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AN EXAMINATION OF BARRIERS THAT RETAILERS FACE TO ENTER THE LEGAL CANNABIS MARKETS IN CALIFORNIA
by
Hillary Dostal, BS, MBA
A doctoral thesis
Presented to the Graduate Faculty of the Doctor of Law and Policy Program
at Northeastern University
In partial fulfillment of the requirements for the degree of
Doctor of Law and Policy
Under the supervision of Dr. Carrie Kuehn, DLP
Second Reader David Abernathy
College of Professional Studies Northeastern University Boston, Massachusetts
June 4, 2021
© Hillary Dostal
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DEDICATION & ACKNOWLEDGEMENTS
While this doctoral thesis is dedicated to Keegan, Devon, Addie, Payton, and Mackenzie, I would not have been here without all the members of my supportive, crazy family. To my thesis advisers Dr. Carrie Kuehn and David Abernathy, my deepest thanks. To Cohort-13, it has been a pleasure embarking on this journey with you. Thank you, Cornelia, you were there for every typed word.
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ABSTRACT
This study uses a qualitative phenomenological approach to examine the regulatory barriers perceived by cannabis retailers in California’s adult-use cannabis market that deters or discourages legal market participation. The intent of this study was to uncover how retailers rationalize unregulated or legal market participation, and the extent in which California’s regulatory framework impacts that decision. The experiences of the interviewees as they have lived through pre- and post- adult-use program implementation provided insights into the tenets of California’s cannabis culture that should be upheld to maximize legal market participation.
The outcomes of this research are expected to inform considerations for policy makers to develop effective cannabis regulations that foster legal market participation. It should also serve as a base for future research. Because the study examines the model of human decision making in the context of social and economic structures, Rational Choice Theory was leveraged as a theoretical framework. Using this theoretical framework exposed priorities of participants, how they weigh alternatives and the process of making business decisions to maximize utility. Those interviewed expressed a propensity to identify within California’s cannabis culture, the tenets of which include compassion, community, quality of products, social activism, combat stigma associated with cannabis culture and commitment to legitimize the cannabis industry lawfully.
Because a key tenet of this cannabis culture is their commitment to the legitimization of the cannabis industry, the findings uncovered that irrespective of the challenges that California’s regulatory structure imposed, members of this culture were unlikely to err on the side of non- compliance with the law because that would further delegitimize the industry. The findings from the interviews postulated that disapproval of the industry’s regulations is not only because of the
4 punitive barriers it imposes, but the notion that the framework creates an economic model that will dislodge California’s cannabis culture from its foundation. This study provides academic validation in social science and behavioral economics to the adult-use marijuana industry legal since 2012. The artifacts of this qualitative phenomenological study expose the pillars of cannabis culture to uphold when developing laws that govern adult-use programs.
Keywords: Adult-use marijuana, California cannabis industry, marijuana retailers, unregulated marijuana market, marijuana regulatory framework
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TABLE OF CONTENTS
Chapter 1: Introduction ...... 14
Background and Context...... 17
Law and Policy Review ...... 22
The Problem Statement ...... 41
The Purpose of the Study ...... 43
Research Questions ...... 43
Theoretical Framework ...... 44
Assumptions ...... 47
Scope and Limitations...... 48
Significance...... 49
Summary ...... 50
Chapter 2: Literature Review ...... 52
Literature Review Strategy ...... 53
Theme 1. The Paradigm Shift of Legal Marijuana ...... 53
Theme 2. Economic Characteristics of Legal and Unregulated Marijuana ...... 64
Chapter 3: Methodology...... 70
Research Design and Rationale ...... 72
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Positionality Statement ...... 75
Participant Selection & Recruitment ...... 77
Trustworthiness ...... 86
Ethical Procedures ...... 89
Summary ...... 89
Chapter 4: Findings ...... 91
Description of the Sample ...... 91
Introduction to the Themes ...... 96
Cannabis Culture and "the Movement:" ...... 97
Impact of Outsiders Perceptions ...... 101
Unrealistic and Punitive Challenges from Proposition 64 ...... 105
Prop 64 Challenges Dislodged Cannabis Culture from “the Movement” ...... 112
Conclusions ...... 114
Chapter 5: Recommendations and Conclusions ...... 117
Summary of the Literature Review ...... 117
Purpose ...... 120
Methodology ...... 120
Findings...... 121
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Discussion of Conclusions ...... 122
Discussion on the Literature ...... 125
Limitations ...... 128
Recommendations for Future Research ...... 130
References ...... 137
Appendices ...... 147
Appendix 1. Interview and Consent Protocol Emailed to Interviewees ...... 147
Appendix 2. Interview Guide to Inform Line of Inquiry During Interviews ...... 149
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LIST OF TABLES
Table 1. Data Elements of the Research Study Regarding Interview Length and Limited Demographic Information………………………………………………………………... 92
Table 2. Code Groups, the Quantity of Each Code, and Density for Each Code from Qualitative Interviews of a Cohort of Eight Marijuana Dispensary Owners……………... 93
Table 3. Emergent Themes from Data Analysis and Associated Codes-Groups within Themes …………………………………………………………………………………… 95
Table 4. Frequency of Words and Phrases Associated with Theme One: Cannabis Culture and "the Movement"……………………………………………………….…….. 97
Table 5. Conclusions from Findings that Answer the Study’s Research Questions…...… 115
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LIST OF FIGURES
Figure 1. State Marijuana Policies from the Marijuana Policy Project……………….. 15
Figure 2. California Legal Marijuana Market Spending in Billions…………………... 50
Figure 3. Medical Cannabis Dispensaries by States and Regionally 2000 to 2008…... 38
Figure 4. Rational Choice Theory Influence on the Line of Inquiry………………….. 46
Figure 5. The Gallup Reports on Americans’ Views on Legalizing Marijuana from 1970 – 2020…………………………………………………………………………… 63
Figure 6. Most Important Factor in Marijuana Purchase Decision from Colorado Consumers……………………………………………………………………………. 68
Figure 7. Pattern Code Map from Data to Themes……………………………………. 86
Figure 8. Illustration of Triangulation used to Validate Results……………………… 88
Figure 9. Data Audit Trail to Preserve Conformability……………………………….. 89
Figure 10. Illustrative Flow Chart of Information in Chapter 5, Mapping the Research Results …………………………………………………………………………………. 116
Figure 11. James Mahoney’s Analytic Structure of Path-Dependent Explanation from his article Path-Dependent Explanations of Regime Change: Central America in Comparative Perspective……………………………………………………………………… 126
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LIST OF ACRONYMS
AUMA……………………. Control, Regulate, and Tax Adult Use of Marijuana Act
BCC………………………. The Bureau of Cannabis Control (California)
CAL……………………….. CalCannabis Cultivation Licensing
CDC………………………. Center for Disease Control and Prevention
CSA………………………. Controlled Substance Abuse Act
DEA………………………. Drug Enforcement Administration
DOJ……………………….. Department of Justice
EVALI……………………. E-cigarette or Vaping Product Use-Associated Lung Injury
FBN………………………. Federal Bureau of Narcotics
FDA………………………. Food and Drug Administration
HHS………………………. Health and Human Services
IOM………………………. Institute of Medicine
MAUCRSA………………. Medicinal and Adult-Use Cannabis Regulation and Safety Act
MCRSA………………….. Medical Cannabis Regulation and Safety Act
MMRSA…………………. Medical Marijuana Regulation and Safety Act
Prop 64……………………. Proposition 64
NSDUH…………………… National Survey on Drug Use and Health
RCT………………………. Rational Choice Theory
UCBA……………………. United Cannabis Business Association
THC………………………. Tetrahydrocannabinol
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DEFINITIONS
The following key terminologies are noted here to help provide a better understanding throughout the dissertation.
Adult-use– “A term used to describe cannabis that can be grown, purchased, and consumed by people 21 years old and up in a legal state. “Adult-use” typically refers to cannabis bought for recreational purposes instead of medical uses” (Leafly, 2021).
Cannabis - A genus of the flowering plant family Cannabaceae. Cannabis is a general term of all cannabis products. Marijuana is often used to specifically refer to “cannabis products that are made from the dried flowers, leaves, stems, and seeds of the cannabis plant”
(Legalline.ca, 2021). For the purposes of this study, there is no distinction between marijuana and cannabis. The two terms are used interchangeably.
Cannabidiol (CBD) – “A non-intoxicating compound produced by the cannabis plant that is popularly used for a variety of medical applications including pain, anxiety, and seizures.
Although most cannabis varieties contain high levels of the euphoric compound THC, the plant can be bred to produce increased amounts of other compounds like CBD” (Leafly, 2021).
E-cigarette or Vaping Use-Associated Lung Injury (EVALI) – “EVALI is the name given by the Centers for Disease Control and Prevention (CDC) to the dangerous, newly identified lung disease linked to vaping. The name EVALI is an acronym that stands for e- cigarette or vaping product use-associated lung injury” (Yale Medicine, 2021).
Hemp – “Hemp is a type of plant in the Cannabaceae family. The difference between hemp and cannabis is purely legal in the US—hemp is defined as having less than 0.3% THC”
(Leafly, 2021).
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Illicit / unregulated marijuana market – growing, buying, producing, selling, transporting, and extracting cannabis without appropriate licenses from state or local authorities.
This marijuana is not subject to lab tests or safety regulations. Unregulated retailers are those who conduct business the unregulated market.
Licensed retailers / licensed dispensaries – “Legal cannabis operators must comply with legislation and regulations as decided by the state and local county in which the operator runs their business. A license represents a commitment to laws and regulations, and licensed facilities must comply with seed-to-sale tracking, transparent lab testing, and taxation.” (Leafly,
2021)
Legalization – also referred to as “marijuana legalization,” is the change of laws to make it legal to produce, sell, and possess marijuana and how the industry is governed (Caulkins,
2016). “Removal of punitive sanctions for cannabis use” (Leyton, 2016).
Marijuana – the common and legal American terms for dried flowers and leaves of
Cannabis Sativa. Flowers contain concentrate psychoactive chemicals known as cannabinoids to alter mood (Caulkins, 2016).
Medical marijuana – marijuana recommended by a doctor to treat a variety of medical conditions such as pain, anxiety, nausea, and glaucoma (Merriam Webster, 2021).
Regulated market– retail dispensaries and businesses throughout the supply chain that are subject to state laws governing how to produce, test, sell, possess, and transport cannabis.
The regulated market is subject to state law.
Tetrahydrocannabinol (THC) – “Thought to be the primary psychoactive agent in cannabis” (Leyton, 2016).
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Schedule I – The classification of substances under the Controlled Substance Abuse Act of 1970 that met the following criteria at the time of scheduling: “have a high potential for abuse, no federally accepted medical use in treatment in the U.S., and there is a lack of accepted safety for use of the drug or substance under medical supervision” (Hartney, 2021).
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Chapter 1: Introduction
E-cigarette vaping cases associated with lung injury (EVALI) claimed the lives of 68 people and hospitalized 2,807 others from all 50 US states in 13 months ending in February 2020
(CDC, 2020). The Center for Disease Control and Prevention's (CDC) investigation into the primary causes of the deadly EVALI illness uncovered that a harmful additive in tetrahydrocannabinol (THC), the psychoactive ingredient in marijuana (King, Jones, Baldwin, &
Briss, 2020), was vaped by consumers – 78% of whom admittedly acquired the cartridges through informal (non-commercial) channels (CDC, 2020). States with the largest number of
EVALI outbreaks included California, Illinois, and Massachusetts, all of which have legalized adult-use marijuana. These facts raised questions about why marijuana users who developed
EVALI primarily obtained their THC cartridges from unregulated sources.
Since 2012, 18 states have legalized adult-use marijuana – Alaska, Arizona, Washington,
Oregon, California, Nevada, Montana, South Dakota, Colorado, New Mexico, Illinois, Michigan,
Virginia, New York, Massachusetts, Maine, New Jersey (Marijuana Policy Project, 2021)
Increasing legalization mirrors a trend of growing support from individual Americans - up to
66% in 2018 - who favor making marijuana usage legal. Support for marijuana legalization has risen 30 percentage points since 2005, according to a 2018 Gallup poll (Jones, 2019). In 2020, more than one in three Americans live in a state where marijuana is legal for adult- or medical- use (Demko, 2020).
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Figure 1
State Marijuana Policies from the Marijuana Policy Project as of May 2021
Figure 1. This map creates five categories of the extent to which marijuana is legalized in each state as of May 2021. Adapted from “State Policy,” by the Marijuana Policy Project. Copyright 2021 by Marijuana Policy Project
Supporters of state adult-use marijuana programs cite some of the following benefits of legalization:
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• Boost the economy through sales taxes,
• Protect consumer safety through regulation and
• Phase-out unregulated markets (ProCon.org, 2018).
The existence of unregulated marijuana markets means products are cultivated, sold, and consumed without state-required safety or product testing. The persistence of unregulated marijuana markets increases the risk of consuming products contaminated by pesticides, molds, and bacteria. Marijuana products laced with lead, heavy metals, laundry detergent, vitamin e acetate, glass can enter unregulated consumer markets. Whereas licensed retailers in regulated markets ensure safety by requiring product testing, ensuring consumer products are not contaminated, accurately labeling, and adult-only sales (Marijuana Policy Project, 2020;
Nicholas, 2019).
The CDC investigation into EVALI revealed that harmful additives in THC products from unregulated sources were the primary cause of EVALI. However, even in states where it is legal for adults to obtain marijuana, EVALI still exists, signaling that consumption and retail in unregulated markets persist. Nowhere is this more true than in California, deemed by industry experts to have the largest legal and illegal marijuana markets in the world (Arcview Market
Research, 2019). In California, medical marijuana became legal in 1996 and adult-use marijuana became legal in 2016 (Arcview Market Research, 2020; Caulkins, 2016).
The perpetuation of the unregulated marijuana market in California is a concatenation of a thriving legal medical marijuana market, California’s spate of regulations governing the adult- use industry, and the complicated cultural and political context throughout time. This study captures the perspectives of marijuana retailers in California to reveal how California's
17 regulatory marijuana framework impacts their experiences and rationale to participate in the legal or unregulated market.
Background and Context
Cannabis is the most widely used illicit drug worldwide in developing and developed countries (Degenhardt et al., 2013; Hall & Degenhardt, 2009). People have used cannabis for over 4,000 years for medical and religious purposes (Abel, 2013). While marijuana use and the extent to which it is legal to use varies widely worldwide, it largely remains prohibited (Bahji &
Stephenson, 2019). This paper refers to cannabis legality as the varying degrees to which marijuana can legally be possessed, distributed, cultivated, and consumed.
The United States federal policy on marijuana prohibition adheres to three United
Nations (UN) treaties regarding drug policy; the 1961 Single Convention on Narcotic Drugs, the
1971 Convention of Psychotropic Substances, and the 1988 Convention Against Illicit Traffic in
Narcotic Drugs and Psychotropic Substances (Habibi & Hoffman, 2018).
The United States ratified federal prohibition of marijuana when President Richard Nixon signed the Comprehensive Drug Abuse Prevention and Control Act. More precisely, The
Controlled Substance Abuse Act (CSA) was enacted in 1970. The CSA established five schedules to classify all regulated substances. The criteria for a Schedule I drug are that a substance is considered to have “high potential for abuse, currently no accepted medical use in treatment in the United States, and a lack of accepted safety for the use of the drug under medical supervision” (CSA, 1970).
The decision to prohibit marijuana and subsequently forge a war on drugs occurred during an increase in popularity in drugs. The 1960s and 1970s gave way to a rising hippie
18 counterculture movement that popularized drugs. Furthermore, US soldiers returned from the
Vietnam War using marijuana and heroin. In 1969 the Gallup first polled the American public about drug use, and in 1969, “48% of Americans told Gallup that drug use was a serious problem in their community” (Robinson, 2002). Jennifer Robinson, who documented the public perception of drug in the Gallup explains, “In a 1969 Gallup poll, only 4% of American adults said they had tried marijuana. Thirty-four percent said they didn't know the effects of marijuana, but 43% thought it was used by many or some high school kids.” Public perception of marijuana was unfavorable, but perhaps not based on science, but anti-drug messages responding to rising indecent subculture. Alternatively, in 1972, the bipartisan National Commission on Marijuana and Drug Abuse recommended that the federal government decriminalize marijuana. Despite this, President Nixon forged on, and the War on Drugs arguably continues to this day.
Cannabis prohibition has not proven effective in mitigating illicit marijuana markets or reduce potential harmful products. Instead, enforcing marijuana prohibition has led to heavy and expensive burdens on criminal justice systems, disproportionately penalized minorities and those from minority communities; and perpetuated criminal and unregulated markets (Habibi &
Hoffman, 2018). A wide range of medical cannabis adoption emerged throughout the world as science has uncovered that marijuana effectively relieves chronic pain, relieves nausea, reduces muscle spasms and spasticity, reduces intraocular eye pressure, and increases appetite (Demmer,
2001).
Throughout the 1970s – 1990s, a pro-marijuana sentiment slowly emerged. In 1976, a federal court dismissed criminal charges for the cultivation of marijuana against Washington, DC resident Robert Randall (United States v. Randall). In 1978 New Mexico passed the first medical
19 marijuana law, credited with the research Lynn Pierson Therapeutic Research Program
(Hummels, 2000). In 1985, the Federal Drug Administration (FDA) approved Marino, a synthetical form of THC, to treat nausea and vomiting associated with cancer chemotherapy
(Administration, 1986). In 1990 scientists discovered cannabinoid receptors in the brain, which furthered understanding of the pharmacological effects of marijuana. July 1991, a survey of oncologists in the Journal of Clinical Oncologists showed that 53% of oncologists surveyed said cannabis should be available by prescription (Doblin & Kleiman, 1991).
In December 2013, Uruguay became the first country to legalize marijuana production and sales for adults (Caulkins, 2016). Canada became the first G7 and G20 nation to legalize adult-use marijuana in October 2018 (Sapra, 2018). Despite the prohibition of marijuana federally in the US as of May 2021, 18 US states -Alaska, Arizona, California, Colorado,
Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, New Mexico, New
York, Oregon, South Dakota, Vermont, Virginia, Washington, and Washington DC - have legalized marijuana for adult-use and 36 states and Washington DC have comprehensive medical marijuana laws (Marijuana Policy Project, 2021).
California has been the primary source of the nation's domestically produced cannabis since the 1970s (2020). When California passed the Compassionate Use Act of 1996, it became the US's first state to legalize cannabis to treat various medical conditions. The Compassionate
Use Act contains ambiguous guidance on how California should handle the medical cannabis market. The Compassionate Use Act did not define how sales activities should occur; limit the number of dispensaries in California; nor determine conditions for which patients can receive medical marijuana (Ludlum & Ford, 2011). Experts estimate that under the Compassionate Use
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Act, a range of 1,500 – 2,800 dispensaries existed in California, able to serve consumers under the fluid regulatory framework (Arcview Market Research, 2017)– a considerably flourishing market.
In 2009, the Department of Justice (DOJ) issued the Ogden Memorandum which stated that the federal government would not prioritize prosecuting medical marijuana patients and caregivers in states that legalized the use of medical marijuana. In 2013 the DOJ issued the Cole
Memorandum (Cole Memo) stating that it will not enforce federal cannabis prohibition in states with legalized marijuana and will not prosecute patients or caregivers. The Cole Memo was an indication that the DOJ will more efficiently use investigative and prosecutorial resources and, therefore, would not focus on prosecuting people who complied with state medical marijuana law (Kleiner, 2014). Easing federal law enforcement and a vague, liberal medical marijuana regulatory environment allowed the medical marijuana market in California to flourish.
In 2016 California voters passed ballot measure Proposition 64 (Prop 64) to legalize adult-use marijuana. Prop 64 redefined the state’s "legal" market from medical-use to medical and adult-use. By 2017, California's medical cannabis market reached $3.1 billion in valuation
(Arcview Market Research, 2019). In January 2018, California implemented Prop 64 into law, the adult-use marijuana regulatory framework referred to as the Control, Regulate, and Tax
Adult Use of Marijuana Act (AUMA). California's annual sales in the newly defined legal market dropped to $2.5 billion (Arcview Market Research, 2019).
Figure 2
California Legal Marijuana Market Spending in Billions
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Figure 2. This graph represents expenditure in California’s legal marijuana market from 2017 – 2020. The trough in the graph is illustrative of the decrease in legal market expenditure since the implementation of AUMA. Adapted from “California: Lessons from the World’s Largest Cannabis Market,” by Arcview Market Research.
This decline of $600 million annual revenue was not a testament to overall less consumer participation in the marijuana industry but a testament to the decline in the legal market's involvement. Arcview Market Research (The Arcview Group) and BDS Analytics estimate
California's 2019 annual illicit marijuana market sales at $8.7 billion.
The history and sequence of California and federal marijuana policy has shaped an esoteric market dynamic. The Compassionate Use Act of 1996 implemented loose regulation on
California’s marijuana market. The Cole and Ogden Memos signaled that federal law enforcement would not be utilized to enforce federal marijuana prohibition in states where marijuana is legal. From the confluence of these dynamics emerged a gray market. The gray market is comprised of industry participants that are functioning without the proper licensure.
