Colorado's rollout of legal marijuana is succeeding: a report on the state's implementation of legalization.

• Author: Hudak, John
• Position: Western Reserve University School of Law Interdisciplinary Conference on Marijuana, Federal Power & the States

CONTENTS INTRODUCTION I. WHY IMPLEMENTATION MATTERS General Implementation Demands II. WHAT IS A "SUCCESSFUL" IMPLEMENTATION? III. KEY ELEMENTS OF THE COLORADO MODEL A. Rapid Response: The Implementation Task Force B. Signals from the Top: Gubernatorial Leadership C. Preventing Crossed Wires: Internal Coordination D. Administrative Reboot: Agency Reorganization and Staffing E. Nuts and Bolts of Policy Change: The Regulatory System 1. Seed-to-Sale Tracking System 2. Vertical Integration 3. Temporary Barriers to New Entry and Preferences for Existing Producers 4. Limits on Quantities Purchased 5. Video Surveillance Requirements 6. Marijuana Revenue and Funding Distribution F. Colorado's Change in Culture and Perspective IV. THE CHALLENGES OF IMPLEMENTATION: PRESENT AND FUTURE A. Edibles and the Path to Overindulgence B. Homegrows and the Limits of the Regulatory State C. Medical Marijuana and Pot Tourism: The Problem of Misaligned Incentives CONCLUSION: IS COLORADO SUCCEEDING--AND WHY? APPENDIX Colorado's Regulatory Recipe for Retail Marijuana: Six Essential Ingredients 1. Seed-to-Sale Tracking System 2. Vertical Integration 3. Temporary Barriers to New Entry; Preferences for Existing Producers 4. Limits on Quantities Purchased 5. Video Surveillance 6. Marijuana Revenue and Funding Distribution ABSTRACT

In November 2012, Colorado voters approved Amendment Sixty-Four to the state constitution, allowing for cultivation, processing, and sale of recreational marijuana. The move was unprecedented by any state, national, or international standards, and in the months following, the state began the tremendous task of implementing the voters' will. This required statutory, regulatory, and other changes that would construct and govern a market for cannabis products. With no true model to guide Colorado, the state ultimately moved forward. This Article describes the challenges the state faced in this effort, how it overcame those challenges, and what level of success Colorado has had in dealing with legal marijuana. In the process, this Article walks through the broad framework of the regulatory state and explains why and to what effect the state has achieved its goals. Overall, Colorado has been broadly successful in implementing Amendment Sixty-Four and bringing legal marijuana to the Centennial State. However, the process has not been perfect, as state regulators and officials still face challenges in this new area of public policy.

INTRODUCTION (1)

In November 2012, Colorado voters decided to experiment with marijuana. Formally, they approved Amendment Sixty-Four, modifying the state constitution. (2) This move was historic and did something, which, to that point, no other state--or modern foreign government--had ever done: legalize retail (recreational) marijuana.

As part of the amendment, the state was required to construct legal, regulatory, and tax frameworks that would allow businesses to cultivate, process, and sell marijuana not simply to medical patients--as had been happening in Colorado for more than a decade--but to anyone twenty-one and older. This change came despite existing federal prohibition of marijuana and opposition from the governor, state attorney general, many mayors, and the law enforcement community.

At its heart, this Article is about good government and does not take a position on whether the legalization of retail marijuana was the correct decision. Instead, it takes for granted that Amendment Sixty-Four and its progeny are the law and should be implemented successfully, per voters' wishes. The Article examines what the state has done well and what it has not. It delves into why and how regulatory and administrative changes were made. Finally, it offers an evaluation of how effective the implementation has been. Key findings include the following:

* It is too early to judge the success of Colorado's policy, but it is not too early to say that the rollout--initial implementation--of legal retail marijuana has been largely successful.

* The state has met challenging statutory and constitutional deadlines for the construction and launch of a legal, regulatory, and tax apparatus for its new policy. In doing so, it made intelligent decisions about regulatory needs, structure of distribution, prevention of illegal diversion, and other vital aspects of its new market. It made those decisions in concert with a wide variety of stakeholders in the state.

