CONTROLLING UNDERAGE ACCESS TO LEGAL CANNABIS

Steven Davenport Jonathan P. Caulkins

Mark A.R. Kleiman

August 22, 2014

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Abstract

As states, led by Colorado and Washington, begin to legalize commercial production and sale of cannabis, one source of concern is the risk of increasing use among minors. In the Department of Justice guidance on prosecution of state-legal activity, controlling access to minors is listed among the eight federal priorities. (Similar concerns apply to the sale of cannabis for persons with medical recommendations.)

Both Colorado and Washington forbid sales to purchasers under 21,

matching the rule about alcohol in all 50 states. But making a rule isn’t the same as enforcing it. Legally produced and sold cannabis and cannabis products will still reach minors, either because the minors succeed in purchasing directly from licensed retail outlets (for example, by using false identification) or because adult buyers illegally resell what they have legally purchased. Minors will also continue to receive illegally produced cannabis, as they do in states where cannabis remains entirely illicit.

At first blush, it might seem that preventing diversion to minors is an

obviously valuable objective, limited only by concerns about the resource costs and criminal-justice implications of the requisite enforcement effort. But the existence of the entirely illicit market changes the calculation. Denying juveniles access to diverted cannabis does not mean denying them all access to cannabis: instead, it means handing the juvenile market to entirely illicit producers and sellers.

Thus the policy-design problem needs to balance the harms from

underage cannabis use, the costs of anti-diversion enforcement, and the harms from increasing the scale of entirely illicit production and sale.

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1. Introduction

Cannabis legalization appears increasingly to be a question of how, not whether. Washington State and Colorado became the first jurisdictions to legalize production, distribution, and sale of large-scale quantities for non-medical use in 2012, Uruguay did so in 2013, and other states and nations are likely to follow. More than half of Americans (58%) now support legalizing cannabis use (Gallup, 2013).

That advances what was once an abstract debate to more pragmatic

concerns. Doing so inevitably requires policymakers to weigh competing goals, project the effectiveness and unintended consequences of tactical choices, and as a result perhaps consider unorthodox strategies. Here we consider one such unorthodoxy: the possibility that legal cannabis regimes should not try very hard to prevent youth from obtaining cannabis from cannabis stores. That stands in complete contrast to all the received wisdom from the alcohol and tobacco literatures, but we argue here that such a seemingly perverse strategy may make a certain pragmatic sense, at least in the short to medium run.

We examine the complexities inherent to decisions concerning

underage access to state-legal cannabis. One useful construct for analyzing drug policy is contrasting the complementary but distinct goals of prevalence reduction, quantity reduction, and harm reduction (MacCoun, 1998). If the only goal were to minimize youth use, it might be advisable to restrict all kinds of access to the maximum extent possible. However, even if one could somehow prevent 21 year old friends from making proxy buys on behalf of 20 year olds, those 20 year olds might simply continue their current practice of buying on the black market, and black markets generate substantial harms through diverse means. Hence, there is a trade-off between the harms of cannabis use and the harms of the black market.

The next section provides context for concerns over increased

underage access, examining how today’s youth use and acquire cannabis and describing the policies that have been offered in response. (One of many unresolved questions with cannabis policy is how to define an “underage cannabis user,” given the absence of a Federal minimum age. Our usage of “underage” will follow Washington and Colorado’s law, since we suspect that their decision to make 21 the minimum legal age for purchasing marijuana may be emulated in future legislation.)

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Cannabis has been frequently compared with alcohol, as in the tagline of Colorado’s Amendment 64: “the Regulate Marijuana Like Alcohol Act,” but in some respects a better comparison may be with tobacco. Tobacco supports what we will call “gray markets”, meaning illegal distribution and sale of product that is legally produced. Gray market activity supplies youth and evades taxes. While the scale of tobacco gray markets does not match that of cannabis black markets, it is nonetheless substantial (Merriman et al, 2010; U.S. Government Accountability Office, 2011): commercially smuggled cigarettes (i.e., bought legally in one jurisdiction but resold in another without due taxes) constitute more than 40 percent of cigarette consumption in some states (LaFaive et al, 2006), and when combined with wholesale smuggled cigarettes (i.e., with taxes evaded both at initial purchase and at resale, and possibly in the same jurisdiction), constitute 8.5% of global cigarette consumption (Merriman et al, 2000). Furthermore, there is the very real possibility that today’s tobacco companies may move into the marijuana product space after national legalization (Barry et al, 2014). Section 3 reviews the evidence on the effectiveness of retail enforcement intended to control youth access to alcohol and tobacco and Section 4 identifies areas where cannabis control in Washington and Colorado might be better or worse advantaged to control access.

Decisions about youth access control also have ramifications about

how underage users consume cannabis and the markets or networks that supply it to them, issues with potentially important effects on public health and safety. Section 5 identifies important non-use outcomes at hand with cannabis control, including the costs of black market activity and of prohibition.

