Who'd Profit from Legal Marijuana?

The Report out of Florida streaked across the wires, was ripped off and read on radio and played big on the TV evening news. The Drug Enforcement Administration said in late 1978 that marijuana is a 48-billion-dollar-a-year industry in the United States. Marijuana, said the DEA, is the third biggest business in the U. S. General Motors is first, Exxon is second, pot is third--far ahead of Ford, Mobil Oil, Texaco and Standard Oil. Bigger than Gulf Oil, Chrysler and U. S. Steel combined.

Forty-eight billion dollars? Americans are shelling out 48 billion dollars for an illegal drug? Hell, total cigarette sales are less than 18 billion dollars. We pour only 38 billion dollars into liquor, beer and wine and they're legal and easy to get. How can we possibly spend 48 billion dollars for something we have to buy on the sly?

A Drug Enforcement Administration spokesman now says it was all a mistake. DEA Deputy Administrator Frederick Rody, then chief of the DEA's Miami regional office, "overestimated" the market when he was discussing America's drug habits with a newspaper reporter. The dollars spent on marijuana, heroin and cocaine might total 48 billion, says the DEA, but marijuana alone was between a 13-billion-dollar and a 20-billion-dollar business in 1977, and possibly a 25-billion-dollar illicit enterprise in 1978.

No sooner had the headlines dried than propot forces began analyzing the overestimate. An honest mistake? Or a clumsy trial balloon sent aloft to convince Congress the DEA needed a bigger appropriation for dope fighting?

No doubt about it, says Keith Stroup, cofounder of the National Organization for the Reform of Marijuana Laws (NORML) and now an attorney in private practice in Washington, D.C. "The DEA is trying to scare the hell out of everybody. But I think it's going to backfire. People are going to think, if it's that big, then why the hell are we pissing [money] into a bottomless pit?"

The Department of Health, Education and Welfare has estimated that 43,000,000 American have tried marijuana and 16,000,000 puff the stuff regularly. The U. S. alone is spending close to one billion dollars in Federal funds to stamp out drug abuse and smuggling and to break the back of black-market drug merchants. A recently concluded three-month crackdown, code-named Operation Stopgap, virtually turned the U. S. Coast Guard into a navy of narcs, scouring the seas for smugglers, while U. S. Customs and other Federal agencies searched the skies and police the ports.

Stopgap has had an impact. Some 16 mother ships steaming north from Colombia--their holds bulging with 130-pound bales of Santa Marta Gold--were scuttled by Federal agents, and some 500 tons of the cargo captured. The bust sent smugglers scurrying, but scarce supplies, inflation and nonstop demand have also sent the street price of grass soaring to new heights. The Mexican pot that once fetched ten dollars for a baggie ounce a decade ago has been replaced by the higher-grade Colombian that now sells at anywhere from $50-$60 an ounce up to $130 and more for a three-fingered lid.

Meanwhile, the massive war on marijuana hasn't severed the Colombian connection--the 5000-mile network of peasant farmers, cunning smugglers and daring dealers who've become rich supplying pot-starved Americans. DEA administrator Peter Bensinger, who figures there are 100,000 to 150,000 people involved in growing and smuggling marijuana, admits there is no way his 2000 agents can ever stop the flow of Colombian grass. "You need international cooperation to eradicate it at the source," a DEA official adds. "We can't do it alone acting as a super police agency." Although the Colombian government teamed up with U. S. lawmen to track down smugglers during Stopgap, it appears that sheer economics--the ancient law of supply and demand--will keep Colombian pot (and cocaine) moving north.

Small wonder. Colombia earns only two billion dollars a year exporting its coffee, according to Colombian finance minister Jaime Garcia Parra. But DEA officials have been quoted as estimating the country pockets seven billion Americans dollars from the marijuana it exports. Others say marijuana farming and trafficking now account for almost 50 percent of Colombia's gross national product. With its largest legal export--coffee--clearly on the back burner, what incentive does the Colombian government really have to uproot its more profitable industry? Certainly, the country isn't politically dependent on the United States. Colombia has received only 1.3 billion dollars in U. S. foreign aid in 33 years.

