Some libertarians reject any efforts to legalize hemp or marijuana at the state level because they oppose the taxes, and the licensing and regulation requirements, that generally come with legalization. They prefer straight decriminalization. But despite the downfalls, there are actually advantages to a legalization strategy.

As Chris Calton pointed out in a recent article published on the Mises Wire, the preference for decrim seems to come from a misunderstanding of what decriminalization really means.

“In a legal environment, business owners are permitted to produce and sell the product in question. In the case of marijuana, this inevitably means obtaining a license, just as any business requires a license in the modern age. In the Netherlands, marijuana is legally sold through regulated “coffee shops.” In Colorado, licensed retailers face significant regulation and taxes, as well. However, by contrast, we can look at places like Portugal, which decriminalized all illegal drugs, and therein we can see the important differences between the two concepts. Decriminalization means that the substance is still technically illegal, but the person in possession of the substance will not be criminally prosecuted.”

Immunity from prosecution is certainly a good thing, but a problem remains. Anybody who wants to sell the substance still can’t run a legitimately recognized business.

“They have no shop, no ability to establish brand recognition, and limited competition. In other words, where outright legalization leaves the sellers subject to government regulation, it also leaves them subject to market regulation. There are in-built incentives to maintain a standardized, high-quality product in order to attract and maintain customers. The customers are able to know what they’re getting, and this information is conveyed through branding, with the concomitant pressure to ensure honesty and reliability in the branded product. In the case of fraud or other ethical issues that can be subject to torts, customers have the right to bring suit against a dishonest seller with their grievance accepted as a valid basis for adjudication. Decriminalized sellers, because they are not recognized as legitimate by the state, may not be subject to the exoteric regulations and taxes imposed by the government, but they are also not fully subject to the esoteric regulations of the market.”

This is particularly true when talking about legalizing something at the state level that remains illegal at the federal level. The movement to create a viable industrial hemp industry in the U.S. provides a good example. Ending state enforcement of hemp prohibition through decriminalization certainly takes a step forward. Theoretically, farmers can start growing the crop without the fear of state enforcement. But this rarely happens. We haven’t seen hemp markets quickly develop in states that have simply decriminalized the plant by removing it from the state’s controlled substances list. Instead, hemp markets have developed in states that have legalized the plant and proactively set up regulatory structures for its production and sale.

For example, the Oregon legislature initially legalized industrial hemp production in 2009. It wasn’t until the Oregon Department of Agriculture finally put its licensing and regulatory program in place early in 2014 that some farmers began growing hemp, despite high barriers to entry. Even then, the market grew slowly. It wasn’t until Gov. Kate Brown signed a 2016 bill into law that relaxed the rules and treated hemp more like other agricultural products that the market really took off.

Compare that with the experience in Connecticut. The state decriminalized hemp in 2015. But with no licensing program or state efforts to develop a market, farmers in Connecticut are growing very little hemp. Despite the complete lack of state prohibtion, the state doesn’t rank in the top-10 hemp producers and isn’t listed in the 10 emerging markets either.

Even mediocre state laws like Oregon’s initial statutes can lead to better state laws once markets begin to develop. Legislators recognize the economic benefits and ride the proverbial wave. It also proves that removing a layer of law at the state level encourages action in spite of federal prohibition. Since the vast majority of enforcement action comes from the state level, farmers and producers find the minimal risk of federal enforcement worth taking in light of the tremendous economic potential hemp offers — if the state also takes proactive action to develop a market.

Obviously, less state regulation and taxation would allow the market to develop once established. Fortunately, this seems to be the trajectory. Initial laws relating to hemp tend to be strict, but then loosen as time goes on. For instance, in June, Colorado Gov. John Hickenlooper signed a bill into law that will further mainstream the state’s industrial  The new law includes unprocessed industrial seeds in the definition of “commodity” within the “Commodity Handler Act” and includes industrial hemp itself in the definition of “farm products” within the “Farm Products Act.” In effect, this will subject any person acting as a commodity handler of hemp seed and any farm products dealer of hemp to the licensing requirements already in place for commodities and farm product dealers. In effect, the new law will move the state a step closer to “normalizing” hemp and treat it the same as any other farm product like corn or tomatoes.

As time moves on and markets mature, laws tend to liberalize as well. This is why the Tenth Amendment Center generally support even limited steps forward. It opens the door for bigger steps in the future.

We’ve seen a similar phenomenon with medical marijuana legalization. Limited programs almost always expand over time. For instance, Louisiana Gov. John Bel Edwards signed two bills into law expanding that state’s medical marijuana program in June.

Completely free markets with no state intervention at all are the ideal, but it takes incremental steps to get there. Experience shows that legalization provides a quicker path toward that goal than starting out with decriminalization out of the gate. However much we dislike it, state licensing programs and regulatory structures seem to jumpstart the development of a market, especially in an environment of federal prohibition.

Mike Maharrey

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