Cannabis control may merit a policy custom-tailored to its

particularities, but deciding upon an “optimal” strategy requires subjective comparisons of one type of harm against another and forecasts about a given policy’s likelihood of success. Section 6 compares two policies: one that earnestly aims to prevent distribution to minors of all sorts, and another that presses on direct underage purchase from stores but makes no special effort to prevent gray market activity. The latter strategy is intended to help usher market share away from black markets; an additional facet of that strategy is that after a period of time long enough for black markets to shrink to non-viable levels, gray market activity could then be enforced more aggressively and with lesser negative consequences. Section 7 then concludes.

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2. Policy Context

2.1 Concern for potential of increased underage use

Even if one believes legalization can outperform prohibition, an honest view admits that legalization has downsides. So legalization schemes should be designed in ways that reduce those potential downsides – perhaps the most important of which is increased use, abuse, and dependence.

Use has been rising in the U.S. as policies have eased over the nearly

20 years since California first legalized medical cannabis in 1996. The number of past-year and past-month users has increased by nearly 50% over the past decade. Total annual use days doubled, since the number of people using daily or near-daily has increased even faster (RAND Corporation, 2014) than has prevalence overall. Harms are also up; the number of emergency department visits in which cannabis was mentioned increased by 70% between 2004 and 2011, approaching half a million per year (ONDCP, 2013).

Underage use has also increased, although not as sharply. Nearly

23% of high school seniors reported past-month use in 2013, up from a twenty-year low of 18.3% in 2006 and an even lower 11.9% in 1992. (Monitoring the Future, 2013). Consumption by individuals under 21 accounts for roughly ¼ of U.S. cannabis consumption (RAND Corporation, 2010a).

It is not use per se which is outlawed in the United States, but rather

possession. One well-accepted core strategy for reducing underage alcohol and tobacco use is limiting underage access, and the same would be expected to apply to cannabis (Pacula et al., 2014). Monitoring the Future data show that among 10th graders, 68% report that cannabis is “very easy” or “fairly easy” to get — nearly as high as the corresponding proportions for cigarettes (74%) and alcohol (78%) and dramatically higher than for “hard drugs” like cocaine (20%), heroin (13%), and methamphetamine (12%) (Johnson et al, 2012).

Precisely how youth access cannabis can be viewed along several

dimensions: origin of supply, relationship with the immediate provider, and nature of the transaction. Until recently, all non-medical cannabis has been of strictly illegal origin, and the vast majority of cannabis consumed has been of the non-medical variety. The NSDUH household survey informs us of the nature of transactions, asking users how they

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most recently acquired cannabis. Among past-month users under 21, nearly all (81%) accessed from friends or family and many of them for free (44%). Only 12.3% reported purchasing from a stranger (SAMHSA, 2012a). (This general pattern is not new; cf., Caulkins and Pacula, 2006.)

Legalization creates a new and legal source of supply. 1 Adults

purchasing from those sources are taking part in what might be called the “white market,” while others may continue to take to black markets to purchase cannabis which has been produced wholly outside these new legal frameworks. Some underage users will gain access to this new supply of cannabis via the “gray market,” in which stores sell (illegally) to underage buyers and/or adults of legal age function as “proxy buyers” that resell or give the drug away to youth and young adults who are under 21. This is precisely the current situation with respect to alcohol and tobacco except that purely black market production of those goods is quite modest. Yet, underage demand does not go unfulfilled. The gray market functions well enough that there is little scope for purely illegal moonshining and even less for covert tobacco farming. (Home growing cannabis is much more practical than home-growing tobacco.)

Gray markets have already emerged in medical cannabis states.

Nearly three-quarters of adolescents in substance abuse treatment in the Denver area reported using someone else’s medical cannabis (Salomonsen-Sautel et al, 2012). In legalizing states, similar markets might be expected to divert cannabis from state-licensed stores to underage users.

After all, gray markets in cannabis will be fueled by a basic profit

opportunity that is difficult to eliminate: cannabis is difficult to acquire by users under-21 years old but easy to acquire by adults of age to purchase from state-licensed stores, and so proxy buyers can make a quick profit by arbitraging cannabis to the prohibited demographic (so long as they do not turn to black market cannabis instead). Law enforcement efforts cannot resolve that imbalance in supply and demand, although they can attempt to make it difficult or costly to profit from it. How these gray markets play out in states after legalizing cannabis is still unclear, and is the central question addressed here.

1 At present, sources of supply that are legal with respect to Colorado and Washington State law remain completely illegal with respect to federal law, but we are writing in anticipation of a time when either federal cannabis prohibition has been repealed or the Obama Administration’s current policy of non-enforcement within states that have legalized has been formalized in some manner.