At home, meanwhile, marijuana consumption has probably quadrupled since 1974. Even though 11 states have decriminalized possession of small amounts of grass and one state--Alaska--has legalized private cultivation, the vast majority of the estimated 16,000,000 regular smokers are risking a criminal record for a single toke. Nor is it just college students who smoke it, says Dr. Irving Goffman, former chairman of the economics department of the University of Florida in Gainesville and a Deputy Assistant Secretary of HEW during the Ford Administration. "Once you get involved in $100-an-ounce sinsemilla, it's an adult phenomenon," he says, "and not just a college-educated market. You've got blue-collar workers smoking today as well."

The guerrilla action against grass isn't stamping out the supply. The threat of arrest isn't curtailing pot smoking. What's more, individual marijuana busts for making a buy or possessing the stuff are not only socially costly, they instantly catapult an otherwise law-abiding person into a criminal role or, worse yet, into a prison cell. Meanwhile, marijuana is a flourishing, multibillion-dollar industry that's not contributing a nickel in tax revenues.

Why not explore an alternate solution--legalization, regulation and taxation?

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It's only a matter of time before Uncle Sam will want to cut himself in on a booming business that seems destined for greater growth. And forgetting for a moment the alleged moral and physiological ramifications of legalized marijuana, a Federal scheme that would generate considerable tax revenue, impose rigid controls and take the paranoia out of pot would seem to make solid social and economic sense. The question we set out to answer here is, Just how much economic sense?

The actual mechanics of enacting a Federal legalization program would be tricky. To repeal the 18th Amendment and thereby end prohibition of liquor took Congressional approval and ratification by two thirds of the states. And even after that, states and counties retained the option to further ban, restrict or tax liquor.

To get marijuana approved for sale nationally, the Senate would have to vote to either amend or withdraw from the Single Convention on Narcotic Drugs of 1961. The U. S. became a signatory to that international treaty on drug regulation in 1967, when Harry Anslinger, first commissioner of the U. S. Bureau of Narcotics and Dangerous Drugs--a man obsessed with wiping out the "killer weed"--persuaded the Senate that signing the treaty would forever end the "misuse of marijuana." They passed it 84--0 without debate. (continued on page 202) Legal Marijuana (continued from page 160)

It's highly unlikely that the Senate would approve U. S. withdrawal from the Single Convention treaty and thereby trigger an upheaval among the other 120 party nations. However, legalization advocates in the Senate could argue that marijuana isn't a narcotic and should be treated separately from heroin, cocaine and other drugs banned by the treaty. Revising the treaty commitments in that manner is a much more realistic route toward legalization and taxation, says NORML's West Coast regional coordinator, Gordon Brownell.

Once the U. S. is free from the grip of the Single Convention treaty but before the legalization question could be put to a Congressional vote, prolegalization lawmakers would need to design a taxation plan complete with revenue projections. And we don't need a Marijuana Administration to do it. That task would most likely fall to the Bureau of Alcohol, Tobacco and Firearms, a rather skilled Federal tax-collection arm of the U. S. Treasury Department. To date, no one has drawn up the blueprint.

"Sure, there has been in-house casual conversation, sort of a 'What if marijuana is legalized?' " says Bill Drake, the BATF's deputy assistant director for regulatory enforcement. "But nobody in the agency has formally laid out a contingency plan." Nor has the bureau even suggested a pot tax. Stresses Drake: "We're civil-service bureaucrats. It's a rare instance that a career agency employee will propose a legislative revenue-raising measure."

The enforcement official is quick to add, though, that if a pot-legalization bill went into the Congressional hopper and the bureau were singled out as the regulatory agency, it would immediately go to work on a tax plan. "We don't care if you sell marijuana," says Drake, "as long as the Internal Revenue excise tax is paid." As for the ongoing DEA crackdown on pot smokers, he personally believes "we're shoveling sand against the tide."