Examples of improper licensure are those with medical marijuana business licenses and selling to the adult-use market or those who are unlicensed and conduct marijuana retail. In 2016, Prop
64 was passed, and in 2018 the AUMA applied a considerably burdensome, expensive, and
22 complex spate of adult-use marijuana regulations, which had discouraging effects on many marijuana retailers that prevented them from participating in the regulated market.
Law and Policy Review
During the COVID-19 global pandemic, many states in the United States received shelter-in-place orders. In California, accommodations were made for businesses to stay open that were essential across sectors designated critical to protect all Californians' health and well- being. Among these essential businesses were the entire cannabis supply chains from licensed locations (Marijuana Policy Project, 2020). The state declaration of cannabis businesses being essential when the federal government prohibits marijuana on a federal level illustrates how the industry is fraught with hypocrisy and confusion. How did it get here?
Legalizing marijuana is the degree to which each state allows and regulates production, consumption, and marijuana purchase in an open market society. States can pass legislation to allow for medical marijuana use under specific rules for legalizing the possession and commercial and recreational adult use. More than 35 states, the District of Columbia, Guam,
Puerto Rico, and the U.S. Virgin Islands have enacted marijuana legislation. Eighteen states have approved adult-use programs (Marijuana Policy Project, 2021). Throughout this research,
“marijuana legalization” refers to “adult-use” programs.
Marijuana legalization on voting ballots has grown in popularity within the United States, informed by the growing acceptance in public perception and adoption. In 2020, Gallup published results from an annual survey and found that 68% of American respondents favor making marijuana use legal, up from 66% from the prior year (Gallup, 2020). In 2019,
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Quinnipiac University released a poll showing 93.5% of those polled support medical marijuana recommended by a doctor (Quinnipiac University, 2019).
A new form of the previously all-underground marijuana market emerged in states that have legalized cannabis. These states have seen a shifting flow of money from unregulated markets to regulated, taxable channels (Arcview Market Research, 2017). The US has entered an era where the debate about marijuana policy is shifting from whether to legalize marijuana to how to regulate a legal market best. Simultaneously, as marijuana consumption and acceptance has grown in popularity and dispensaries were deemed essential in a global pandemic, the substance remains illegal in the eyes of federal law.
The 1970 Comprehensive Drug Abuse Prevention and Control Act, Controlled Substance
Act (CSA) prohibits marijuana production, consumption, and purchase. Federal prohibition forced cannabis businesses to underground markets, which is why cannabis is considered one of the most used illicit substances both globally and in the United States (Lawn, Aldridge, Xia, &
Winstock, 2019; Perdue, Hawdon, & Thames, 2018; Volkow, Jones, Einstein, & Wargo, 2019).
The bifurcated nature of marijuana legislation - federal prohibition and state legalization - has led to a host of practical and legal problems. States enacting their marijuana legislation signals a departure in the philosophy that underlies federal marijuana policy (Gouldin, 1999) based on the drug's adverse health effects (Nahas & Latour, 1992).
From Federal Prohibition to State Legalization
Until about a century ago, medical professionals widely accepted marijuana’s medical uses. In 1937, the US federal government enacted the Marihuana Tax Act, the first national regulation that addressed marijuana by assigning a $24 annual tax and required a stamp to ensure
24 proper payments were made. While the Marihuana Tax Act of 1937 did not outright prohibit the production, sales, and consumption of cannabis, the extremely limited stamps required to conduct business effectively made possession and cultivation legally near-impossible. The burdensome stamp requirements did not eliminate the legal market outright but, in principle, stopped using the plant recreationally. Therefore, recreational use was pushed underground. The
US government acknowledged drug use as a public threat. In 1971 President Nixon coined
America’s war on drugs campaign when he declared drug abuse as “public enemy number one.”
In 1970 Congress enacted and President Nixon signed, the Controlled Substances Act
(CSA) as part of a larger bill, the Comprehensive Drug Abuse Prevention. The Comprehensive
Drug Abuse Prevention and Control Act repealed and replaced laws pertaining to substance control in order to impose a unified approach to federal substance control (Lampe, 2019). The
CSA identifies drugs that have practical and legitimate medical purposes that are necessary “to maintain the health and general welfare of the American people” and outlines the enforcement of
“illegal importation, manufacture, distribution, and possession and improper use of controlled substances [that] have a substantial and detrimental effect on the health and general welfare of the American people” (CSA, 1970).
Public discourse, medical research, and opinions on marijuana have evolved since 1970, and in 1996 California voted to pass Proposition 215, the Compassionate Use Act, becoming the first state to legalize medical marijuana. The Compassionate Use Act was considered a broad and vague piece of legislation. Physicians could recommend marijuana to patients, but the Act did not clearly define the conditions for which patients can receive medical marijuana or provide guidance to prevent expanded use of marijuana (Ludlum & Ford, 2011). Added to the California
25 code within the was a subsection that served as a catchall allowing doctors to recommend marijuana for “illness for which marijuana provides relief” (Compassionate Use Act, 2009).
The legislation intended to provide a legal channel for the terminally ill to receive medical marijuana. The Act granted patients and their designated caregivers’ an affirmative defense to criminal prosecution if California law authorities tried to charge medical marijuana patients with possession or cultivation of marijuana. A small but important nuance to note that the Compassionate Use Act did not technically make medical marijuana legal, simply provided patients with an affirmative defense. The Act, however, address how sales activities should occur. Nor did it regulate dispensaries and limit the number of dispensaries around California.
Given that federal prohibition from the CSA was still intact, the Act created an immediate conflict with federal authorities, state law enforcement, physicians, and patients. One may ask, “how can a federally illegal substance become a voting measure in states?” Voters in
California can approve any ballot measures as there are no laws that restrict what ballot measures. In 1972, California’s first marijuana legalization measure appeared on a voting ballot.
Proposition 19, known as the California Marijuana Initiative was rejected by voters, but a policy- window had opened. According to Ballotpedia in 2020, between 1972 and 2018, 8 states voted histed 62 marijuana-related voting measures that pertained to legalization, bans, medical marijuana, taxing, and decriminalization (Ballotpedia, 2020).
In 1999 the Institute of Medicine (IOM) published a comprehensive review of marijuana’s medical value, which is still considered a standard reference. The IOM confirmed that marijuana had therapeutic value, “particularly for symptoms such as pain relief, control of nausea and vomiting, and appetite stimulation” (Joy et al., 1999). Advances in marijuana science
26 show marijuana has low addictiveness. The American Medical Association revised its stance to acknowledge this scientific finding (O'Reilly, 2009).
In 2010 a ballot initiative in California, Proposition 19, proposed to legalize adult-use marijuana. The ballot failed as pro-legalization received 46.5% vote compared to 53.5%
(Ballotpedia, 2010). Among the bill's supporters were Law Enforcement against Prohibition, marijuana advocacy groups such as NORML, Green Party, Peace and Freedom Party, and ACLU of Northern California. From a law enforcement and state savings perspective, supporters of adult-use marijuana policy in California advocated that Proposition 19 could save the state money spent on enforcing the laws against marijuana cultivation and consumption as prosecuting marijuana offenses have costed the state millions of dollars in public servants and prisons
(Ballotpedia, 2010). A common motivation of marijuana legalization is to create a policy to reduce participation in harmful, potentially unsafe, and illicit marijuana markets (Caulkins,
Kilmer, Maccoun, Pacula, & Reuter, 2012; Pardo, 2014; Room, 2014). They believed
Proposition 19 could end or reduce the violence in illicit markets from marijuana prohibition.
They argued that imposing a marijuana sales tax can drive significant state revenue which will help address current state budget deficits (Falcon, 2011).
Opponents of Proposition 19 cited several arguments against the passage. They believed that the legalization of marijuana would have costs to the public that would exceed the revenue brought in by the legal market. Critics argued that the proposition would jeopardize the Drug-
Free Workplace Act of 1988, making roads and workplaces more dangerous by not requiring employees to be drug-free. Opponents said that the law would not effectively eliminate the illicit markets, so the state would not realize tax revenue. Moreover, opponents did not want marijuana
27 cultivated near essential businesses and schools (Falcon, 2011). Opponents included: The No
Campaign; Public Safety First; Nip it in the Bud; Community Alliance for a Drug-Free Youth;
California Narcotics Officers Association; California Chamber of Commerce and League of
California Cities.
While the public voted down Proposition 19, support and discourse surrounding the marijuana had lasting effects. The failed proposition opened a policy window that encouraged
Washington and Colorado to put adult-use marijuana legalization on their ballots. In 2012, a winning vote on Amendment 64 in Colorado and Initiative 502 in Washington made Colorado and Washington the first states in the US to legalize adult-use marijuana (Kieran, 2015). With adult-use marijuana then legalized in two states, the US had entered a new era of liberalized drug policy. In 2014, Alaska, Oregon, and Washington DC passed legalization measures, and in 2016
California, Nevada, Maine, and Massachusetts voting to approve ballot measures that legalized adult-use cannabis programs. In 2019, Illinois legalized marijuana through the state legislature
(Phillips, 2019). As of May 2021, New York, Virginia, and New Mexico passed adult-use legalization referendums.
State adult-use marijuana regulatory frameworks control the personal use and cultivation of marijuana and permit businesses to participate in the newly established legal marijuana industry. State legalization allows businesses to cultivate, manufacture, and sell marijuana under state regulations. By passing adult-use marijuana legalization, states hoped to undercut illicit markets and associated harms from corruption and violence, assure product quality, and raise tax revenue (Caulkins et al., 2012). However, evidence shows that in states where adult-use
28 marijuana is legal, the presence of a marijuana illicit market persists, and the reasons for this may be the regulations themselves.
Enforcement
The Supremacy Clause of the United States Constitution, U.S. Const. art. IV, § 2, establishes that federal law preempts state law when the two conflict. The Tenth Amendment provides an exception for this rule in the case of policing powers. The Tenth Amendment of the
Constitution delegates policing powers to the states, and no law requires state and local police to enforce federal law. Therefore, state law enforcement in California, where adult-use marijuana is legal, is not responsible for enforcing federal prohibition. At the same time, state law does not prevent federal prosecution of citizens abiding by state medical and adult-use marijuana laws.
Gonzales v. Raich, 2005, was a Supreme Court case that stemmed from clashing state and federal marijuana laws in California. The case originated as Raich v. Ashcroft in 2003.
Angel McClary Raich and Diane Monson were California citizens whose doctors suggested using medical marijuana. They had respectively been using medical marijuana for 5 and 7 years before the time of the incident. Both doctors, in this case, asserted that any legal alternative medications to marijuana would be ineffective or have overwhelmingly intolerable adverse reactions. Raich’s doctor advised that abstaining from the use of medical marijuana could be fatal (Raich v. Ashcroft, 2003).
Diane Munson grew her own marijuana. Raich relied on caregivers providing her wit free marijuana (Raich v. Ashcroft, 2003). Raich's caregivers provided marijuana products from which all the ingredients originated in California. (Raich v. Ashcroft, 2003).
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On August 15, 2002, County Sheriff's Department deputies, the County District Attorney, and Drug Enforcement Agency (DEA) agents went to Diane Monson’s home to scope her marijuana production. Upon evaluating the scene, the federal and state authorities arrived at two different conclusions. Local sheriff's Deputies and California’s District Attorney determined that
Monson's marijuana cultivation and use were legal under California's Compassionate Use Act.
However, the federal DEA agents concluded that Monson's doctor-recommended marijuana violated federal law under the CSA (Raich v. Ashcroft, 2003) and therefore the federal authorities seized and destroyed all of Monson's plants (Raich v. Ashcroft, 2003).
The lawyers of Raich and Munson argued that Congress had exceeded its power to regulate marijuana as granted to them by the Commerce Clause. According to court documents,
Raich and Monson argued the federal enforcement of the CSA was a violation and overstep of the follow: (1) the Commerce Clause, (2) Fifth and Ninth Amendment protection of fundamental rights, (3) Tenth Amendment restrictions reserving police power to the states, and (4) the doctrine of medical necessity (Ashley, 2008). District courts ruled against Raich and Munson.
The Ninth Circuit Court of Appeals reversed the decision. The Ninth Circuit determined that the
CSA was inappropriate to apply to intrastate medical marijuana use and the California-based medical marijuana did not affect interstate commerce and therefore cannot be regulated by
Congress. (Gonzales v. Raich, 2005; Oyez, 2020).
The Supreme Court heard the case in 2005. In a 6-3 opinion delivered by Justice John
Paul Steven held that Congress does have the authority to regulate state marijuana under the
Commerce clause because local cultivation and consumption are considered among a “class of activities” that will substantially affect interstate commerce. Therefore, the Court held that the
30 federal DEA was "squarely within" their right to seize and destroy the plants because of the jurisdiction of Congress under the Commerce Clause (Gonzalez v. Raich, 2005). The Court admitted the application of the jurisdiction was troubling but justified this conclusion by reasoning that marijuana locally cultivated marijuana has “substantial effect" on supply and demand in the national marijuana market (Gonzalez v. Raich, 2005). Thus, federal enforcement of the CSA was still applied to California residents even after the Compassionate Use Act became law by yielding to the Commerce Clause.
Since 2016, federal prosecutions of individual citizens possessing marijuana are infrequent and mainly occur at the US-Mexico border (US Sentencing Commission, 2016).
Given scarce law enforcement resources among the federal government, low-level marijuana offenses are a low priority. When Colorado passed Amendment 64 to legalize adult-use marijuana, President Obama said in an interview with Barbara Walters, “[i]t does not make sense from a prioritization point of view, for us to focus on a recreational drug used in a state that already said that under state law, that is legal.” (Ingram, 2019). However, it is the case that federal law supersedes state law, so constitutionally and technically, prohibition preempts state law.
In 2009 and 2013, two federal memos under President Obama’s administration guided federal drug policy enforcement. These memos outlined how law enforcement and federal prosecutors should handle contrary federal and state marijuana regulations in practice. The 2009,
Ogden Memo from David W. Ogden, Deputy Attorney General of the United States, provided federal prosecutors guidance on how to enforce the Controlled Substances Act in states that enacted laws authorizing the medical use of marijuana (Ogden, 2009). The memorandum
31 directed prosecutors to shift resources from possession for medical purposes towards higher- priority prosecutions like sales to minors, ties to criminal enterprises, violence (Ogden, 2009).
The memorandum itself did not have a legal bearing, but it signal to the public and federal law enforcement about the level and interest in which the Obama administration prosecutes marijuana offenses (Kleiner, 2014).
The 2013 Cole Memo from Deputy US Attorney General James Cole advised US State attorneys that the Department of Justice (DOJ) would not seek prosecution of marijuana offense under the CSA in states that have legalized medical or adult-use marijuana. The memo underscored certain enforcement priorities related to marijuana such as preventing distribution to minors and preventing revenue from marijuana sales to criminal enterprises (Cole, 2013).
While these memos advise on mitigation of federal interference in the marijuana industry, federal memos are not law. In 2018, former US attorney Jeff Sessions rescinded the Cole Memo which spurred bipartisan criticism. Rescinding the Cole memo signaled to the public that the
Trump administration was willing to use federal resources to interfere with marijuana issues in states that have already passed marijuana legalization. William Barr and Merrick Garland subsequently took a stand that low-level cannabis crimes would not be a priority of the DOJ as it is not an effective use of federal law enforcement resources. In practice, the line between illegal and legal activity is blurry, and enforcement philosophy can change by each presidential administration.
Contrasting State Regulatory Models
As described in the previous subsection, federal prohibition has not stopped the rollout of state legalization of marijuana. In total, as of May 2021, eighteen states have already passed laws
32 to legalize and regulate marijuana: Alaska, Arizona, California, Colorado, Illinois, Maine,
Massachusetts, Montana, Michigan, Nevada, New Jersey, New Mexico, New York, Oregon,
South Dakota, Vermont, Virginia, and Washington (Marijuana Policy Project, 2020). All but
Illinois and Vermont were enacted by ballot initiative; both were an act of the state legislature.
States have adopted various regulatory frameworks over time that impact participants in various ways, ultimately shaping each state’s cannabis culture. Some states are more successful than others in mitigating participation in unregulated markets and controlling costs.
Investors and market researchers in the cannabis space have categorized legal US marijuana markets into three categories – mature, emerging, and new (Arcview Market
Research, 2020). Mature markets exist in Alaska, Colorado, Oregon, and Washington, all having launched their adult-use programs before January 2017. Colorado and Washington State have the most mature adult-use marijuana markets in the US as they were the first states to pass legalization (2012) and establish commercial sales (2014) for adults over 21. Emerging adult markets operate in California, Illinois, Massachusetts, Michigan, and Nevada, with commercial sales between January 2017 and January 2020. The mature market categories have grown at a much slower rate in recent years than emerging ones. The emerging-market category saw investments of $5.1 billion in 2019, and more than half of that is from California alone; Despite this fact, California faces challenges with the costs for businesses to participate in its legal market (Arcview Market Research, 2020). The new adult-use market category consists of thirteen forecasted states and territories to open before 2025. This section will contrast state regulatory models on the legalized marijuana industry in California and Colorado.
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Colorado - Colorado has a marijuana regulatory model likened to how liquor is regulated.
To date, Colorado’s marijuana regulatory framework is a model of success. The success of the
rollout of Colorado’s adult-use marijuana regulations is attributed to a reflective leadership behavior that enabled the state to build efficient policies and procedures (Hudak, 2015). In 2013,
after the passing of Amendment 64 in Colorado the previous year, the Department of Revenue
created and made plans to implement the Colorado Retail Marijuana Code. During 2013, the
Department of Revenue focused on developing and implementing a structure to prevent drive
people out of illegal markets (Hoban & Patterson, 2016)
In Colorado, only marijuana retail shops can sell marijuana. The regulating agencies focus on procedural fairness, revenue collection, and mitigating minors' use and sales (Caulkins,
2016). Colorado imposed a 2.9% state sales tax on retail and medical marijuana sales – the same state sales tax as cigarettes (Colorado General Assembly, 2020). In addition to outlet regulations, marijuana laws set limitations for advertising marijuana products, allows adults to grow maximum six plants for individuals to use in a private and secure area, and adults can possess maximum one ounce of marijuana when traveling within the state. Consuming marijuana in public remains illegal in Colorado. The supply chain is vertically integrated, and technology has enabled safety and efficient tracking mechanisms.
Colorado Governor John Hickenlooper was credited with leading a coordinated effort to successfully implement the Department of Revenue’s Retail Marijuana Code despite his initial opposition to legalization (Hoban & Patterson, 2016). He was noted for putting aside his personal political views to prevent issues like corner-cutting and bureaucratic resistance (Hudak,
2016), in contrast to the egocentric political approach that has haunted other states. Hickenlooper
34 constructed a taskforce to implement Colorado’s first adult-use marijuana structure that included strong leadership and increased administration and officials' coordination. The task force comprised various people, including those representing dispensaries, consumers, interests of employees and employers, juvenile justice, enforcement. The 165-page report in which the task force made 58 recommendations on how to govern the marijuana industry has since been removed from the state government website. However, Governor Hickenlooper published an article in 2014 where he listed the nine guiding principles the task force upheld:
1. Promote the health, safety, and well-being of Colorado’s youth.
2. Be responsive to consumer needs and issues.
3. Propose efficient and effective regulation that is clear and reasonable, and not unduly
burdensome.
4. Create sufficient, predictable funding mechanisms to support the regulatory and
enforcement scheme.
5. Create a balanced regulatory scheme that is complementary, not duplicative, and clearly
defined between states and local licensing authorities.
6. Establish tools that are clear and practical so that interactions are predictable and
understandable.
7. Ensure that our streets, schools, and communities remain safe.
8. Develop clear transparent rules and guidance for certain relationships, such as between
employers and employees, landlords and tenants, and students and educational
institutions.
9. Take action that is faithful to the text of amendment 64.
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Since 2014, Hickenlooper signed several bills to uphold the safety and integrity of the marijuana industry on behalf of his constituents. Bills included efforts to achieve the following: allowed state-level banking systems to services marijuana businesses; banned the sales of marijuana edible products that could appeal to children; funded research for medical cannabis; supported a bill designed to stimulate marijuana research; banned courts from forbidding criminal defendants from using medical marijuana as they wait for a trial allowed; and patients on probation or on parole to use medical marijuana. In 2015, Hickenlooper issued an executive order mandating an official investigation into pesticides used in the cultivation of marijuana. He supported marijuana tax revenue’s redistribution to law enforcement to combat illicit markets, educational material on marijuana, and fund technology grants for Colorado schools and teachers. The former governor supported many marijuana reforms where significant concerns were safety and stability for Colorado’s people and market systems (Hoban & Patterson, 2016;
Hudak, 2015).
Investors and industry experts posit that Colorado will remain a leader in the cannabis industry well into the future (Arcview Market Research, 2017; Hudak, 2016), and the success is due primarily to the roll-out of the legal marijuana system. Upon rollout, Colorado has achieved a “market-based, heavily-regulated, moderately-taxed system that allows residents and tourists,
21 and older, to purchase marijuana in retail outlets” (Hudak, 2015).
California - California has been the primary source of the nation’s domestically produced cannabis since the 1970s (Arcview Market Research, 2020). California’s legal cannabis market is currently on track to becoming the world’s largest market (Arcview Market Research, 2019). In
2019, leading industry researchers reported the size of the legal adult-use marijuana market to
36 net $2.9 billion and estimated the spending in California’s illicit market at $8.7 billion (Arcview
Market Research, 2019).
