As more and more state governments legalize recreational use of marijuana—14 had done so by 2021—an obvious question to ask is, will the amount of legal marijuana sold and consumed eventually exceed the amount of illegal marijuana sold and consumed? Thinking through the economics, my answer would have been yes. Make it legal and the risk of producing and selling it falls. Those who continue to produce illegally face the risk of prosecution and confiscation. Legal marijuana, therefore, should have an advantage in the market.

But in Can Legal Weed Win? economist and lawyer Robin Goldstein of the University of California Cannabis Economics Group and agricultural economist Daniel Sumner of the University of California, Davis answer no. They argue that the heavy regulation of legally produced marijuana gives a leg up to illegal marijuana—or, as they call it in the book, “weed.” They make their case by guiding the reader through the history of marijuana legalization and regulation, and by analyzing the basic economics of legal and illegal markets. I find their case persuasive.

Push for prohibition / The authors start by explaining why they use the word “weed” instead of “marijuana.” They write, “We prefer a term used by buyers and sellers in real markets to a term used by government regulators.” They had me at “government” and so I will adopt their usage.

In the book’s first chapter, Goldstein and Sumner give a brief history of the legal status of weed. They note that in the 1800s it was completely legal in the United States. But in the early 1900s, governments started pushing the idea that weed was particularly harmful. It didn’t take long for state governments to prohibit it, which they did long before the federal government entered the picture. Interestingly, California was the second state to prohibit weed, after Massachusetts.

Welcome to California / In 2000, a group of like-minded libertarians and I formed the Monterey, CA-based Foundation to End Drug Unfairness Policies (FEDUP) to advocate the legalization of all illegal drugs. Our main concern was not the availability or price of illegal drugs; only one of our group used them. Rather, our concern was the lives shattered by the government’s drug war. People were being imprisoned for buying, producing, or selling illegal drugs and, because of the extensive government regulation of entry into various occupations, those with a prison record could not legally work in many occupations in which they could otherwise have easily become qualified. Although we set our sights high, we thought that, at the very least, weed would eventually be legalized. And it was, in steps.

In 1996, California voters passed Proposition 215, making it legal for people with medical conditions to grow weed for personal use if they had a doctor’s recommendation. (See “Limiting Federal Regulation of Cannabis,” p. 2.) But police and sheriffs continued to crack down on its production and distribution.

In 2003, California’s legislature passed SB 420, which authorized patients to have collective or cooperative weed cultivation projects if they were not for profit. The authors point out that “the most important thing to know about SB 420 is what it didn’t do: regulate or authorize commercial sales.” Accordingly, there was no state licensing, taxation, or other state regulation.

Recreational weed in California was legalized in 2016 with the voter-passed Proposition 64. The good news out of Prop. 64 was that many people who would have been busted for weed would not be. We shouldn’t underestimate that increase in freedom. But the rest of the news was bad. Legal producers faced the usual regulation imposed on any business by Sacramento. On top of that, Prop. 64 singled out weed producers and distributors with additional regulation.

Business owners who wanted to obey the law had to get licenses and pay special taxes on weed. The state government set a “cultivation tax” at $9.65 per ounce and an excise tax of 27 percent of the wholesale price. Goldstein and Sumner estimate that the net effect of those taxes and local-government taxes is a tax rate of 35 to 50 percent of the retail price of legal weed.

There were other regulations. Starting in 2018, it became illegal to sell weed after 10 p.m. Also, write the authors, not just in California but everywhere in North America, weed retailers are prohibited from also selling alcohol and tobacco.

They note that two popular methods of consuming weed are illegal: One is the blunt, a hollowed-out cigar that is filled with weed; the other is the spliff, a hand-rolled joint that combines weed and tobacco. Although the authors don’t say this explicitly, it seems as if the authors of Prop. 64 and regulators in other states asked, what are the most popular ways to use weed so that we can ban those ways?

Finally, in California each local government can prohibit retail outlets in its jurisdiction. In Pacific Grove, where I live, that is exactly what the local government has done.