Joint Returns

How would a marijuana tax work? Florida's Dr. Goffman, now a consulting economist, pondered a state pot tax several years ago and calculated that a state could collect a 50 percent tax without hiking the current black-market street price. "At least 50 percent of the cost is risk," he explains. "In my scenario, I had assumed the market place would set a $20-to-$25-an-ounce street price once the 50 percent risk cost was eliminated by legalization. Then the state could easily impose a 50 percent tax and there would be no increase in the current price."

That's hardly a bargain for consumers, especially since a Federal excise tax would be levied as a part of a nationwide legalization plan. Yet if marijuana were legalized and overtaxed, bootleggers, smugglers and other criminals would surely become the plutocrats of pot.

At this point, at least one person has made an exhaustive study of the potential tax revenues to be derived from, as he puts it, "a regulatory marketing scheme for marijuana." Alan S. Garber, a lawyer with the Equal Employment Opportunity Commission in Houston, tackled the task in 1976 while an intern with the Drug Abuse Council, a Washington, D.C., nonprofit think tank that officially closed its doors last December. Unlike Goffman, Garber came up with a total Government tax that perhaps could be distributed between Uncle Sam and the states, though he didn't attempt to figure out how the split would be made.

Still, adjusting for inflation and a nationwide increase in pot smoking since 1976, Garber says Government taxes could well exceed three billion dollars annually if marijuana were legalized today and assessed a combined state and Federal tax.

In updating his projections, Garber is assuming that there are 16,000,000 Americans over 18 smoking grass regularly--a conservative estimate, he adds. He's excluding teenage smokers who, like it or not, would probably keep on toking, thus pushing potential tax revenues close to four billion dollars a year. He's also basing his projections on a nationwide average price of pot at $43 a full (28-gram) ounce.

Next, using the Drug Abuse Council's frequency-of-use survey results, plus expert William McGlothlin's report estimating the amount consumed per use, Garber assumes that 50 percent of regular users smoke a single joint or less per use twice a month; 17 percent smoke one to two joints per use once a week; 15 percent smoke two joints per use two to six times a week; and 18 percent smoke three joints daily. Since each joint contains, on the average, a half gram of grass, American adults smoke a grand total of 4.37 billion joints--or 4,879,286 pounds of marijuana--annually.

So what's the bottom line? Garber figures the cost of producing prerolled and prepackaged marijuana cigarettes at $7.93 a pound, or less than a penny per half-gram joint. That includes manufacturer, wholesaler and retailer profits--the so-called out-the-door cost. Subtract that from the current street price for a pound of pot ($688, assuming $43 an ounce) and you wind up with a whopping $680.07 in potential tax revenue that can be collected from every pound of legal grass sold and smoked.

Multiply that by current consumption and Garber contends there's a 3.318-billion-dollar-a-year gold mine in revenue from legal marijuana that could be tapped by Federal and state government officials. In 1978, the cigarette industry paid six billion dollars in local, state and Federal taxes, while 10.5 billion dollars in taxes was collected on liquor, beer and wine.

But Garber's scheme has the same flaw as Goffman's: Consumers would pay the same price for legal marijuana as they do for bootleg marijuana. Garber doesn't deny it. "The demand for grass and the price would be the same. You just wouldn't run the risk of getting busted."

There's another gaping hole in the Garber plan. The crushing tax load would flatten profits for the grower, the manufacturer, the wholesaler and the retailer. Still, grass would undoubtedly be greener for American business if it were legalized. The question is: Which industries would profit most?

Tobacco

Pop quiz: What would happen if marijuana were legalized? The usual answer: Tobacco companies would reap a multibillion-dollar harvest. They already have the expertise, the rolling machines, the trademarks, the distribution system--and they're secretly buying up land, just waiting for the big day.

If that's what you think, you flunk. Although the black-market marijuana industry is probably half as big as the tobacco industry (bigger than that, if you believe the DEA figures), there isn't a shred of evidence that tobacco companies are ready to pounce on pot.

