Elsevier

Ecological Economics

Volume 164, October 2019, 106366
Ecological Economics

Analysis
Cannabis legalization by states reduces illegal growing on US national forests

https://doi.org/10.1016/j.ecolecon.2019.106366Get rights and content

Highlights

  • Ten states have legalized recreational cannabis since 2012 and have adopted other related policies.

  • Recreational cannabis legalization reduces numbers of grow operations on national forests.

  • Minimum sentencing guidelines and cannabinoid regulation are associated with fewer grows.

  • Taxes on sales have positive impacts on illegal growing.

  • Law enforcement presence has a negative effect on illegal growing.

Abstract

Ten US states and the District of Columbia have legalized cannabis as of November 2018, and have adopted other policies regarding production, consumption, and the penalties associated with it. These policy changes may have affected illegal growing operations on national forests of the United States. Using data on the number of cannabis grow sites reported on 111 national forests between 2004 and 2016 together with information about state cannabis laws and when they were implemented, we find that recreational cannabis legalization is associated with decreased reports of illegal grow operations on national forests. Laws mandating minimum sentences for illegal cannabis possession or sales are associated with fewer reported grows, as is strict regulation of cannabinoid products. Taxes on sales have positive impacts on illegal growing, while law enforcement presence has a negative effect. Counterfactual simulations for 2016 quantify the magnitudes of these policy effects.

Introduction

The legal landscape of cannabis production and consumption in the United States has shifted markedly in the past decade. Since 2012, ten states (Colorado, Oregon, Washington, Alaska, California, Nevada, Maine, Massachusetts, Vermont, and, in November 2018, by popular referendum, Michigan) and the District of Columbia have legalized recreational cannabis consumption and, except for the District of Columbia and Vermont, acted to implement legislation that also legalizes commercial production. By 2016, 23 states had legalized medical cannabis. Additionally, a number of states, as far back as the 1960s, have decriminalized the possession of small quantities of cannabis for personal use (e.g., Sacco and Finklea, 2013). In states where commercial production is legal, it is subject to strict regulation, including requirements for chain of custody, reporting, and licensing with associated fees (Bryant, 2017). Typically, legal retail purchases of recreational cannabis are taxed at the point of sale at rates higher than for other (non-food) products (ad valorem equivalent taxes ranging up to 45%), although medical cannabis is usually taxed less or not at all. For example, cannabis sales yielded $315 million (m) in taxes and $4 m in licensing fees for the state of Washington in its fiscal year 2017 (July 2016–June 2017) (Washington State Liquor and Cannabis Board, 2018), $234 m in taxes and $13 m in licensing fees for Colorado in calendar year 2017 (Colorado Department of Revenue, 2018), and $63 m in state taxes and $10 m in local taxes for Oregon in calendar year 2016 (Oregon Department of Revenue, 2018). Commercial production and retail operations are further limited by federal laws classifying cannabis as a Schedule I drug (US Drug Enforcement Administration, 2018), which prohibits banks from handling revenues or issuing loans to assist in cannabis production, transport, processing, or sales (pursuant to the Comprehensive Drug Abuse Prevention and Control Act of 19701 and the Controlled Substances Act of 1971). Federal tax regulations, including US Code 26 Section 280E (Legal Information Institute, 2018), also place financial burdens on cannabis operations. Such restrictions likely slow expansion of state-legalized production and retail operations.

The combination of persistent cannabis demand (e.g., Merline et al., 2011; Wall et al., 2004; Azofeifa et al., 2016) and historical restrictions on legal commercial production for recreational purposes, in all states prior to 2012 and in most states since 2012, has sustained an economic and policy environment in which illegal production is widespread in the United States. Although precise numbers on the size of the illegal market are elusive, Yakowicz (2017) estimated that illegal cannabis sales in North America exceeded $46 billion (b) in 2016, representing 87% of all sales that year. In the United States, annual cannabis sales, both legal and illegal, were estimated at $50b in 2018, with legal sales accounting for just over $10b (Corbett, 2018; Reisinger, 2018). According to the US Department of Justice (2017a), the two main source states for domestic marijuana are Colorado and (especially) California, which by itself may supply as much as 70% of the cannabis consumed nationwide (Carah et al., 2015). Most of California's production is exported illegally to other states; indeed, <20% of the cannabis grown in California is consumed there (Fuller, 2019a). Smuggling that surplus – which is thirteen times the size of Colorado's total production – to the eastern United States can be particularly lucrative since cannabis prices are commonly three times as high as in California (Fuller, 2019b). Although Mexico is the most significant foreign source, the total weight of cannabis seized along the US-Mexico border declined almost 47% between 2011 and 2016 (US Department of Justice, 2017a). With respect to demand, the Substance Abuse and Mental Health Services Administration (2018) reported survey results showing that, in 2017, 9.6% of the US population 12 years of age and older had used cannabis in the month prior to the survey interview, an increase from the 7.5% reported for 2013 (Azofeifa et al., 2016). Generally, cannabis usage is highest in states that have (legal) personal use laws. Thus, demand is expected to continue to increase as more states decriminalize cannabis usage,2 along with illegal cultivation and transport, especially to states where medical and recreational cannabis production are still illegal (US Department of Justice, 2017a). In short, the illegal cannabis market in the United States is likely to remain robust, for at least the near term, despite the expanding legal market.

