policy – Post-prohibition Cannabis Education for a Drug War Free World

CASP feedback to Swiss Advisory Commission on Addiction Issues

October 23, 2018October 23, 2018 corvad

by Dominic Corva, Executive Director

Last May, I received an unexpected request for feedback from The Federal Commission for Addiction Issues in Switzerland. Well, sort of unexpected, more like extremely occasional. I’ve been invited to meet with and provide feedback on cannabis legalization before to and with Germany officials; the City of Montreal, Canada; and the province of Nova Scotia, Canada. Given that our Senior Research Associate Dr. Tony Silvaggio has been invited to present at the December International Cannabis Policy Conference by the same people, I thought it would be a good moment to publish my answers to their questionnaires. So here you go.

Markets, products and consumption modes of cannabis in the US

Dominic Corva

The purpose of this interview is to understand how cannabis regulation in some US States has impacted cannabis markets, cannabis products, as well as consumer segments and consumption models.

Could you help us understand the mechanisms of the current US cannabis market? What are the main sub-markets (medical, retail, other) and how are they separated/linked?

Please develop here:

The markets have three legal dimensions and a hyper-differentiated policy geography, where local policy matters more than anything, including legal dimensions.

“Legal” by state refers to adult use state policies that always have local control options, which at this point are mostly opting out, even in legal states. The state legal frameworks are extremely different from each other (homegrow availability, license restrictions, out of state investment allowance, etc.)

“Medical” refers to a lot more than it used to. In addition to the early, unregulated, quasi-decrim initiatives, we now have varying degrees of medical cannabis regulation and in one instance, Washington State, a medical cannabis program controlled by a recreational cannabis program. Medical also now refers to “CBD-only” statutes; international investigational new drug programs such as Epidiolex; and people buying CBD products like herbal supplements in grocery stores (totally unregulated).

“Illegal/Informal/Illicit/Black/Unregulated” are all terms that are applied to the third market sector, although there are many ways in which the first two are directly connected to this third market sector. It is clearly the largest type of cannabis market. Most of these commodity chains originate inside the U.S. at this point, as opposed to about 15 years ago when domestic consumption of domestic product became dominant over international product. International product is still a significant chunk of the unregulated market, but it is not the majority and is mostly from Mexico.

They can be connected formally (the “15 day window” for bringing genetics into legal production licenses in Washington, for example, as well as any transition window for the implementation of a “legal” market). So, genetics are a huge common denominator for all the markets.

They can be connected informally, through diversion from legal markets to other markets; and the legal plasticity of unregulated cannabis supply for medical markets (untracked origins for products going in both a regulated and unregulated direction); this includes aforementioned CBD markets.

They are connected by geographical commodity chains, starting in one kind of market in one place (usually the North American West) and heading elsewhere.

They are connected by consumer demographics and consumption trends — older people tend to participate more strongly in legal markets, younger people in unregulated markets.

They are connected by investment money, especially these days the Canadian stock exchange.

They are connected by ancillary services across all markets, such as lab testing, grow medium, and real estate markets.

And they are connected by the knowledge and activities of workers and owners exercised in time and/or place depending on the desired outcome of their market activities.

What were the main recent developments in the US markets and what is their impact on demand and supply of cannabis?

Please develop here:

The main recent development in US markets are supply floods, which California legal market is not yet at but will be soon (they are still in legal market formation mode, five months after licensing began).

It’s important to understand that the West Coast flower glut began in 2010, when wholesale prices dropped in half after several decades of steady but slow decline. 2017, however, saw another 50% price drop, probably due to overproduction in southern Oregon.

The flower glut feets the concentrate glut, as prices for wax, oil, and hash are dropping precipitously in every market characterized by a flower supply glut.

Closed State legal markets have different dynamics, but certainly Washington and Oregon are experiencing parallel price drops for flower and concentrate.

And then there’s edibles. The edible market is a fairly large, fairly recent legal and medical cannabis market development, as those demographics are more inclined to consume cannabis by eating or vaporizing it. Unregulated markets basically allow consumers to make their own edibles, so historically it hasn’t been a big part of unregulated markets.

Of course there’s also the recent phenomenon of cannabis vape pens, which are somewhat adjunct to the edible market.

