New Jersey and the Spoils of Legalization

Getting a joint into the hands of any grownup who wants one was a first-term campaign promise for Governor Phil Murphy, a former Goldman Sachs CEO and Obama ambassador to Germany with a penthouse empathy for progressive and social justice causes.  On November 3, by acclamation of the voters, New Jersey became the fourth northeast state and sixteenth nationally to legalize the recreational use of marijuana.

Murphy inherited eight years of solvency from Chris Christie, replete with balanced state budgets, a reduced state workforce, a two percent cap on local expenditures, no tax increases and a reckoning for the largest public unions.  Christie also seeded a small medical marijuana program for the most seriously ill, guarding its integrity with health department permissions and stringent regulatory and dispensary controls.

After two terms of fiscal sanity, the famously blue state was due for a horsewhipping and inaugurated a progressive Democrat to share majority rule with the legislature.  Once holding the reins, Murphy locked down the police on immigration enforcement, gave his blessing to sanctuary cities, and instituted many of the nation’s most stringent controls on legal gun ownership and ammunition.  He hired a state attorney general to fire off a salvo of Trump lawsuits and called for the construction of job-killing offshore wind farms in a state recognized for its vibrant petrochemical industry.  From behind the mask of COVID, Murphy’s party and high court apparatchiks gave a thumb’s up to his purchase of $10 billion in additional state debt from the Fed, piling on to the $2 billion already in arrears from a twenty-year old loan.  He has issued more than 80 pandemic diktats setting conditions and limits on every livelihood, religious practice, educational, and recreational endeavor, to include eleventh-hour changes to voting protocols that opened the door to systemic fraud.  For Murphy and others of his political brand, progressive authoritarianism is a thirst that can never be quenched.

From the start, marijuana legalization has been a pole star for the governor.  An extant medical program would serve nicely as a Trojan Horse for recreational use. He augmented the list of qualified disorders to include everyday aches and pains, anxiety, and nausea, elevating pot above the nearly one thousand FDA approved medications for those ordinary ailments.  A hundred more headshops are in the offing, giving Starbucks and McDonalds a run for their money.  Physicians and pharmacists have been kicked to the curb, replaced by millennial undergrads peddling buds, oils, and edibles over the counter in storefronts evoking the feel and look of a delicatessen.

Even with the perfect troika of Democrat control, Murphy’s arm-twisting for a quick legislative fix to legalization smacked of political naiveté.  Passing legal weed in New Jersey was always a minefield for politicos of both parties.  While support was strong among baby boomers and their offspring in the northeast high-rise and brownstone communities, leaf-blowing suburbanites were still rattled by its demonstrated dangers to child development and fearful over the invasion and patronage of dispensaries in their backyards.  Murphy also faced stiff headwinds from a hostile senate president, whose own gubernatorial aspirations had been dashed by Murphy’s popularity as an Obamaite, a personal investment of $10 million dollars into his own campaign, and an additional half-million spread around Democrat county strongholds.  After a slow death in the well of the state Senate, the fate of recreational marijuana fell to the ballot box.

Murphy’s legalization gambit has always been a wobbly stool resting on three legs: the promise of increased state revenues, fixing racially disparate arrest rates, and disrupting illicit street sales.  Marijuana lobbyists and propitious entrepreneurs rushed to fill in the cracks, tripling their financial contributions in the first year of Murphy’s term, and touting the drug’s harmlessness and euphoric benefits to the human condition.  Attention was turned by these prophecies, distracting everyone from more troubling outcomes in states long-wedded to recreational use.

Seven years after implementing legalization, the bloom has come off the leaf in Colorado.  According to federal law enforcement reports, marijuana-involved and related traffic fatalities in the Centennial State have gone through the roof, up 135 percent since legal weed and its varieties first hit the street.  Teenage use, boosted by edible products dressed up as children’s treats and candy bars, is now 43% higher than the rest of the nation.  Resolving racial marijuana arrest disparities hasn’t worked out well, either.  Like abortion clinics, savvy marijuana entrepreneurs planted two-thirds of their retail shops in low-income neighborhoods and put their products into the hands of underprivileged kids.  Arrests for underage possession have surged in minority communities across the state.

Earnings from taxed marijuana in other states have underperformed projections and opened the door to political hijinks.  Colorado collected $194 million from medical and recreational sales in 2016, making up only one-half of one percent of the state’s total spending budget.  That same year, half of the marijuana money collected in Washington state was diverted from social programs and into the legislature’s general fund, a slush bucket where state representatives wet their beaks and Christmas comes every day. 

Incoming revenues from marijuana sales must also cover the expense of market enforcement and compliance in the form of state inspections, audits, investigations, and licensing.  Pundits and cannabis business insiders often hide the economic and social costs of legalization.  In Colorado, for every tax dollar from the legal marijuana trade, taxpayers shelled out $4.50 in healthcare and loss of productivity costs.

Murphy’s sales pitch also falls flat on the efficacy of legalization to wipe out black markets.  Today, most street sales in Colorado remain in the hands of local drug dealers at prices that undercut legal purchases.  Mexican marijuana trafficking groups also have eliminated border risks by moving into legalized states to set up grow operations.  International drug cartels from China, Mexico, and Cuba now enjoy both price and location in California, Colorado, Oregon, and Washington. Handicapping their legal competition has caused some state-licensed growers to sneak surpluses into underground economies or across state lines for illegal sales.

It remains to be seen whether New Jersey plans to tax marijuana sales by weight or by price.  A tax by weight is imposed regardless of the cost of an ounce, while taxing by price gives you a bulk discount.  In either case, the higher ounce cost will still drive thrifty users toward black market sales.  No matter how cheap lawful marijuana gets, illegal growers and street corner dealers will still hold the price advantage.  Looking at some early results from legalization, Priceonomics, a popular blogsite and authoritative price guide for commodities, studied the marijuana legal-illegal price disparities in six states with the largest number of dispensaries.  They found that black market marijuana was almost always less expensive than the legal product.

In the Garden State, an ounce of marijuana on the black market retails for about $200.  A legal medical and recreational ounce will retail for at least $270, topped off with a proposed $42 sales tax.  Even with a gradual elimination of the tax over three years, a discount of 26 percent will still be offered on the street corner.  Legalization allows possession of up to an ounce, but cops will be clueless as to whether a stash box is filled with legal weed or contraband.  Local drug gangs will continue to plunder poor communities.

Taking a cue from other states, implementing full legalization will require one to two years of aggressive industry expansion and the installation of government oversight.  Marijuana activists in New Jersey are already whining over that timeline, claiming infringements to social justice goals and pressing the legislature to decriminalize an ounce of marijuana in the interim.  That’s great news for Mexican drug lords in Sonora. Their entrenched supply networks in New Jersey stand eager to fill the demand and collect the spoils.

Three weeks ago, a plurality of Jerseyans voiced their belief that the benefits of marijuana consumption outweighed the risks. They did not vote to subsidize international drug cartels. In determining how to proceed, state lawmakers must first look behind the curtain in Colorado, Washington, and Oregon. After three years of handwringing, momentum must not now be driven by haste. With prescience Shakespeare wrote – “Wisely and slow, they stumble that run fast.”

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