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February 18, 2013

Is a (harmful?) gray market inevitable even if pot becomes fully legal?

The question in the title of this post (which itself is full of questions) is prompted by this new local article out of Colorado, which is headlined "Marijuana-for-donation swaps test limits of Colorado law." Here are excerpts from the press report:

His store's location stinks, the owner of the head shop admits. It's in a nondescript building on an out-of-the-way road below the Colfax Avenue viaduct across from Sports Authority Field at Mile High. Unless you're trying to find Broncos parking, you might never even know there's a there there for a store to be.

So, to bring feet to his street, the owner of 4 Strains Pipe and Tobacco — which sells supplies for smoking this, that and what have you — came up with this marijuana-tinged ad on Craigslist: "CO AMENDMENT 64 COMPLIANT. 21 AND UP GET YOUR 2 GRAMS OF BUD FREE WITH $30 OR MORE PURCHASE IN OUR HEAD SHOP. THIS IS FREE AS A GIFT. ONE GIFT PER DAY PER PERSON. NO JOKE."

In post-marijuana-legalization Colorado, the pitch is bold. It's creative.  But is it legal? It depends on the definition of "remuneration."

"It's a tricky issue," says Christian Sederberg, an attorney who helped write Amendment 64, which legalized limited possession and — eventually, but not yet — retail sales of marijuana in Colorado. Since Colorado voters approved Amendment 64 in November, dozens of offers for "free" marijuana have sprung up on the frontier between legal and illegal.

Craigslist is home to numerous ads offering free marijuana for a donation. Backpage, another ad site, has more.  Each ad has essentially the same hook: It's not the pot you're paying for. "i can gift my smoke to others and am taking donations for power/rent," one ad states.

Amendment 64 allows adults to give one another up to an ounce of marijuana, provided it is done "without remuneration."  What exactly that means, though, is still being worked out by lawmakers, regulators and a task force appointed to suggest rules for legal marijuana in the state.

Ro Silva, a spokeswoman for the Colorado Department of Revenue, which will eventually oversee recreational-marijuana businesses, said the state currently doesn't have any rules on when an exchange of marijuana and money is a sale and when it's something else.

The owner of 4 Strains — who asked to be identified only as Mike P. because he is worried about robbers coming to his home — said he consulted with a lawyer prior to posting his ad and is doing everything in good faith with the law.   "The marijuana is not for sale," he said.  "You're actually purchasing smoking accessories, tobacco, T-shirts, fine art. As a gift for them patronizing our store, we're giving them 2 grams of marijuana for free. ... It's just an incentive."

Sederberg, though, said the position is a risky one and that police and the courts could see it differently.  "The concept of remuneration has not been clearly established," he said.

Colorado Springs police this month arrested three men allegedly behind a marijuana-for-donation delivery service.  Billygoatgreen MMJ advertised on Facebook and Craigslist and offered to give pot for free while soliciting "suggested donation[s] towards researching [marijuana] and improving our cultivation operation," according to an e-mail the service's owners wrote to the Colorado Springs Independent.

Meanwhile, counter-ads have popped up on Craigslist, warning would-be marijuana providers that the cops might be watching. Sederberg said the frontier era of Colorado marijuana law will likely civilize quickly.  Regulations are coming.  Court rulings will help clarify things. It may be only a matter of time until remuneration comes to include donation.

"The bigger point," he said, "is we need to get the regulated marketplace in place as soon as possible. "Ultimately, I think a lot of this is going to go away."

In this setting, I think the vice of gambling rather than the vice of alcohol provides a useful reminder that the (inevitable?) development of gray markets and clever marketing schemes is not always a reason to favor prohibition over legalization. After all, the huge on-line poker industry was a big gambling gray market in the US for a decade and it help contribute to the national poker boom that aided so many legitimate businesses. And casinos are amous, of course, for giving stuff away (comps) to get people to come and gamble more.

I raise these points in part to encourage a balanced reaction to any and all of the (too common?) efforts by "pot pioneers" to skirt close to the edge of the law in running their businesses as marijuana reform gathers steam nationwide.  As this article highlights, there will surely be lots of legal gray areas as this industry and new state regulation develop.  In my view, the fact that some (many? most?) in the pot business will run a market in the gray areas is not itself a reason to conclude the industry should be shut down before the rules of thr road get clarified.

February 18, 2013 at 10:32 AM | Permalink

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Comments

1. The whole culture of pot -- namely, the counter-culture -- makes skirting the line inevitable. If these people cared about the "line," they wouldn't be openly violating federal law. In addition, does anyone think these places just didn't exist before the referendum? Ha! They're just more brazen now.

2. Hey, wait, where's all that tax revenue we were promised?

3. Because there were restricitions built into the referendum -- restrictions that were necessary to get the moderate support that enabled it to win -- it was a sure thing that a black market would continue.

Under Colorado law, you can't use or sell if you're under 21. Think that won't breed a black market? You can't sell at all unless you have a license. Think that won't breed a black market? Don't we all know that ANY government restriction will invite I'll-make-my-own-law types to evade those restrictions, thus by definition creating a black market?

4. So why didn't the referendum backers tell us about all this before the vote? Well, that's easy: Because they were never serious about the "restrictions" to begin with. As noted, they were just for show, to add the needed political support.

