Yves Smith, Naked Capitalism

Yves here. This post is an interesting “be careful what you wish for” warning as far as the legalization of marijuana is concerned.

By Sasha Breger, a lecturer at the Josef Korbel School of International Studies at the University of Denver and author of the recent book Derivatives and Development. Her research includes global finance, derivatives, social policy, food, and farming. Cross posted from Triple Crisis

Passed in 2012, Colorado’s Amendment 64 legalized the growing and selling of marijuana on a recreational basis. With medical marijuana, recreational marijuana has helped lift the people of Denver out of the Great Recession by inspiring leagues of new small businesses, creating new jobs, boosting commercial real estate values, and increasing state and local tax revenues. It turns out that the local marijuana market is fairly recession-proof and is actually bolstering local resilience to global crisis.

As I’ve watched this novelty unfold over the past couple of years (with considerable delight, to be frank) and witnessed first hand the important benefits for our local economy, I’ve grown increasingly concerned about the possibility of legalization on the federal level. While state level legalization has—for all of its still considerable problems—motivated economic recovery and helped working and middle class folks earn more income, get better jobs and enjoy more robust public services, federal legalization risks these benefits leaking out of local economies into the pockets of Big Business.

As things stand today, the $2.3 billion legal U.S. marijuana market is the domain of small pot shops and grow operations, slightly larger local chains (with a handful of stores), a few inter-state mid-sized retail establishments with outlets in two or more states, and other generally smaller local businesses that provide inputs and services to the marijuana growing and retail firms.

In Colorado, a few different dynamics explain the structure of this highly decentralized and relatively competitive marketplace. First, state regulations work to limit the size of growing and retailing firms by regulating the number of plants that a single firm can grow, the amount of marijuana a single person can purchase and possess, and increases/decreases in firm space and capacity, among other constraints (go to this link and this link for the most recent state laws). Because the state has established residency requirements for marijuana firm ownership and operation, out of state ownership is effectively prohibited.

Second, and perhaps more importantly in the long-run, federal level illegality prevents larger businesses from outside of Colorado from engaging in growing and retailing, and even from providing certain services to Colorado marijuana firms. Federally insured banks, for example, cannot provide banking and financial services to the marijuana industry for fear of incurring federal penalties for violation of the Controlled Substances Act. Federal illegality has meant that Colorado’s pot revenues flow into local credit unions, and will soon support a network of local banking cooperatives.

I’m deeply worried about Colorado’s economic fortunes should federal level legalization occur. I fear that the local and decentralized marketplace will be replaced by a national or even international market governed by large multinational firms that whisk their profits away to other places, degrade product quality, and stymie innovation and employment.  The evolution of the global food system is instructive in thinking about what may happen to pot in a fully legalized world.

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