Cannabis / Marijuana, Exclusive Interviews
Mark Thornton: Cannabis Legalization Starting to Advance Rapidly
By Anthony Wile - November 15, 2015

Introduction: Mark Thornton is Senior Fellow at the Ludwig von Mises Institute, with articles published often in the Mises Daily. He serves as the Book Review Editor of the Quarterly Journal of Austrian Economics and was a member of the Editorial Board of the Journal of Libertarian Studies. He has served as the editor of the Austrian Economics Newsletter and as a member of the graduate faculties of Auburn University and Columbus State University. He has also taught economics at Auburn University at Montgomery and Trinity University in Texas.

Mark served as Assistant Superintendent of Banking and economic advisor to Governor Fob James of Alabama (1997-1999) and he was awarded the University Research Award at Columbus State University in 2002. His publications include The Economics of Prohibition (1991), Tariffs, Blockades, and Inflation: The Economics of the Civil War (2004), The Bastiat Collection (2007), and The Quotable Mises (2005). Mark Thornton is a graduate of St. Bonaventure University and received his PhD in economics from Auburn University.

Anthony Wile: Hello, Mark. It's been over a year since we last interviewed you. Give us an update on your recent work.

Mark Thornton: I was asked to debate the War on Drugs at Oxford Union in June of last year. I was happy to see such a political elitist institution interested in debating the War on Drugs. Maybe the new requirement for paying tuition is having a positive effect or it could be just part of the worldwide trend against the War on Drugs and political institutions in general.

Recently, I was asked to speak to the Atlanta Economic Club at the Federal Reserve Bank of Atlanta. I spoke about the Skyscraper Curse, a topic that I was criticized about by the Economist magazine. It's a topic that I have been talking about often these days as we look out at a pending Skyscraper Signal in Saudi Arabia and the collapse of the world economy.

Anthony Wile: We continue to follow the cannabis trend at The Daily Bell, and given your focus on "the economics of prohibition" over the years, would like to talk with you about several recent developments, especially in regard to two areas – the economics of prohibition and tariffs and price controls. When we talked with you in March 2014 you talked about "UNGASS 2016 and the Enormous Benefits of Legalizing Marijuana." Given the progress to date, what do you expect to come from UNGASS 2016? And how would you assess the working sessions being hosted around the world in preparation for the UN General Assembly Special Session (UNGASS) on Drugs, in April 2016?

Mark Thornton: Well, I have heard about the leaks and those leaks seem quite promising. I believe they basically confirmed what we hoped and expected from UNGASS 2016. It is complete reversal from 1998. In 1998 the report said that policy could achieve a drug-free world. That is an insane position to take, like no more storms, no more automobile accidents. It is the Pollyanna delusion. In 2016 we expect the UNGASS to issue a harm reduction recommendation where illicit drug consumption and possession would not be criminal acts that could lead to a prison sentence. This is a sane policy position. Prison sentences for illicit drug users are clearly harmful to the consumer (who now has a criminal record) and to government (cost of courts and prisons, etc.) and it does not deter consumption, or crime, or other negative consequences.

It is not the correct position of full legalization, but decriminalization has achieved good results in Portugal and Ireland has announced its intention to follow Portugal's lead. With UNGASS 2016 recommendations we can expect many more counties to follow suit with legalization of marijuana and decriminalization of the hard drugs. Many governments have already turned a blind eye towards illicit drug consumers in anticipation of UNGASS 2016 and are ready to enact harm reduction policies such as decriminalization, marijuana legalization, and needle exchange programs. So I am hopeful that we will see a windfall of policy liberalization in many countries and then political change in countries that do not follow suit.

There will be some pushback from countries like the US, Iran, and Saudi Arabia. The for-profit prison companies in the US will spend lots of money trying to defeat public opinion. Someone should keep an eye on them and their political and lobbying spending. If politicians knew that anyone accepting for-profit prison money would be outed as an ally of crony capitalism, it could be helpful.

Anthony Wile: What about individual response from member nations? Many have already implemented new regulations but I've stated my expectation that many changes will likely need to be made to at least parts of those regulatory regimes post-UNGASS, in order to come in line with treaty agreements.

Mark Thornton: Yes, it will be a messy process. Government always is a mess. Some will stick with the War on Drugs, some will adjust within the new framework, and others will venture outside the new guidelines and treaty agreements. As I mentioned, Ireland has already jumped the gun in preparing for full decriminalization. There will be experimentation and lots of reviewing of the evidence. I am sure there will be reform efforts that fail, but overall I am not worried about the long term because we have solid evidence from Portugal.