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2.2 Federal and State perspective / policy

On paper, Washington State and Colorado have taken an aggressive stance against underage use of cannabis. Their laws have embraced a number of public health regulations thought to limit underage use of alcohol and tobacco: a 21-year minimum age to purchase, bans against cannabis vendors selling non-cannabis products, bans on underage entry to cannabis stores, restricting availability of retail licenses, bans against retail stores within 1,000 feet of schools, parks, or other public places, and restrictions on advertising, particularly if targeting youth.

The Federal government has likewise made its priorities clear. After

an initial period of silence in the wake of state legalization, in August 2013 it threatened to enforce the Federal drug laws that prohibit cannabis distribution unless states adhere to a set of eight guidelines concerning public health and safety, including “preventing distribution to minors” (U.S. Department of Justice, 2013). If acted upon, this threat could cause havoc in state marijuana markets if not shut them down entirely.

Whether in response to (or anticipation of) or simply in common

purpose with Federal actors, Washington and Colorado have been vocal about plans to prevent youth from purchasing from cannabis stores. A key pillar of their strategy is to enforce underage purchasing laws by using minors in “controlled buys” of cannabis, as illustrated by statements from Colorado Department of Revenue official – “this is going to be a big focus of our field enforcement going forward” (Dreier, 2014) – and from the Washington Liquor Control Board’s enforcement chief: “Of course the feds are looking at a tightly regulated market around youth access, and I think this shows we’re being responsible” (Young, 2013). Presumably, policymakers in Washington State and Colorado are also considering methods to prevent the gray market diversion of cannabis, perhaps by enforcing laws prohibiting underage possession, use, and purchase (PUP) or arresting and/or shaming consenting adults from state-licensed cannabis to underage users – for instance, Washington has requested its legislature to make it a misdemeanor for youth to attempt underage purchase.i

Even taking at face value the claim that these policies will be

implemented vigorously, some key questions remain about whether they can be successful at reducing underage access, and if so, at what cost. In the sections below we will proceed by exploring these questions with respect to previous experience with alcohol and tobacco, and then identifying important differences between those cases and cannabis.

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3. Lessons from Alcohol and Tobacco

Though there is nothing new about campaigns to prevent underage drug use, the intensive enforcement of underage purchasing laws has not always been a major focus. It was not until the 1990s that the issue was widely stressed, thanks to Federal legislation concerning tobacco control and state-level policy concerning alcohol control. These policies appeared largely successful, at least at first blush, as the following two decades saw steadily declining rates of underage access to alcohol and tobacco.

However, correlation is not causation, and what worked for tobacco

might not work for cannabis. Working from the literature on alcohol and tobacco control, we will identify lessons concerning: the theory and evidence for (1) attempts to control store purchase and (2) alternate modes of access; (3) the costs of enforcement; and (4) the “push-down pop-up” dynamic across different modes of access.

Below we focus primarily on tobacco rather than alcohol. One reason

is the similarities between cannabis and tobacco as are relevant to the key issues of underage access and illicit market activity. Tobacco is lightweight, portable, and smokeable, and supports significant gray and black-market activity. Alcohol has very low value-to-weight ratios that make it difficult to covertly transport and sell. Others might object that alcohol is a better comparator because it is a psychoactive drug, has a minimum purchase of twenty-one years old, and has already undergone a change from full prohibition to full legalization. Thus, occasionally comparisons with alcohol will also be made.

Controlling Store Access Retail enforcement policies can make underage store purchases

difficult, but not impossible. In response to a 1992 OIG report that found that even though 47 states had enacted underage purchase laws against tobacco, only two states backed those laws with substantial enforcement (U. S. Department of Health and Human Services, 1992). Shortly afterward, Congress passed the Synar Amendment to the Alcohol, Drug Abuse and Mental Health Administration Reorganization Act, which requires (and monitors) state enforcement of tobacco laws, including state policies of undercover buys against vendors. This yielded impressive results in the following years as measured by nationwide violation rates from undercover buys, dropping from 40.1% in the first year of reporting (1997) to 25.4% in 1998, and then gradually coming to stabilize near 9% by 2010 (Substance Abuse and Mental Health Administration [SAMHSA], 2012b).

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Though these gains are real, they might be overstating the case. Lancaster and Stead (2000) argue that vendor compliance rates might not materially affect underage access to store purchase until they’re pushed above 80%, since youth can do a number of things that inspectors cannot, including using fake IDs, visiting multiple stores, establishing familiarity with vendors, and targeting those stores with reputations for not checking ID. Moreover, youth often resell or share what they acquire to their friends, and so a small number of non-compliant stores can supply a large number of underage users. Youth self-reports of cigarette availability trend in the same direction as retailer violation rates, though not at the same speed. Monitoring the Future asked students, “How difficult do you think it would be for you to get cigarettes, if you wanted some?” The percentage of 10th graders answering “fairly easy” or “very easy” peaked at 91.3% in 1996, dropped to 86.8% by 2000, and since has continued to drop somewhat steadily until reaching 71.4% in 2013.2

Some users feel these effects more than others. Older youth and more

frequent users are more likely to access tobacco via store purchase (Forster et al, 1998), an act which younger users generally find more difficult to get away with and less frequent users might find unnecessary. Indeed, one study associated increased enforcement with the prevalence of fewer more frequent users (Cummings et al, 2003). Perhaps counter-intuitively, it is not older but younger youth who have displayed stronger reductions in use (Altman et al, 1999), perhaps as a function of older youth becoming less able to access or redistribute tobacco. Thus, even if enforcement policies do not prevent youth tobacco initiation, they may still delay initiation even (Tutt et al, 2009) or limit youth from intensifying their habit.