* Colorado's strong rollout is attributable to a number of elements. Those include (1) the leadership by state officials; (2) a cooperative, inclusive approach centering on task forces and working groups; (3) substantial efforts to improve administrative communication; (4) adaptive regulation that embraces regulatory lookback and process-oriented learning; (5) reorganizing, rebuilding, and restaffing critical state regulatory institutions; (6) and changes in culture in state and local government, among interest groups, and among the public.

* Regulations address key concerns such as diversion, shirking, communication breakdowns, illegal activity, and the financial challenges facing the marijuana industry. However, some regulations were also intended to help regulators, as they endure rapid, on-the-job training in dealing with legal marijuana.

* Despite real success, challenges involving edibles, homegrown marijuana, tax incentives, and marijuana tourism remain, and the state must address them in a more effective way.

Recent failures at the federal level show Americans daily what happens when a government refuses to govern and is unwilling or unable to make changes in the face of policy realities. Colorado made a conscious effort to preserve enough flexibility to be effective over time. A strong rollout is important, but what happens after the rollout is just as important. With its emphasis on flexibility, Colorado took out an insurance policy against unintended consequences.

1. WHY IMPLEMENTATION MATTERS

   In any policy area, the implementation of laws and regulations is essential for administration and governance. Legalized marijuana in Colorado is no different. In fact, this specific policy area is unique in many ways that make attention to implementation all the more important.

   General Implementation Demands

   The implementation of any policy is critical. Government failures are expensive, create market uncertainty, lower the morale of personnel, create inter- and intra-agency management problems, and cause costly public and political embarrassment. High-profile implementation failures, such as the rollout of the Affordable Care Act's federal exchange website, the Federal Emergency Management Agency's response to Hurricane Katrina, or the management of the Vietnam War are ingrained in the minds of many Americans. In each of those cases, public officials faced tremendous backlash.

   Implementation matters for more than headlines and political costs. The launch of any new program is often its most risky period. Failure rates can be high; politicians' patience can be limited; public skepticism is often substantial. Narratives about success or failure--regardless of the realities of administration--can take root and have dramatic effects on public and political support. This incubation period for public policies can lead to rapid reversal, as was seen in the 1980s after Congress passed the Medicare Catastrophic Coverage Act of 1988. (3)

   Moreover, early implementation decisions are often the most important. The way in which a program is initially designed and executed will shape its subsequent development. Because of bureaucratic inertia and political entrenchment, righting the ship is often difficult after setting a wayward course.

   For legalized marijuana, successful implementation matters for other, unique reasons. First, Colorado's experiment raises unusual federalism issues. While marijuana cultivation, distribution, possession, and use are legal in Colorado, all those activities violate numerous federal laws and regulations. (4) In response, the Justice Department issued a memo in August 2013 (referred to as the "Cole Memo") that clarified federal government priorities in this area. (5) The memo says that the federal government expects states that "endeavor to authorize marijuana production, distribution, and possession... will implement strong and effective regulatory and enforcement systems that will address the threat those state laws could pose to public safety, public health, and other law enforcement interests." (6)

   The federal government, in the context of Justice Department enforcement, will take a hands-off approach to the enforcement of the Controlled Substances Act and other statutory and regulatory prohibitions if, and only if, states implement regulations effectively and comprehensively. Subpar implementation poses a risk that the federal government can step in, in a variety of ways, and shut down legalized marijuana in the state.

   Beyond the federal question, Colorado's implementation efforts have consequences for other states. Public opinion is changing, (7) and public policy is moving toward legalization, but many states are waiting to see what the experience in Colorado will be. (8) If the Colorado model is a success, other states that consider retail legalization measures may well model their own legal and regulatory systems on Colorado's. Failure in Colorado will either deter states from legalizing or force them to chart a very different path in administering legalization policy.

   In short, Colorado's early implementation decisions will be considered the Colorado Model--a model that will inform and influence marijuana policy, potentially, for years to come.

2. WHAT IS A "SUCCESSFUL" IMPLEMENTATION?

   In the context of marijuana policy, implementation involves the design, construction, and execution of institutions, rules, and processes related to that policy. Success occurs when those institutions, rules, and processes...