This market environment has encouraged a variety of production methods that are largely hidden from public view. The US Department of Justice (2011) reported that the rate of outdoor grown plant seizures nationwide increased >200% from 2005 to 2010, fueled especially by apparent demand growth and profit-earning opportunities for domestic producers. The report stated that producers face low average costs, at $75 per pound, and sell their product on the street in typically smaller quantities (e.g., an ounce) that translates into per-pound sales as high as $7000. The Department of Justice also reported that cannabis eradicated from federal lands, especially national forests, comprised 44% of all outdoor grown plants seized in 2010. According to Koch et al. (2016), illegal growing was prevalent on national forests through 2012, especially in California, Oregon, and Washington, three states that have recently legalized recreational cannabis. These operations threaten the people who visit and manage such forests and create environmental damages (Eth, 2008; Carah et al., 2015; Thompson et al., 2017) (Table 1). The Office of National Drug Control Policy (2014) stated that illegal outdoor grows negatively affect natural resources through their use of a variety of chemicals (e.g., fertilizers, pesticides), terracing, and the poaching of wildlife by grow site workers. Interdiction operations strain Forest Service law enforcement resources, whose sworn officers number fewer than 1000 nationwide (Bouchard, 2007; Koch et al., 2016).

Data on reported grow operations, which are illegal on all federal lands, including the national forests of the United States,3 confirm that illegal production continues despite circumstances where recreational and medical cannabis are legal to produce. Grows continue to be reported in states that have legalized as well as in states that have mandatory sentencing rules for convicted producers and traffickers and that have strict regulations (though varying across states in specifics) on cannabidiol (CBD), which is used in medical applications, and similar cannabinoid products. New national forest grows also continue to be found in states with legalized cannabis in spite of potentially increased law enforcement funding designated to combat illegal production. For example, Colorado dedicates 35% of cannabis tax revenue for state and local law enforcement (Bryant, 2017).

In spite of data documenting grows on national forests, no empirical research has been published that tests whether cannabis-related policies, including enhanced law enforcement efforts, affect illegal production on national forests. In an era of ongoing and anticipated loosening of cannabis restrictions across the United States, such research could help land management and law enforcement agencies design more effective means of managing both illegal and legal production and consumption of cannabis. This research may be especially pertinent to the USDA Forest Service, which has both land management and law enforcement responsibilities on national forests. In states with legal recreational and medical cannabis, state governments need to understand how or whether sales taxes on legal cannabis boost production of illegal cannabis, potentially cutting into tax takes from legal cannabis sales. These governmental bodies also could benefit from an assessment of the practical effects of deployment of law enforcement resources on the amount of illegal production, given that such production likely dampens legal sales and generates environmental damages.

The objective of our research was to assess whether policies have affected the number of illegal grow operations on national forests of the United States. We believe this is the first study to scientifically assess the effects of policies on illegal outdoor grows in the United States and on national forests. The modeling also quantifies the effects of neighboring states' policies, recognizing the potential importance of interstate trafficking, in addition to the policies of the state (or states, since some national forests cross state lines) containing each national forest. Furthermore, our analysis addresses the difficulty of inference and the model biases and inconsistencies associated with response-based sampling, in which the existence of an observation in the dataset is partially determined by variables that affect reporting.