Controlling Other Forms of Access

Yet, other forms of access remain popular, including adult supply from home, proxy buyers, and peer-to-peer exchange. The NSDUH household survey illustrates the prevalence of these methods, asking past-month cigarette smokers which sources they had used in the past 30 days. In 2003, the most recent year the question was asked, the most common response was to have “bummed” cigarettes from friends (60%), followed by purchasing from a store (53.3%) and purchasing from a friend, family member, or classmate (30.5%).3

2 http://monitoringthefuture.org/data/13data/13tobtbl2.pdf 3 http://www.slocounty.ca.gov/Assets/PH/TCP/WhereDoYouthGetTheirCigarettes2012.pdf

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It is interesting to contrast these rates with that for past-month

alcohol users, who are also most likely to have acquired their most recent purchase by receiving it for free (71.9%) and somewhat likely to have purchased from friends or a stranger (20%) but much less likely to have purchased from a store (7.6%).4 One might guess that the 21-year old purchase age for alcohol is responsible for the much lower rate of store purchase, since there are more youth old enough to be interested in seeking alcohol but not yet old enough to purchase.

Conceptually, there are two different ways for users to purchase from

a third party or “proxy buyer”: (1) by seeking out a specific person known to resell alcohol; or (2) by waiting outside an alcohol store and soliciting incoming shoppers, a method known as “shoulder tapping”. The NSDUH survey does not specifically distinguish between these two methods, but it most likely a significant portion of youth accessing via proxy buyers are in fact “shoulder tapping.” A study of Minnesota youth found that one in three tobacco seekers regularly shoulder tapped, more than twice as many reporting direct purchase (Harrison et al, 2000). A study with alcohol found success rates of 8% when soliciting the first adult to enter the store and 19% when targeting males appearing between 21 and 30 years old (Toomey et al, 2007).

There are ways to control those forms of access, but they’re not

terribly effective and come at some cost. Laws against underage possession, use, and purchase (PUP) attempt to do just this, but there are reasons to doubt their efficacy. Some studies have found a statistical correlation between PUP laws and tobacco use (Livingood et al, 2001; Jason et al, 2009), but not others (Gottlieb et al, 2004). If PUP laws are effective in reducing under access, it is through one of two causal pathways: 1) changing social norms to make access and use less attractive to youth; and 2) imposing a threat of criminal risk sufficient to deter youth from attempting access.

Whether or not PUP laws (or store enforcement) make drug use less

appealing to youth is unclear. Some argue that prohibitory laws have a declarative effect that changes social norms to make tobacco use less attractive. Meanwhile, others fear that such laws brand drug use as a “forbidden fruit” attractive to youth seeking rebellion.

4 Alcohol drinkers are asked specifically about how they acquired their most recent acquisition. Thus, answers to this question are mutually exclusive and all percentages add to 100% and numbers are not directly comparable to the question on cigarette acquisition.

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It seems unlikely that PUP laws succeed in deterring participants with criminal risk. Deterrence comes in two types: general deterrence intends to reduce the unwanted activity among the public at large, while specific deterrence refers to behavior change among individuals caught and punished for committing the unwanted activity. Some have found evidence for a specific deterrent (Jason et al, 2007). Yet, in the case of alcohol and tobacco, there are very many users seeking the drug but so few are ever caught and punished for it – this limits the effect of a specific deterrent and makes a general deterrent both more important and more difficult to impose: when levels of an unwanted activity are high, the enforcement required to effect a general deterrent often exceeds the resources available to law enforcement (Kleiman, 1993). Indeed, Wakefield and Giovino (2003) were unable to find any jurisdictions implementing PUP laws that caught enough violators as to do so. For instance, California’s Alcohol Beverage Control made roughly 430 arrests in shoulder-tapping stings in 2013, which might represent a 0.5% chance of detection.5 Moreover, in practice, some exchanges are more difficult to detect than others and so harder to deter (e.g., exchanges among friends and family or transacted at home), and increasing enforcement might cause participants to shift to the more covert activities.

When underage supply is provided by profit-motivated sellers, the

problem becomes more complicated and the issue switches to controlling the illicit market. Profit-motivated sellers may choose to tolerate significant risk so long as the activity remains profitable on balance (Reuter and Kleiman, 1986). Moreover, it becomes relatively useless to remove (via incarceration or deterrent) an individual distributor from the market, since doing so opens up a new profit opportunity for another distributor to slip into his place.