On the production side of things, the big development in medical and unregulated markets has been the shift (back) to outdoor production, as prices fall low enough to be fatal for energy-expensive indoor production. In legal markets, the incentive is different and lots of investment cash goes into large indoor warehouse production, but that again is unsustainable as prices drop.

Distribution developments include more and more distribution any way you could imagine, from the United Postal Service to planes, automobiles, and cyber marketplaces. There is no way to control cannabis movement except to create regulated markets that provide better quality at lower prices, with wide retail spread and sanctioned mobile distribution.

On the horizon: production in the Global South, especially in places that are adopting medical and regulated models like Uruguay and Colombia. I expect commodity chains to re-globalize fairly quickly once the current UN infrastructure crumbles from defection.

In your view, how will the US cannabis market look like in ten years from now? Will it still grow and diversify?

Please develop here:

US cannabis markets will be commercial, but probably not yet global in 10 years. The U.S. remains prohibitive at the local level, where cities and counties that opt out of regulated frameworks for cultural, political and industrially competitive reasons outnumber localities that opt in. In about 10 years I can see that hitting a tipping point, but not tipped.

The range of cannabis products (edibles, concentrates…) has developed over the last decade. Can you tell us what are the main product families and what approximately are their respective market shares?

Please develop here:

Please see above comments, with a special note: CBD-infused products have the biggest, fastest growth potential as they are being treated in policy (not law) like herbal supplements. And they can be added to just about anything.

Do you see other type of products coming to the market in the next years? If yes, what type of products and for which type of customers?

Please develop here:

Pharmaceutical medications (as opposed to herbal medicines) have enormous growth potential and will be used to treat everything from PTSD to anxiety to epilepsy, so the demographic reach of products will widen from birth to death. Products that cater to hospice patients — both pharmaceutical and herbal/complementary medicines — will proliferate extremely fast.

Young people will consume less cannabis as it loses its “rebellious” appeal.

What is known about the demographics of cannabis users? Has the legalization and regulation of cannabis markets changed the profile of cannabis users?

Please develop here:

Please see above comments.

Looking at the current cannabis regulations in US States: What are their main strengths and weaknesses?

Please develop here:

Their main weaknesses are their attachments to prohibition culture and control. As a result, most new laws and regulations reflect very little understanding of cannabis markets on the one hand and the power of local control to render State (and national, in the case of Canada) frameworks irrelevant. Taxes are too high, barriers to entry are too high, and authorities grapple poorly with the contradictory desire to create markets on the one hand and limit their spread, on the other. Age limits are a problem: in the US at least a third of cannabis is consumed by college-aged and younger people, meaning that at at least a third of current demand will always be met by unregulated markets. Canada allows provinces to set their own age, and many of them are choosing 18. That’s more realistic.

Smoking regulations are another major weakness: in the US, smoking anything at all in cafes, public places, and private residences has been zoned out. This presents a major challenge for legal consumption access for anyone that does not own their own home.

On a related note, cannabis retail and consumption is currently restricted or banned for public events, where lots of people consume cannabis (such as music shows, for example). California will be an interesting exercise in seeing how this can play out, since there is some room for permitting cannabis consumption at fairgrounds with special permits.

In the US, cannabis businesses are burdened not only by taxes that are too high to be competitive with unregulated cannabis, but also 280e Federal tax code that does not allow them to deduct costs of doing business. That means most of the new regulated cannabis industry has very little to no profit margin. So, the US Federal Schedule is a huge weakness for new cannabis markets.

Regulated cannabis markets also lack access to banking — ownership has to be surrendered to investors to raise capital, instead of having access to loans. This is also a strength, though, since it limits the flow of speculative capital that could inflate what is already an unsustainable market bubble.

But the biggest weakness of new cannabis markets is real estate, where rents command a huge premium and are controlled strictly by local zoning.

Cannabis and Cultural Economy

June 26, 2018June 27, 2018 corvad 1 Comment

by Dominic Corva, Executive Director

Simple concepts are pretty good for marketing, branding, and advertising, but they aren’t much help for engaging with complex problems. In today’s post, I want to explain the concept of “cultural economy” so we can engage with the possibility that cannabis markets and policy might be shaped towards social peace, not just selling products.