California is the most populous state in the US with the longest history of medical marijuana legalization. Passing Proposition 215, the Compassionate Use Act of 1996 added
Section 11362.5 to the California Health and Safety Code. The Act passed in a favorable 56% of voters supporting the initiative. The drafters of the Act were long-time supporters of legalizing marijuana. It was short and intentionally broad. The vagueness of the Act allowed for a minimally restricted industry to flourish. The Act gave qualifying patients and caregivers an affirmative defense to crimes of possession and cultivation doctors could recommend medical marijuana to patients (Compassionate Use Act, 1996).
Just as important as what the Act did for marijuana consumers and caregivers is what the
Act failed to address. It did not provide a defense for transporting marijuana, it did not define precisely how sales transactions needed to occur, and no specific state licenses were required to conduct business; there was no mention of businesses whatsoever. It failed to qualify where a patient could get marijuana, it did not define the term “caregiver,” and it did not set limits on how much a person could possess (Vitiello, 2012). Many of these ambiguities ended up being decided upon in the California court systems (Vitiello, 2012).
Over the following decade, many brick and mortar storefront dispensaries began to appear in California. Because there was no requirement for businesses to get a state license to become medical marijuana providers, retail shops often established a non-profit mutual benefit corporation structured as collectives or cooperatives. Collectives and cooperatives served as
“caregivers” who “possesses or cultivates marijuana for the personal medical purposes of the
37 patient upon the written or oral recommendation or approval of a physician” (Compassionate
Use Act, 1996). Under the Compassionate Use Act, California’s medical-use market established a network of cultivators, retailers, and consumers.
Eight years later, passing Senate Bill 420 (the Medical Marijuana Program Act) in 2004, the California state government began to clarify the Compassionate Use Act's scope and application. The Act allowed counties and cities to establish higher guidelines if they chose; established a voluntary ID card program; recognized the rights of patients and caregivers to associate collectively; allowed the Attorney General to set forth possession and cultivation limits; and provided guidance to law enforcement officers (NORML, 2021). This enabled the cannabis collectives to scale up, and an estimated 1,500 – 2,800 dispensaries existed before
2016. As a result, when California passed a ballot measure in 2016 to legalize marijuana for adult use, it was already host to a highly developed cannabis market.
In 2015 and 2016, the passing of a series of bills established the Medical Marijuana
Regulation and Safety Act (MMRSA). The name of this act was later changed to the Medical
Cannabis Regulation and Safety Act (MCRSA) to acknowledge the industry’s preference to the term “cannabis” over “marijuana” as an effort to stop using words that derive from racial social context. The Act established three licensing authorities for the state: The Bureau of Cannabis
Control (BCC), CalCannabis Cultivation Licensing (CAL), and the Manufactured Cannabis
Safety Branch. These three licensing authorities together govern licensing, regulation, and regulatory enforcement of commercial marijuana. In 2016, voters approved Proposition 64 and established the Adult Use Marijuana Act (AUMA) formalizing an adult-use and non-medical market. In 2017, California passed a state budget bill – referred to as a “budget trailer” bill in
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California – that merged the MCRSA with AUMA under a single system that governs both medical and adult-use industries. Therefore, the current guiding regulation in California as of
May 2021, is the Medical and Adult-Use Cannabis Regulation and Safety Act (MAUCRSA).
Some cities chose to heighten marijuana business regulations at the local level – most significantly San Francisco, Oakland, and Berkeley. Oakland became the first city to establish concrete regulations to govern its dispensaries. Due to the city’s adoption early regulations, San
Francisco’s number of dispensaries remained constant after California Senate Bill 420 passed. In contrast, Los Angeles, which did not have additional local regulations on the cannabis industry after California Senate Bill 420 passed, saw the number of dispensaries outside of the city begin to grow rather than within the city limits.
Figure 3
Medical Cannabis Dispensaries by States and Regionally 2000 to 2008
Figure 3. The number of brick-and-mortar dispensaries in in San Francisco Bay Area and Los Angeles as compared with the entire state of California. Reprinted with permission from “A Tale of Three Cities: Medical Marijuana, Activism, and Local Regulation in California,” by Thomas Heddleston, 2013, Humboldt Journal of Social Relations, Vol.35, p.123-143. Copyright 2013 by “Thomas Heddleston”.
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Most cities chose not to apply local government regulations, so it remained legal to operate a marijuana business with no license in most places. There were no meaningful regulations that state law enforcement could enforce with such a thriving unlicensed market operating under vague state law. Advocates for adult-use marijuana legalization continued to mobilize.
In 2017, California consumers spent $3 billion in the legal cannabis market before
California's adult-use regulatory implementation on January 1, 2018. However, that number dove to $2.5 billion in the subsequent year (Arcview Market Research, 2019). The number of marijuana consumers did not fall, but consumers shifted back into familiar unregulated channels as the price of products from legal entities increased. Legal entities that abided by costly tax and compliance regulations found it challenging to compete with unlicensed entities who were not subject to tax and compliance costs. While it is impossible to know for sure what the average cost of marijuana is among unregulated retailers, purchasers in California have claimed that the price can be as high as $400 plus tax per ounce in the regulated market and $250 in the unregulated market. In some cities, retail taxes were as high as 26% (Arcview Market Research,
2019). Unlike Colorado, which adopted vertical integration within their supply chain, California retailers and suppliers incur taxes and compliance costs at each stage in the supply chain, which can result in as much as a 77% tax and load on the price of legal products (Arcview Market
Research, 2019).
Opponents of California’s adult-use legalization included a multitude of local governments, organizations, safety officials, senators, and other respected members of communities
(Ballotpedia, 2020a). Opponents noted the following arguments Proposition 64:
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• “The proposition would result in more highway fatalities and more impaired driving.
• The proposition would allow marijuana to grow near schools and parks and would erode
local control.
• The proposition would increase the black market and drug cartel activity.
• The proposition would allow marijuana smoking advertisements to be aired.
• The proposition would hurt underprivileged neighborhoods.
• The proposition would put small marijuana farmers in northern California out of
business.” (Kovner, 2016).
Many key influencers in the community believed that marijuana was a dangerous drug that would harm the public and exacerbate criminal activity (Official Voter Information Guide,
2016). Unlike former Colorado Governor John Hickenlooper, credited with putting his personal political views second to the success of Colorado’s implementation, California politicians and those with political influence pressured the Bureau of Cannabis Control (BCC) to maintain a strict and tightly controlled legal adult-use system. This approach differed from Colorado’s rollout, which adopted a much less restrictive regulatory environment. The BCC composed a restrictive regulatory framework to appease political stakeholders who believed a strict regulatory environment would mitigate the unregulated market activity.
The persistence of an illicit market in California has been attributed to high state taxes, shifting regulations that formed counterproductive economic models, and the established unregulated market's historical success. In 2020, California announced plans to improve and simplify the commercial marijuana market's regulatory oversight to combat the challenges.
However, industry experts suggest that proposed changes in state regulation meant to address
41 current problems may have been easily anticipated by examining other states' successes and failures. As California’s legal marijuana framework evolves, the constant evolution of regulation presents significant challenges to those participating in the industry to keep pace with all the changes at hand. The regulatory uncertainly and rapid-fire compliance changes are detrimental to those trying to keep pace with the industry.
In 2018, California passed new testing and labeling requirements. The cost of testing, labeling, and discarding failed tested products – all programs meant to maintain the supply chain's safety – contributed to increasing resource costs to retailers that were passed along to the consumer. Regulatory fees and expensive compliance processes drive legal marijuana's cost so high that it is difficult for legal, licensed entities to compete with unregulated businesses not subjected to these costly regulations.
Lessons learned from Colorado’s policy, and politics could have mitigated California’s ever-changing regulatory environment today. Studies have shown that the more restrictive and costly the regulatory structure becomes, the more people and businesses will stay out of the regulated system altogether. Colorado established a reasonable regulatory framework.
Comparatively, California ended up with a system where those who participate in the regulated market are subjected to burdensome regulations while others in the unregulated market are not.
Thus, California’s regulatory environment propagates the adverse outcomes that the regulations were meant to address.
The Problem Statement
There is growing support from US states and individuals who support making marijuana legal. 2020 polls show that 68% of Americans support making marijuana use legal and around
42
90% support medical marijuana (PEW Research Center, 2020). As on May 2021, 18 US states have legalized adult-use marijuana, and 35 have legalized medical marijuana (Demko, 2020).
Uruguay became the first country to legalize cannabis in 2013 and in October of 2020, Canada became the first industrialized country to legalize nationwide. The acceptance and support of marijuana use from states, countries, and individuals are on an increasing trajectory.
Marijuana outside of the legal market is untested and could potentially possess harmful chemicals, molds, or pesticides. (Nicholas et al., 2019). Some of the primary purposes of legalization of marijuana is to (1) replace unregulated markets with untested products with regulated products, (2) reduce adoption rates among minors, and (3) create pathways for unregulated market participants to enter the legal market (ProCon.org, 2018). Nevertheless, in
California, the continued success of the unregulated market may be perpetuated by the stringent adult-use regulatory framework.
With the implementation of the adult-use program, California’s regulatory framework of the legal market became overly cumbersome and too expensive for retailers to comply. Some retailers remained in the unregulated or gray markets that were once legal when only governed by medical marijuana regulations. Less participation in legal markets means more products that are cultivated, sold, and consumed with little or no testing or checks on products' safety, threatening consumers' health. Given the federal and state’s commitment to only enforcing large- scale cannabis violations, retailers have rationalized that remaining in the unregulated market is more advantageous than conducting business through legal channels.
California’s unregulated cannabis ecosystem stems from a history of flourishing loosely regulated medical marijuana market, overly burdensome and costly adult-use regulations and
43 compliance structure, and devolving prioritization from federal law enforcement to pursue unregulated cannabis violations. While California’s cannabis culture and history are unique, it may share historical or cultural similarities as other states or territories worldwide that have a loosely governed medical marijuana market, then experience a regulatory overhaul to allow for an adult-use industry. However, few studies address this phenomenon from the perspective of the retailers. There is a gap in the literature that examines how marijuana retailers in California who have experienced evolving marijuana regulatory ecosystems rationalize their participation in the regulated or unregulated market.
The Purpose of the Study
This phenomenological study aims to understand the rationalization of whether to participate in regulated marijuana markets from marijuana retailers in California. Participation in legal markets is defined as conducting business with the appropriate state licensure and following state testing and compliance guidelines. Using the perspective of interpretivism, the focus was on retailers and their lived experiences through California’s evolving regulatory environment. Interviewing retailers provided an understanding of the deterrents to participate in above-the-board markets so policymakers can develop more effective regulations. The retailers provide a perspective that identifies perceived barriers to participate in legal market channels.
The method of inquiry included semi-structured interviews with California retailers. Interview data is interpreted and coded into themes to create meaning from the discussed behavior.
Research Questions
California’s state laws governing adult-use marijuana were intended to create a safer marijuana retailer market, yet they inadvertently discourage many retailers from participating in
44 the legal market. Guided by Rational Choice Theory (RCT), this research aims to understand how marijuana retailers in California rationalize conducting business in the regulated or unregulated market. The following research questions were posited to understand the phenomena best:
1. What are the perceived barriers marijuana retailers face to enter and participate in the
legal cannabis markets and deter them from establishing themselves as legal entities
in the California cannabis industry?
2. How does California's regulatory marijuana environment impact the retailer's decision
to participate in licensed markets?
Theoretical Framework
Theories help explain, predict, and understand phenomena. Researchers use theory to challenge or push the bound of existing knowledge – theories bind assumptions (Abend, 2008).
A theoretical framework provides a model that creates the boundaries of inquiry most relevant to a research topic. The theoretical framework provides a structure to integrate the topic, research questions, literature review, design approach, and analysis throughout the dissertation (Grant &
Osanloo, 2014).
This section will show how the selected theoretical framework informs the study's research question, line of inquiry, and analysis. A researcher selects a theoretical framework by synthesizing the problem of practice to understand what the research questions aim to uncover.
The research in this study aims to uncover rationale of behaviors and factors within decision making for retailers in California. Rational Choice Theory (RCT) prevailed as the most relevant theoretical framework.
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Rational Choice Theory is a framework for understanding and socially modeling human and economic behavior. Rationality is a widely accepted approach to understand behavior in microeconomic models and analysis; it is used in political science, sociology, and philosophy. It is a conventional human behavior model and has a long history of providing researchers, economists, policymakers, and law enforcement a framework for understanding how and why individuals express preferences. On a macro-level the premise shows that aggregate social behavior comes from a confluence of individual human behaviors, making individual decisions on an individual's interpretation of specific determinants.
Rational Choice Theory is based on the following assumptions:
• The human being is a rational actor.
• The actor calculates its decision based on the means/end process.
• The actor seeks to maximize pleasure or utility and minimize pain.
• The actor anticipates pain or pleasure from their decision.
• The actor culminated the means/ends calculation that is available on any course of
action.
• The actor evaluates alternatives within limits.
• The effectiveness of “extralegal sanction is a function of the certainty, swiftness, and
severity of punishment” (Walters, 2015).
Adam Smith developed the ideas of RCT, and more recently, Gary Becker is a known adopter of applying rational models more widely. Gary Becker and Kevin Murphy (1988) applied the theory specifically to the economics of drug addiction and illicit behavior. Becker considers the RCT to analyze individual choices beyond traditional economic domains. RCT
46 states that people willingly chose to commit crimes just like they chose to do other things willfully and that criminal acts are products of choice.
Throughout the study of participation or non-participation in illicit behavior, the rational theory is adopted. Several economic models have made accommodations for addictive products
(Gary & Kevin, 1988; Pollak, 1970). While this study will not address drug addiction, the Becker
Murphy interpretation of Rational Choice Theory accommodates the factors of risk, which is pertinent to develop a line of inquiry in this study for with those faced with choosing to conduct business in markets. According to the Dr. Gary Becker, the guiding principles of rationale in the application of behavior in illicit activities are as follows:
• Law violating behavior is a product of consideration.
• One who violates the law considers both personal and situational factors.
• Before deciding to act in contrary to the law, the law-breaking citizens evaluates: the risk
of being caught along with the extent of the punishment; the value of the criminal illegal
behavior; their likelihood of succeeding at the task, and the need for the behavior.
• Individuals weigh outcomes and alternatives and chose the option that provides them the
most utility or satisfaction (G. Becker, 2004).
This theory challenges researchers to understand when an illicit activity may be rational.
Understanding the patterns behind how retailers weigh their risks of conducting business through legal channels or unregulated markets, can help predict the outcomes of future marijuana policy.
This process will inform the interview questions to align with the assumptions above.
Figure 4
Rational Choice Theory Influence on the Line of Inquiry
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Figure 4. An illustration of how Gary Becker’s adaptation of Rationale Choice Theory informs the line of inquiry for qualitative phenomenological interviews with study participants.
A limitation of Rational Choice Theory is that it typically focuses on individual action.
For this reason, we will aggregate data from multiple sources to identify critical considerations among the researched phenomena. The key to the success of this research is to understand the impact that California’s regulatory framework has on the retailers and how this effects their business behavior. The studied phenomena is the impact of California marijuana regulations that deter retailers from participating in legal marijuana markets.
Assumptions
When utilizing one-on-one, semi-structured, interviews in the context of this research within the state of California, the researcher made certain assumptions about the participants,
48 theoretical lens, and method. Employing Rational Choice Theory and its adaptation to include risk inherently associates assumptions discussed in the prior Theoretical Framework section.
The researcher assumed that the interviewees are rational, that they are answering honestly, they fit the inclusion criteria, and they possess a sincere interest in participating in the research (Wargo, 2015). Before the interview, interviewees weighed the risk of associating themselves with a study about their participation in legal, gray, or unregulated market activity.
For this reason, it was essential to clearly articulate the participant's role, confidentiality protocol, and consent. Participants were assumed to know the law and regulatory guidelines that govern their industry. They needed to use the technological tools associated with the study.
By selecting a qualitative method that adopts an interpretivist perspective, the study incorporates assumptions about how knowledge is acquired. Philosopher David Hume claimed
“we should not attempt to speculate about universal rational principles; instead, base all knowledge on empirical observation” (Hume, 1898). Interpretivism assumes that reality is not objective but socially constructed, so to understand reality, we must understand the perceptions that people have on their activity (Publishing and Mentoring Network Journal, 2015).
Scope and Limitations
This qualitative phenomenological study centered on eight marijuana retailers in
California that participate in the regulated marijuana market. As many as 18 states have legalized adult-use marijuana and all 50 states had cases of EVALI, a testament to the existence of the unregulated market all over the US. California is known to have the largest legal and illegal marijuana market in the world (Arcview Market Research, 2020). As such, marijuana retailers in
California offered great insight to understand how the marijuana regulatory framework can
49 impact legal market participation. Brick and mortar retailers were selected they were assumed to be less risk-averse to participate in an interview. The unregulated brick-and-mortar retailer phenomena is not unique to California, but it is uncommon for such widespread success and public acceptance of an unregulated market of any product. Businesses that existed before and after Proposition 64 passed were identified because they specifically had to weigh the risk and consideration of “alternatives” when determining to abide by AUMA regulations.
Discussing the details of a retailer’s navigation of a complex regulatory environment may be challenging for participants, mainly when they had conducted the activity outside of a regulated system. Many retailers have strong biases towards the industry and policymakers within the industry. These biases will have influenced their experiences.
The number of participants was sufficient to draw conclusions as the study reached data saturation. The small sample size may not represent the general population, and the results are particular to Californians. The researcher interviewed those who were faced with challenges to enter the legal market and prevailed. Retailers who remained in the unregulated market were unwilling to participate, unable to reach, or unavailable to connect.
Interviews were held over the phone and not observed in the interviewees' natural business setting. The outbreak of COVID-19 prevented the researcher from traveling to meet with interviewees live.
Significance
Despite the outbreak of EVALI in 2019 and COVID-19 in 2019/2020, marijuana ballot measures gain popularity. As more states adopt marijuana legalization, it is crucial to understand regulations that trigger unwanted behavior and industry participant’s compliance. Research,
50 industry experts, and participants in the marijuana industry recognize the necessity and value to supervise, regulate, and track processing, growing, and sales to protect public health, contribute to tax revenue and legitimize the industry. Marijuana policy-development and -regulation is a delicate balance. Costs must be covered to ensure proper safety measures but cannot be too high such that consumers and retailers remain in unregulated markets. Policymakers must be cognizant of the unintended impact and consequences of such restrictive marijuana policy that participants chose not to participation within legal channels.
A better understanding of the perception of the commercial marijuana industry has clear academic and social advantages. Notably, there is a lack of valuable studies that explore the lived experiences of those who participate in the marijuana industry directly. Genuinely understanding the motivation, rationale, and perceptions of key players in marijuana markets can inform policymakers on how to shape marijuana policy conducive to all parties. Mitigating participation in illicit marijuana markets touches different parts of our society. This thesis attempts to fill in a knowledge gap about reasons for participation in legal and unregulated marijuana markets by interviewing marijuana retailers in California to understand how their state’s marijuana policy informed how they navigated the complex nature of California’s marijuana regulatory framework.
Summary
The purpose of this qualitative phenomenological study was to explore the experiences of marijuana retailers who participated in California’s legal marijuana industry. The researcher was able to establish meaning through qualitative analysis that included coding and theme characterization from the transcribed interviews of the participants. As retailers shared their
51 experiences in the cannabis industry, clear themes emerged that policymakers should consider when developing state marijuana regulation.
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Chapter 2: Literature Review
Chapter 1 describes: conflicting federal and state marijuana laws in California threaten public health; the sequence of marijuana legalization in California has perpetuated a flourishing gray market and the existing AUMA laws in California are detrimental to the success of certain marijuana retailers and may curtail participation in legal markets. To understand the social, historical, and theoretical context of this problem, Chapter 2 provides a comprehensive review of critical themes that frame the issue. This literature review discusses the theoretical and empirical underpinnings that cause and perpetuate California’s unregulated marijuana market. The most relevant themes emerged from the surveying key literature: the paradigm shift of marijuana’s legality and the characteristics of California’s regulated and unregulated cannabis markets.
How and why marijuana is regulated at a federal and state level has generated a great deal of discourse contributing to the US's current landscape of marijuana legality. Part I of the literature review themes is presented around the paradigm shift of marijuana’s legality, response to changing laws and public perception.
Rational Choice Theory can help explain individuals and collective behaviors, including why participants make choices based on the economic principles of cost and reward. Legalizing marijuana statewide creates a new legal marijuana retail market and newly defines illegal markets for consumers, cultivators, transporters, and retailers who are governed by traditional supply and demand. To contrast the motivations and perceptions of retailers in legal and unregulated markets in California, Part II of the literature review examines the economic characteristics of the marijuana market that influences retailers' cost/reward rationale.
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This dissertation research is expected to contribute to the future design of policies that improve the efficacy of state marijuana regulations and encourage retailers to participate in a regulated adult-use marijuana market.
Literature Review Strategy
The initial search of the literature focused on the purposes and motivations behind marijuana legality. To understand public perception towards marijuana at a given time in history, it was imperative to examine articles that address social context in the 1900s through today.