Interactions between store and social sources

When store access is cut off, underage users turn to these other sources instead. The substantive question is “to what extent?” Some argue that increases in social access are substantial enough to cancel

5 According to the 2011-2012 NSDUH survey, 185,000 respondents under 21 years old in California reported acquiring their last alcoholic beverage by giving money to some unrelated person 21 years or older and having them make the purchase on their behalf. If we were to make the assume : 1) conservatively, that each respondent acquired only once per year this way, 2) that all such purchases were of the “shoulder-tapping” variety (i.e., solicited outside the store) 3) each buyer made only one purchase, and 4) that 2011 and 2012 had the same number of arrests as in 2013, then each buyer would face a 0.46% chance of arrest.

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out any reductions in store access (Fichtenberg and Glantz; Ling et al, 2002), while others disagree (DiFranza, 2002), and still others remain skeptical (Lantz et al, 2000).

Some theorize that reducing store access weakens other forms of

access. People often socialize with people of roughly the same age, so transfers within social networks are often from one youth to another, and so preventing a youth from purchasing from a tobacco store can also block one method of supply to youth in his social networks.

Others argue that reducing store access increases other forms of

access. Even if other youth are unable to access or sell tobacco, older actors may step up to the role of distributor. Marsh et al (2013) argue that distributing tobacco to youth is a profitable activity attractive to both youth and adults, and reductions in store access can drive up the price of informally traded product, thereby increasing profits and attracting more distributors.

Given the disagreement among experts even with regard to the

existing, familiar and relatively well-studied cases of alcohol and tobacco, it seems impossible to estimate with any precision the net effects of store enforcement on access and use of cannabis. Some studies have found significant relationships between retail enforcement and decreased underage use (Biglan et al, 2000; Dent and Biglan, 2005; DiFranza and Brown, 1992; DiFranza et al, 2009; Forster et al, 1998; Jason et al, 1991; Jason et al, 2003; Pokorny et al, 2003), but others have found none (Fichtenberg and Glantz, 2012; Stead and Lancaster, 2000; Thomson et al, 2007). One might suspect that it has some effect, i.e., that alternative sources do not substitute completely, but the magnitude of that effect may or may not be significant.

So though it seems settled that retail enforcement can prevent

underage users from buying from stores, it is less clear that this results in a net reduction in use once other modes of access are taken into account. PUP laws and efforts at illicit market control might help tip the scales towards a net reduction in use, but a decisionmaker concerned with both health and criminal outcomes may find the cost in excess of the returns.

4. Advantages and Disadvantages for Washington and Colorado’s Control Efforts

While the broader dynamics of enforcement against youth access are constant across alcohol, tobacco, and cannabis, the likely success of an

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effort to reduce juvenile access also depends on the details of the enforcement policy and issues particular to a given drug. Advantages for Controlling Cannabis

Aspects of Washington’s and Colorado’s regulatory regime should make it easier to change vendor behavior. Lantz et al (2000) have identified the most effective retail enforcement programs as those that confront a smaller pool of vendors, with penalties that gradually increase with each offense, are conducted on a frequent and ongoing basis, and are paired with educational components. Lancaster and Stead (2000) believe density of vendors can also determine availability, since densely located vendors allow youth to select from a wider number of retailers.

Both states have much fewer licensed vendors for cannabis – capped

at 334 in Washington and 136 and growing in Colorado (Associated Press, 2013) – than for alcohol or tobacco, whose licensees number in the thousands.

For cannabis, license penalties for selling to minors begin more

severe and more quickly escalate to license revocation. In Washington, license revocation becomes available after 5 underage tobacco sales or 4 alcohol sales in a 2-year period, compared to only 3 cannabis sales in a 3-year period (Wash. Admin. Code 314-55-525; Washington State Liquor Control Board, 2009; Wash. Rev. Code 70-155-100). In Colorado, the maximum penalty facing vendors making underage tobacco sales is a $15,000 fine, while four underage alcohol sales in a 2-year period can merit license revocation; underage cannabis sale can return a fine up to $100,000 or license revocation according to discretion of the State Licensing Authority (Colo. Rev. Stat. § 18 -13-12; 1 Colo. Code Regs § 203-2; 1 Colo. Code Regs § 212-2 R 1307).

Also, because cannabis stores are not allowed to sell anything

besides cannabis, underage users are prohibited even from entering store premises, constructing a first line defense against the opportunity for illegal purchase. Preventing youth from buying from cannabis stores may be more like preventing them from buying a drink at a bar than buying a can of beer at a convenience store.

Disadvantages for Controlling Cannabis

It is one thing to block minors from accessing cannabis in the same way as do adults (store purchase) or from within friendly social networks (adult supply at home, peer-to-peer noncommercial exchange). It is another task entirely to remove minors from an active illicit market filled with profit-motivated distributors.