Medical marijuana legalization has been a big success. Recreational marijuana legalization has been a big success, rather than the disaster that was predicted, for Colorado and Washington. Marijuana and hemp are going to be big businesses in areas as diverse as medicine, textiles, chemicals, building materials, and fuel. They can be grown in diverse climates without herbicides, pesticides, fertilizers, and without much labor.

It is a "master ingredient" like petroleum, except it's renewable. So it's appealing to our progressive and environmentalist friends and it's the type of thing that will turn the current and future generations of entrepreneurs to create a giant leap in human progress. I think this potential will force regulators to innovate and fix problems in their systems.

Anthony Wile: I've also cautioned excited investors to take a deep breath and wait a bit for the market to shake out, for this very reason. Comment?

Mark Thornton: It is wise to caution investors. Any new product or ingredient experiences a great deal of chaos in the early years. I expect thousands of new and existing businesses to get involved in cannabis and hemp, everything from retailing recreational marijuana, to new cutting-edge medical applications, to competing with the petrol-chemical industry. Initially there could be hundreds of firms in each "product space," but over time each will come to be dominated by a small number of firms. Think about automobiles, soda drinks, and personal computers. They started out with more than a hundred entrants and ended up with just a couple of primary domestic producers. Therefore, it is very difficult to pick winners at this early stage. By the way, there are no Tweets with #marijuanaprofits yet!

Anthony Wile: An argument is made that conflates legalization efforts with promoting the "normalization" of drug use. We suggest, rather, that ending prohibition simply accepts human nature for what it is and enables any adult person seeking to utilize the cannabis plant for either medicinal or adult use recreational purposes in a safe and maturely managed manner. We suggest maturity prevail in this conversation. Recently, the pro-legalization campaign in Ohio featured "Buddie," a marijuana mascot on street corners and public areas in view of children and families, in essence promoting cannabis use. This is quite reminiscent of the "Joe Camel" tobacco advertising that was dangerous and offensive, long ago relegated to the dustbin of history as an unsuitable figure for big tobacco. This kind of promotion is certainly not consistent with public values. Perhaps that's part of why they lost the vote.

Would you agree that the main objective is to remove the black market from the equation but not to encourage drug use per se or to focus on expanding the usage of cannabis? Does anyone really think a costumed marijuana bud is going to fly?

Mark Thornton: Yes, I completely agree. I argue that the policy of government prohibition causes us all much harm and provides no benefits. Legalization creates opportunities for many economic benefits. However, when it comes to using marijuana for recreational use I am not an advocate. It may be less dangerous than alcohol, but that does not mean I recommend consuming it. It is a drug after all.

The situation in Ohio is important to discuss. The recreational legalization measure on the ballot was recently defeated and properly so. It would have changed the state constitution and put 10 monopoly marijuana growers into the constitution! These 10 monopolists were the ones that wrote and paid for the measure to be put on the ballot. They are the ones that paid for "Buddie" to be on the streets of Ohio. Naturally, crony capitalist/monopolists want to encourage consumption of their product. It is just shameful.

It is important to note that the defeated ballot measure was opposed by many advocates of legalization. Another measure to prevent any monopoly from being written into the state constitution was also passed by the voters. Hopefully, legalization will come in the next round of voting in Ohio. Overall, I consider the ballot results a great victory.

Anthony Wile: In a world of whitened cannabis, we see international trade whereby low-cost regions of the world, namely equatorial nations, are the dominant source of production, and perhaps more value-added products are developed in countries whose climates are not competitively conducive to global cultivation but where other aspects of this mega market can be specialized and developed.

This model is no different than other foods and services we purchase. Think of oranges. Many Canadians and Americans start their day with a glass of orange juice. Yet we do not have an artificially sustained, via regulation, marketplace that forces us to buy oranges from high-cost producers who would need to build big warehouses to grow them under artificial light and heat. That would be silly and no one would pay the enormously inflated costs of drinking orange juice after that. They would substitute something else. In the case of the cannabis industry, that substitute would be the already existing black markets. Comment?

Mark Thornton: The legalizations we see today are often hampered with the high costs of regulation, heavy excise taxes and fees, and the restrictions they face in terms of using traditional financial services and banks (thanks to the Federal Reserve). All of this is contributing to very high prices (no pun intended) and maintaining a vibrant black market. For that reason future legislative efforts should minimize those regulator costs and taxes that rise above other types of business and there should always be a proviso that people can grow marijuana for their own use at low cost.

Anthony Wile: It is for these and many other reasons we see the ultimate distribution of cannabis products being handled by mature and existing channels, such as large pharmacy chains that are already well adapted to handling narcotics from both a security and maturity point of view. Do you agree that it is likely to be a big corporate distribution model in the end and that many governments will lean in this direction?