After aggregating the literature, it was necessary to look specifically at the context and logic informing marijuana’s legal status. Upon reviewing the literature on the topic, the subsequent search focused on market environments and the critical characteristics of legal and unregulated industries. This included examining marijuana as a normal good and illegal substance, which informs the price elasticity of marijuana for consumers and retailers. The literature has shown that different states have different cannabis regulatory cultures, each eliciting different participant behavior. California has been coined as the largest marijuana market -legal and illegal
- in the world (Arcview Market Research, 2019). The nexus of these themes lends to a line of inquiry for California retailers to express how they identify utility, weigh alternatives, and evaluate choices.
The search engines used to identify empirical literature were ScholarOne, Google
Scholar, and Nexis Uni. The researcher identified literature by searching key terminology such as
“marijuana regulation” “illicit marijuana market.” To stay abreast of the most up-to-date literature, Google Scholar alerts sent articles using key phrases daily.
Theme 1. The Paradigm Shift of Legal Marijuana
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To understand the relationship between the US government, the public marijuana drug policy, it is essential to understand its historical orientation. Douglass North, 1999, wrote
“without a deep understanding of time, you will be lousy political scientists because time is the dimension in which ideas and institutions and beliefs evolve.” (p. 316). The evolution of marijuana policy has historically been a social reaction to cultural behavior: namely, in the
1930s, the Marijuana Tax Act; and in the 1970s, Nixon waged the “War on Drugs.”
The movement to label drugs as dangerous narcotics started when Mexican immigrants came to the US after the Mexican Revolution in 1910 (Quattrone, 2016). The 1930s gave way to unemployment because of the Great Depression and increase in public resentment and fear of
Mexican immigrants. A slew of research ensued which connected marijuana use with “violence, crime, and other socially deviant behavior” (Frontline, 2014). Harry Anslinger, the commissioner of the Federal Bureau of Narcotics (FBN), drafted the Marihuana Tax Act of 1937. Anslinger was a fervid supporter of marijuana prohibition (Schlosser, 2004). It was the first attempt from the US government to control marijuana use in the US by adding a prohibitively high tax on the drug. Social scientists agree that research analysis of this time should weigh larger picture cultural context as social and cultural issues influenced policy at this time (Langner & Zajicek,
2017).
Literature shows that the Marihuana Tax Act of 1937 was not a law that stemmed from scientific evidence but from a racial conflict against Mexican immigrants that fueled a cannabis prohibition campaign. Critics of existing marijuana prohibition often attribute its illegal status to the crusading fervor of Harry Anslinger (Bonnie & Whitebread, 1974). Several studies address the origins of the Marijuana Tax Act of 1937 by analyzing newspapers and Congressional
55 records. One of the first of these studies is Gary Becker, 1963, who found that marijuana control aligned with three American values at the time: disapproval for substance and behavior that can cause a lack of self-control; disapproval of substance use and activity solely to acquire states of ecstasy; the view that human welfare should require abstaining from drug use (H. S. Becker,
2008; Galliher & Walker, 1977). Becker attributes the Treasury’s Department Bureau of
Narcotics as the driving force behind the Marijuana Tax Act of 1937 instigating a propaganda campaign based on moral legislation and not science, and the law was a result of a “moral enterprise” (H. S. Becker, 2008; Donald, 1968). Other studies concur that while Harry Anslinger was the driving force behind the Marihuana Tax Act, it reflected a more considerable social sentiment at the time evidenced by Congressional records that show no opposition to the law’s passing (Donald, 1968). A review of drug policy and racial discourse in the 1930s shows us examples of politicians, journalists, and legislators associating marijuana use with dangerous minorities (Himmelstein, 1983). Galliher and Walker (1977) point out that the passing of the law was symbolic at the time because many states already had laws prohibiting the sales and possession of marijuana. Musto (1999) concludes that the law's goal was to placate fears about an “alien minority,” and the broader significance of the law is the cultural context from which it came.
The Marihuana Tax Act was not the only controversial marijuana policy put forth by the
US government. The subsection Law and Policy outlines the Controlled Substance Act's critics and the punitive nature of categorizing marijuana as a Schedule I drug. The 1970s were an era of hippie culture where marijuana use was prevalent on college campuses. Simultaneously, soldiers were returning from the Vietnam War; some were addicted to drugs from overseas. Courtwright,
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2004, writes, “Nixon feared that drugs were sapping the morale of the rising generation upon which society depended” (p. 11). The CSA in 1970 captured an ideology shared by elites and reflected by Presentient Nixon’s administration at the time to bring great reform to the
“institutions of American government.” The sentiment among government officials at the time was that the “drug problem” had gotten out of hand and that there should be laws in place to ensure drugs are used for legitimate medical purposes (Baldwin, 1991).
Nevertheless, for millennia, throughout the world people have used cannabis medically, therapeutically, recreationally, and spiritually (Bostwick, 2012). Even with prohibition in the
1970s, cannabis continued to be used and studied in alternative medicine circles. There is conflicting evidence and an ongoing debate over the short-term and long-term health effects of marijuana and its effectiveness in treating illness and disease (Hall & Degenhardt, 2009; Watson,
Benson, & Joy, 2000). Authors agree that marijuana policy and decisions to use marijuana should be based on scientific evidence, information, and common sense (Bierut et al., 1998).
Central to the CSA is the drug scheduling system, where drugs with no proven medical value at the time were classified into Schedule I. The CSA categories substances into five classifications – schedules - based on the substances' medical use, the potential for abuse, and the safety from addictiveness (CSA, 1970). Schedule I identifies substances that: lack accepted safety for the use of the drug or other substance under medical supervision; currently do not have an accepted medical use in treatment in the United States; and have high potential for abuse
(CSA, 1970). Among Schedule I substances are: heroin, lysergic acid diethylamide (LSD); methaqualone; methylenedioxymethamphetamine (ecstasy), and marijuana (cannabis) (Drug
Enforcement Agency, 2020). It is a misinterpretation of the law to assume Schedule I substances
57 lump together the most dangerous substances, as “dangerousness” is not a criterion of the schedules. When creating the schedules, the CSA began by dividing substances into two classifications – those used as a medicine and those not currently used as medicine (Caulkins,
2016). Substances used as medicine were then subdivided among Schedules II – V, leaving all remaining non-medicinal drugs categorized as Schedule I. Author and expert in marijuana policy, John Caulkins finds -
“Schedule I is better understood as the place for all substances with enough
abuse liability to warrant control and have no currently accepted medical use.
If a substance with no current medical use is to be scheduled at all, it must go
in Schedule I; there is simply no other place for it.” (Caulkins, 2016 p. 92)
There is considerable debate about whether substances that do not have accepted medical use and do not meet all the qualifications for inclusion under Schedule I should be scheduled whatsoever. Critics have called the scheduling systems “flawed, outdated and unscientific”
(Drug Policy Alliance, 2019).
The layers of bureaucracy and regulation that come from cannabis's Schedule I classification discourage researchers from studying cannabis (Nutt, King, & Nichols, 2013). In this way, the CSA classification has restricted the substance from research opportunities that could uncover medical use and inform re-classification. However, literature tells us that the marijuana drug policy was not born from the tenets of science but a culture of racism and fear.
Part of this research will further explore this topic.
With the signing of the CSA in 1970, it became a federal crime to use, possess, and cultivate marijuana and punishable by fines or prison time. The Federal Drug Enforcement
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Administration (DEA) is responsible for the enforcement of controlled substances law that would be anyone involved with growing, manufacture, or distribution of controlled substances in or destined for the United States (Drug Enforcement Agency, 2020). Presidents throughout the years have advised the DEA on how to approach enforcing federal marijuana infringements appropriately. The US Attorney General of the United States can reclassify drugs after hearings and information from by the Secretary of Health and Human Services (HHS) (Hefler, 2016).
Rescheduling marijuana has not occurred, but hearings on whether to reschedule have. At a hearing in 1986 the DEA’s administrative law judges issued a finding where after deliberating evidence, decidedly deemed marijuana capable of treating illness. Included in the finding, Judge
Francis Young held,
“Marijuana, in its natural form, is one of the safest therapeutically active
substances known to man. By any measure of rational analysis, marijuana can
be safely used within a supervised routine of medical care.”
“Based upon the facts established in this record and set out above one must
reasonably conclude that there is accepted safety for use of marijuana under
medical supervision.”
“The evidence in this record clearly shows that marijuana has been accepted
as capable of relieving the distress of great numbers of very ill people and
doing so with safety under medical supervision. It would be unreasonable,
arbitrary, and capricious for DEA to continue to stand between those sufferers
and the benefits of this substance in light of the evidence in this record.
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The administrative law judge recommends that the Administrator conclude
that the marijuana plant considered as a whole has a currently accepted
medical use in treatment in the United States, that there is no lack of accepted
safety for use of it under medical supervision, and that it may lawfully be
transferred from Schedule I to Schedule II. The judge recommends that the
Administrator transfer marijuana from Schedule I to Schedule II.” (Young,
1988)
The Controlled Substances Act mandated the organization of the National Commission on Marihuana and Drug Abuse, to be run by former Pennsylvania Governor Raymond P. Shafer.
The purpose of the Commission was to determine the extent of marijuana- and other drug use in the United States and make recommendations to the federal government about marijuana policy.
The first report from the National Commission of Marihuana, “Signal of Misunderstanding or
Exercise in Ambiguity” (The Shafer Report) suggests the government decriminalize marijuana and possession in the United States (Nahas & Latour, 1992). This report was noteworthy at the time as it proposed to Congress to do the exact opposite of what the CSA had just laid out in the federal prohibition of marijuana. The report proposed that Congress decriminalized personal possession and use of marijuana and recommended that the federal government supported studies examining the efficacy of marijuana in treating various diseases, including glaucoma, migraine, alcoholism, and cancer (Grossman, 2018). The Shafer report uncovered that the philosophy behind federal prohibition was rooted in the desire to control larger social conflicts and public issues and, in fact, not the bedrock of public health. While the federal government did not heed the Shafer Report's advice, it became a crucial reference influencing states’ future drug policy.
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Because of this report, Colorado reduced penalties for marijuana use and possession (Hoban &
Patterson, 2016) to the extent that in 1975, it was a mere $100 fine to possess less than one ounce of cannabis.
Different methodologies have been used to study the effects of marijuana including studying acute effects in a lab, studies on animal and brain scans. Long-term effects on humans are studied outside the laboratory in two ways: cross-sectional studies, comparing users and non- users and longitudinal studies – following individuals for periods to assess if the adoption of marijuana use makes one more likely to experience certain outcomes (Caulkins, 2016). When reporting findings and analyzing the results of these studies, researchers examine what happened to the aggregate population, or, what happened at an individual level (Caulkins, 2016).
Although many adults and adolescents over time increasingly view cannabis as harmless, studies have shown that potential problems in society can occur from use. This pertains in particular to prenatal exposure, childhood exposure, decline in education or occupational functioning after early adolescent use, impaired driving, cannabis disorders, withdrawal and psychiatric comorbidity (Hasin, 2018). Opponents of marijuana legalization draw from research that show there is insufficient evidence to deem marijuana safe or useful for the treatment of diseases and illness (Hall & Degenhardt, 2009; Karst, 2018) and; that use of cannabis predicts increase risks of health effects (Hall & Degenhardt, 2009). In fact, a survey published in Drug and Alcohol Dependency (1996), and supporting research from Thomas, 1993, have found that acute anxiety and panic attacks are the most common type of adverse reaction to marijuana, reported from 15% of survey respondents.
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Literature shows us that supporters of marijuana legislation employ the following perceptions: marijuana is less harmful than other scheduled substances, marijuana has medical benefits, and legalization could improve safety in cannabis products through testing and safety standards. Supporters of marijuana legalization point to criminal justice issues perpetuated by drug policy. In terms of state budgets, marijuana sales could drive tax revenue and save budget from the cost of law enforcement no longer needed to make arrests for marijuana. There is also a notion that cannabis use should be a choice of personal liberty (Pardo, 2014; Pew Research
Center, 2015; Resko et al., 2019). Marijuana supporters have likened the industry and consumer behavior with the industry to that of alcohol or cigarettes.
Proponents of medical marijuana assert that it can be safe and effective for treatment for the symptoms of cancers, posttraumatic stress disorder, AIDS, multiple sclerosis, pain, glaucoma, epilepsy, and other conditions (Coady Wing, 2020; Mathern, Nehlig, & Sperling,
2014; Wilkinson, Radhakrishnan, & D'Souza, 2016). While abusing marijuana might have adverse health effects, many argue these adverse health effects are much less than the consequences of abusing alcohol (Bierut et al., 1998).
Opponents of marijuana-use cite the following for their negative perception of legalization; the idea that marijuana is harmful to society and users, its addictiveness, legalizing will increase use, its ability to be a gateway drug, and the notion that it will have determinant effects on youth. (Caulkins, 2016; Hall & Degenhardt, 2009; Pew Research Center, 2015).
Among both supporters and opponents of marijuana legalization, personal experiences affect perception. Users are more likely to support legalization, yet support will wane among non-users as the benefits of consumption become more dated.
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Government portrayal and public perception of marijuana have changed vastly since
President Nixon waged the “War on Drugs” in 1971, and perception has been measured in different ways. The general methodology to measure public perception has been primarily quantitative through surveys. The Gallup first surveyed Americans on legalizing the use of marijuana in 1969, when respondents in favor numbered only 12%. When surveyed in 2018, favorable respondents numbered 66% (Gallup, 2018) and most recently in 2020, 68% (Gallup,
2020). A survey in 2015, published by the University of California Press, surveyed three groups of people from 1968 – 2015: US 12th graders, college students, and adults. The survey showed a decrease in support for marijuana legalization throughout the ’70s and ’80s, and support rising steadily from the ’80s to 2010s (Campbell, Twenge, & Carter, 2017). Data collected from the
Pew Research Center in 2015 shows that a majority, 53% of Americans, favor the legalization of marijuana (PEW, 2015). The increased support can be seen in all major demographic groups cutting across gender, race, ethnicity, educational levels, and political views (Dionne, Jr, &
William, 2013).
Figure 5
The Gallup Reports on Americans’ Views on Legalizing Marijuana from 1970 - 2020
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Figure 5. A line graph of survey response outcomes from Gallup polls surveying Americans’ Views on legalization marijuana from 1970-2020. Reprinted from “Support for Legal Marijuana Inches Up to New High of 68%,” by Megan Brenan, 2020, Copyright 2020 by "Gallup".
Literature is continuing to unfold around marijuana’s impact on health, but there are bureaucratic barriers to research because of its categorization as a Schedule I substance. It is essential to understand the origins of marijuana policy in the US as it has produced profoundly unequal outcomes for marginalized communities. The egregious effects that prohibitive drug policy has had on marginalized US citizens may discourage participants in the cannabis industry from abiding by marijuana regulatory policy. While the origins of marijuana law may have been a reaction to a campaign based on rising racial tension and the association of smoking marijuana and crime, instead of science, it is not to suggest that science deems marijuana harmless.
Researchers and medical experts agree that there is still a tremendous amount to learn about the role of cannabis and the causation of adverse health effects (Hall & Degenhardt, 2009). As
64 science has evolved, so has public support for marijuana legalization. Whether the changes have been good or bad, the historical-cultural context, law and policy background, and limited scientific research have led to a spate of legislation on marijuana today.
Summary
In Politics in Time, Paul Pierson tells us that the meaning of social events can be distorted when ripped away from historical context. Placing politics in time and constructing moving pictures rather than snapshots enriches our understanding of complex social dynamics and improves the methods and theories used to explain them—history matters. The concept of
Path dependence defined by Margret Levi (1997) is helpful, “Path dependence has to mean that once a country or region has started down a track, the cost of a reversal is very high… The entrenchments of certain institutional arrangements obstruct an easy reversal of the initial choice.” The path dependence theory illustrates the difficulty of shifting public and government perception and action around drug policy.
Theme 2. Economic Characteristics of Legal and Unregulated Marijuana
“Economics may be defined as a social science that deals with the use of scarce resources to meet unlimited material wants.” (Thomas, Steven, & Richard, 2009). Since the advent of the legal, medical marijuana market in California in 1996 and the legal adult-use marijuana industry in 2012 from Colorado and Washington, legality within the cannabis industry has been redefined. New legal marijuana markets have made a significant impact on state revenue and created thriving industries.
It is estimated by the Arcview Market Research group that the worldwide legal marijuana market will more than triple from $14.8 billion in 2019 to $46.8 billion in 2025. Like all open
65 market systems, the legal marijuana market has its competitors, and one of the most significant threats to the legal cannabis markets is the extralegal cannabis market. Economic principles and theories are be applied to the cannabis industry to analyze the legal and illegal industry dynamics to mitigate risks associated with the misuse. California has the largest legal and illegal cannabis market in the world (Arcview Market Research, 2019). As mentioned previously, in January
2018, Arcview Market Research and BDS Analytics estimate California’s 2019 illicit marijuana market sales at $8.7 billion, and revenue in the legal market in California that year dropped by
$600 million.
A pool of relevant literature has been developed around the etiology of marijuana consumption, and economists have contributed to this research typically by examining the pecuniary and non-pecuniary aspects of marijuana. Discussion on consumers' responsiveness to price will depend on the type of consumer and where they are located. Marijuana markets are characterized by many different consumers (Kilmer & Pacula, 2009) who react differently to price changes and overall consumption patterns. Caulkins et al. (2014) explain that price is a significant factor contributing to illicit cannabis market activities, evidenced by excessive
“taxation, expensive regulatory compliance, variation between medical and recreational costs, and the lack of ability to deduct legitimate business expenses.”
Economic literature defines “regular users” as individuals who report consuming marijuana monthly (Pacula & Lundberg, 2013). According to the US 2014 National Survey on
Drug Use and Health (NSDUH), the largest age group of people who have used marijuana in the past month are those 18-25 at 19.6% of the population (Alejandro et al., 2016). Heavy users are those who consume marijuana “on a daily or near-daily basis and who meet Diagnostic and
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Statistical Manual of Mental Health (DSM-IV) criteria for dependence or abuse” (Pacula &
Lundberg, 2013).
The first study of its kind aimed at estimating the price and expenditure elasticity of demand for marijuana among college students is from Nisbet and Vakil in 1972. They found that price elasticity among consumers who were already using ranged from -1.01 to – 1.51(Nisbet &
Vakil, 1972), suggesting consumers are quite sensitive to price changes. In 2004, Williams et al. found the price elasticity for participation in monthly marijuana use was estimated at -.24, revealing a complementary relationship between alcohol and marijuana consumption. In a follow-on study from 2006, Williams et al. found a participation elasticity of college students over 21 to be -.26. Literature suggests that price elasticities on heavy users are substantially larger than those estimated from users within the past month. However, there are limitations in the research due to little data on how potency and amount consumed in a single-use affect these estimates (Pacula & Lundberg, 2013).
Investopedia defines substitute goods in economics “as a product or service that consumers see as similar enough to another product. Therefore, that good can be used as a substitute in place of another.” A primary driver of marijuana legalization has always been to mitigate the market for illegal marijuana and the extent that illegal marijuana serves as a substitute good for legal cannabis. Because legal and illegal marijuana is considered substitute goods, there is a relationship among the two where the quantity demanded of one good can change the other's price – a relationship also referred to as “cross-elasticity.”
Amlung et al. in 2018, conducted a behavioral economic substitutability analysis to find empirical data evaluating the extent of legal and illegal marijuana’s substitutability. The findings
67 uncovered a significant positive cross-price elasticity, indicating an increase in the price of the goods motivated consumers to substitute the good, regardless of its legality. This means, those who purchase legal marijuana and see a rise in price, may seek out a substitute good, like illegal marijuana. Likewise, those who purchase illegal marijuana and see a price increase, may also seek a substitute good like legal marijuana. However, the relationship is not symmetrical in this case – meaning, the option to purchase legal marijuana has a greater effect on the elasticity of illegal cannabis than the option to purchase illegal marijuana, affecting the consumption of legal marijuana. Amlung et al. show us demand for legal cannabis is significantly greater than the demand for illegal cannabis. Amlung et al. conclude legal cannabis is treated as a superior good compared with illegal cannabis and “exhibits asymmetrical substitutability favoring legal product.”
Legal cannabis products can withstand somewhat higher consumer costs relative to its substitute but not excessively high costs. Therefore, unless the cost of legal marijuana is considered “excessively high,” its price alone will not drive consumers to unregulated markets.
Applying this finding to California specifically, social scientists and policymakers should consider whether the tax structure in California makes legal market prices “excessively high.”
Childs and Steven (2020) examined the tax structure on legal cannabis well-established illicit markets in California, Colorado, and Canada. The finding of the 2020 Childs and Stevens examination reinforced the idea that “heavily regulating and taxing the nascent legal industry, government cause legal cannabis prices to exceed illicit market prices substantially.” Instead, the optimal tax should be relative to the illicit market price.
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A 2014 survey from the North American Cannabis Summit surveyed 371 cannabis users who consumed cannabis in the past-30 days. The survey showed that while the price was among the most important factors in purchasing marijuana, quality and convenient location ranked among the top three. The people surveyed were from Colorado. Studies affirm that price is an important factor in marijuana purchase and use decisions, but not the only factor (Pacula,
Kilmer, Wagenaar, Chaloupka, & Caulkins, 2014).
