Sunday, May 17, 2020
The title of this post is the title of this new paper recently posted to SSRN and authored by H. Justin Pace. Here is its abstract:
Marijuana is prohibited at the federal level. At the same time, states are not only decriminalizing marijuana but attempting to provide a regulatory apparatus for its sale. This has created a unique business environment. In some ways there is a true “free market” for marijuana in states where it has been legalized — free, that is, of the legal and financial infrastructure available to fully licit businesses in America.
Contracts may not be enforceable because they lack a legal purpose. Relief in bankruptcy court may not be available, either as a debtor or as a creditor. Use of a legal entity to limit liability and take advantage of entity personhood may be impracticable. Federal money laundering and other laws effectively restrict access to the banking system, forcing marijuana businesses to operate as purely cash businesses. The USPTO refuses to register federal marks related to marijuana. Marijuana businesses face challenges in obtaining competent legal counsel to guide them through a market free on one hand regulated on the other.
The odd legal posture has implications for considering marijuana policy through an economic lens. Any analysis of marijuana externalities should consider any additional externalities created by that odd legal posture. An analysis of policy options for mitigating negative externalities should also factor in the additional costs for marijuana businesses due to this “free market.” The uncertainty, from a policy perspective, counsels in favor of applying heuristics when considering policy options: this paper offers three and applies each.
This is the first paper to use this situation to examine the value offered by our legal and financial infrastructure. An inability to use it hurts marijuana businesses in very real ways. But, at the same time, marijuana businesses are able to operate — to thrive even — nonetheless. That infrastructure is both more and less valuable than is appreciated, and in surprising ways. Ultimately, this paper advocates federal action that facilitates a continued incremental, state-by-state approach to marijuana reform.