Mark Thornton: The tobacco distributors are trying to get a monopoly in Nevada and I think the liquor stores have won a monopoly in New York. It is very difficult to predict what the proper distribution chain should be in advance. Establishing such monopolies is always harmful. Drug store chains have the clear advantage for things like heroin and cocaine, as well as medical marijuana. Cocaine products like the original Coca Cola could get a wider distribution network. Recreational marijuana will probably have some type of fixed network to ensure "proper" tax collection.

Anthony Wile: Is it likely that governments will try to layer foolish international barriers – as Frederic Bastiat pointed out so eloquently and succinctly in his writing some 150 years ago – on the movement and trade of cannabis? Will it be treated as an economic "special case" that deserves such "protection"?

Mark Thornton: They will try to limit international competition to only those producers who comply with government rules and regulations. Hopefully, they would not try to prohibit international competition. They don't with liquor, beer or wine. However, right now they prohibit (in Colorado and Washington) cross border trade between individual states!

When marijuana and hemp are produced on the basis of comparative advantage those crops will contribute greatly to standards of living. If we let protectionism reign, those standards of living will be hampered to the advantage of a select few.

Anthony Wile: But doesn't the protection of domestic markets and industries only serve to drive up inefficient pricing models that would not be sustainable otherwise?

Mark Thornton: Of course it does. Does it make sense to grow legal marijuana in Alaska, when it can be grown for less than 1/10th as much in California or Florida?

Anthony Wile: Such protectionism would mean consumers will pay higher than normal "market" prices for goods and services that are subject to tariffs and price controls. Wouldn't that mean the continued sustainment of a black market, as consumers will be seeking cheaper, more reasonable forms of acquisition of cannabis products?

Mark Thornton: Yes, it does. We know that the black market remains almost completely intact in Colorado because of the high prices, taxes, and regulations. I have heard that the black market can sell for less than the legal shops. That tells you that something is wrong. The tax rates are too high for maximizing tax revenues and consumer satisfaction.

Anthony Wile: That means governments lose on two fronts, then – decreased tax revenues and the supportive continuation of a black market via bad economic decisions. The obvious concluding question here would be whether governments will recognize this and not put such barriers in place, or in the case of Colorado, remove them. Does that seem likely?

Mark Thornton: States will learn from their mistakes and the successes of others. As more states legalize competition will create change. Remember when gambling was only legal in Nevada? Well, today they have many competitors and this forces change in Nevada and other states that have legal gambling. It forces change and improvement even in the casinos controlled by tribes.

Anthony Wile: When we talk with you a year from now, what do you predict the "obvious question" will be then? Five years from now?

Mark Thornton: The future is never obvious. When I finished my dissertation in 1989, I believed that medical marijuana, recreational marijuana, decriminalization of hard drugs, and legalization of hard drugs would start in 10 year increments. That turned out to be a good guess.

Next year at this time we will be facing the presidential decision. Right now we have the outsiders like Bernie Sanders, Donald Trump, and Dr. Carson getting tremendous support in the polls. By next year it could be another Bush vs. Clinton decision.

I would guess that for next year the stock markets are down significantly and that unemployment is rising rather than falling. The general public around the world is already at the disgruntled stage. The social mood is decidedly negative. It's a powder keg with many fuses sticking out of it. So I am very optimistic that positive things could come out of all this.

One thing that has already started is the realignment of political parties in the US. Looking back five years from now I hope that we can see that we avoided WWIII, survived the World Currency War, and that the world has become much more politically decentralized.

Anthony Wile: Thank you.

After Thoughts

It was a pleasure to be part of such an optimistic conversation. Mark is correct that there are many promising trends when it comes to cannabis, and we obviously agree with many of Mark Thornton's insights as related in this interview. He states that medical marijuana legalization has been a "big success" already, and we agree with that. Also with the idea that recreational (adult-use) cannabis legalization is successful where it's been tried.

Interestingly, he makes a point that we have made in the past: As much as cannabis resembles the cigarette or alcohol industry, it is a good deal more significant because it is many businesses in one. "Marijuana and hemp are going to be big businesses," he points out, "in areas as diverse as medicine, textiles, chemicals, building materials, and fuel."

This is a most valid insight. When legalization becomes more broad-based, cannabis will prove to be an extremely versatile, vast industry. It is also true that one of the "sweet spots" of the industry will involve cannabis production in year-round climes and the resultant production of cannabis oil extracts for a variety of purposes including medical ones.

Mark talks about timing issues from an investment standpoint. He tells us, "I would guess that for next year the stock markets are down significantly and that unemployment is rising rather than falling." This is certainly significant because there are probably going to be promising pre-public cannabis ventures beginning to advance even as the larger public markets retreat.

We live in extremely exciting times when it comes to cannabis from both a business and investment standpoint. I'm sure Mark would agree with that. We thank him for his insights.

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