Figure 6
Most Important Factor in Marijuana Purchase Decision from Colorado Consumers
Figure 6. in 2014 The North American Cannabis Summit conducted a survey with 371 marijuana users who have consumed cannabis within the past 30-days. The survey polled consumers on the factors that are most important to them when deciding where to buy marijuana. Reprinted from, “Why do consumers Continue to use Unregulated Sources following Legalization?” Jane Allen, Matthew Farrell, Brian Bradfield, 2014, Copyright 2014 by “North American Cannabis Summit “.
The research reviewed provides insight into the extent to which legal marijuana markets can withstand price increase. Data shows that legal marijuana is treated as a superior-good and can withstand price increases that may come with added safety benefits. State marijuana policies that significantly drive-up retail prices to the consumers will incentivize consumers to expand to
69 the illegal market. However, if the legal market is not excessively high compared to extra-legal market prices, consumers will not be encouraged to expand to the unregulated market. Amlung et al. continued their research to identify the specific price points in which consumers would turn to the unregulated market. Amlung et al.’s study shows that the availability of legal marijuana increased the elasticity of illegal cannabis by 126%. According to Statista, in 2016 in California, the cost of an ounce of marijuana on the street is $218, whereas the cost of an ounce of marijuana from a dispensary is $299, which is 137% of dispensary marijuana.
Summary
Marijuana is treated as a normal good with rational actors participating in the industry and market. Substitute goods are products that can be used for the same purpose by consumers, regulated and unregulated marijuana are considered substitute goods that employ asymmetric substitutability that favors legal marijuana. Therefore, consumers will pay a higher price for legal marijuana because it is a superior-good over unregulated marijuana so long as the price is not exorbitantly different. While literature points to the importance of correctly costing legal marijuana, a consumer survey shows that other factors contribute to consumers' decisions on where to purchase marijuana.
Rational Choice Theory tells us that rational actors will make decisions that bring them the most utility. Price and profitability are essential in the marijuana industry but not a sole factor for the rationale to engage in the legal or unregulated market. This study will explore, beyond price and profitability, what brings retailers the utility that informs their decisions regarding their legal status.
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Chapter 3: Methodology
State regulatory marijuana framework critically shapes states’ marijuana markets and whether state marijuana policy achieves its broader social goals. Chapter 1 introduces the historical and theoretical context of California’s marijuana laws that are the subject of this qualitative research and explains the problems that define this dissertation study. That problem is an overly burdensome and complex network of marijuana laws and regulations discouraging retailers from participating in legal markets. This dissertation research assumes that with increasing public and state support for adult-use marijuana programs, more information is needed for policymakers to best frame marijuana policy to meet its intended goal of mitigating illicit market participation.
As adult-use marijuana policy is increasingly popular on state voting ballots in the US, states must develop a regulatory framework that encourages retailers to participate in legal cannabis markets. This research does not investigate whether cannabis should be legal; instead, it focuses on the regulatory framework elements structured to maximize legal market participation for retailers in California, the largest legal and illegal marijuana market globally (Arcview
Market Research, 2019). The information needed by policymakers underscores this qualitative study's purpose to thematically explore the perceived barriers that retailers face to enter legal marijuana markets in California. By interviewing adult-use cannabis retailers in California, this study shows the impact of California’s governing regulation on retailers as they rationalize participation in legal or unregulated markets. The research outcomes should inform future state policy framework that regulates the adult-use marijuana industry.
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The literature review situates the study in the ongoing discourse on the paradigm shift of marijuana legality in the United States and current constraints given federal prohibition and public perception changes and support for state marijuana programs. Further, the literature presents an analysis of fundamental economic principles and how legal and unregulated marijuana functions as substitute goods. The marriage of shifting legal landscape and perceptions of law examined through an economic lens provides a conceptual framework for the study.
Quite often, this pool of literature examines economic dynamics from the demand-side. A considerable body of literature exists around the etiology of marijuana consumption, and economists have contributed to this research typically by examining the pecuniary and non- pecuniary aspects of marijuana. The existing data on the industry supply-side tends to focus on criminal behavior and accounts for some of the research limitations. There have been few qualitative inquiries that capture the lived experiences of marijuana retailers. Understanding the impact of the confluence and timing of state and federal laws and regulations on retailers, residual prohibition mentality from politicians who shaped state marijuana policy, point to the central research question of this study, which was: What are the perceived barriers marijuana retailers face to enter and participate in the legal cannabis markets and deter them from establishing themselves as legal entities in the California cannabis industry?
The inquiry is guided by the following sub-questions:
1. What are the perceived barriers marijuana retailers face to enter and participate in the
legal cannabis markets and deter them from establishing themselves as legal entities
in the California cannabis industry?
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2. How does California's regulatory marijuana environment impact the retailer's decision
to participate in licensed markets?
Research Design and Rationale
Qualitative, quantitative, and mixed methods research design serve different purposes and answer different types of research questions. Qualitative and quantitative research is often framed by using words or numbers (Creswell, 2018). Quantitative research tests theories by measuring a relationship among variables by using statistical procedures (p. 4). Qualitative research seeks to “explore and understand the meaning individuals or groups ascribed to a social or human problem.” (p. 4) Qualitative research is employed to generate new understanding of how humans experience living in social structures. “Things that are believed become real and can be inquired into” (Saldaña & Omasta, 2016). When researchers believe that knowledge is socially constructed, we can generate meaning from the account of how humans produce and perceive events (Saldaña, 2020).
Qualitative research often uses an inductive approach to research (Hays, Wood, Dahl, &
Kirk‐Jenkins, 2016). The research questions in this study point to a qualitative framework that will uncover the lived experiences of California retailers who have operated in regulated or unregulated businesses and are influenced by the laws and regulations governing their industry.
This methodology is consistent with the conceptual framework in that the value of qualitative interviews is its approach in making meaning from interpreting the social phenomena retailers live through. Using this type of methodology means that rather than testing hypotheses, researchers allowed the data – in this case transcribed interviews - to help understand the phenomenon in question.
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Philosopher David Hume claimed we should not attempt to speculate about universal rational principles, instead, base all knowledge on empirical observation (Hume, 1898). All knowledge is derived from experience and impressions. “At the heart of what it means to be human is the ability of people to symbolize their experience through language” (Seidman, 2006).
Applying this interpretivist philosophy to marijuana retailers in California, this research did not assume the subject’s rationality but constructed the meaning of their rationality by examining the actor’s subjective experiences and impressions. For this reason, paradigm interpretivism will be used for this research. Researchers need to examine their philosophical assumptions underpinning a research question before selecting data collection methods. A worldview offers different beliefs about what we know and how we can know it. Interpretivism is concerned with matters of knowing and understanding the meaning of a social phenomenon (Schwandt, 1994).
Interpretivism celebrates “the permeance and priority of the real world of first-person, subjective experience (pg. 223). To grasp the nature of social phenomena, interpretivists seek to go beyond the superficial and are involved with the process of meaning and knowledge construction as created by researchers and subjects together. Interpretivists believe that human behavior is purposive (Bruner, 1990; Magoon, 1977). In the case of this study – human agents are considered autonomous, intentional, and rational. Accordingly, “interpretive researchers assume that access to reality (given or socially constructed) is only through social constructions such as language, consciousness, shared meanings, and instruments” (Bradford, 2009). The research adopted interpretivism because it seeks to understand regulatory barriers through the perception of retailers. Therefore, the truth and meaning in the research is not independent of the experiences and perceptions of the participants but in and of the same.
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Phenomenology is the investigation of a phenomenon that attempts to identify, isolate, and formalize analysis of the phenomena in question, in this case, the rationalization to do business in a regulated or unregulated marijuana market. Phenomenology studies social dynamic and experiences that arise from being and interacting with the world. It seeks to understand the world as those who experience it, interpret it. Huw Searle purported that “reality could be grasped by and through structures of consciousness by applying intentionality to the object of study, intentionally directing one's focus to describe realities for to achieve understanding.” A phenomenological approach can often overlap with a narrative inquiry and in the interviews, participants often used narratives to describe their experiences. However, this study is defined by a phenomenological approach as the research question seeks to make meaning of the phenomena through the lived experiences of the retailers.
“Interviewing, when considered as a method for conducting qualitative research, is a technique used to understand the experience of others” (Seidman, 2006). The qualitative research interview aims to make meaning of central themes discussed from the lives of interviewees. The purpose of interviewing is to gather data which is analyzed to understand the meaning of what interviewees tell the researcher (Holstein & Gubrium, 1995). Semi-structured interviews were employed to examine retailers’ perspectives and rationale on how California’s regulatory marijuana framework has influenced their decision to participate in legal or unregulated cannabis markets. Interview transcriptions were coded and analyzed to identify patterns and interpret themes that guide the behavior and conduct of the study’s participants. “At the root of (in-depth) interviews is an interest in understanding the lived experience of other people and the meaning they make of that experience” (Seidman, 2006). Transcriptions of regulated and unregulated
75 retailers were contrasted to capture key differences in their rationalization to abide by state regulations. Interpretivists appreciate the difference between people and seek to understand through naturalistic approaches to data collection.
Positionality Statement
“Positionality is…determined by where one stands in relationship to ‘the other’”
(Merriam et al., 2001). Namely, this section will describe the researcher’s position relative to the interviewees and begin by explaining where the researcher stands now.
As a Massachusetts resident I was drawn to my research topic when 2019 Governor
Charlie Baker called for a sweeping ban on all vaping products in the state of Massachusetts,
September 24, 2019. Two members of my extended family were affected by this ban in very opposite ways. One family member has turned to vaping tobacco as an alternative to smoking combustible cigarettes, another family member is employed by the Food and Drug
Administration (FDA). I followed this story with personal interest. I believed that vaping tobacco was never as safe as abstaining from smoking, but I also view the world through a subjective epistemology so I believe it is reasonable that some may have turned to vaping when the option was presented to them to combat combustible cigarette addiction.
The inquiry into the politics behind the vaping ban ultimately led me to the existence of unregulated marijuana markets. How did this topic move from a vaping ban to unregulated marijuana markets? Breaking news September 24, 2019 in Massachusetts announced the sweeping ban of selling all vaping products for four months. This was a response to the outbreak of EVALI unfolding across the nation. Following the Center for Disease Control’s research and coverage on the outbreak, the CDC concluded that the EVALI outbreak was due primarily to an
76 additive in vaping cartridges that were purchased from unregulated marijuana retailers. A correlation was called into question – was there a connection between the number of cases and the extent to which marijuana was legalized in a state? A hypothesis emerged – if black market
THC products are responsible for EVALI, then the case rates may be lower in states that have legal markets (Wing, Bradford, Carroll, & Hollingsworth, 2020). A 2020 study from the JAMA
Network showed that there was a significant difference between the case rates of adult-use marijuana states and completely prohibitive states (p. 3). Yet, California, where marijuana is legal, had between 150 – 199 cases reported, Illinois had over 200 cases reported – two of the largest outbreaks of the nation (CDC, 2020). If the EVALI outbreaks were a signal of unregulated marijuana consumption, why are there such high cases in states where legal channels are present? Looking even deeper, the root causes may be in the design of the regulations themselves.
Massachusetts legalized the adult-use of marijuana in 2014. Peeling back the layers of the history of marijuana drug policy in America I learned how policy was not developed in the interest of protecting public health, but the mindset of drug prohibition stems from politics, racism, and larger cultural context. I believe that the phenomenon we are observing in the form of persistent unregulated marijuana market is a social construct for which the rationale of retailers is not yet understood.
As I, the researcher, am the interpreter of the data, to uphold the integrity of this research, it is important to disclose my biases and positionality. I was born and raised in a small town in
Massachusetts, where family and friends own small and medium sized businesses. I am conducting this research amid the global COVID-19 coronavirus, where small and medium sized
77 business all over the US are closing. Each day, there is more news of unemployment, businesses closing and business-related problems. According to the study from Harvard Business School,
University of Illinois, and University of Chicago economists project that more than 100,000 small businesses have shut permanently since the pandemic escalated. Their latest data suggests at least 2 percent of small businesses are gone, according to a survey conducted May 9 to 11
(Long, 2020) and the damage is even more severe in the food and beverage industry.
To mitigate my biases, it is important that I focus my interviewing on the experiences of the retailers themselves, and not lead them in any direction. I asked open-ended questions and prepared to uncover themes not encountered in the literature review. It was essential to interview the right people and proactively hone the profile of the retailer that I am seeking. Upon conducting my thematic analysis, it was important not to categorize themes into buckets that are predetermined. Further tests of validity are outlined in the Trustworthiness section below.
Participant Selection & Recruitment
In February 2021, California had 727 active licenses for retail storefronts (Bureau of
Cannabis Control, 2021). According to the Cannabis Law Group, the United Cannabis Business
Association (UCBA) conducted a license audit on retailers and identified approximately 2,835 unlicensed dispensaries trading across California (Cannabis Law Group, 2019). The size of
California's legal marijuana market shrank to $2.5 billion in 2018, from $3 billion in 2017, according to a report from BDS Analytics and Arcview Market Research.
Arcview Market Research is a leader in comprehensive cited research on the state, health, and wealth of the cannabis industry in the United States. A principal of the firm, Mr. David
Abernathy, is on the committee of this research study. He is also a board member of the Minority
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Cannabis Business Association and the Marijuana Policy Project and resides in California. The sample population was determined by means of a purposive strategy using reputational selection, leveraging connections and network of Mr. Abernathy.
Mr. Abernathy identified California marijuana retailers under the following boundary and frame:
• Located in California, a mix of southern and northern California.
• Marijuana retailer business owners in the adult-use industry, not medical.
• Brick and mortar locations.
• English-speakers.
• Previously held businesses prior to 2016, therefore have experienced the changes of the
industry under the AUMA.
Mr. Abernathy identified potential participants by entering their names and business names into a word document on a secured server available only to the research committee. He then sent an email seeking participation in a confidential interview. Many interviewees requested a conversation prior to committing to be interviewed with Mr. Abernathy for which he obliged.
When interviewees were ready to commit to an interview, they booked an hour on the researcher’s calendar using the technology youcanbookme. Upon booking, an automated calendar invitation was sent to the interviewee and researcher. An hour before the interview was scheduled, another automated email was sent that served as a reminder for the upcoming interview and provided the consent protocol (Appendix 1) so the interviewee could maintain a record.
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“If researchers plan to retain individually identifiable data that could place participants at risk of harm if inadvertently disclosed, researchers need to design procedures to protect the data during collection, storage, analysis, and reporting” (Hicks, 2020). Careful consideration was paid to the confidentiality of interviewees and the recruitment process, and special care was taken to ensure the participants were aware of the recruitment process, risks and benefits inherent to the research process (Costello Ingham, 2003). This study posed minimum risk to study participants.
The magnitude of the interview risk with marijuana retailers was no greater than the risk they normally encounter in daily life operating a brick-and-mortar unregulated marijuana business in
California. However, the study acknowledged inherent skepticism in participation as marijuana retail violates federal law.
There are estimates that unregulated marijuana sales are three times that of the legal market (Arcview Market Research, 2019). Because of its persistence, there have been efforts from federal, state, and local law enforcement to crack down on illegal and unlicensed operators throughout the marijuana supply chain. Brick and mortar operators take on this risk daily by simply operating their business in plain sight. If law enforcement were to find out unregulated operators' identities, retailers might be forced to close businesses and pay fines. For this reason, the study avoided interviewing current unregulated retailers and focused on retailers who were regulated and/or pursuing their license applications.
The research design allowed for reasonable confidentiality at each stage of participation beyond the initial outreach from Mr. Abernathy. If law enforcement were ever to request data from the research, no personal identifiers are in the interview transcriptions, and youcanbookme records with email addresses interviewees provided were deleted after the interviews occurred.
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The following safeguards were implemented to minimize the risk of interviewees’ confidentiality:
• Never used personal identifiers for participants, used pseudonyms. Any potential
identifiers were stripped from data upon transcription.
• Interviews were transcribed immediately, cross-checked with the recording, and then
destroyed.
• Interview account information through youcanbook me was deleted after transcription
of interview.
• Recruitment through personal networks of the third party, Mr. Abernathy, who shared
contact information solely with research team by secured document on Northeastern
University server.
• No codes exist that could allow for future re-linkage of the data to participants.
• Northeastern University secure data storage was used.
With interviews the participant sample size grows until data saturation occurred, but there is no agreed upon method for establishing this. Guest, Bunce, and Johnson (2006) propose that saturation often occurs around 12 participants in homogeneous groups. For practical reasons
Crouch & McKenzie (2006) propose that less than 20 participants in a qualitative study suffice.
There is more research from Francis, Johnson, et al. who suggest data saturation can occur at ten interviews. Still, some studies employ an emerging research design where the number of participants is not predetermined.
The original intent of the research was to include 20 total participants from both the regulated and unregulated market to highlight the contrast. However, within the first few
81 interviews it became apparent that the boundaries of regulated and unregulated market experience were not mutually exclusive. As outlined in Chapter 1, California’s medical marijuana markets was legal since 1996 under incredibly lax regulations. Because of the loose regulations to qualify for medical marijuana, a “gray market” emerged. As interviews began, it became clear that individuals held experiences in gray and regulated markets, and the two were not mutually exclusive. Instead of interviewing two groups of people with different experiences, the study focused on one group of people who held experiences in gray and regulated markets.
Therefore, instead of identifying a specific number of interviewees, the researcher keenly observed when data saturation was reached.
Siedman (2006) offers two criteria to indicate when enough participants are interviewed,
(1) Sufficiency; and (2) Saturation of information. The researcher and committee deemed this sample population sufficient as it represented locations throughout California, males, and females. Outsiders looking into this population can connect to this population. Sufficiency occurred at eight interviews because the sample population was specific in scope. No new themes emerged from the data after six interviews, but more interviews were conducted to solidify that decision. Interview participants told a common story.
By nature of the topic of research subjects being interviewed in this study were brick and mortar licensed or previously unlicensed marijuana retailers who have or had established their businesses in California. These participants tended to have a predisposition to the political environment in the industry. Retailers held strong opinions and perspectives on the intention of
California’s regulatory marijuana framework. Because this study sought to understand the perspective of those who feel barred from or disincentivized to participate in the legal market, it
82 was assumed these subjects were more likely than the non-industry participants to have a problem with the existing regulatory ecosystem. Those who agreed to be interviewed are those who feel strongly enough about their dissatisfaction with the regulatory environment to want to contribute to the policy change that this research may fuel. Thus, these participants are representative of those retailers who feel strongly enough about the regulatory environment to make a change and have more cognizance of the industry framework than those who are indifferent.
Only the research team, including the Principal Investigator, has access to stored documents. The scrubbed transcriptions remain on Northeastern University's server for three- year after the publish date of the researcher’s dissertation on to ProQuest. The researcher submitted approval to the Internal Review Board (IRB) of Northeastern University which was approved on January 8, 2021.
Data Collection & Analysis Plan
The primary data collection consisted of semi-structured interviews over Microsoft
Teams with each retailer that lasted approximately 60 minutes. This data collection method is useful when participants are unable to be observed in their natural business setting. This approach also allows the researcher to have control over the line of questions so to ensure interviewees are answering the required questions. These types of interaction allow the interviewee to provide additional relevant and historical context that may serve as informative in providing perspective into certain themes.
The researcher collected eight interviews that fit into the boundaries and frame of participant selection from northern and southern California. This provided a spectrum of
83 perspectives of those retailers who have been impacted by California’s marijuana regulatory framework in different ways. The interviews took place over Microsoft Team’s Meeting environment, a software provided by Northeastern University. Upon both the researcher and interviewee arriving at the virtual room, consent information was reviewed. Participants verbally consented to participate, and they already had a copy of the consent form sent to their email.
“Confidentiality procedures, as described during the informed consent process, allow subjects to decide what measure of control over their personal information they are willing to relinquish to researchers” (Hicks, 2020). Interviews were recorded on Microsoft Teams and saved to
Northeastern University’s secure cloud server. An interview guide was compiled during the IRB application process to help guide participant conversation (Appendix 2). While the interviews were being conducted, Temi software ran on the interviewer’s iPhone, so the interview was immediately transcribed. Upon completing the interview, the researcher sent the Temi transcription to a university email account. This transcription was uploaded into Northeastern secure storage server and deleted from email.
The researcher took notes by hand during the interview. These notes were observations about the tone and impressions of the interviewee discussing different aspects of the topic. These notes were typed up immediately after the interview ended. Interview recordings were replayed from the Northeastern University Microsoft Teams server to cross-check for accuracy against the
Temi transcription. Once transcriptions were conferred for accuracy, the original Microsoft
Teams recording was deleted. Transcriptions were scrubbed of person identifiers and replaced with pseudonyms. At the end of each transcription, the researcher added the notes taken during
84 the interview and the original document was destroyed. This occurred immediately after each interview.
Concluded interviews provided complete interview transcriptions; the interview transcripts were the data that was analyzed. With complete transcriptions, data analysis in the form of coding transcripts were initiated. Coding is used to categorize patterns in qualitative research (Miles, 2014). In this qualitative inductive research, the goal is to aggregate data into themes (Creswell, 2013).