And no hints are to be gleaned from talking with the tobacco companies themselves--they absolutely refuse to discuss the subject. "Tobacco companies never talk about marijuana--it's like voodoo to them," says New York adman Jerry Della Femina, the chairman of the board of Della Femina, Travisano & Partners. "I've heard about their sex lives, their fantasy lives," says Della Femina, "but I haven't heard the word marijuana or joint come out once in a thousand conversations. You're going to have a President of the United States admitting that he smokes grass before you'll ever have a tobacco man say he's tried it."

Not surprisingly, such silence only fires up the often-repeated rumors that every tobacco company has a secret research-and-development marijuana lab buried somewhere deep in its corporate bowels or in some abandoned missile silo in New Mexico.

But Goffman, a marijuana researcher for 20 years, is doubtful that a contingency plan even exists. "I've searched everywhere for evidence," he says, "and I've never found any proof that tobacco companies are in any way involved in marijuana today."

A consultant and former E. F. Hutton security analyst in charge of monitoring tobacco-company stocks also figures tobacco executives are being candid when they say they haven't explored marijuana marketing. "They would be crazy to do it," scoffs Arthur Baer. "Tobacco companies and liquor companies are under such constant scrutiny and legal attack from legislators, do-gooders and religious groups, I suspect they don't have one memo on marijuana in their triple-locked file. But when the time comes...."

Goffman and Baer laugh at the one marijuana myth most often bandied about; namely, that tobacco companies have quietly trademarked the choicest brand names--words like Maui Wowee and Colombian Gold--that would have a familiar ring to heads and straights alike. It's a legal impossibility, they point out. Under Federal law, you cannot register a trademark for an illegal product. Nor can you reserve a trademark long before the product hits the market place. (Actually, Acapulco Gold has been registered as a legal trademark--but not by a tobacco company. Charmer Industries of Long Island City, New York, owns the mark for an Acapulco Gold tequila it distributes primarily in the Northeast.)

But while virtually every senior tobacco-company executive refuses to discuss marijuana--even off the record--a former president of Liggett & Myers Tobacco Co. has no qualms about talking. Ken McAllister, now retired and living in Hilton Head, South Carolina, insists his former colleagues have enough problems with the Surgeon General and the antismoking lobby. Consumption is up to 620 billion cigarettes a year, but the growth rate is tapering off. "We're already accused of selling death," says McAllister. "Why would the tobacco industry want to get tangled up with something as controversial as marijuana?"

At the same time, McAllister, who opposes both marijuana and its legalization, says that if it were legal, "tobacco companies would, purely from a business standpoint, have to consider selling it. They owe it to their stockholders, because there is obviously a big market out there."

Although they haven't mapped out their strategies, McAllister figures tobacco companies would immediately do some exploratory market research and possibly test-market packaged joints. If the test results were positive and legalization were, indeed, a fait accompli. McAllister speculates that tobacco companies could quickly muscle their way into the market. "Mechanically speaking," he says, "they could go into it practically overnight. I'm not saying they will; but they could."

In any scenario, though, it's a certainty that tobacco companies wouldn't make a frontal assault on legal pot until they were firmly convinced it was a solid, relatively problem-free growth industry in which they could sell their wares through limited advertising. That could take a full five years following legalization; less, perhaps, if public attitudes toward grass soften.

Speaking of advertising, the agencies--which have traditionally counted tobacco companies among their most active clients--view legalization as a lucrative source of new business.

"Legalization," says Jim Weller, director of creative services at Della Femina's Los Angeles office, "would be like suddenly giving people the key to Willy Wonka's chocolate factory."

Weller thinks tobacco companies would try two separate marketing strategies to build brand loyalties. They would launch one new marijuana brand aimed at three specific audiences ("macho, sophisticates, slick funk") and a version of an existing brand. Most likely, it would be a menthol, since most marijuana smokers prefer a cool, minty taste after a joint. Tobacco companies would also market several brands of bulk grass for pipe and bong smokers and for people who would want to preserve the ritual and mystique of rolling their own.