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Yet, the opening stages of cannabis legalization will play out with an active black market, which might shrink in the coming years but probably not vanish, at least until legalization is national. For instance, much of the cannabis produced illegally in Washington was exported to other states even before legalization; legalizing supply within Washington State does nothing to reduce that demand (Caulkins et al, 2013). In a competition between the established black market and the emerging licit markets, the black market has the advantages of starting out with all the customers and cost-savings in the form of evading state-imposed taxes on cannabis production and sale (roughly 45% in Washington and 25% in Colorado).

In the long run these tables will probably turn, given the advantages

of well-capitalized and licit industry. Iowa farmers and convenience store chains are massively more efficient at producing and distributing consumer goods than are criminals: a RAND study estimates that fully-commercialized firms could provide cannabis at less than one-fifth current prices, excluding taxes (RAND Corporation, 2010a). However, that transition may take years to complete.

In the meantime, black markets offer a fallback option for youth and

young adults rejected from state-licensed stores (and price-sensitive adults). And this market has tremendous reach. The market for cannabis recently displaced cocaine as the largest illegal drug market in the United States (Kilmer et al., 2014), and is now estimated to serve 18-25 million past-month users for revenues of $30-60 billion (RAND Corporation, 2014). Underage users are not only welcome into that market, with Monitoring the Future data showing that 68% of 10th graders reporting that cannabis is “very easy” or “fairly easy” to get (Johnson et al, 2012), but also a significant portion of the entire market, as consumption by individuals under 21 accounts for slightly less than 1/4 of U.S. cannabis consumption (RAND Corporation, 2010a).

Perhaps one reason the black market has grown so large is that low-

level distribution is operationally simple and relatively prevalent among its 18-25 million past-month users. Even if the black market were to dissipate, these factors would likely to continue to facilitate gray market trade.

Low-level cannabis distribution is relatively easy to perform profitably

and difficult to detect, especially compared to alcohol but even compared to tobacco. A Ziploc sandwich bag can easily hold one ounce of mid-grade cannabis, which might sell for $200 and represent 350 servings as

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calculated by Washington and Colorado.6 One eighth of that might last several weeks for a frequent user, whereas the equivalent volume of cigarettes would last just a few days. Moreover, the few transactions necessary to provide for underage users are difficult to detect, as most youth acquire their cannabis from friends or relative, as in tobacco.

A significant number of users of age to purchase state-licensed

cannabis already partake in resale, and may also be interested in gray market distribution. NSDUH data reveals that younger users are much more likely to have sold some of their most recent purchase: the rate for users under 18 (12.6%) is nearly twice that for users between 21 and 25 (6.8%), which is in turn twice that for users 35 or older (3.1%). The under-21 prohibition makes two-thirds (67%) of these resellers ineligible as proxy buyers, but still leaves 650,000 users who resold in 2012 (SAMHSA, 2012a).

One might theorize that as long as there remains a price differential

between cannabis on store shelves and on street corners, those users with low incomes and who are already buying cannabis anyway might be willing to arbitrage prices by selling to friends or friends-of-friends. NSDUH responses show nearly 1.2 million past-month cannabis users aged 21-25 with incomes under $20,000, and another 1.2 million with incomes under $50,000 (SAMHSA, 2012a).

5. Non-Use Outcomes: Black Markets and Enforcement Though levels of youth access may be the primary concern of policy

concerning underage cannabis use, it should not be the sole concern. Insofar as decisions about youth access control affect how youth access cannabis and the markets that provide it to them they also have ramifications for user health and wider public safety.

Black Market Cannabis is Without Public Health Regulations Measuring the safety of legal cannabis against black market cannabis

is mostly a subject of speculation, since the legal cannabis market has just begun to take root. Legal cannabis is required to be tested for product potency (e.g., % THC, CBD, and other active ingredients) and chemical purity (absence of e.g., mold, mites, pesticides); further, in its non-herbal forms is to be packaged to clearly demarcate each standard 10mg THC serving size and instruct users on safe use. Assuming that

6 Calculations based on PriceOfWeed.com price index, which lists an ounce of medium quality cannabis at $196.52. Mid-grade cannabis is estimated by the author to have 10% THC. Washington and Colorado establish servings sizes of 10mg THC.

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cannabis stores resemble existing medical dispensaries, their inventory will disproportionately feature edibles and concentrates, which though they reduce damage to the lungs, have recently been linked to an alarming number of reports of acute overdose due to user error and improper dosing (Lowrie, 2014). Conceptually, it might help to think of the relative health benefits of legal cannabis in terms of upper and lower bounds. The lower bound may actually be negative, if one believes non-herbal cannabis to be especially dangerous and testing and packaging regulations to be ineffective at reducing those risks. The upper bound is certainly much lower than for a drug such as heroin, which in its controlled form reduces risk of lethal overdose, though may still be substantial particularly if one believes that potency labeling can shift popular taste towards less potent varieties.