The interview transcripts were then moved into Atlas.ti. Atlas.ti is a qualitative software tool that aids in organizing, maintaining, and managing data (Atlas.ti, 2020). The use of Atlas.ti is designed to analyze the content of the data to support the analysis of textual records. Atlas.ti was used to create codes, linkages and illustrate connections within the data. Upon entering the transcriptions into Atlas.ti and running an initial assessment, the Atlas.ti codes were compared for accuracy across all transcripts to understand if there were additional categories that were not initially identified. 167 codes were identified throughout the eight interviews. Then codes that were very similar in topic were merged into 122 total codes.
“Coding means that we attach labels to segments of data that depict what each segment is about. Through coding, we raise analytic questions about our data from […]. Coding distills data, sorts them, and gives us an analytic handle for making comparisons with other segments of data”
(Charmaz, 2014). Saldaña (2016) divides coding into first- and second-round stages. First-round coding was used to assign the symbolic meaning of larger chunks of data; this allowed for clustering and segmentation of related data. Because each research study is unique, the data coding approach will also be unique (Patton, 2005). A combination of descriptive coding and In
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Vivo coding was adopted for first-round coding, all conducted manually. Descriptive coding was used to identify the topic of what was discussed, not the content (Tesch, 2013). It was used to link comparable content. In Vivo coding was part of an emergent conceptual framework. As the data was gathered, culture became an important theme repeated and illustrated throughout the interviews. Studying the words and language that people choose and combine provides great insight to understand culture and why people behave as they do (Shashkevich, 2019). In Vivo coding uses words or phrases found in the qualitative data records to code data (Saldana, 2016) so whenever possible when conducting descriptive coding, borrowing language from the culture of interviewees was adopted. This is a common approach to ensure that the vernacular of the interviewees is considered in the findings and themes. First cycle coding captured a sense of the overall contents and allowed preliminary concepts to rise to the surface.
During second round of coding, all interviews were analyzed using terms that were uncovered in first-round coding. Second-round pattern coding was used to move codes into code- groups by taking first-stage codes and moving them into more meaningful units of analysis
(Miles, 2014) in hopes to explain or identify new configurations. The most critical functions of the second round of pattern coding were to condense large amounts of data into smaller concepts and help the researcher further understand the network of local incidents and interactions (Miles,
2014). The pattern codes were an attempt to transcend one local case's particularness to find its generalizability and transferability to other contexts (Stake, 1995). According to Miles,
Huberman, and Saldaña (2014), themes uncovered in pattern codes consist of four interrelated summarizers:
1. Categories of themes
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2. Causes or explanations
3. Relationships among people
4. Concepts or theoretical constructs (p. 80)
Figure 7
Pattern Code Map from Data to Theme
Figure 7. An illustration of how data is organized into code-groups and how code-groups are organized into themes. This shows the relationship and evolution of data to themes. The result of first- and second-round coding stages provided organized transcripts, pattern codes based on interrelated summarizers, and a map that shows how component codes qualify data into categories. Ranney et al. (2015) describe theme development as the process of identifying common threads between the pieces of data, which have been artificially divided and categorized by codes.
Trustworthiness
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The purpose of this study is an exploration of subjective experiences of marijuana retailers in California. Michael Curtin describes trustworthiness as “the extent to which the findings are an authentic reflection of personal or lived experienced of the phenomenon under investigation.” Trustworthiness of a study refers to the degree of confidence in data, interpretation, and methods used to ensure the quality of a study (Polit, 2014). Trusted research follows proven protocols and procedures that reliably uncover truth and are considered worthy by readers and scholars (Amankwaa, 2016). Top academics in trustworthiness of qualitative research, Lincoln and Gube (1981) suggest four criteria for evaluating trustworthiness: creditability, transferability, dependability, and confirmability.
In this research study, there were disadvantages to conducting interviews over the phone conferences instead of face-to-face. Data gathered from qualitative research is highly subjective.
What one researcher may think is important to gather data about, another researcher may think is pointless. Individual and researcher perspective can lead to great detailed data, or it can lead to data that is inaccurate based on the overreliance of researcher subjectivism. To avoid this check points were embedded into the protocol.
This research used a perspective triangulation method to build confidence in the truth that the research uncovered. Norman Denzin (1978) in The Research Act: A Theoretical Introduction to Sociological Methods, argues that naturalistic inquiry examines research problems from multiple perspectives – including those of “multiple observers, theories, methods, and data sources” so to overcome “intrinsic bias that comes from single-method, single-observer, single- theory studies” (p. 307).
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Data triangulation uses different resources of information to examine the data. This study used stakeholders from across the industry to validate findings. Stakeholders identified were played the following roles within the industry – policy maker, cannabis lawyer, cannabis consumer, cultivators, and cannabis retailer from another state. This study used triangulation by validating codes, patterns, and themes with legal market industry participants. The researcher then reverted to the literature to ensure these themes aligned.
Figure 8
Illustration of Triangulation used to Validate Results
Figure 8. An illustration of the triangulation to validate findings. The researcher connected with industry stakeholders to review findings, patterns, and themes.
Confirmability is neutrality. This is the degree to which the findings of a study can be duplicated should the study design be repeated (Connelly, 2016). Miles and Huberman consider that a key criterion for confirmability is the extent to which the researcher admits his or her own
89 predispositions. Academic peers may follow this research by requesting the audit trail that was maintained throughout the data collection.
Figure 9
Data Audit Trail to Preserve Conformability
Figure 9. A reverse engineered data trail to preserve confirmability.
Ethical Procedures
Ethical responsibility and conduct in research are imperative to uphold the integrity of the study. Understanding proper research conduct allows the researcher to avoid research misconduct as it pertains to fabrication, falsification, and plagiarism. The major ethical issues inherent in this research design are those on human subject protections and have been addressed describing the recruitment and data collection protocol.
Summary
This study aims to uncover the perceived barriers that challenge California marijuana retailers to enter the legal market, given the existence and historical success of the gray market.
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The research uses qualitative inquiry to capture understanding of retailers’ beliefs, values and feelings that underlie their motivation and behavior. A phenomenological lens allows the researcher to concentrate on the lived experiences of the retailers and make meaning from the data provided through interviews. To uphold the integrity of the research design, the study employs in-depth confidentiality protocols, triangulation, a data audit trail, and abides by ethical procedures required to access human subjects.
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Chapter 4: Findings
The purpose of this qualitative phenomenological research was to explore retailers' experiences as they navigated the labyrinth of California's marijuana regulatory framework to comply with the legal market requirements thoroughly and adequately. Chapter 1 provided an overview and context of the research problem, Chapter 2 provided a review of existing literature, and Chapter 3 outlined the methodology and design of this research study. Chapter 4 presents the study results by describing the data, research methods and analysis, and summarizing the findings.
Description of the Sample
The researcher and interviewees met in the Microsoft Teams environment by logging into a virtual video conference or calling in through a phone line. The Microsoft Teams meetings were recorded. While the interviews took place, the researcher simultaneously recorded using
Temi software on an iPhone. Temi transcriptions served as a recording contingency if Microsoft
Teams could not record, or technical glitches occurred in the recorded file.
The participants interviewed for this research were dispensary owners throughout northeastern and southern California. They may have had experience in other facets of the cannabis industry, such as transportation and distribution, policy, and political activism, but were explicitly identified because of their experiences operating marijuana retail businesses. Of the sample, three are female, and three are male. The order in which the interviews occurred was based upon participants' scheduling requirements. Their experience in the cannabis industry ranged from 12 – 40+ years. The interview question guide was designed to examine each participants' personal and situational context, risk assessment, and considerations of alternatives
92 as they navigated complex Californian marijuana regulation for their businesses. These questions were used to unveil common patterns and themes of barriers that informed behavior. The study intended to understand barriers that inform compliant or non-compliant behavior, and the impact regulations have on business decisions.
Eight interviews were successfully completed. Based on the initial review of the data, this number was sufficient to reach data saturation. The total number of transcribed interview pages was: 108; each interview ranged from 9 – 25 pages. Each interview lasted 32 – 115 minutes, subtotaling 394 minutes of interviews, six hours, and 56 minutes. A total of 401 units of data throughout the interview were coded.
Table 1
Data Elements of the Research Study Regarding Interview Length and Limited Demographic
Information
Table 1. This table illustrates non-confidential demographics gathered from the interviews. This table illustrates the amount of data used for the study.
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After the transcriptions of interviews were scrubbed of personal identifiers, the transcripts were loaded into Atlas.ti. During the interviews, the researcher kept notes on the tones and feelings the interviewees portrayed and quotations that cohesively articulated important concepts and patterns. Notes were uploaded into Atlas.ti. Once a transcription was loaded into Atlas.ti, the researcher conducted first-round coding within 24 hours. Therefore, first-round coding occurred as each interview was conducted.
A combination of descriptive and In Vivo coding was used for the first-round coding to provide an inventory of categorization topics. In Vivo coding ensures that participant vernacular is relevant to the analysis. In some cases, quotes overlapped into multiple codes. In Vivo coding was leveraged to ensure the voice of the participant is echoed throughout the study. Throughout the eight interviews, the 401 units of coded data produced 167 unique codes. The researcher then merged similar codes, which resulted in 121 unique codes. The researcher used second-round pattern coding to select similarly coded passages from the data corpus. Patterns were organized into 34 "code groups" that emerged throughout the interviews. Table 2 shows the code group name, the number of associated codes, and corresponding density provided by Atlas.ti. The table is organized first alphabetically, then by the density of included codes.
Table 2
Code Groups, the Quantity of Each Code, and Density for Each Code from Qualitative
Interviews of a Cohort of Eight Marijuana Dispensary Owners
Code Group Codes in Total Units Code Group Codes Total Units Alphabetical Group of Code in Iterations in of Code in Group Group Group
Activism 3 23 Barriers 22 69
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Assessing risk 4 16 Culture 1 37 Barriers 22 69 Activism 3 23 Big pot 3 13 Business values 12 19 Business values 12 19 Perceived impressions 5 18 Capitalism 1 7 The Movement 2 18 Community 8 10 Economics 10 17 Culture 1 37 Assessing risk 4 16 Customers 1 2 Law enforcement 1 16 Economics 10 17 Equity 3 16 Education 4 5 Big Pot 3 13 Equity 3 16 Personal background 3 12 Ethics 3 10 Policymakers 5 11 Federal 1 2 Onramp 4 12 Future 4 6 Community 8 10 Grey market 1 6 Ethics 3 10 Hemp 1 3 Unregulated market 1 9 Historical context 3 6 Weedmaps 1 8 Incentivizing 4 5 Capitalism 1 7 Law enforcement 1 16 Future 4 6 Local authority 2 3 Grey market 1 6 Loose regulations 1 3 Historical context 3 6 Medicine and therapy 1 6 Medicine and therapy 1 6 Onramp 4 12 Education 4 5 Perceived impressions 5 18 Incentivizing 4 5 Personal background 3 12 Profiteering 2 4 Policymakers 5 11 Prohibition mentality 3 4 Profiteering 2 4 Quality 3 4 Prohibition mentality 3 4 Hemp 1 3 Quality 3 4 Local authority 2 3 Reputation 1 1 Loose regulations 1 3 The Movement 2 18 Customers 1 2 Unregulated market 1 9 Federal 1 2 Weedmaps 1 8 Reputation 1 1
Table 2. Code group names, the number of associated codes, and corresponding density provided by Atlas.ti organized first alphabetically, then by the density of included codes.
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For the third round of coding, code groups were clustered into themes that emerged inductively. The lived experiences and how the participants made sense of these experiences gave rise to four themes: Cannabis Culture and "the Movement;" Public Perception Through
Time; Unrealistic and Punitive Challenges from Prop 64; and How these Challenges have
Dislodged Cannabis Culture from "the Movement." The following Table 3 shows where each code group provides evidence into these four themes.
Table 3
Emergent Themes from Data Analysis and Associated Codes-Groups within Themes
Table 3. This table shows the code groups that were associated with the themes that emerged from the data analysis.
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The researcher used an inductive approach, employing Rational Choice Theory as a model to analyze interviewees' social and economic rationalization. Dr. Gary Becker was an early proponent of widely applying the Rational Choice Theory beyond lawful microeconomics to show how rational actors maximize and define utility, assess risk, and weigh costs in risky environments. The marijuana industry in California has an important history of a thriving gray market since the legalization of medical marijuana in 1996. Compliance with the 2016 passing of
Proposition 64 must not be taken for granted or assumed. Even when faced with illicit activity and threat of punishment, actors in the industry may rationalize non-compliance with state law.
While all the participants in this research study are compliant with the law, they all had to navigate a complex regulatory system that, on its own, does not incentivize retailers to comply.
Therefore, this study uncovers the perceived barriers that participants in the legal marijuana markets have faced and overcome in the cannabis industry and the impact of California's regulatory environment on retailer's rationalization process.
Introduction to the Themes
Determinants of rationale include personal and situational factors, risk assessment, and consideration of alternatives. Therefore, to address the research questions appropriately, personal and situational factors, risk assessment, and consideration of alternatives are considered superordinate categories within which emergent themes were identified.
The lived experiences and how the participants made sense of these experiences gave rise to four themes: Cannabis Culture and "the Movement;" Public perception through time;
Unrealistic and Punitive Challenges from Prop 64; and How these Challenges have Dislodged
Cannabis Culture from “the Movement.” Taken together, these themes provide a narrative of the
97 rationalization of retailers in the industry and answer the research questions around the perceived barriers marijuana retailers face in the legal cannabis market and how they rationalize their decision to abide by the cumbersome regulatory environment in California.
Cannabis Culture and "the Movement:"
Throughout the interviews, the participants described a specific and poignant cannabis culture that has emerged over the years, bound together, and working towards a common goal.
Those who participate in the culture are part of a community with shared values, beliefs, and assumptions that guide their behaviors. It includes customs, language, and material artifacts. The
Atlas.ti wordcount provided clear evidence of the prominence of the culture and community throughout the interviews. Table 4 shows a count of words and phrases associated with the values of the culture.
Table 4
Frequency of Words and Phrases Associated with Theme One: Cannabis Culture and "the
Movement"
Words / Phrases Frequency Activism / Activist / Activists 12 Community 37 Family / Families 16 Together 48 Medicine / therapy / theraputic / theraputically 42 Help / helping / helpful / helps / helped 50 Group / Groups 49 Health / healtthiest / healthy 18
Table 4. A frequency count of words associated with pillar and tenets of those interviewed and participating in cannabis subculture identified from transcribed interviews.
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Those who participate in the cannabis culture share similar challenges and common barriers or discomforts to be part of the culture. Social identity is a person's sense of who they are related to their membership as part of a group (McLeod, 2019). People within the cannabis culture - whether as retailers, consumers, industry allies – have dealt with the presumption of deviance from those outsiders of the culture. Participants have worked hard to redefine perceptions of the culture over the years.
Cannabis culture has loomed under the shadow of risk for years – risk has always been a part of this culture. Because of the past presumption of deviance since prohibition, there is a desire to legitimatize cannabis business, culture and combat stigma, and participants do that through various activism. Merriam-Webster defines "activism" as "a doctrine or practice that emphasizes vigorous, direct action especially in support of or opposition to one side of a controversial issue" (Merriam-Webster, 2020). People are active in politics, activism, task forces, gathering community letters of support, getting signatures, fighting for covid relief, testifying for bills, and developing and writing laws to show legitimacy. Because of those activities, it is evident that activism is a significant part of cannabis culture. A collective effort of social change is considered a "Movement." According to the Atlas.ti word list evaluation on the data, the term
"the Movement" was referred to 14 times by 7 of 8 interviewees. This social movement is central to the culture and identity of those in the cannabis industry.
The interviewees in this research provided a clear definition of what participation and identity with the cannabis culture in California entail. Since cannabis is vital to people's identities, it needs to be understood in the context of social identity to properly form rational
99 social policies for the cannabis industry (Hammersley, Jenkins, & Reid, 2001). This research unveils the tenets of California's modern cannabis culture.
Cannabis is medicine and therapy, and retailers take pride in helping sick and sometimes desperate people. Therapy and helping people are core business values guiding this industry, an industry not previously driven by capitalism. California's legal market was born from the
Compassionate Use Act, and compassion has been a principal assumption in the culture.
Multiple interviewees shared stories about witnessing how cannabis helped their "patients" right before their eyes.
"… I saw, I don't know, like five, six of my regulars, "patients"…for this or that reason
they were all, going through serious medical conditions, whether those HIV/AIDS,
cancer, MS, a variety of things, depression, a variety of symptoms that cannabis was
helping alleviate."
"I saw the help that I was doing firsthand. I saw people, I saw people coming in, straight
from their dialysis appointments, straight after, straight after their chemotherapy
appointments, sick as hell. And these people are sick and these people need help. And
these weren't people that were driving around in BMWs, these were the people that were
taking the bus to our dispensary."
"I have literally seen it bring people back from the brink of death…I've seen miracles
happen. I've seen people with Parkinson's stop shaking. I've seen chemo patients come
back to life. I've seen them eat a burger and I fully respect and value that."
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Tajfel (1979) tells us that membership in a culture group is an essential source of pride and self-esteem. Participants took pride in helping others and belonging to a system that reflected their values as members and business owners. The industry is a community built to serve the community and to look out for one another. By upholding tenets of the culture of helping people, business owners identify with values and are fulfilled by what the industry can give back to them.
"We'd hear about one of our neighboring dispensaries getting raided, one of the grow
houses getting raided, and, back then we were definitely far more community organized.
Cause we were, we were all in this together. We were, all the dispensary operators and
all the growers, all the bakers and all the concentrate makers were, it was a smaller,
tight knit community."
"So I built a business around culture and family. And I created the culture that I
understood, right…so that we had a sanctuary, not just for weed, but so I can have a
sanctuary to allow people who feel like they're alone in this world of 5 million people."
Interviewees expressed pride in their companies and the values to which they are beholden. The pride included the businesses themselves and the attitudes of faith in the quality of their products. Participants described California marijuana as part of the "California heritage" whereas, nowhere else in the world has the environment and climate able to produce high-quality marijuana. Therefore, reflection and protection of the quality of marijuana are an essential part of
101 the culture. The heritage of California cannabis was likened to the Redwood forest and wine country and was artisan.
"The Movement" is central to the cannabis culture and illustrated through the members' activism despite evolving through time in the shadow of risk and stigma. Tenets of “the
Movement” embrace helping the sick, upholding values, membership to a community, and pride in quality.
Impact of Outsiders Perceptions
At the core of the cannabis culture and “the Movement” is its culture, mentality, and activism to legitimize the industry. Inherent in that a social movement is an opposition. As uncovered in the literature review, the interviewees confirmed – history matters in the cannabis culture movement. Prohibitive regulations of 1937 from the Marihuana Tax Act imposed near- prohibition of marijuana in practice. In 1970, the federal government outrightly prohibited marijuana by passing the Controlled Substance Abuse Act (CSA). With federal prohibition came the stigma of cannabis consumers as nefarious people, lazy and wanting to get high, threatening to infiltrate American youths' culture. Prohibition mentality has informed the governing paradigm of marijuana for most of the 1900s. Interviewees describe others' misunderstanding of the culture as commonplace in the industry -
"[People think] it's really just an excuse to get high. Those of us who were dedicated to
[education], we're up against this kind of, hurdle, a kind of wall, a barrier that there
really even is additional [medical] value. That's the first thing you've got to overcome."
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"…it's not a surprise that 40 or 80 years of prohibition mentality is what has informed
everybody's approach to [marijuana]."
"the prohibition mentality that has such a firm hold on, all of us … means that it's going
to take decades probably to undo that."
Members of the industry felt this sentiment from law enforcement. In California, post-
1996 leading up to 2016, an interviewee described law enforcement and opening and closing gray market dispensaries as "whack-a-mole." Law enforcement would close dispensaries, and they would pop back up. Dispensaries became nimble, and the community looked out for one another. When the public's cognitive dissidence began to shift towards legalization in the late
2000s, federal memos Ogden and Cole were announced, and the benefit of closing a dispensary no longer outweighed the cost. The Obama administration wanted to use law enforcement resources more efficiently. Police raids on dispensaries garnered bad press for law enforcement when sick customers were dragged out of dispensaries on public television. Law enforcement got creative with putting stress on the industry by applying pressure to landlords and leveraging property law. One interviewee described the tactic,
"they're realizing that the raids are bad press, they're shutting down dispensaries by
dragging people out of them and it looks really bad and it brings a lot of noise. So their
new strategy was to send letters to landlords and property owners of dispensaries,
threatening the property owner with civil asset forfeiture, up to 40 years in prison for
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aiding and abetting a criminal enterprise in their location. And that strategy
unfortunately paid off in spades for them."
Interviewees commonly described this outsider perception that they live in the shadows of those who perceive marijuana as dangerous. In 2016, when Proposition 64 was passed, according to interviews, policymakers and law enforcement still did not value or weigh the experiences or progress that members of the industry had entailed. Interviewees concur the "right people" were not "at the table" when formulating the marijuana regulatory framework from 2016 to its rollout in 2018. Regarding Proposition 64, on interviewee explained,
"[those who wrote Prop 64] weren't actually the people day-to-day operating cannabis,
dispensary's, or, cultivating cannabis. It was written by attorneys and investors that
probably saw opportunities with legalization."
Having those who are not part of the culture weigh in on the regulatory framework planted policy seeds that set the industry in a misaligned direction with the Movement's tenets.
