Enforcement or Compliance

11 Jan Enforcement or Compliance

The War on Drugs was a failure. It did not stop the drug trade. It just grew the prison system. The War on Cannabis continues through aggressive state and local enforcement and prohibition measures with no end in sight. And we have a massive illicit market. This is all very bad and we collectively need to figure out how to get people to comply with state law rather than penalizing everything.

The issue of enforcement or compliance is probably the biggest one most states face at the policy level. Today, we’ll look at the argument that a compliance focus is better than an enforcement focus. The thought process goes that three things will reduce the illicit market: (1) federal and statewide legalization, (2) incentives to access the legal market, and (3) putting compliance ahead of enforcement. Let’s unpack this below:

Prohibition and enforcement didn’t work

It goes without saying that enforcement and prohibition, when combined, led to decades of a failed war on cannabis, imprisonment, and misery – impacting in many cases people from the most marginalized parts of American society. Despite the Controlled Substance Act’s disincentives — up to lifetime prison sentences — people still grew, sold, and consumed cannabis.

To go off on a tangent, the decades following the formation of the Drug Enforcement Administration saw the number of overdoses and drug arrests actually go up. Last year, we noted that “Americans are now 19 times more likely to overdose on drugs and about 5 times more likely to be arrested for drugs than they were the year the DEA was created.” There were 100,000 drug overdose deaths in the U.S. this year. These deaths aren’t from cannabis, but this just goes to show how bad of a job the government is doing in the War on Drugs.

Despite all of this, some folks seem to think that prohibition and compliance is still the answer. In California, most cities still prohibit or severely restrict cannabis and people can go to jail for doing things that would be legal in a neighboring town. Yet, the illicit market is huge. In 2019, there were reportedly 3,000 illegal cannabis businesses in California. Prohibition, even combined with enforcement, failed.

The enforcement v. compliance tradeoff

In 2013, the federal government sort of changed its tune with the Cole Memo. This federal cannabis enforcement memo limited federal cannabis enforcement to preventing a list eight things that the feds deemed problematic, such as cannabis sales to minors or cartel activity. So, (1) in states that adopted laws consistent with the Cole Memo’s priorities, and (2) for businesses that complied with state law, the federal government basically followed through on its promise not to prioritize enforcement.

This left enforcement to state regulators. States did everything from overzealous enforcement to basically nothing. The State of Washington, for example, became so aggressive with enforcement that its legislature forced the agency to focus on helping businesses comply with the law– a pretty good outcome. California’s regulators have done basically nothing and allowed the illicit market to grow so big that even aggressive enforcement efforts cannot change it.

The compliance approach

Some government actors want to avoid the disincentives of enforcement that don’t work, and opt for the incentives of compliance, which just might. The big issue is that the pool of non-compliant actors includes everything from straight-up illegal actors to licensed companies that negligently violate state laws, and everything in between. Obviously, the incentives and disincentives are very different for each different group of folks, which makes going about this a huge challenge. There are a few steps that are key to doing this:

Step 1: Legalize cannabis

The first step here is broad legalization at every level of government. Besides just criminalizing cannabis, federal law imposes insane tax and compliance costs on businesses. State and local prohibition can have similar outcomes. This makes participating in the legal industry daunting for some. Hence the continued illicit market.

Step 2: Incentivize compliance (and you won’t need enforcement)

Next, the government needs to incentivize entering the legal market. We’ve worked with thousands of businesses in this space and know where the pain points and fixes are, and they include things like:

• Lowering or eliminating taxes
• Eliminating license caps and competitive licensing
• Reducing license fees generally and eliminating them for social equity applicants
• Increasing license processing times
• Eliminating or reducing the role of local agencies in the license process
• Reducing regulatory burdens that require things like massive upfront construction

All of these things (and this list isn’t exhaustive) drive up both the time it takes to get a license and impose costs that most founders just don’t have. Making it easier and cheaper to get into the legal market is the only way to incentivize it. And if people enter the industry, enforcement becomes less of a priority.

Step 3: Compliance over enforcement

Once people are in the industry, the compliance v. enforcement dynamics change a lot. There are really two big buckets of potential issues here:

First, let’s talk about licensees that break rules. Agencies really have three choices here: (a) do nothing, (b) enforce those rules and issue penalties, or (c) try to help licensees get back into compliance. Option (a) is a really bad choice (the option California’s taken for the most part). My view is that except for serial violators or extreme misconduct, option (c) should be the go-to approach for regulators– help to fix a mistake rather than punishing it. This will incentivize the industry to be more candid and apparent with the agencies, foster trust, and reduce the burdens and expenses of actually enforcing, taking people to court, etc.

Next, let’s look at businesses that operate illegally outside the illegal market. If, after legalizing cannabis and lowering barriers to entry, this still happens, this may be the one place where the government’s hands are tied on enforcement. But the hope would be that the government incentivizes compliance in state licensed programs to such a degree that people participate it it willingly and the illicit market dissipates as a result.

Conclusion

My view is that legalization, incentives for the licensed market, and a compliance focus is really the only way to end both the waste of time that is the War on Drugs (for cannabis) and the illicit market. Most of this stuff is easier said than done, but if states would adopt this mindset when thinking about how to regulate cannabis, they may avoid the headache of a massive illegal market that they cannot control.