Black Markets Fuel Crime and Hurt Communities Illicit cannabis markets fund criminal organizations and create

opportunities and incentives for violence. A RAND study estimated that the cannabis trade delivered $1.5 billion in revenues to Mexican Drug Trafficking Organizations, accounting for 15-26 percent of their drug-related revenues (RAND Corporation, 2010b).

Yet, illicit cannabis markets are in some ways less dangerous than

for other drugs. On a dollar-for-dollar basis, cannabis markets are responsible for less than one-third as much violence as markets in drugs such as cocaine and heroin (CITE). Black markets are thought to have lesser criminogenic effects when transactions are done discretely and out of public sight (Caulkins and Reuter, 2009) or among non-professional user-dealers without criminal organization. For cannabis, the vast majority of past-month cannabis users (89%) most recently obtained cannabis from a friend or relative (SAMHSA, 2012a) and indoors (87%).

Law Enforcement Criminalizes Youth and Adults The policing of cannabis production and distribution generates

significant, though often exaggerated, tolls in arrests and incarceration, especially in the impoverished communities where they tend to take root. Several tens of thousands of people are currently incarcerated for cannabis distribution, and roughly 100,000 arrested annually (Caulkins et al, 2012).7 Cannabis arrests look more significant when taken as a portion of drug possession arrests (52% in 2012) rather than of arrests for drug sale or manufacture (17.8%) (Federal Bureau of Investigations [FBI], 2013a).

7 About 40,000 state and federal prison inmates have a current conviction involving cannabis; perhaps half of those are in prison on cannabis offense only.

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Prohibitions against underage use can inflate that toll among youth, especially when they are vigorously enforced. Increases in the alcohol minimum from 18 to 21 have been associated with increased rates of arrest in that age range (Wolfson and Hourigan, 1997). In states with laws against underage possession, use, and purchase of alcohol, youth are arrested five times more commonly for possession than adults and retailers are arrested for providing the alcohol (Wagenaar and Wolfson, 1994; Wakefield and Giovino, 2003).

Though legalization will legalize adult cannabis possession and likely

reduce the total volume of illicit production and sale, other cannabis-related acts will remain illegal and continue to put people behind bars. Enforcement of rules and regulations can be a non-negligible source of criminalization: every year in the U.S. nearly 700,000 more arrests are made for alcohol violations than for drug law violations of all kinds (not just cannabis).8 (FBI, 2013b).

6. Comparison of Policies Given this background, we turn to an explicit comparison of two

alternative policies: One option is a sincere effort to fulfill the Federal goal to “prevent

distribution [of legal cannabis] to minors,” including both indirect and direct supply to youth. Operationally, this pairs retail enforcement against cannabis stores with aggressive police and public efforts to detect and shame or punish shoulder tappers and proxy buyers diverting legal marijuana to underage users. These efforts would have to address both for-profit diversion (e.g., an unemployed stranger charging a few dollars to serve as a straw purchaser) and social diversion (supply provided by friends or family members who are over 21).

The second option would also block direct underage access via store

purchases, but make no real effort against gray market diversion. The second option comes in two flavors. The first has no aspiration

of restricting gray market access, even in the long run. The second leaves open the possibility that if and when the black market recedes past a minimally viable scale, policing against gray market diversion could then be implemented and the black market would not bounce back

8 The FBI reports that in 2012 there were 1,552,432 arrests for non-alcohol related drug abuse violations, compared to 1,282,957 for alcohol-related driving under the influence, 441,532 for liquor laws, and 511,271 for drunkenness.

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– it is hoped – because black markets have minimum viable operating size.

The table below compares ease of access to each of the three different

primary channels of supply under different scenarios. There is no obvious winner, both because it is difficult to weigh non-access-related harms with access-related harms and because it is difficult to predict whether a given policy will work out exactly as intended or if it will encounter unexpected difficulties. Direct

(Underage) Access to Legal Stores

Indirect Access to Legal Product via Gray Market Diversion

Black Market Access

Tobacco policy pre-Synar

Substantial Substantial NA

Tobacco policy post-Synar

Minimal Substantial NA

Cannabis Pre-Legalization

N/A Modest in some medical states (WA, CA, OR, CO, NM)

Substantial

Cannabis Option #1: the unrealistic hope

Minimal Minimal Minimal

Cannabis Option #1: the likely scenario

Minimal Minimal Substantial

Cannabis Option #2: base case

Minimal Substantial Substantial today but falls to minimal as black market is driven out of business

Cannabis Option #2: less optimistic scenario?