Interviewees were candid that policymakers did not approach regulating the cannabis industry as though regulating a type of therapeutic product.
"No one designed it from a "what's the most efficient way to create, to achieve safety,
ensure a healthy, dynamic, competitive marketplace that can thrive, that can extend an
arm and outreach to those who were legacy and bring them into legality and to help
some, to help offset some social justice."
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Instead of those who participate in cannabis culture being part of the policy-making process, "everybody was either a non-profit headquartered in DC, or it was Weedmaps or Sean
Parker." Sean Parker invested considerable money into lobbying for Proposition 64. His investment paid for high-powered lobbyists and the “California corporate type.” Many of the lobbyists hired by Parker were not in the cannabis industry. One interviewee said regarding developing regulatory policy, "cannabis has been looked at as a demon that now needs to be taxed and regulated." Those who developed the regulatory framework had a keen sense of how this industry could be very lucrative for big players in the industry and the state through the tax system. However, it is perceived that there were not people at the table forming policy who thought critically and carefully about "how to protect small growers" and those who exist within the industry and embody the culture. One interviewee was surprised about how the regulatory environment was composed,
"[what] really surprised me that they [policymakers] didn't appear to look at other
models from other states...seems it was a lot of special interests. I mean, there's 15 pages
of tax revenue, allocation to different groups, and it's broken down by percentages…that
was obviously political."
People who understand and employ the tenets of the cannabis culture and “the
Movement” were not at the table to solidify the adult-use industry's regulatory framework.
Without their presence, the regulatory framework created veered the future industry from values and objectives like compassion, artisanship, helping people, community membership, toward perpetuating profit, "Big Pot," and planting the seeds that would foster a new cannabis culture.
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Unrealistic and Punitive Challenges from Proposition 64
The challenges that Proposition 64 imposed on businesses in the cannabis industry in
California seemed punitive and unattainable for some businesses. The Law and Policy Review of
Chapter 1 highlights the Colorado governor's practices creating and implementing principles and framework to regulate adult-use marijuana in Colorado, despite not initially supporting the proposition. Relinquishing his own opinions about whether marijuana should be legalized for adult use, he focused and corralled policymakers to develop a regulatory framework conducive to businesses in the industry. In contrast, writing proposition 64 into law was informed by a multitude of special interest groups. It created a strict and burdensome regulatory environment that was contrary to rational consumer behavior models, which in some ways incentivized consumers and businesses not to participate or make it very difficult to participate in the regulated market.
Interviewees illustrated how California state's regulatory framework establishes economic models that incentivize consumers and retailers to conduct business in the unregulated market. Common barriers to the legal market highlighted throughout the interviews are as follows: tax system and structure; green zones; allowing for vertical integration; license structure; environmental requirements from the California Environmental Quality Act (CEQA); security; banking; and local authority control. One interviewee describes the new regulations,
"It gave no opportunity for assistance or for support for the people that the activists have
suffered and strived and really worked hard to get to this place. And all of a sudden the
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industry was backed by outside money. People that never gave a shit about cannabis in
their lives just saw it as another commodity."
Tax Structure –The tax structure is "aggressive," as an interviewee described. One of the first taxes imposed in the cannabis supply chain is the cultivation tax. The cultivation tax is $9.65 per ounce of flower, which is problematic for two reasons. The first is that it is a fixed dollar amount by weight which means that as the wholesale price of cannabis falls, that tax functionally becomes larger as a percentage of the price of the cannabis. The second is that the tax is assessed at the beginning of the supply chain. This means that as products move through the supply chain, the initial cultivation tax gets compounded at each stage as - distributor, manufacturer, retailer. The tax gets compounded again by the sales tax, excise tax, and local tax. This results in the price of legal cannabis at retail being 75%-100% more expensive than similar quality cannabis in the unregulated market (Abernathy, 2021).
According to California State's Tax Guide for Cannabis Businesses, retailers are subject to a 15% excise tax on all their products, 7.75 – 10.5% sales tax, and some cities have enacted a cannabis business tax in their jurisdiction, for example, San Diego imposes an 8% tax. The high tax structure seems like retribution to one interviewee, "it's insulting that we are supposed to balance your budgets with your state statutes of cannabis, after being persecuted for years." The tax model may have been a signal to those who still hold the prohibition mentality that this industry can benefit the state. Whatever the motivations for the high tax structure, all interviewees agreed that the model stemmed from a political decision rather than one based on an economic data model.
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Green zones – California state regulations allow 482 cities and 58 counties in California to regulate zoning for cannabis business within their jurisdictions (CPA, 2020). California's real estate market is competitive; finding a "green zone" can be restrictive to businesses. Cities and jurisdictions impose distance requirements from sensitive businesses or organizations like schools, parks, and residential areas and outright ban cannabis businesses. In San Francisco, that put 90% of the city off-limits (San Francisco Public Press, 2020). San Francisco’s mandatory
"Good Neighbor Policy" requires adjacent parking to the business as appropriate. Interviewees expressed that it is incredibly burdensome to identify a place permitted in a neighborhood where customers want to shop. One interviewee took two years looking for a compliant location.
Vertical integration –There are three significant types of activities within the cannabis supply chains: cultivation, manufacturing, and retail – and the corresponding links between these stages of the supply chain (Feldman, 2021). Before 2018, most transactions between cultivators and retailers were direct transactions, so that cultivators were selling directly to the retailer.
While “brokers” existed, who may have arranged the transaction, the broker did not possess the cannabis, and cultivators were responsible for delivering the cannabis to the retailer. The AUMA mandated the role of a “distributor” that intermediates the cultivator and retailer. AUMA defines distribution as “the procurement, sale, and transport of marijuana and marijuana products between entities licensed pursuant to this division.” For cultivators who do not do retail and for retailers who do not cultivate, these businesses must use a distributor. It is the distributor's responsibility to test and assure the quality of the product.
This creates a few issues: (1) the distributor is another company that must pull the margin. So, the supply chain becomes more expensive. (2) Loss of direct connection from the
108 cultivator to the retailer. Removing the transaction from the trusted relationship of a cultivator and retailer, decrease he confidence the retailer or cultivator have that the distributor will hold the product to the same quality standards as the previous relationship. There is a risk that the distributor may not store the product correctly and compromise the quality of the product
(Abernathy, 2021).
Businesses with large operating budgets (Big Pot) can afford multiple licenses to create their lean supply chain. Therefore, it is positioned that only Big Pot operators can take advantage of the vertical supply chain, providing them with a competitive advantage to mitigate supply chain costs and reduce costs to consumers.
License applications – A multitude of problems around the license applications arose in interviews: The application process is confusing; the increase of licensing application fees upon legalization seemed punitive; difficulty applying for more than one type of license; delays in issuing provisional licenses to annual licenses and there are provisional licenses in retail and all aspects of the supply chain that are going to expire, and a dual licensing system requires municipality authorization because business can obtain state permits. One interviewee was told about their license, "There are 3,200 outstanding provisional licenses that we've not been able to process to be an annual license. And there will be only 200 in retail that are from the BCC."
Another interviewee discussed the licensing environment,
"Talk about mind numbing, the regular language they came up with, it was so
obfuscating [for] any, any average person. This is one of the obstacles to overcome the
hurdles that were inherent in an application package for retail…You had 23 licensed
centers from seed to processing nurseries, laboratories, manufacturing, to cousin
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manufacturing, different kinds of growing on and on and on through retail and not one
bucket of assets or resources for public education about medicine."
License fees skyrocketed upon the legalization of adult-use marijuana were considered punitive to those already working in the industry.
"We were operating as a Prop 216 legal dispensary, but without any kind of regulatory
oversight. So I apply for my business license, for example, in the County, a business
license, which costs $40 a year, like all other business licenses. And as soon as we got
regulated legalized, it went up to $500 a year."
Expensive environmental requirements from the California Environmental Quality Act
(CEQA) – Under both Medicinal and Adult-Use Cannabis Regulation and Safety Act
(MAUCRSA) and state licensing regulations, CEQA compliance is an express requirement. This
Act mandates a review of any proposed business' environmental impacts on the environment and ways environmental damage can be avoided. Businesses or municipalities were exempt from this
Act if they were operating under a provisional license. Moving from provisional to an annual license, businesses that were exempt from CEQA at the local level will be subject to CEQA at the state level – which can take 12 months or longer and come at a very high cost.
Local authority control – Local authorities in California can regulate the cannabis industry or ban it from operating within the municipality. Authority to regulate cannabis at the local level was a priority for the California League of Cities, a group of city leaders at the state capitol. California legislature passed foundational bills in 2015 regulating medical marijuana under the Medical Marijuana Regulation and Safety Act (MMRSA), implementing local control,
110 which became the foundation for Proposition 64. California case law previously established the local government's rights to ban a medical marijuana industry, and this case law was written into
MMRSA (Schroyer, 2020). Max Mikalonis, a legislative advocate at K Street Consulting, said,
"That meant the drafters of MMRSA and Prop 64 had to write a proposed law that wouldn't get thrown out by the courts for preempting home rule authority." A local government ban on the cannabis industry drives the scarcity of eligible property to open a business and reduces potential convenient locations for businesses. This informs consumer decision making as customers may opt for a conveniently located unregulated retailer instead of driving to a legal retailer at an inconvenient or far away location. This is how the unregulated market can perpetuate.
California's regulatory environment has informed economic models of consumer behavior that discourage industry participants from entering a legal channel if they are already established in the gray market. Policies can backfire when they fail to account for how people must change their behaviors. The unintended consequences of California's overregulated marijuana industry are undermining the policy's efficacy to reduce participation in the unregulated market. The systems of incentives and opportunities that the regulatory framework has produced in California are not conducive for retailers who want to do business in a legal market. Incentives and economic models are essential to this industry because a legal adult- cannabis industry is not the launch of a brand-new industry that California has never seen.
Instead, it requires a shift from the successful and established gray and unregulated market to legal market channels. Therefore, without proper incentives that maximize utility for retailers and consumers to move from an unregulated market to the legal market, California will experience market failure.
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Interviewees illustrated specific economic models: "[Legal] dispensaries right now just could not handle the demand. There's clearly a demand, there's two avenues in which this demand can be met. One that's a hell of a lot more expensive [legal marijuana] and another one that's cheaper, but more available [unregulated]." They went on to say, "I remember meeting some people at a "City" bar that used to serve as dispensaries deciding not to get a license and just decided to stay in the illicit market because they were price-wise."
Interviewees are not averse to regulations. Participants in these interviews strive to have a business with integrity and follow the rules.
"There was no way this was going to have been legalized without a pile of regulations. I
accept that we need to have regulation, accept that we need to have rules that we have to
follow. I think it's healthy and appropriate to force people to follow the rules so that it's
done with integrity and whatnot. I don't have a problem with the fact that we have to be
highly regulated. What I have a problem with is that it seems like a moron designed the
economic system, not thinking, or actually consciously thinking of what are the
macroeconomic, interrelated, financial modeling projection implications of the mouse
trap that we are building."
The persistence of the unregulated market makes businesses and the industry vulnerable to compromised safety standards. Legal retailers incur prohibitive taxes, security requirements, and other mandates that drive up their business costs, where they pass the costs along in the product's price. Some consumers may not realize whether the dispensary they are purchasing from is regulated or not. One interviewee painted a picture of the challenge of competing with
112 the unregulated market and confusion from consumers. "They think all weed is legal because we voted it in. They don't realize not all weed is tested and taxed." Another interviewee said about the unregulated market, "I think some people are definitely taking advantage of areas where they can create and operate these unlicensed facilities. I'm worried about safety standards, health standards, things like that. If you are not self-regulating, then you're really easily compromised."
"The cost impediments to entering the market, the challenges associated with finding a
location and being locally authorized to operate the station… there just so many, so
many things that serve as disincentives and barriers to entering the legal market. So long
as, as those barriers exist, you're going to have a robust, licensed, unlicensed market."
Prop 64 Challenges Dislodged Cannabis Culture from “the Movement”
As interviewees shared their experiences living through pre-and post- Prop 64, they described a story of old and new cannabis culture and the dichotomies within. Old cannabis culture of community and values has given way to Big Pot, capitalism, and profiteering, with
Prop 64 providing Big Pot's framework to thrive. Those at the table developing Prop 64 law created a network of regulatory barriers that sought to appease special interest groups rather than uphold the tenets of compassionate or value-oriented cannabis culture. One interviewee said,
“I got no benefit for all the years of service and support, being in city hall every week
being a lobbyist, being an activist, being on the task force, doing these working groups
and these forums. I get no love there.”
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There was a shared sentiment among the interviewees that there was no clean onramp for a legal channel, just an uphill battle to avoid legal trouble. There was no advantage or even representation to the industry's business owners who had been part of “the Movement.” Not having the right people represented writing Prop 64 into law, “gave no opportunity for assistance or for support for the people that the activists have suffered and strived and really worked hard to get to this place.” Instead, Prop 64 turned into “pages and pages and pages of regulations are designed to just promote big agribusiness taking over the industry.”
This chapter identifies the tenets of cannabis culture from which laws are written from which Prop 64 diverged. With the threat of Big Pot overtaking the industry, the culture dislodges its identity from compassion and helping people to harness capitalism and large profits; dilutes the sense of community; compromises the artisanship of California marijuana, and perversely incentivizes businesses to stay in the unregulated market.
Helping people was at the core to retail business owners in gray markets pre- Prop 64.
Helping sick people was the utility to business owners that allowed them to rationalize operating in gray markets. It seems to some interviewees that now the industry has “lost the plot.”
Interviewees expressed issues with Prop 64 law that impede small businesses' opportunities to survive because of the overly burdensome costs related to taxes, security, testing. Small businesses are part of the cannabis community and are slowly being squeezed out because of exorbitant operational costs.
Two interviewees explain how the industry quality is shifting,
“And now everything is a derivative of four strands. So now the customers, the clients,
the patients, the people that are using this therapeutically, while they have an
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overwhelming amount of brand options, you have a very limited amount of product
individuality. Even in the production of edibles, everyone now uses THC distillate to
produce gummies and, everything is basically a derivative of just THC. So you're losing
the entourage effect of all the other cannabinoids and the beans and flavonoids. The
whole plant aspect has been completely homogenized out that everybody's just eating
pure THC now.”
“I was working directly with the sources, I was working directly with the baker, with the
hash creator, directly with all the growers. Now I'm working with distributors and to
them there's less of a conversation of the lineage of this plant or of how did you grow
this? Or where did you get to these genetics? A conversation that you would want to have
with somebody that is doing something in such an artisanal way, they don't exist
anymore. And I think that's really problematic. It also homogenized everything. 10 years
ago we had a hundred, I'd say 70 types of genetics that were running around and were on
every shelf, and now that the whole culture is skewing towards homogenization, now
we're homogenizing the plants.”
Conclusions
Analysis of the eight interviews led to four key themes that emerged using descriptive and In Vivo coding. As this research employs an economic theoretical framework, Rational
Choice Theory, it was imperative to understand what “utility” means to retailers to understand how they maximize utility. In this study, the utility was described as elements of the culture
115 retailers participate within. Defining utility as it related to participation in the cannabis culture allows this study to answer the following research questions:
1. What are the perceived barriers marijuana retailers face to enter and participate in the
legal cannabis markets and deter them from establishing themselves as legal entities
in the California cannabis industry?
2. How does California's regulatory marijuana environment impact the retailer's decision
to participate in licensed markets?
Table 5
Conclusions from Findings that Answer the Study’s Research Questions
Conclusions Conclusion, Question 1: Barriers. There are tangible challenges that California’s adult-use marijuana regulatory framework have imposed. Common barriers to the legal market highlighted throughout the interviews are as follows: tax system and structure; green zones; vertical integration; distributor model; license structure; environmental requirements from the California Environmental Quality Act (CEQA); security; banking; and local authority control.
Conclusion, Question 2: Commitment to Legitimizing the Industry deters Non- compliance. While California’s regulatory framework makes it difficult for retailers to participate in the legal cannabis market, these retailers are unlikely to move or remain in a gray or unregulated market irrespective of the challenges from the California regulations.
Table 5. Concise answers to the study’s research question. These conclusions are discussed at length in Chapter 5.
The findings provided solid conclusions and the researcher can answer the research questions thoroughly. Throughout these interviews, informative themes emerged 1. Cannabis culture and “the Movement,” 2. Outsiders’ perceptions of cannabis culture through time, 3. The unrealistic and punitive barriers of Proposition 64. Prop 64 barriers and challenges have
116 dislodged cannabis culture from “the Movement.” Answering the research questions with the gathered data informed discussion around the literature, theory, and policy on this topic. These are discussed in Chapter 5. The below figure depicts how the findings and information flow into robust discussion throughout Chapter 5.
Figure 10
Illustrative Flow Chart of Information in Chapter 5, Mapping the Research Results
Figure 10. The evolution of this study’s discussions and recommendation as guided by the research questions.
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Chapter 5: Recommendations and Conclusions
The topic of this research was uncovered in the wake of the EVALI outbreak of 2019. As the topic was further explored, a fine-grained problem emerged, which is that even with adult- use marijuana laws in place in 18 states throughout the US, an unregulated market can still thrive alongside. The existence and persistence of the unregulated marijuana market are counter to principles of why citizens support adult-use marijuana laws – to move an underground market above the board and develop a legitimate, safe, and economically sound legal market. Despite passing Proposition 64 in 2016, the underground marijuana market in California persists, perhaps more so than any other legal market in the world.
California's machinery of marijuana regulations has been described as esoteric, prohibitively expensive, and ascribed to a prohibition mentality from a long and complex drug policy in the US. To consider California's marijuana regulatory framework as a barrier to entry is a facile observation. Retailers and consumers in the industry have subjective experiences with objectives consequences. This study sought to examine the barriers retailers face to enter the adult-use marijuana industry in California to understand the underpinnings of marijuana regulation as told through retailers' experiences subjected to state regulations. The significance of this study stems from the growing atmosphere of concern around developing effective laws that govern the adult-use marijuana industry.
Summary of the Literature Review
The researcher reviewed the literature relating to challenges associated with entering the legal marijuana retail markets and found two relevant themes that shape the environment around this problem. Literature to date has focused mainly on the health effects of marijuana and its
118 impacts on communities, much more than the evaluation of effective regulation. The United
States has a long, complex history of drug policy, and one would be remiss in examining marijuana policy in the US if limiting the examination to one point in time. Marijuana policy in the US has been a slow-moving build-up of social and political pressure. To fully understand US marijuana policy dynamics today, one must understand – Theme 1, The Paradigm Shift of Legal
Marijuana.
Marijuana policy in the US is a slow-moving causal process. The time horizon of US marijuana policy in this study began in 1910 when Mexicans came to the US fleeing the Mexican revolution, and thus a movement arose to label marijuana as a dangerous narcotic. The
Marihuana Tax Act in 1937 set a prohibitively exclusively issued tax stamp on marijuana, putting in place an effective form of federal prohibition. Musto (1999) concludes that the law's goal was to placate fears about an "alien minority," and the broader significance of the law is the cultural context from which it came.
Scare tactics and moral panic ensued, and a slew of research ensued which connected marijuana use with violence, crime, and other socially deviant behavior (Frontline, 2014). In
1970 President Nixon passed the CSA, classifying marijuana as a Schedule I substance, thus enacting federal prohibition, and subsequently waging the "War on Drugs." Courtwright, 2004, writes, "Nixon feared that drugs were sapping the morale of the rising generation upon which society depended" (p. 11).
2020's Gallup shows that 68% of US adults currently back measures to legalize marijuana, and yet, the reversal of prohibition mentality lodged within our political institutions is
119 challenging. The prohibition mentality has lasting effects, significantly as politicians who may possess such a mentality shape the regulatory environment of marijuana policy in California.
The mentality of those who are shaping state marijuana regulation matters. Without the right people "in the room" shaping the regulatory framework, the economic models built in
California's marijuana market are not conducive to businesses or to participation by people who have been part of the sequence of the political and social movement to legitimize the industry.
That brings us to the second theme that emerged from the literature to examine the economic model that has been built through the Theme 2, Economic Characteristics of Legal and
Unregulated Marijuana.
Economic theories and principles are commonly used to study drug markets. In a study with Amlung et al. in 2014, examining the cross-elastic asymmetrical relationship of legal and illegal marijuana, authors concluded that legal marijuana is a superior good in the market.
Treatment as a superior-good means that legal cannabis products can withstand somewhat higher consumer costs than its substitute but not excessively high costs. Nevertheless, in California, estimates show that dispensary marijuana costs 137% more than street marijuana.
A survey out of Colorado in 2014 identified price, quality, and convenience of location as the top three factors most important determining where to buy marijuana. Therefore, if Amlung is correct and legal marijuana can withstand incremental price increases, one must also examine how regulation affects the quality and convenience of location. As this study examined the barriers to enter the legal markets, it uncovered not just the prohibitively high cost of compliance, but California regulation challenges other essential facets of the industry as well.
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Purpose
This qualitative phenomenological research aimed to uncover the barriers retailers face in
California to enter legal cannabis markets. California marijuana retailers shared their experiences navigating the complex spate of cannabis regulation as California passed a ballot to adopt an adult-use program in 2016. The program was implemented in 2018 and created prohibitive and seemingly punitive barriers to entry with little or no homage to those who have been active in
“the Movement” to legalize marijuana and comply in the medical-use industry. The themes that emerged inform the body of research to develop more effective marijuana regulation in
California or states rolling out their adult-use programs. The potential impact of this study is to share findings with legislators or policy makers who will develop regulatory policy incentivizing maximum participation in the regulated marijuana industry.