If your central concern is how to maximize revenue, then this post might not be very useful for you. The audience to whom I write desires a more peaceful world and is willing to give up a little bit of short-term material gain to make that possible.

Markets and Society

What do we mean when we say that we live in a capitalist society? It depends on who is answering, but perhaps an uncontroversial starting point might be that a capitalist society creates and allocates social opportunities predominantly through the movement of money value. Money capital, or exchange value as political economists might say, provides a universal means for particular individual or social ends to be realized. No home? If you have money, no problem.

Of course, if you have a healthy social ecology, you may not need money to at least be housed. You might be able to rely on a family member or friend to sleep out of the elements. The people who can house you in such circumstances aren’t rewarded by money, but perhaps by love or compassion. Love and compassion are cultural values — they mean something different in different places, but nonetheless are important strands in the webs of meaning that hold societies together.

This example helps us understand that we don’t live in a society that is exclusively shaped by capitalism, even if capitalism is the primary means through which housing happens.

In fact, social relations are determined by many, many other values besides money. Friendships, for example, aren’t (hopefully) relationships that one buys and sells. Certainly, it is much more rare to purchase one’s parents, children, lovers, and communities, than not.

Thus we can understand that living in a capitalist society does not mean our society exclusively depends on the movement of capital. Many entrepreneurs in society, in fact, get off the ground and even thrive by incorporating “more-than-capitalist” values into their business plans.

This is most obvious with businesses that cater to “ethical consumers”: people who pay more for products that are associated with fairness and sustainability. “Fair trade,” “non-GMO,” and “organic” products line the shelves of our grocery stores, and of course corporations like Patagonia and Whole Foods exist on the range of more-than-capitalist business plans.

Where does the legal cannabis industry fit, is the question at hand. Are there “more than capitalist” values that cannabis entrepreneurs desire to accompany the flow of capital?

Cannabis Cultural Economy

In the U.S., cannabis culture comes from the 1960s, associated with two very particular forms of social movement: counterculture and the antiwar left.

Counterculture was not necessarily a “left” meaning system, although the overlap was pretty strong and certainly well-advertised. The hippie phenomenon was fairly libertarian and rejected centralized solutions to social problems. It had a well-developed critique of the State as a culturally conservative institution, aimed at preserving cultural values that made a lot less sense in the context of the “square” industrial capitalist economy. Rejecting social norms didn’t lead to a different set of central values: it opened up space for individual freedoms that ranged the gamut from free love to the pursuit of self-interest untethered from social obligation.

The antiwar left wasn’t monolithic either. It may be a reach to even attach the “left” to “antiwar” because plenty of cultural conservatives weren’t too keen on the draft nor the Vietnam war. It’s even an open question whether it was the hippies or the soldiers that really brought cannabis consumption into Western culture, given the extent to which Vietnam soldiers and vets adopted cannabis use as way to cope with existing in the middle of a war that didn’t make sense as well as the trauma of living through it and coming home — yes, often with suitcases of hash and opium for entrepreneurial reasons. The hills of Southern Humboldt were full of veterans that found they couldn’t manage their PTSD by re-entering normal society, as well as veterans of student organizing and Haight-Ashbury that sought to go “back to the land” and live a sort of pre-industrial existence in communes and on cheap land available after the postwar timer economy went bust.

The existence of a cultural market for cannabis led, eventually, to the commercialization of that market when the U.S. government got the Mexican government to use Paraquat to eradicate the fields supplying urban veterans of the counterculture and foreign wars. Suddenly, California’s sinsemilla growers found that they had a cash crop in their food gardens, and the wholesale price per pound in the late 1970s shot up to about $11,000/pound adjusted to 2011 prices, the last time I made that calculation for a journal article.

That’s when the modern cannabis cultural economy was mixed, when producing cannabis for profit slid in — fairly easily — with the rural spaces inhabited by the remnants of the counterculture that were already hybridizing with rural values and people. Rural libertarianism and countercultural values teamed up to object to the Federal government as an invading force, helicopters and all.

This was an alliance that protected cannabis production and consumption for everyone, not just hippies, vets, and people that rejected the characterization of cannabis as a threat to society. In particular, it protected and nurtured commercial values as important to the central value of the cannabis cultural economy: overgrowing the government.

