, and now a partial reversal may be 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 you 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, I’m not saying we can actually do that or we have little power to do that, but what do you think of that idea? 

POLIS: It’s obvious. Like, yes, of course. I mean, first of all, marijuana is not chemically addictive. Alcohol is. So is nicotine. Secondly, alcohol chronic use is very destructive to the body. And marijuana use is not healthy by any 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.

I hate to keep picking on Governor Polis’s assessments — he has 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.

DUBNER: 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. 

POLIS: Well, sure. I’m not arguing that marijuana should not be a controlled substance. It should be. Twelve-year-olds shouldn’t be able to get it. It should be regulated 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.  

DUBNER: This act would have regulated marijuana like alcohol by inserting it into the section of the U.S. code that governs intoxicating liquors. What would that entail? 

POLIS: Just as with alcohol, we have an 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 to 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.

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

POLIS: It’s close. It’s getting close. It’s not full legalization, but it’s a good step. I’m for it. I’ve 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. It’s getting very, very close. 

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, including safe banking for state-authorized companies.” So, coming up: what would these legal changes mean for the cannabis economy?

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

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Adam Goers is an executive with The Cannabist Company, which operates in several states; he’s also a Democratic political consultant. These two roles often dovetail.

GOERS: Yeah, I founded and I lead the Coalition for Cannabis Scheduling Reform. It’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 F.D.A., to the D.E.A., 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.

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.

GOERS: 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 percent. Once this reclassification is done, that just will not apply anymore. 

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 Jon Caulkins, from Carnegie-Mellon.

CAULKINS: 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.

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 Goers says there’s another big potential benefit:

GOERS: 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, rescheduling alone would be important.

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

Yasmin HURD: The regulatory aspect does make it more challenging for research.  

And that is Yasmin Hurd, an addiction researcher at the Mount Sinai Health System in New York.

HURD: I remember when we did our first clinical studies with C.B.D. — our clinical research coordinator had to be escorted by the guard — you know, crazy. 

We also spoke with Hurd earlier in this series. She thinks that the legalization of cannabis has outpaced the scientific research, and she’d 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.

HURD: 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. 

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

HURD: 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.  

DUBNER: Developing brain, going up to about age 25 or so?

HURD: 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 T.H.C., 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. 

DUBNER: So that was a really interesting list. One thing you didn’t mention there was addiction.  

HURD: 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 N.I.H., they’re trying to really support more research on cannabis, but when we have so many people playing chemists, it is very, very difficult. And to ask scientists to figure out what percentage of T.H.C., percent to C.B.D. and to other terpenes may be beneficial as medicine or may cause harm — that does take a huge army.

So the benefits from rescheduling alone — the research benefits — would be substantial. And, after that?

GOERS: I think that reclassifying cannabis is a really pragmatic first step on the path to legalization.  

That’s Adam Goers again:

GORES: 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 happened 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, you know, 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. 

Coming up: not everyone wants to break down those silos.

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

I’m Stephen Dubner, this is Freakonomics Radio, we’ll be right back.

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In recent decades, many sectors of the U.S. 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’s 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.

STOA: 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. 

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

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

We heard from Stoa earlier in this series too. He’s the author of a book called Craft Weed: 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 percent of the U.S. market. But as the craft-beer industry grew, that duopoly lost a big share.

STOA: 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. 

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? 

STOA: 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.  

DUBNER: What would you loosen for the small ones? 

STOA: 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 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 noncommercial, 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, were 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.” 

DUBNER: Was it really illegal to home-brew beer until, like, the 1970s in this country?

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

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

STOA: 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 appellations. Appellations are an agricultural regulatory system that certifies the origin of an agricultural product.

DUBNER: Champagne, for instance.

STOA: 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.

DUBNER: Although you can buy a bottle of what tastes very much like Champagne, but it’s made in Spain and it’s called Cava. 

STOA: Or Italy, and it’s called Prosecco. I think the advantage to that is that it creates different products, so it’s not just sparkling wine as a 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’s 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.  

What do you think of Ryan Stoa’s vision for the future cannabis market? And what do the experts think?

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

That, again, is the drug-policy researcher Jon Caulkins.

CAULKINS: 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.

Caulkins 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.

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

It’s pretty easy to come up with examples of what Caulkins 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 U.S. states have some level of government monopoly involved in liquor sales. So how would Caulkins envision a government-run cannabis market?

CAULKINS: The basic concept here is, you could allow for-profit production — i.e., 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.”

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

CAULKINS: Gahh, 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. 

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 brake on the for-profit industry becoming bigger, more powerful, more leverage.

CAULKINS: You are 100 percent correct, and you’re correct in even more ways than you realize. So, absolutely, this dysfunctional state-by-state system has been a brake 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 U.S. 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.

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&D, with big marketing, and they’re obviously a very regulated industry. How do you see cannabis intersecting with that industry?  

CAULKINS: My best guess is that, at least in the short and medium terms, the F.D.A.-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 imagined that, “Oh, we would have instantly found a million wonderful health applications of cannabis if only it weren’t for this stupid U.S. federal law.” But the U.S. 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.  

DUBNER: What other countries do you look to as a model for U.S. cannabis policy, and how close or far is the U.S. from that now?

CAULKINS: U.S. 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.

DUBNER: Are producers nonprofits there, though?

CAULKINS: 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, and trying to find something more moderate, something like cannabis clubs. They’re fairly common in Spain and Belgium, if I could describe it briefly?

DUBNER: Please, yeah.  

CAULKINS: So, the most cautious version of legal supply is just, you can grow your own — but you can’t sell it, 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 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. 

DUBNER: Does that include my hourly work, or no?

CAULKINS: 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 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.”

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 law enforcement and prisons to traffic safety to physiological and mental health, etc., etc. — but what do you see as being the long-term effects on U.S society, let’s say, from the increasing legalization and use of cannabis? 

CAULKINS: Well, 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 appreciable share of people in prison. That was a myth told by advocates of legalization. Cannabis generated a lot of arrests. It 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 smoking and alcohol. I do think it remains a temptation good, and 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.”

DUBNER: Just because the harms are plainly so much worse? 

CAULKINS: They are extraordinarily compelling substances that can truly take over people’s lives very easily. Cannabis is just a totally different substance than crack or fentanyl or meth. I think the good news, you know, there’s some American wisdom in our American dysfunction, that this legalization thing — people refer to it like it’s a light switch. It’s not. The first step really in the modern era 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. 

Do you share Jon Caulkins’s optimism about our resilience, and our ability to adjust to new things? Do you share Jared Polis’s 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@freakonomics.com. 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.

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Freakonomics Radio is produced by Stitcher and Renbud Radio. This series was produced by Dalvin Aboagye and Zack Lapinski; special thanks to George Hicks for his field recording. Our staff also includes Alina Kulman, Augusta Chapman, Eleanor Osborne, Ellen Frankman, Elsa Hernandez, Gabriel Roth, Greg Rippin, Jasmin Klinger, Jeremy Johnston, Jon Schnaars, Lyric Bowditch, Morgan Levey, Neal Carruth, Rebecca Lee Douglas, Sarah Lilley, and Theo Jacobs. Our theme song is “Mr. Fortune,” by the Hitchhikers; our composer is Luis Guerra.