Methodology
The researcher used a qualitative methodology. Qualitative research will "explore and understand the meaning individuals or groups ascribed to a social or human problem" (Creswell,
2018, pg.4). The study employed phenomenological investigation as phenomenology attempts to identify, isolate, formalize, and analyze the phenomena in question, in this case, the rationalization to do business in a regulated or unregulated marijuana market. Phenomenology is concerned with the study of phenomena that arise from the experience of being in the world. "At the heart of what it means to be human is the ability of people to symbolize their experience through language" (Seidman, 2019, p. 8), and therefore interviews were used. "Interviewing, when considered as a method for conducting qualitative research, is a technique used to understand the experience of others" (Seidman, 1998).
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The study used a purposive recruitment strategy using reputational case selection, leveraging network connections of dissertation committee member, Mr. David Abernathy. The study focused on retailers who have lived through the changes in the regulatory environment in
California as they moved from a medical-use market to a legal adult-use market framework in
2018.
The researcher conducted eight interviews with retailers in California who provided a wealth of experiences and data navigating the complex regulatory environment by articulating changes they experienced. The interview questions were guided by Rational Choice Theory as
Gary Becker has shaped it to include risk factors. Interviews were held over Microsoft Teams.
Findings
Using descriptive and In Vivo coding, the researcher underwent first-round coding in
Atlas.ti. Descriptive coding labels fundamental topics of passage in a word or phrase. In Vivo coding threaded language participants used from qualitative data into first-round coding. The researcher merged similar codes and, in second round coding, moved codes into code-groups to identify patterns. As the patterns were analyzed and read through, themes in the data inductively emerged and began to tell a story. The four themes from the lived experiences of participants and how the participants made sense of these experiences are as follows: Cannabis Culture and "the
Movement"; Public Perception through Time; Unrealistic and Punitive Challenges from Prop 64; and How these Challenges have Dislodged Cannabis Culture from "the Movement."
The nexus of these themes addressed this study's central research question: What are the perceived barriers marijuana retailers face to enter and participate in the legal cannabis
122 markets and deter them from establishing themselves as legal entities in the California cannabis industry? The following sub-questions guided the inquiry:
3. What are the perceived barriers marijuana retailers face to enter and participate in the
legal cannabis markets and deter them from establishing themselves as legal entities
in the California cannabis industry?
4. How does California's regulatory marijuana environment impact the retailer's decision
to participate in licensed markets?
Table 5
Simplified Conclusions from Findings that Answer the Study's Research Questions
Discussion of Conclusions
Those who participate in California's cannabis culture are part of a community with shared values, beliefs, and assumptions that guide their behaviors. It includes customs, language, and material artifacts. People within the cannabis culture - whether as retailers, consumers, or industry allies – have dealt with the presumption of deviance from those outsiders of the culture.
Participants have worked hard to redefine perceptions of the culture over the years.
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The importance of culture within policymaking is not rhetorical in the cannabis industry.
Empirical literature shows that global and local assumptions about culture underpin policy and policymaking. Donald Baumer and Carl Van Horn (2014) explain that “American political institutions function as parts of the larger national cultural and socioeconomic systems.” Political culture illustrates what citizens expect from their government, whether security, fostering a free- market society, or providing vehicles for social change. Subcultures influence political culture by offering new ideas of the contemporary social landscape. Without regarding the tenets of subculture throughout policymaking, there is an increased risk of non-compliance. For example, part of the cannabis culture is the ability for retailers to express compassion by providing free marijuana to those in need. This feature maximizes industry participants' utility, and therefore informs their rationale for participation in the culture. With the initial rollout of the adult-use program, California made it illegal for retailers to provide free marijuana to those who needed it.
Thus, creating a regulatory framework that dislodges industry participants from what brings them utility. This mismatch will cause non-compliance or begrudged compliance with the legal industry.
Interviewees referred to the political work to legitimize the cannabis industry as part of
"the Movement." Activism and cannabis-legitimacy as a social movement are critical components of cannabis culture. Many retailers in California who got into the cannabis industry early were all activists supporting a legally controlled market for personal use from a safe source.
Retailers trying to operate within the rules of MAUCRSA firmly believe that marijuana should be treated as a therapeutic substance that has legitimate therapeutic value. The Movement includes support for criminality reform for marijuana offenses, equity, serving and being part of
124 a community, helping people, and product quality. Most notably, serving the community and helping people is an expression of compassion and the expression of compassion brings participants within the culture utility.
Because of the commitment retailers showed to legitimizing the industry, they are unlikely to conduct business in the unregulated market irrespective of how challenging and burdensome California's regulatory framework is. There is consensus that the regulations make it difficult for small and medium-size operators throughout the cannabis supply chain to conduct profitable business, but these challenges do not displace industry participants from their commitment to “the Movement.” California has created an economic model where it is difficult for those committed to the culture to survive. Interviewees opine that regulatory structure was created for big business by outsiders who hold the idea or kowtow to those who believe that marijuana is harmful. Therefore, while there is compliance with the legal market from small businesses, there is an economic and regulatory structure that fosters the success of big businesses and dilutes the power of small businesses.
Retailers in this study have been in the industry for some time and have experienced the changes from Senate Bill 420 to the implementation of Prop 64. They were not discouraged from participating in the legal market because of their commitment to legitimizing the industry, shifting what a counterculture to a subculture was. However, there is a sense of begrudged compliance with punitive barriers that they are faced with. MAUCRSA does not specifically connote the failure of small businesses but favors those who are considered Big Pot and companies with large operating margins. Small business margins are squeezed through a high tax structure, mandated distributor model, high testing and compliance costs.
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The distinction between Big Pot and small and medium-size businesses illustrates a spectrum of ideology about how the industry should evolve that is not linear but on a plane.
There are those in the industry working to protect what they have, commonly referred to as the moat mentality. They are licensed and compliant but see a significant expansion in the industry as a threat. A big expansion in the industry can compromise the artisanship of the products they are developing by mass-producing homogenous strands of cannabis rather than focusing on the craftsmanship of unique strands. Those who hold this protectionist ideology want to advance policies that protect what they have. At the same time, there are those in the industry who see expansion as the vehicle to legitimize the industry. Wide-spread expansion and normalization can forward other tenets of the Movement, such as criminal justice reform for those incarcerated with marijuana offenses and business opportunity equity for those in communities that have been disproportionality affected by enforcing marijuana prohibition since 1970.
For these reasons, members of California's cannabis culture are hyper-fractious among themselves. While many agree that there is a highly regressive tax system that needs to be modified, barriers to entry are high, and the industry is over-regulated, there is no consensus on fixing it. Inherent in the culture - like those in California's cannabis community – is political activism. However, with so many problems that Prop 64 has imposed on the industry, considerable hyper-activism distracts activists and policymakers from the top significant issues required to address.
Discussion on the Literature
This research contributes to a pool of literature using behavioral economics to understand marijuana policy in the US. The literature review and summary of the literature review refer to
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Paul Pierson's Politics in Time and path-dependence. Trey Maline and Kevin Gomez in 2018 offer a case study applying path dependence to hemp regulations in the US. This discussion, however, applies the path dependence framework outlined by Dr. James Mahoney to marijuana policy in the United States.
Literature into marijuana was organized within two critical themes for this study: the paradigm shift of marijuana through time and vital economic characteristics of legal and illegal marijuana to help understand how products function in an economy. This discussion will apply the concepts from Paul Pierson's, Politics Through Time, to marijuana policy in the United States as a sequence of path dependence through time, and the temporal context of social science is critical to understand social phenomena. Shifting the vantage point of marijuana policy in the
United States and viewing drug policy considering historical institutionalism can shed new light on the topic, and "placing politics in time can greatly enrich our understanding of complex social dynamics" (Pierson, 2020, p 2). In 2001, James Mahoney wrote an informative article marrying the studies on path dependency from thought leaders like himself, Pierson, and Thelen. Mahoney used the following figure to illustrate the stages and features of path dependency.
Figure 11
James Mahoney's Analytic Structure of Path-Dependent Explanation from his article Path-
Dependent Explanations of Regime Change: Central America in Comparative Perspective
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Figure 11. This model was developed by Dr. James Mahoney as he illustrated the phases of path dependency in the article Path-Dependent Explanations of Regime Change: Central America in Comparative Perspective. Reprinted from “Path-Dependent Explanations of Regime Change: Central America in Comparative Perspective,” by James Mahoney. Copyright 2015
Path dependence can serve as a label for institutional resistance to change and, applied to this study, can explain the stickiness of the prohibition mentality held by some. The structure of path dependence begins with antecedent conditions which are historical context. The notion of prohibitive drug policy in the US dates to 1937. As the literature review described, the
Marihuana Tax Act was established at a critical juncture when policymakers feared Mexican immigrants and the marijuana subculture. This critical juncture was consequential because it led to the creation of institutional patterns that endured over time – prohibition mentality, mendacious propaganda, and justification to criminalize marijuana. The Marihuana Tax Act was a critical juncture because it became progressively more challenging to return to less prohibitive regulatory structures around marijuana since then.
The next feature in the path dependent framework is "institutional reproduction" or
"structural persistence." This means that institutions persist in behavior over time irrespective of whether the antecedent conditions continue to exist (Mahoney, 2001). From 1937 – 1970, the
United States government persisted with the promulgation of anti-drug messages, and in 1970, marijuana was prohibited outright. Paul Pierson describes institutional reproduction as persisting because of an "increasing returns process" (Pierson, 2000 p. 252) which is the recognized relative benefit of maintaining the status quo. While the threat of immigrants from the Mexican
Revolution remained in the early 1900s, drug policy continues to yield racial divides and,
128 therefore, "show returns" to elite policymakers. Drug policy was weaponized and disproportionality destructive to people and communities of color.
During the 70s, aggressive drug laws were implemented for marijuana which carried a mandatory prison sentence. The "War on Drugs" was a war on race, where Black citizens were found to represent 35% of those arrested for drug offenses but made up only 13% of the national population (Walker, 2006, p. 15). The endurance of prohibitive drug policy and its effectiveness to curtail alleged devious behavior triggered other chains of temporal order. People who subscribe to “the Movement" recognize social and racial equity as a tenet of “the Movement." As outlined in the previous chapter, “the Movement" is the political activism to legitimize the marijuana industry, and state legalization is a reactive sequence of related events.
The outcome of marijuana's path-dependence has brought the industry to where it is today. The social phenomena that the cannabis industry is straddled somewhere between legality and antiquated policy that stemmed from fear and racism. Drug policy in the US has delivered increasing returns for elite policymakers, leading to their propensity to reinforce behavior around prohibition, making it extremely difficult to transform.
Limitations
What this study did well was to identify specific tangible barriers put forth by the implementation of California’s adult-use program. It uncovered the tenets of the California cannabis subculture essential for policymakers to uphold when developing policy that governs the industry. This study showed how the adult-use framework dislodged cannabis industry participants from those tenets by squeezing small business margins, initially making compassionate contributions illegal, and creating a framework that fostered big business
129 investment that could dilute the quality of unique cannabis strands. This study provided an overview of the political culture of US marijuana policy throughout time and, through the theoretical lens of path-dependency, discussed how prohibition mentality provided the foundation for modern policymakers who created a framework that mismatches regulation and the culture it is meant to govern.
What this study failed to do was examine the subculture of the unregulated market. This study focused only on those who have successfully navigated the complex array of marijuana regulation, not those who evade it. Those who evade the legal market are part of a different sub- culture of cannabis retailers guided by different tenets. As this research focused on the regulated community, future research should focus on the unregulated community to uncover mismatches in culture and policy. The unregulated market is a constant variable within the regulated market as policymakers have arguably taken extreme measures building strict cannabis compliance in the regulatory market to make amends for the persistence of the unregulated market.
This study offers only a fraction of insight into retailers' experiences in the California cannabis industry as they have navigated complex business regulations. The study was limited by the reliance on volunteers to connect over the phone due to the COVID-19 global pandemic. The retailers spoke freely about their experiences even when discussing their businesses functioning in the gray market before AUMA. Some participants held strong biases toward the government or policymakers in the area. These biases may have informed their inclination to participate.
The number of retailers was large enough to identify themes, answer the research questions, draw conclusions, and data saturation. The homogeneous group did not capture anyone from "Big Pot" who is an apparent force in the industry. Therefore, the sample was not
130 representative of the entire industry but of those who may be considered small- and medium- sized businesses.
This study chose to focus on the supply-side of regulated marijuana to address a gap in the literature. The researchers acknowledged her own biases. However, the researcher used methods to check the validity of her analysis with peers and her committee.
Recommendations for Future Research
Study Design - This study interviewed retailers in California. While southern and northern Californians were interviewed, additional focus on other homogenous groups could examine retailers from key cities or regions to determine if these findings can be replicated.
Retailers are one part of the supply chain in California's cannabis industry. Other operators within the industry should be interviewed, such as policymakers, association leaders, advocates, those convicted of marijuana offenses, and Big Pot representatives. These are all key players whose attitudes, values, and beliefs align with the study.
Theoretical framework - new laws and mandates governing legal marijuana in California and all over the US are burgeoning into normalcy. Conducting additional research at different points in time and contrasting with these findings across time can enhance the temporal understanding of the social world. This framework could also be used in other states to fully understand other states' marijuana cultures and what about cannabis culture is essential to uphold.
This study used Rational Choice Theory to inform the line of inquiry. Understanding what brings the interviewees maximum utility provided insight into how they rationalize participation in the industry. Other theoretical frameworks could be adopted to alter this study.
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Literature uncovered the importance of placing the policy in time. Continuing to evaluate marijuana policy through path-dependence can illustrate, (1) Constraints of those who have a prohibition mentality and why it is so difficult to change. (2) Assumptions that policymakers emphasize when forming policy. (3) What is the inertia that could dislodge policymakers from the prohibition mentality?
The findings uncovered a interviewees' proclivity to self-identify with the cannabis culture and the "Movement." Interviewees share a solid commitment to wellness. Further utilization of Social Identity Theory (SIT) would serve as a significant resource to understand participant's or policymaker's behavior. Interviewees alluded to a positive social identity, evaluating their social ground compared to others in meso-level social groups. Salient identities in social groups that are compliant with the law can influence the rules and values of other meso- level, periphery social groups who do not comply with laws and regulations.
SIT continues to expand its application beyond behavior to address divisiveness, emotion, collective action, economic models, and political theory in an era of identity politics.
Therefore, it is recommended that further research into how the cannabis industry can harness
SIT to create more a more effective regulatory framework.
In the same vein, as interviewees alluded to the insiders and outsiders of their meso-level social group, there were different groups of outsiders. Outsiders not in the same category of interviewees included policymakers and Big Pot – for example, donors such as Sean Parker.
When interviewees referred to those conducting business in unregulated markets, there was much less tension and animosity in their sentiment than when referring to other said outsider
132 groups. Interviewees' sentiments may be described as acquiescent as there is a relatable commiseration of being subjected to punitive and complex laws.
In acknowledgment of the outsider groups, policymakers, and donors, an avenue of further research should be to adopt a theoretical framework that studies the impact of political elites in policymaking. There is a conceptual relationship between elites, power structure, group categorization, and political representation. Elitist theory can illustrate how an industry fraught with inequality has emerged.
Discussion for Policy Community
This study was not conducted to trigger policy change but rather to contribute to a body of literature informing policy change by identifying salient considerations for policymakers to adopt. It is an oversimplified assumption to attribute the complicated problems of California's marijuana industry to a regressive tax structure or conflicting state and federal policy. Because of the mindset of policymakers in California, they created a regulatory adult-use marijuana framework that fosters the success of big businesses and challenges small businesses. That mindset may be residual prohibition mentality or simply that of an outsider who does not understand the tenets of the culture, someone seeking to profiteer off the Green Rush, or hold views that consumers of cannabis are lazy or detrimental to society. Therefore, the current marijuana regulatory framework dislodges California's cannabis culture by compromising artisanship, diluting the power of small businesses seen as part of a community, and barring those in the community from effectively helping people who seek to use cannabis therapeutically. Recommendations that emerged from this study seek to develop a regulatory structure that sustains the culture of cannabis.
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Recommendation #1. Getting the right people in the room. Ensuring members of the original culture have input developing regulatory framework. The AUMA has over 20 pages of tax revenue allocation, signaling the multitude of special interest groups that seek to benefit from the tax revenue. Expressly, AUMA is noted for accommodating many focus groups and stakeholders, but it was not written for the industry. Having retailers who have been in the industry in California help inform policy from the beginning can achieve the following:
• Ensure a regulatory framework is created that fosters the principles and culture of
California's cannabis community.
• Advise whether rules are regulatory or restrictive barriers to enter or thrive in the
market and how they are perceived.
• Mitigate elitism in policymaking.
Recommendation #2. Regulate for safety, not restrictiveness. Developing a policy for medically prescribed substances is different from developing a policy for substances available to everyone and ensuring that they get into the hands of those who want them safely. These different methods of regulation satisfy different regulatory intent. Federal prohibition of marijuana justifies the notion that marijuana is bad, yet public support for marijuana legalization increases. In states where marijuana is legal for adult use, safety should be the intention of the regulatory model and not restriction.
Recommendation #3. Coalescing community participants. Inherent with the cannabis culture is political activism, which serves the community well when advocating for legitimacy.
However, California retailers tend to be hyper-fractious and are becoming pervasive to policymakers. Hyper-organization has adverse effects forwarding the Movement, and in essence,
134 can be counterproductive. Policymakers in California are faced with a multitude of meetings about issues ranging from bottle colors to social equity. “The Movement” and community would be well served to rally behind common thoughtful objectives with select industry representatives.
It is difficult for legislators to meet with multiple associations in the industry on different bill initiatives, therefore, diluting the potential impact of the community. Californian retailers and industry participants need to coalescence to drive meaningful change as a unified industry.
Recommendation #4. Taxing marijuana appropriately. According to Amlung et al., legal marijuana is treated as a superior good to unregulated marijuana, and therefore consumers are generally willing to pay a higher price. However, there is a tipping point at which legal marijuana is priced too high, and its elasticity can no longer absorb the cost differential. To drive consumers to the legal markets, policymakers should ensure that the overall cost of legal marijuana is within 126% of the cost of unregulated marijuana. Keeping prices of legal marijuana exorbitantly high sustains unregulated market competition.
Instead of an ad valorem tax at each stage in the supply chain, policymakers should consider a single retail tax. Ad valorem taxes advantages explicitly those who can afford vertically integrated businesses. States should limit the extent to which local governments can levy their excise taxes.
Recommendation #5. Model the industry as an artisan non-durable goods market. A
2016 study in the International Journal of Consumer Studies, identified Portland Oregon a unique do-it-yourself craft sector and artisan economy that shares many characteristics with small
California marijuana retailers. These markets' characteristics are anti-globalization, buying local, adopting socially responsible behavior, and being a locus for progressive social change (Curtis,
135
2016). Artisans share a strong communitarian culture. Delineating the economic strata of artisan marijuana from Big Pot co-optation can make room for different players in the market. The artisan market honors craftsmanship,
Unlike the instrumental relationship between mass producer and consumer, the relationship of the artisan and patron is one of trust and loyalty. In the artisan economy, quality will undermine the tendency (encouraged and amplified in the Fordist economy) to over- consume or accumulate a hoard of things because patrons will learn that appreciation is enhanced by simplicity and moderation (Heying, 2010: 43–44).
Autonomy, creativity, authenticity, and liberation are distinct themes of artisan markets
(Munro & O’Kane, 2021). Simultaneously, non-durable goods markets do not preclude big business. Regulating the industry to uphold the nonpecuniary benefits of the industry will ensure that small businesses do not get swept up in the wake of capitalism.
Conclusion
As adult-use legalization marijuana increases in popularity around the United States, more state policymakers will be tasked to develop a regulatory framework that governs the industry. Understanding the tenets and values of marijuana culture can inform the conceptual framework central for the industry to thrive. If policymakers employ the wrong mindset or underappreciation of the culture, they can create a regulatory framework that sets punitive and prohibitive barriers to enter and function in the industry, perpetuating illicit market activity.
Suppose policymakers can employ an appreciation for the culture and artisanship of the industry.
In that case, they can develop a framework that provides safe products, provides opportunities
136 small business for small businesses to thrive, addresses social inequities, and allows consumers to access use marijuana therapeutically and lawfully.
Throughout the time of the study – 2019 to May 2021 – multiple states passed cannabis laws, whether it was decriminalization, medical marijuana laws, adult-use, or whether it would through voting measures or state legislature. Some of the study’s data is at risk of becoming quickly outdated because of the open window of cannabis policymaking the US is experiencing.
Nevertheless, this is precisely why this study is essential at this moment. This research offers academic and validated social science in an industry where social, academic analysis is lacking.
The cannabis counterculture turned subculture is not going away and should continue to be studied through many theoretical lenses.
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APPENDICES
Appendix 1. Interview and Consent Protocol Emailed to Interviewees
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Appendix 2. Interview Guide to Inform Line of Inquiry During Interviews