Cannabis, Values, Capitalism

And it won, sort of. The wave of legislation behind the creation of regulated cannabis markets has certainly crippled the prospects of total cannabis prohibition around the world. But we are facing a split that was really there all along, between the value of those for whom cannabis markets are an end to themselves; and the value of cannabis markets as a means for creating a more just and peaceful world. These values are not inherently left nor right.

Libertarian entrepreneurialism has a problem with over-regulation that constructs new barriers between the cannabis haves and have-nots, for different reasons than the progressive peaceniks. Similarly, corporate cannabis interests support artificial, non-market-derived barriers to protect their returns on investment, while progressive liberals support regulations to protect consumers and non-cannabis culture stakeholders whose support was necessary to accomplish legalization-with-prohibition.

This is the great difference dividing the cannabis cultural economy today. In one direction, “normalized” cannabis markets that pursue profit and tax revenues for their own sake. And in the other, “normalized” cannabis markets for erasing stigma and including communities affected by the drug war in the imagined peace dividend.

The realist in me says that regulated cannabis markets are likely to be dominated by the former value, exchange value, rather than other values like compassion and restorative justice. But the mission of CASP is to make space for more-than-capitalist values to live on and perhaps thrive, through compassionate industry practices, post-prohibition policy education, and socially oriented academic research agendas. There may be no end to this struggle, but it’s worth struggling for in the interest of social peace. The cultural economy of cannabis is evolving, and we are too.

Taming THC Inflation: Is There a Silver Bullet?

May 3, 2017May 3, 2017 corvad 4 Comments

by Dominic Corva, Social Science Research Director

Washington State’s approach to cannabis legalization provides many lessons for other states coming on line in the future. One of the really state-specific lessons we have learned over the last four years is that we have created a situation in which measured THC levels on packaged flowers are much higher than those observed during the period of unregulated medical cannabis markets. There are actually two significant problems with this. Please note that this analysis refers specifically to flowers — processed cannabis products can and usually are homogenized in the process, so test results are less of a concern.

Both of these problems create suboptimal public policy results, with respect to scientific accuracy, on the one hand, and unfair market advantage for untrustworthy labs on the other. Let’s take them one at a time, before examining a simple, completely technical approach that could virtually eliminate these problems.

Suspiciously high THC results can be the consequence of intentional and unintentional behavior or decisions by producers, processors, labs, and rule makers. There’s no reason to point fingers when there are so many factors contributing to this outcome. Instead, let me list a few.

Consumers that are not allowed to sample or smell the product they purchase, due to packaging and retail display rules, are deciding what to buy on very little information. Adult-use consumers clearly show a preference for high THC numbers, which are required numbers found on each package. And like consumers of other products, they are swayed by clever and attractive packaging, which has no inherent correlation to the quality of the product inside. Most packaging provides a fairly limited window to observe the “bag appeal” of the product inside. In fact, “bag appeal” in these conditions refers significantly to the appeal of the bag, not what’s in it, because that all they can see. This is an unintentional outcome of strict packaging and display rules, and there is no reason to suspect foul play. It’s structural, not the outcome of bad intent.
Labs, by rule, have one broad direction with respect to how they go about testing product. They are instructed by rule to follow the guidelines laid out about cannabis in the American Herbal Pharmacopeia. These guidelines were not designed to standardize lab methods in any particular direction. So, Washington’s labs have each independently arrived at how they follow those guidelines. This is also a structural problem, and to their credit many of Washington’s labs have begun collaborating to develop “best practices” to help standardize methodologies.
Lab reference standards — the individual cannabinoid samples they use to compare industry products in order to arrive at numbers — can vary for a number of reasons. Most labs source these from Restek, but there are other suppliers out there. This can introduce variability for obvious reasons. Some non-obvious reasons for reference standard variability include how those are stored, and how long they are used before they are replaced. The temperature and pressure at which reference standards are stored contribute greatly to the their stability. And of course labs may vary in how long they go before replacing “used up” or unreliable standards, for intentional and unintentional reasons. This introduces a lot of potential variability in test results across labs. It is a structural problem faced in any laboratory industry that tests products using chemical reference standards. It could be improved, but not likely eliminated. Here is where the lesson that scientific methods are not perfect, but they can be more transparent.
Cannabis plants are highly variable from top cola to bottom buds. This is a problem of sampling a product that is not uniform. It can be a little helpful to require independent, third party samplers. But even when that happens, the plant is highly variable. It’s a plant, not an industrial product. This is a structural problem, but more of a structural problem for science in general rather than our particular approach to cannabis regulation.

