Regulatory Capture and Marijuana Legalization

Regulatory capture is a phrase that refers to industry groups gaining control over the public regulatory bodies responsible for regulating their industry.

It’s going to become an increasingly important and interesting issue and more and more states consider marijuana’s legalization, and even more so when this issue inevitably gets to the United States Congress.

Currently, the issue has emerged in the debate of what were once competing marijuana ballot initiatives in Arizona. Supporters of one, which did not make the November ballot, were advocating defeat of the one that did make the ballot on grounds that it was written to support commercial interests rather than consumers.

Furthermore, the issue was used to justify opposition to a constitutional amendment in Ohio placed on the 2015 ballot, in which the amendment backers sought to gain a monopoly over legal marijuana cultivation in the state. The Ohio measure failed, in large part, because of this feature.

The Ohio experience is instructive, because it placed attempts to revise regulations beyond the reach of the state legislature and, in effect, beyond the reach of the voters. Yes, the voters of Ohio could pass a new ballot initiative to revise the regulatory framework, but that is a complex and expensive proposition. The concern in Ohio was that providing a group of investor a business monopoly should not be a part of the state constitution.

The situation in Arizona is different, and here is why. The voters, by way of the state legislature, and the regulatory body set up by the proposed initiative will have ample opportunity to change the regulations and the regulatory framework set up by the current initiative.

There is a more important issue that supporters of legalization must consider, looking at current initiatives going before the voters this November and looking at ones in the future. It has two parts to it. First, we don’t really have marijuana consumers until we have a marijuana industry. Second, we won’t have a marijuana industry until marijuana is legalized, and that is not going to happen without a tremendous amount of money dedicated to political action in both ballot initiative and legislative arenas.

This column has addressed consumer issues, in terms of general awareness of consumer interests and in terms of how they should become (and continue to be) a priority for reform activists. This column also supports free-market approaches to marijuana regulation, including recognition that any successful form of legalization includes rights for personal use cultivation. And one of the most interesting issues in the current debate concerns the concept of “artificial scarcity,” in which regulators are encouraged to restrict marijuana market participation in order to artificially maintain high prices for marijuana, as a means of discouraging use. The free-market approach referenced above is a detailed challenge to this sort of regulatory approach.

Nonetheless, some form of legalization is better than no form of legalization, and some form of a non-medical market in marijuana is better than only having a medical market in marijuana. The recent successes in passage of marijuana legalization ballot initiatives have been the result of financial support from a very small and generous donor base. There is a concern that the reform movement, absent new sources of financial support, is overextended. Another concern has been the new legal marijuana industry has not offered financial support for legalization, leaving the cost to others while it reaps the financial benefits. Legalization costs money, and the marijuana industry is the most logical source for financial support for legalization.

Until grass-roots activists find a way to finance and implement successful legalization campaigns via ballot initiatives and/or legislative action, the regulatory provisions of legalization proposals will be skewed toward the interest of their financial backers.

So, it bears repeating, we don’t really have marijuana consumers until we have a marijuana industry. Once there is an industry, it will be easier to educate, organize and mobilize in support of consumer interests. Legalization does more than provides a place to buy marijuana legally, it also opens the door to the legislature to seek better regulations that protect consumers and advance their interests.

Once a marijuana market is created, it becomes easier to pursue free and open market policies that put consumer and public interest before that of private interests and industry groups. This is why supporters of marijuana legalization must always remember that they can’t let the perfect become the enemy of the good. Opposing reasonable legalization proposals just extends the pain and sacrifice created by prohibition.

Regulatory capture is an important concept to know about, and an important issue for activists and consumers. But it is not really an issue until you have something to regulate. Regulatory capture concerns how an industry is regulated. Cannabis consumers need a regulated industry, and, frankly, are not in such a position of strength that they have the luxury of voting down legalization proposals in states with potentially harsh penalties for possession and sales because they think they can get a better deal later.