Getting the business / One person who did not reckon with the raft of regulations that would come with Prop. 64 was Sabrina Fendrick of the National Organization for the Reform of Marijuana Laws (NORML). Goldstein and Sumner have a chapter titled “Sabrina’s Story” in which Fendrick says she knew how to think about criminal justice while at NORML but later “realized how little I knew as an activist about how hard it is to operate a cannabis business.” In an interview with Goldstein, Fendrick lamented, “I wish I had been more critical and engaged in the drafting” of Prop. 64.

Call this Fendrick’s “George McGovern moment.” McGovern, a U.S. senator from South Dakota between 1963 and 1981 and the Democratic candidate for president who ran against Richard Nixon in 1972, was on the left end of the Democratic spectrum. Not surprisingly, given his views, he was not sympathetic to the travails that business people experienced, both in running a business successfully and in dealing with government regulation and taxes. McGovern learned the hard way. A few years after leaving the Senate, he bought and operated a 150-room inn in Stratford, CT. In a 1992 op-ed in the Wall Street Journal, he wrote that he wished he had had this first-hand experience when he was in Washington because “that knowledge would have made me a better U.S. senator and a more understanding presidential contender.” Similarly, Fendrick stated: “I hadn’t actually realized how [legal] language can completely change how a business operates. Sometimes for good, sometimes for bad.”

The effects of these heavy regulations in California were dramatic. By 2021, the authors write, “California had less than one-third the number of weed retailers listed on Weedmaps” as it did in 2017, just before the regulations took effect.

Because weed is so heavily regulated in California, the authors argue, illegal weed still dominates. While it’s true that producing something illegally carries risk and that risk gets factored into the price, it’s also true that heavy regulation and special taxes on weed make legal weed expensive. The net result, the authors show, is that in California legal weed is substantially more costly than illegal weed.

Future of weed / In one of their final chapters, Goldstein and Sumner speculate about the long-term prospects for weed. They predict that more state governments will allow legal weed and that eventually it will be legal to sell it across state borders. This, they argue, will mean that higher-priced producers in heavily regulated places like California will lose business to producers in less-regulated places like Oklahoma where, as a bonus, land is cheap.

Where the authors are at their best in this chapter is in debunking the common claim that in a few decades the U.S. weed industry, measured by annual revenue, will be a multiple of its current approximate $25 billion. They agree with forecasters that weed output will be a multiple of output today, but for that very reason the price will be much lower. They even argue that the effect of higher output on price could be so substantial that overall revenue in 2050 will be lower than it is today.

An interesting aside is their noting that the Supreme Court justice who has been the “most supportive of legal weed over the past few decades” is Clarence Thomas. It’s probably not because he uses weed; call it a hunch. It’s because Thomas saw clearly, unlike six of his colleagues, that Diane Monson and Angel Raich (in Gonzalez v. Raich, the 2005 decision that Congress may criminalize the production and use of homegrown weed even if state law allows its use), in Thomas’s words in his dissent, used “marijuana that has never been bought or sold, that has never crossed state lines, and that has no demonstrable effect on the national market for marijuana.” Thomas continued, “If Congress can regulate this under the Commerce Clause, then it can regulate virtually anything—and the Federal government is no longer one of limited and enumerated powers.”

Elsewhere in the book, the authors do make an important mistake in telling the history of the term “the dismal science” to describe economics. They correctly note its author, Thomas Carlyle, but they badly miss his ominous reason. They write that he was referring to Thomas Malthus’s view that the price of food would not fall. That wasn’t it. Rather, Carlyle noted that the free-market economists of 1800, who dominated economics at the time, strongly opposed slavery. That, to Carlyle, was what made economics “dismal.”

Conclusion / The subtitle of Can Legal Weed Win? is “The Blunt Realities of Cannabis Economics.” That’s a nicely descriptive subtitle. If I were to choose the subtitle, though, it would be “Be Careful What You Wish For.” Many of us who have supported legalizing marijuana didn’t reckon with—but should have—the raft of regulations and special taxes that would accompany legalization. My particular group, FEDUP, had no excuse. After all, one of us is an economist who studies regulation, and we had all lived in California for years.