Section snippets

Conceptual model

Recent research (Koch et al., 2016) identified factors affecting decisions by growers to establish cannabis operations on national forests in California, Oregon, and Washington. First, grows are favored in places where productivity is highest: near water sources for irrigation, on south-facing slopes, in warmer climates, and at lower elevations. Second, grows are more prevalent in times and places where law enforcement levels are low, cannabis street prices are high, and difficult economic

Results

The negative binomial random effects estimate of Eq. (7), the count of reported grows on national forests for the tax-adjusted indicator model is presented in the last column of Table 4. (An estimate of the tax-ignorant version of the model is contained in Table S1, in an online supplement.) Table 4 also presents the estimates of the control function equations for cannabis price changes and the numbers of Forest Service law enforcement officers per capita (FS LEI Per Capita). The control

Discussion

We found that policies legalizing recreational cannabis production and consumption are associated with significantly lower numbers of reported illegal grows on national forests. The effects are economically and operationally meaningful; simulated elimination of existing state legalization provisions would result in double-digit percentage increases in reported grows on national forests, while further expansion of the set of states with such laws passed by statewide referenda in 2016 (but only

Conclusions

With information on illegal cannabis growing on national forests nationwide, 2004–2016, we estimated negative binomial random effects models of the number of reported grows. These models demonstrated statistically significant and positive price responsiveness of grows as well as statistically significant and large effects of policy variables. Most notably, our models suggest a linkage between state-level legalization of recreational and medical cannabis and a reduction in illegal growing on

Acknowledgements

The authors thank Drs. Barry K. Goodwin, Patricia A. Champ, David T. Butry, José J. Sánchez, James M. Vose, and James M. Guldin for helpful comments in an earlier draft of this article.

References (76)

  • G.S. Becker

    Crime and punishment: an economic approach

    J. Polit. Econ.

    (1968)
  • M. Bouchard

    A capture–recapture model to estimate the size of criminal populations and the risks of detection in a marijuana cultivation industry

    J. Quant. Criminol.

    (2007)
  • M. Bouchard et al.

    Journey to grow: linking process to outcome in target site selection for cannabis cultivation

    J. Res. Crime Delinq.

    (2013)
  • A.R. Bryant

    Taxing marijuana: earmarking tax revenue from legalized marijuana

    Georgia State Law Review

    (2017)
  • J.K. Carah et al.

    High time for conservation: adding the environment to the debate on marijuana liberalization

    Bioscience

    (2015)
  • Y.-W.L. Chu

    Do medical marijuana laws increase hard-drug use?

    J. Law Econ.

    (2015)
  • Colorado Department of Revenue

    . Marijuana tax data

  • E. Corbett

    The legal marijuana market is catching up to beer and wine. Fortune

  • D.B. Cornish et al.

    The Reasoning Criminal: Rational Choice Perspectives on Offending

    (1986)
  • D.B. Cornish et al.

    Understanding crime displacement: an application of rational choice theory

    Criminology

    (1987)
  • Denver Post

    Feds try to fix damage from elaborate pot farm

  • W. Eth

    Up in smoke: Wholesale marijuana cultivation within the national parks and forests, and the accompanying extensive environmental damage

  • P. Fajnzylber et al.

    Inequality and violent crime

    J. Law Econ.

    (2002)
  • T. Fuller

    ‘Getting worse, not better’: illegal pot market booming in California despite legalization. New York Times, 27 April 2019

  • T. Fuller

    Now for the hard part: getting Californians to buy legal weed. New York Times, 2 January 2019

  • W. Gibson

    Mean maximum temperature for Alaska 1971-2000. National Park Service, Alaska Regional Office GIS Team

  • W. Gibson

    Mean minimum temperature for Alaska 1971-2000. National Park Service, Alaska Regional Office GIS Team

  • W. Gibson

    Mean precipitation for Alaska 1971-2000. National Park Service, Alaska Regional Office GIS Team

  • B.K. Goodwin et al.

    Spatiotemporal modeling of Asian citrus canker risks: implications for insurance and indemnification fund models

    Am. J. Agr. Econ.

    (2009)
  • High Times

    (Various online issues in the Business section)

  • T. Hirschi

    On the compatibility of rational choice and social control theories of crime

  • M. Hoffman

    The price of weed: across America, over time

  • W. Houston

    Warranted search uncovers large marijuana grow operation, environmental damage. Times-Standard online

  • ICPSR

    Uniform Crime Reporting program data: police employee (LEOKA) data (2003-2015, Stata datasets)

  • B. Kilmer et al.

    What America's Users Spend on Illegal Drugs, 2000–2010

    (2014)
  • E.E. Leamer

    Let's take the con out of econometrics

    Am. Econ. Rev.

    (1983)
  • Legal Information Institute

    26 US Code § 280E-Expenditures in connection with the illegal sale of drugs

  • K. Loughead et al.

    How high are marijuana taxes in your state?

  • View full text