Minimal Substantial Substantial today, black market shrinks but never disappears

Cannabis Option #2: the most optimistic scenario in long run

Minimal Minimal because don’t try to shut this down until after black market has been eradicated

Minimal because black market has minimum viable operating size and won’t bounce back after it is

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eradicated

Option #1 has the best of intentions, though they are unrealistic. Decades of law enforcement efforts to arrest and incarcerate participants in cannabis black markets have demonstrated how difficult it is to eliminate that market while there are so many users looking to buy cannabis and so many established producers and distributors looking to sell it to them. There’s a strong argument that cannabis legalization can change that for adults by offering them a legal way to buy cannabis, but no such legal channel has been created for users under 21.

A possible counter-argument is that option #1, by pulling adult users

away from the black market, would leave behind a market too small to serve only users under 21. This can be attacked on two points: 1) shifting adults into legal markets is not an easy task, at least in the long run, since prices are currently cheaper in the black market and users are already habituated to buying in that fashion; 2) even if all adults were to shift to store purchase, but no underage users, the remaining cannabis market would still be one of the nation’s largest drug markets, worth $6 - $10 billion in revenues (22% of the current size) and more than large enough to operate efficiently.

Thus, a more likely outcome is that black markets would remain

roughly the same size, though decreasing gradually over time as adults are shifted to legal markets – an outcome probably better than the status quo but far from delivering on the promise that legalization would eliminate black markets.

Option #2 takes a different tack. By maintaining lax controls on

proxy buyers and social diversion, youth and young adults under 21 might find ways to access state-licensed cannabis.

In the most optimistic scenario, underage users try very hard to

access product from state stores – perhaps for novelty, or product preference, or even ease of access – and, moreover, each underage user that opts out of the black market brings it closer to a nonviable economy of scale. In a few years, the state’s black market collapses entirely, state law enforcement imposes aggressive controls and shaming against gray market diversion; with some additional years, perhaps all adults acquire cannabis through “white market” channels and youth and young adults under 21 find it much more difficult to acquire cannabis through any means. Yet, this is also a story in which everything goes right.

Quite a few things could go wrong. One possibility is that underage

users prefer to continue purchasing from black market sources, but

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instead use gray market access as a backup when they’re unable to find a dealer with product in stock. This could come about for any number of reasons: perhaps prices remain high because the state-licensed industry is slow to develop cost-saving innovations due to difficulties in accessing credit or a looming threat of Federal prosecution. Another possibility is that legalizing states host a profitable industry in exporting to states with anti-cannabis policies, and so no amount of removal of in-state customers would significantly shrink the size of the market. In either case, the end result could be to expand underage access to cannabis even broader than it is today.

So there is substantially more space between the best- and worst-

case scenario for each policy than there is across policies. Yet, this does not make the policies equally useful: though both best cases may seem far-flung, the worst-case for option #1 seems much more than likely while the worst-case for option #2 requires new adverse developments to occur.

Moreover, comparing these policies involves some implicit weighing of

different types of harms. For instance, if Option #2 could be known to shift 40% of underage users from black market to gray market supply but keep the overall number of underage users constant, and Option #1 reduced underage users by 20% but confined them all to the black market, which would be the preferable policy? Clearly the answer is subjective, differing from person to person, but also the scenario may be too simple. What if we assume that underage users habituated to gray market supply are unable to acquire cannabis as often, or are shamed against it, and so they are less likely to develop more serious habits?

Perhaps the single pivotal issue is one’s own forecast of how quickly

the licit market develops and so applies market pressure against black market supply, a prospect that has been widely touted as a chief benefit of cannabis legalization. One might reasonably argue that this fate is already more or less guaranteed regardless of enforcement policy. Nonetheless, the outcome could be more certain and come more quickly.

Moreover, nationwide legalization of cannabis must be regarded as a

real but unknowable possibility. If indeed it occurs, suddenly the viability of black markets becomes an issue of much larger importance. Black market demise may also be a prerequisite of nationwide legalization, and so those who prefer legalization may find the “nuanced” policy more appealing.

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7. Conclusion

Precisely what will happen after cannabis legalization is a question to be answered by oracles and astrologists as much as by policy analysts. However, previous experience with efforts to control underage access to tobacco and alcohol and to rein in black markets can reasonably inform guesses as to likely policy effects. There is no evidence to suggest that cannabis black markets will fold instantly upon the opening of licit channels, or that enforcement against state channels would leave black market access unaffected.

A popular argument for the legalization of cannabis is that drug

prohibition is entirely in vain, effecting no reductions in use but only increases in criminalization and forestalling of reasonable public health regulations. That argument, too, is an overreach. Regardless, even those skeptical of the net benefits of legalization should concede that controlling underage access becomes more difficult after legalization.

Proponents of legalization may find it convenient to promise that

legalizing cannabis can come without the downside of increased underage use. Yet what we know about informal markets suggests that at least some increase in youth access is inevitable. If that is the case, then it may be on balance more desirable that they consume diverted legally-grown product – taxed and tested, and produced with less violence and environmental damage – rather than illegally-grown product.

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