5. Still, you have to give these gray marketeers credit for seeing reality: No one at the state level cares. The "restictions" were a fraud ab initio. They're not being enforced and won't be enforced. Same deal with the supposed tax revenue.

But I'm glad, ya know, that the referendum's backers were so, uh, up front with us about the perseverence of a black market. Looks like the voters in Oregon (2012) and California (2010) wised up better than the voters in Colorado and Washington.

Posted by: Bill Otis | Feb 18, 2013 2:18:53 PM

Of course there will be a black market. The potency of pot has increased exponentially throughout the years and will continue to do so. Today's versions can barely be called marijuana, no closer to the 60's mellow stuff than a house cat is to a lion. It is a distant cousin at best. When/if the Feds and the FDA legalize it and take it over, they will approve certain strains that will not be the most potent because of the increased health risks.

This will not be good enough for the unemployed/underemployed legions of wasted DNA.

Posted by: TarlsQtr1 | Feb 18, 2013 2:47:19 PM

It seems like most of things things will go away once the licensing structure is in place. Those that are accepting "donations" will become licensed businesses; giveaways will be governed by rules similar to alcohol giveaways - sometimes legal, sometimes not, depending on the circumstances. Kids will continue to try to get pot, just like they do now. Licensed shops won't sell to the underage, because they won't want to lose their license. Some adults will buy pot for kids, just like some adults buy beer for kids. I would be surprised if anyone is actually surprised by any of this, since we have an almost perfect parallel in the regulation of the alcohol industry. But if people want to feign shock and outrage, I suppose that is their God-given right.

Posted by: Ala JD | Feb 18, 2013 3:43:59 PM

Ala JD --

"But if people want to feign shock and outrage, I suppose that is their God-given right."

Who exactly is faking shock and outrage? My whole point was the opposite -- that the continuation of the black market was completely predictable. But pot backers were claiming it would all go away with legalization, regulation and taxation (where did you say those taxes are??).

It was all baloney and they knew it. Are you shocked and outraged?

Posted by: Bill Otis | Feb 18, 2013 3:58:18 PM

"Who exactly is faking shock and outrage?"

That would be you, Bill. And to give credit where it's due, you're quite practiced and adept at it. One would almost think you believe your own schtick.

There are still bootleggers in every dry Texas county but that doesn't mean ending Prohibition 80 years ago didn't a) reduce crime, b) generate tax revenue or c) give government tools over time to mitigate the most harmful effects. I was recently at a budget hearing for the Texas Alcoholic Beverage Commission and they generate billions in taxes. Three months after Prohibition ended, probably not so much.

Time makes more converts than reason, said Thomas Paine, and so it will be on this question.

Posted by: Gritsforbreakfast | Feb 18, 2013 4:57:28 PM

Grits --

"And to give credit where it's due, you're quite practiced and adept at it. One would almost think you believe your own schtick."

And one would almost think that you'd been the victim of an armed attack by the Austin police, if they had read your very long and very outraged account of it. That being the account you put up before you found out the cops had a videotape to prove you were lying. At which point, but only at which point, you hastily backtracked.

Your ad hominem "schtick" is getting weary. Why don't you just stay with telling us how the cops, Texas and Amerika all stink. You do that with more conviction. Accuracy, well, hey, that's a different matter.

"Time makes more converts than reason, said Thomas Paine, and so it will be on this question."

Please send me your crystal ball. And how much more time will it take for us to ratify that other inevitable liberal darling, the Equal Rights Amendment? Did Thomas Paine fill you in on that one?

Posted by: Bill Otis | Feb 18, 2013 8:39:05 PM

Bill,

Why do you hate capitalism?

Posted by: MMK | Feb 19, 2013 7:26:50 AM

MMK --

Child prostitution is capitalism too. So is selling tickets to see puppies tortured.

No thanks.

Posted by: Bill Otis | Feb 19, 2013 4:42:03 PM

Bill Otis: Because there were restrictions built into the referendum -- restrictions that were necessary to get the moderate support that enabled it to win -- it was a sure thing that a black market would continue.

Under Colorado law, you can't use or sell if you're under 21. Think that won't breed a black market? You can't sell at all unless you have a license. Think that won't breed a black market? Don't we all know that ANY government restriction will invite I'll-make-my-own-law types to evade those restrictions, thus by definition creating a black market?
----
I don't know anything about the marijuana business in states where it has been legalized by the state, but from what I do know, marijuana, like tobacco, is a plant and marijuana, like tobacco, is processed in a similar way, and is rolled up and smoked by the end user. There is no meaningful black market in tobacco (that I know of). To me, it logically follows that there should in the end be no black market, or no greater black market, in marijuana.

Likewise, there are laws in many, if not most, if not all states restricting the sale of tobacco to persons below some designated age, usually 21 or 18. Is there a black market for tobacco in those states? Many states, if not most (all) states, require retailers to obtain a license to sell tobacco products. Is there a booming black market for cigarettes and cigars in these state? Are these black markets, if they exist, something we loose sleep over?

P.S. There really are still whiskey bootleggers around? Why??

Posted by: C60 | Feb 21, 2013 10:46:30 AM

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