Golden State eyes pot of gold

By Balzafire · Jul 26, 2010 · Updated Jul 26, 2010 ·
  1. Balzafire
    Potential for budget relief is at stake as Californians vote this fall on legalization of marijuana

    Jeff Wilcox, a middle-aged, clean-cut man, may be the face of Marijuana, Inc., the corporatization of cannabis.

    Wilcox has just persuaded Oakland to legalize industrial-sized marijuana farms, touting a study that promised millions in city taxes and hundreds of high-paying union jobs.

    The long-struggling city, which has failed spectacularly to capitalize on the high-tech boom, could be the Silicon Valley of pot, Wilcox told the city council last week before its historic vote to grant four permits for urban, industrial-size marijuana farms.

    But as Wilcox points out, his business model -- a non-profit -- will be less Google or Apple and more Trader Joe's, a cut-rate gourmet grocery chain. The store's best-known product is $2 per bottle Charles Shaw wine, known affectionately as Two Buck Chuck.

    "The new Two Buck Chuck will be $40-an-ounce pot," Wilcox said in an interview, looking forward to a day of full legalization. Boutique growers could produce the high-end stuff in their "gardens," he explained, while he supplied the masses with a clean, controlled, great-value product.

    If California legalizes marijuana, the rest of the United States may well follow. One way or the other, cut-rate, highly potent California weed is unlikely to stop at the state's borders.

    The U.S. state that first allowed sales of medicinal marijuana, in 1996, may take away all restrictions on adult use of the drug in a November vote, giving local governments the option to regulate sales and growing of marijuana.

    The magnitude of the experiment is diffi-cult to fathom -- the world's eighth-largest economy may be about to tear down barriers to the most-used illegal drug in the U.S.

    Even the cops who most hate it see legal California marijuana as a different breed of drug -- and a game changer for the country.

    "The stuff we are getting in California is fricking leading the world," said Los Angeles County Sheriff's Department senior narcotics officer Det. Glenn Walsh. "We already send marijuana all over the States, presumably all over the world."

    Marijuana has become a cultural touchstone. To advocates, it symbolizes counterculture freedom and alternative medicine; to detractors, it is a drug that saps the resolve of hardworking Americans, draws children down a path to other, more dangerous drugs and enriches ruthless Mexican cartels.

    Economists see a different picture -- a multibillion-dollar market about to be unfettered with little sense of how consumers will react. Two rules they expect to apply: Competition will lower prices and expand the market; and businesses will look for ways to get ahead of the pack.

    One recent study predicted California marijuana would underprice high-quality Mexican imports in virtually every city in the U.S.

    The reaction of drug cartels behind vast imports into the United States is anybody's guess, from abandoning the field to doubling down in a legal market where they can plow profits into political campaigns for legitimate allies.

    But fear of the effects of legal California "bud" already has made its way to the streets of Tijuana, a major gateway of drugs into the United States. "We're screwed," said Juan V., a street dealer in the grimy border city of around two million people. "They are going to want us to lower prices," he said. "We'll just have to sell more here."

    California's climate is perfect for growing almost anything, but the best marijuana "grow" is a private world completely divorced from nature that produces a drug with 10 or 15 times the punch of your hippie grandparents' weed.

    Mexican cartels grow good-quality product in California national and state parks, which are the target of frequent police raids and less frequent arrests. Well-heeled consumers buy marijuana "medicine" grown indoors in an environment often devoid of dirt, sun or bugs.

    The costs are minimal -- as low as 20 cents in electricity and plant supplies for established growers whose pot would retail for as much as $20 US a gram, a law enforcement source estimated. That would take the cost of producing a pound of weed to under $100. The Rand Corp. puts the price a few times that, still offering plenty of room to drastically cut retail prices.

    Wilcox's plan includes a seven-acre site with a nearly one-hectare growing space, a bakery, a testing lab, job training and growing equipment production at the site. If it received one of the four Oakland permits to go into business, it would produce 26 kilograms of cannabis a day at wholesale prices of $5,500 to $6,600 per kilogram and send the city more than $2 million a year in taxes if a three-per-cent growers' tax were initiated.

    But Oakland could complicate his math. The city is considering an eight-per-cent tax on cannabis farms, more than double the top rate in Wilcox's analysis.

    The drive to legalize marijuana is based in the hardscrabble reality of California finances, and voters want to get paid. Once the Golden State, California is now tied for the lowest credit rating among the 50 states.

    A sin tax on a culturally acceptable drug has been gaining advocates for years. A bill in the state legislature would legalize pot, charge a $50-an-ounce tax and, according to state accountants, bring in $1.4 billion per year.

    A more likely path to legalization, though, is Proposition 19, the brainchild of the Tax Cannabis movement, which would let local governments decide whether and how to regulate sales and growing of marijuana and would let anyone in the state 21 years or older use it.

    A just-released study by the independent state Legislative Analyst's Office says Proposition 19 could raise hundreds of millions of dollars over time.

    California may be overly optimistic, according to a new Rand Corp. study. By the time taxes are high enough to produce the billions that California wants, they will have created a thriving black market, it suggests.

    "So now you have the dual evils: lower prices and still a black market to deal with," researcher Rosalie Liccardo Pacula said.

    If marijuana were legalized, Rand projects the price of high-quality marijuana to fall to as little as a tenth of current levels and says that usage could more than double as consumers respond to cheaper prices. A single joint would cost $1.50, even taxed at $50 per ounce.

    More than half of that cost would be the tax, though, and as the novelty of legalized pot wore off , consumers who at first found $1.50 a bargain might start to see it as a ripoff . The same joint could be had, untaxed, for half price on a street corner. "As time goes on, the black market prices will look more appealing," Pacula said.

    But there is one way, Rand found, for California to boost tax revenue substantially: exports. "California could actually make a lot of money from taxing marijuana and then exporting it to other states," said study author Beau Kilmer.

    Researchers have calculated that high-quality California marijuana, even at taxed prices, could undercut current prices of comparable pot in 42 of 48 continental U.S. states, even with the $50-per-ounce tax.

    U.S. drug czar Gil Kerlikowske, director of the Office of National Drug Control Policy, in an interview cast cold water on California export potential. "I quite frankly don't see that," he said. "I just don't see it as being something that suddenly people in Kentucky say, 'Ah now marijuana can be shipped in from California.' "

    Despite the money at play, Californians may decide the issue on the basis of morals.

    "My big thing is ending prohibition, getting people out of prison who shouldn't be there, stop the violence, get better police protection, return respect for laws and law enforcement," said Richard Lee, founder of Oaksterdam University in Oakland, a school that teaches marijuana growing.

    He funded the signature drive that put Prop 19 on the ballot, which he says cost him his status as a millionaire. Civil rights, he said, was the name of the game.

    "That's what I got into this for. It isn't to protect the small grower, protect the big grower, make jobs here.

    "Those are all ancillary things ... ." Recently, the California chapter of the National Association for the Advancement of Colored People came out in support of marijuana legalization. "This is not a drugs rights issue, this is a civil rights issue. It is time for them to stop using my community to populate the prison system on such minor offences such as having a joint," NAACP California president Alice Huffman said.

    Peter Henderson, Reuters July 26, 2010

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