Dean and Marsha don't look like your average criminals.
Both in their sixties, the pair is warm and genuine, reminiscing over their younger days and telling stories of their grown children. In their well-kept, modest rural home near Gig Harbor, Marsha's framed cubist paintings cover every wall. With Dean's round face and long white hair, and Marsha's deep laugh lines and penchant for hugs, the two seem more like a pair of content grandparents.
But in the eyes of the state — despite their two medical marijuana licenses, entitling them to 30 plants, a number they're careful not to exceed — criminals is exactly what Dean and Marsha are. Because of the fact, both spoke on the condition that their whole names not be used.
"We're part of the evil armed cartels," Marsha said, with a chuckle and a smile in her living room late last month.
What puts the couple outside the bounds of the law is what they do with the marijuana they harvest. About two-thirds of it goes legally to dispensaries, destined for prescription-holding medical marijuana patients. But the other third goes to the black market, into the hands of people without prescriptions.
For the Washington State Liquor Control Board, the agency charged by Initiative 502 with creating a legal market for marijuana in the state, that makes them part of a major emerging problem: What to do about black market overflow from the state's medical marijuana market.
Initiative 502, which legalizes the production and use of marijuana, was intended to eliminate the demand for black market weed, but a surplus grown under the legal umbrella of the medical marijuana industry is making that a challenge.
A simple equation
For longtime Skagit County medical marijuana grower Brendan Howley, the arithmetic is simple. Current state law allows a grower to keep 15 plants and 24 ounces of dried marijuana on hand. Skilled growers though, with high-tech setups, can get more than 24 ounces out of just a single plant. If a grower grows all of his legal plants, Brendan explains, he will inevitably end up well over the legal limit.
"I don't think an expert grower can conform to the law the way it’s written," Howley says. "An expert grower can break the law with one plant."
The fact that Brendan is able and willing to move all of his product through legal channels puts him in the vast minority. Most growers, he says, operate with one foot in the black market, selling part of their product to legal dispensaries, and part to middlemen or dealers, who then sell to recreational users.
Currently, if growers hold onto excess product after harvest, taking the time to move it themselves to a dispensary, they can be arrested for having too much on hand. On the other hand, the black market pays from 25 to 50 percent more than dispensaries, which buy at wholesale rates low enough to tack on their own premiums afterward.
Since growers are breaking the law whether they keep extra product or not, Howley says the extra cash is just enough to sway most people toward pushing their extra legally-grown marijuana into street supplies.
One way the plant moves from growers to the street is through people like Harvey, a "middleman," though not a dealer. Harvey usually works with three to five growers at any one time, buying or accepting marijuana deliveries on trust and then selling to dealers. Like Dean and Marsha, he asked to be identified by first name.
A former employee at a medical marijuana dispensary, Harvey has known many of his growers for years, even decades. Although his work has eventually
Even after the liquor control board brings most of the market into the open, Harvey thinks there will still be a place for people to sell the plant illegally.
Under I-502, marijuana will be taxed 25 percent each time it changes hands. The law also prohibits growers from owning stores or store-owners from growing, meaning that by the time legal pot reaches the consumer, it will have been sold — and taxed — at least twice. Potentially driving the cost up even further, I-502 also requires independent testing of each type of marijuana a producer sells.
"It seems like there’s a lot of hands for it to pass through,” Harvey says. “In the black market world, there’s usually the grower, the middleman, the seller and the user. If the taxation is high enough, it will drive it back toward the streets."
The lessons of history
The parallel between the passage of Initiative 502 and the end of the prohibition on alcohol is striking.
In 1933, like today, the country was in the depths of a financial crisis — the Great Depression. An abrupt change in public opinion about alcohol and a tax-strapped government jumped on the new revenue — especially since, like today, the law was already being widely ignored.
"One reason prohibition was repealed was so the federal government could get tax money, too," said Bill Rorabaugh, a University of Washington history professor and author of “The Alcoholic Republic,” a book on America's temperance era.
"Roosevelt wasn't dumb. Why should we have all these people drinking untaxed beer?"
While other states saw serious problems with organized crime and corruption after prohibition, Rorabaugh says Washington's Liquor Control Board was uniquely successful in regulating the state's alcohol market due to a few key factors.
First, there was a unity of leadership. The first chair of Washington's Liquor Control Board was a World War I Admiral named Luther E. Gregory, who was determined to root out corruption and straighten out the state’s liquor market.
Second, the board used a carrot-and-stick approach with bootleggers, licensing all the businesses it could — but striking those who violated its rules with lifetime bans from the industry. Over half a decade, the number of liquor licenses in the state decreased by half as the board weeded out violators, simultaneously setting a dramatic example and rewarding those who remained with steadily increasing slices of the market.
Third, Gregory had a strong understanding of economics, and made low taxes on the new market a key priority. Low taxes allowed newly-opened, state-run liquor stores to keep their prices low in order to compete with bootleggers and their cheap homebrew.
The Legislature at the time pressured Gregory to raise taxes on the market right away, in order to get revenue flowing. But Washington’s governor at the time stood by Gregory, promising to veto any legislation that ran contrary to the Liquor Control Board's agenda.
Years later, the Liquor Control Board would jack up liquor taxes significantly, until they were among the highest in the nation. Still, Gregory waited six years to do it. Just long enough to break the back of the bootlegging industry.
In an almost eerie parallel, Rep. Chris Hurst, D-Enumclaw, led a group of lawmakers last month in the very first legislative response to I-502: a letter to the Liquor Control Board, suggesting, among other things, an increase in licensing fees.
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