California’s new legal marijuana market marks the beginning of the end for prohibition

This is a big deal not just for California, but for the entire country.

If a single date marks the beginning of the end for the legal prohibition of marijuana, there’s a very good case for January 1, 2018.

On this day, California began allowing the legal sales of marijuana for recreational use. According to state estimates, more than 400 businesses were licensed. With that, the most populous state — and the world’s sixth-largest economy — officially launched an entirely new legal industry within its borders.

This all goes back to California’s successful 2016 ballot initiative, in which 57 percent of the state’s voters elected to fully legalize marijuana.

At that point, California became by far the biggest state to legalize pot. Until Election Day 2016, only four relatively small states had done so: Colorado, Washington, Oregon, and Alaska. Altogether, these states hold more than 17 million people, and their cumulative annual economic value totals around $1 trillion. In comparison, California alone is home to more than 39 million people and is worth around $2.5 trillion — more than twice as populous and wealthy as all the previous legal pot states combined.

This size matters. While the previous legal pot states had relatively small economies and, therefore, relatively small marijuana industries, California is a behemoth. GreenWave Advisors, a cannabis financial analyst, estimated that California’s industry could be worth $5.1 billion in 2018. One report from researchers at the investment bank Cowen estimated that legalization in California alone would triple the size of the nation’s legal pot industry within a decade.

This will lead to a massive multibillion-dollar industry that will seek to expand and grow, just as other markets do. And as far as the polling shows, California is not an outlier — and the public is on board with legalization’s expansion.

In other words, the genie is out of the bottle.

Public opinion is increasingly behind legalization

It would be one thing if it were just the supposedly liberal hippies in California who backed legalization. But the polling suggests that California is an early bellwether of where marijuana policy is going.

For one, nationwide support for marijuana legalization keeps growing. Gallup’s latest survey in 2017 found that 64 percent of US adults back legalization, up from 36 percent more than a decade before. Gallup even found that a majority of Republicans now support legalization. (One caveat: Anti-legalization advocates argue that if surveys offered options between decriminalization, medical legalization, and recreational legalization, voters would be much less likely to say that they back full legalization.)

There’s good reason to believe support will keep growing. For one, surveys by the Pew Research Center have found that support has steadily grown among all generations for the past few years. Support is also especially high among younger groups, who will over time become a greater share of the voting population.

This wouldn’t be the first time California played the bellwether on marijuana. Back in the mid-1990s, the state was the first to legalize marijuana for medical purposes. Now at least 28 other states have followed suit.

California could also give more credibility to this movement. If nothing big goes horribly wrong (just as nothing big has gone wrong in Colorado or other legalization states), then the nation’s most populous state — making up more than one-tenth of the US’s population — could prove this isn’t the huge disaster that anti-legalization advocates have long warned about. In fact, it might even bring in tax revenue and jobs.

These trends are also likely to speed up through the marijuana industry itself.

Big marijuana is here

It may be easy to dismiss what California did because of the state’s previous medical marijuana system, in which just about anyone could stroll down to Venice Beach in Los Angeles, pay $40 or so for a medical marijuana card, and legally buy some cannabis.

But there is a vast difference in scale between Venice Beach’s local medical pot shops and the burgeoning multi-state marijuana industry that can arise from full legalization. Multiple analysts have found that marijuana legalization in California will lead to a new multibillion-dollar industry in the state alone, and Cowen researchers concluded that the nationwide legal pot industry will bloom to $50 billion by 2026.

As recreational marijuana becomes a legal industry worth tens of billions of dollars, there is suddenly going to be a lot more financial interest in legalization. This is, in fact, what legalization advocates have long expected: The marijuana industry will increasingly play more and more of a role in the drug policy reform movement as legalization spreads.

“On some level, we have always known that,” Ethan Nadelmann, former executive director of the pro-legalization Drug Policy Alliance, previously told me. “And I think 2016 may be the last year in which drug policy reform organizations, driven primarily by concerns of civil liberties and civil rights and other good public policy motivations, will be able to significantly shape the legislation. And I assume that as the years progress, various industry forces will loom ever larger.”

The new big marijuana industry, just like any other for-profit market, wants to grow. The obvious pathway to doing that is legalizing pot in the dozens of states where it remains illegal. With many more customers thanks to California’s decision alone, the industry will have more profits to carry out the political campaigning and lobbying it needs to achieve this.

The big problem with ballot initiatives has long been that they can cost a lot of money. Whenever I ask legal pot activists why, for example, it took so long to get medical marijuana — which now polls very well virtually everywhere — in Ohio and Florida, the response is usually that those states are very expensive to run ballot initiatives in (partly because they’re relatively large and populous).

Well, there’s now going to be a rapidly growing industry to cover those expenses. And that will likely lead to more victories in the ballot box and legislatures down the line.

The federal government can’t keep ignoring what’s happening here

For years, Congress has mostly ignored the spread of marijuana legalization. As legalization continues to spread, this is going to become less and less defensible.

Technically, marijuana is still illegal under federal law — it is Schedule 1, the strictest classification in the drug scheduling system, and it has criminal penalties attached to it. The federal government has mostly ignored that contradiction and decided to let states legalize as they please, with minimal interference.

But this contradiction in state and federal laws creates other problems. For one, banks are generally afraid of doing business with marijuana growers and shops — after all, it could put the bank in the awkward position of essentially taking part in an illegal drug industry. This has forced many pot businesses to function as cash-only enterprises — which is not only burdensome for them but also potentially dangerous, since it makes them better targets for would-be robbers.

Another hurdle: Due to a tax rule known as 280E, marijuana businesses can’t file for a bunch of deductions that businesses are normally entitled to, pushing their effective income tax rates to as high as 90 percent.

Then there are the broader policy issues: Does Congress really want to let state ballot initiatives, which can be rife with problems, decide the future of a major drug policy issue? Is Congress really okay with the creation of another for-profit industry focused on marketing and selling a recreational drug, given the track record of the alcohol and tobacco industries? Do federal lawmakers really not want to make sure there’s at least some regulatory floor for how marijuana is grown, transported, advertised, and sold? Is Congress really going to do nothing as a giant new industry takes root in America?

One major hurdle for Congress, though, may be international treaties.

From the 1960s through the 1980s, much of the world, including the US, signed on to three major international drug policy treaties: the Single Convention on Narcotic Drugs of 1961, the Convention on Psychotropic Drugs of 1971, and the United Nations Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988. Combined, the treaties require participants to limit and even prohibit the possession, use, trade, and distribution of drugs outside of medical and scientific purposes, and they must work together to stop international drug trafficking.

There is some debate about whether these treaties stop countries from decriminalizing marijuana — when criminal penalties are repealed but civil ones remain in place — and legalizing medical marijuana. But one thing the treaties are absolutely clear on is that illicit drugs aren’t to be allowed for recreational use and certainly not for recreational sales.

There are ways around this. Bolivia, for example, effectively withdrew from the 1961 Single Convention on Narcotic Drugs; then it rejoined with a “reservation” allowing the use of coca leaves within its own borders. The move could have been blocked by one-third of the parties to the treaty — which would amount to more than 60 nations — but only 15 joined in opposition.

The US could do something similar with marijuana. Or the US could try to ignore the treaties (as Uruguay has essentially done) or find another solution altogether. (So far, the US has by and large avoided these issues with state-level legalization because marijuana remains illegal at the federal level. But that could change if Congress takes action.)

The federal government has mostly dodged these questions for years. But as more and more states legalize, it’s going to become much harder to deny where this is all going.