There are other factors that influence the variability of THC lab results, but the lesson is: THC results can be precise, but how accurate they are always an open question. Precise THC numbers are always a guide, not a guarantee. It is absolutely crucial that consumers and policymakers understand this limit. Now, the problem of market capture via THC inflation.

How do producers and processors choose which lab to use? There are many business decisions to make when choosing labs. These include convenience, professionalism, and consistency — but as Dr. Jim MacRae’s work has shown with a high degree of methodological confidence, it’s pretty clear that producers and processors are choosing labs based how high their THC results can be. One caveat: producers and processors are clearly behaving badly when they agree to pay labs more for higher numbers.
Producers and processors are making market decisions when they do this. As mentioned above, THC levels correspond with product velocity and therefore more sales. They may be perfectly aware that this is unfortunate, but they also know that the precision of lab results does not necessarily reflect accuracy in any case. So, given the choice of more sales rather than less, they choose more. I call this a structural problem, although there is certainly an ethically questionable element. Some producer/processors want to evolve consumers away from the importance of precise THC numbers, and choose the more challenging road because they have a long-term vision of the industry in which they operate.
Labs are making market decisions when they choose to follow methods that result in higher THC numbers, AND labs are making unethical decisions when they receive payment for higher numbers, for example, or intentionally introduce methodological variations that favor higher results. We have also encountered the “drylabbing” phenomenon in Washington State, whereby labs literally just make up numbers to report. That’s way beyond the pale, and one lab has already been shut down for this. Other labs that may have done this in the past have cleaned up their act.

So, how do we tame THC inflation? Obviously, improved governance has some effect — and that governance includes the public reporting work that Dr. MacRae has done, which has clearly had a strong effect on lab motivation to not look bad. Every lab test result in this state is public information, and any public servant with database skills can request WSLCB data and run the numbers themselves.

However, there is a “silver bullet” technical fix that could absolutely clean up most of the mess. Here it is.

Normalize lab results by lab, and require only the percentile of each result to be listed on the package rather than a precise percentage.

Each lab has its own data population and range of results. For all of the reasons listed above, the numbers they produced are not comparable across labs; nor are they comparable across time (hello, life cycle of reference standards).

For a lab that consistently ranges up to 32% but no higher, for example, a sample that tests at 32% would be reported at the 100th percentile. The number on the package would be 100.

For a lab that consistently ranges up to 25%, a sample that tests at 25% would also be reported at the 100th percentile. The number on the package would also be 100.

Doing this changes the comparisons away from apples to oranges (how we are doing it now), and towards apples to apples.

Simply doing this would eliminate shopping for the highest THC prices immediately. Producers and processors could then make decisions on what lab they used based on best business practices and convenience, rather than unscrupulous behavior.

It would take a simple line of code in the tracking software, and a small shift in packaging information. It would also of course need to by dynamically updated, perhaps by using only the last 100 results. New laboratories would use the industry average for 100 results, and then once they had significant data from their own results switch over.

Listing a normalized percentile instead of a precise quantity would also help shift consumer and policymaker understanding of what lab results mean and how they are used. They should be use primarily to indicate that something is strong, qualitatively, rather than quantitatively, because again, cannabis flowers are variable and precise numbers do not mean accurate numbers.

That’s it. It’s an immodest proposal — an actual silver bullet based on understanding how statistical variability influences market outcomes, and therefore provides “loopholes” that reward unethical behavior.

I want to thank Dr. Jim MacRae especially for making this issue one that the industry and policymakers can’t ignore any more. He’s got his own style for doing so, but you can’t argue with his methods which are absolutely testable by any citizen-scientist that cares to. Fortunately, his work has been amplified by two cannabis journalists whose approach makes it a bit harder for people to ignore, Bob Young of the Seattle Times and Tobias Coughlin-Bogue of Leafly.