But a major technological barrier would have to be hurdled before tobacco companies could feed marijuana into their 4000-cigarette-a-minute machines. Pot power must be harnessed, standardized and controlled. Since each marijuana plant has a potency and a personality all its own, quality control could become the critical cog in mass manufacturing of legal joints. Some headway has been made. Laurence McKinney, a Cambridge, Massachusetts, management consultant and Harvard M.B.A. who wrote his thesis on the underground-drug industry, has just begun to market a new consumer-sized potency-increasing device that treats marijuana with 100-degree-centigrade heat in an oxygen-controlled atmosphere to maximize the tetrahydrocannabinol (THC). McKinney says his original device--before being scaled down for individual buyers--was designed to treat a ton of marijuana at a time, so he predicts that the commercial-sized models could be available soon.

Mass-produced 100 percent marijuana joints would probably be about the size of a regular-sized cigarette, not king-size or 100-millimeter extra long. McAllister envisions them packaged in fours, similar to promotional cigarette samples. Goffman thinks there'd be five to a pack, akin to what the Federal Government produces on its marijuana farm at the University of Mississippi, where Uncle Sam raises and rolls marijuana for medical research. Each package would carry the THC rating and a Government-approved health warning.

Incidentally, mass-produced marijuana cigarettes apparently wouldn't dispense any new profits to the vending-machine industry. Despite the fact that 16 percent of the cigarettes sold in the U. S. tumble out of vending machines, a lawyer for the National Automatic Merchandising Association in Chicago swears its 2400 members wouldn't touch legalized grass, no matter how skillfully packaged or how profitable it proves to be. The vending-machine industry has too many other regulatory wars to wage in overturning obscure local ordinances and antiquated state laws. Then there's also the question of how to control sales to minors. "We have 700,000 canned-beverage machines around the country," notes a N.A.M.A. spokesman, "and we don't sell beer. We would be fools to sell marijuana cigarettes."

But the experts agree that somebody would sell them if they were legal. And the very moment the first bill is introduced to legalize marijuana, tobacco-stock prices will take off, predicts Baer. "It would be such an obvious emotional event," he says, "that you could probably add 15 to 20 percent on the price of all tobacco stocks overnight. The 18-billion-dollar retail tobacco industry should gross roughly an extra five billion dollars in marijuana revenues two to three years after Pothibition is repealed."

Liquor

"Marijuana is the major competition to the liquor industry, and don't let anybody tell you any different. If marijuana were legalized, I think any businessman would be shortsighted not to consider making it available to his customers."

That's Lyle Jones talking. Jones is more than just the candid owner of Jake's Liquors in Davis, a University of California college town. He's a vice-president of the 2500-member California Retail Liquor Dealers Association and chairman of its public-relations committee.

Jones is also concerned that marijuana may be siphoning off some of his gin, Scotch and bourbon drinkers, a concern he expressed when he wrote the lead item in the August 1977 edition of the privately circulated C.R.L.D.A. bulletin: "All liquor retailers should realize that marijuana, cocaine and other allegedly nonaddictive and harmless drugs are direct competitors to the liquor industry. One of the basic reasons for using alcohol in a social setting is for relaxation and camaraderie. Drugs purport to offer the same benefits.

"Certainly we don't advocate legalization of drugs such as these," the bulletin continues. "However, if in the future, the legislators should give serious consideration to the legalization of drugs, as a group we should advocate the strict regulations of this new industry; regulations similar to those as established for our own liquor industry."

Officially, the 38-billion-dollar-a-year beverage-alcohol industry has nothing to say about marijuana. A spokesman for the Distilled Spirits Council of the United States says its members are watching from the side lines. "We haven't entirely ignored it; we haven't gotten hysterical about it, either."

But the current chairman of that powerful trade association happens to be considered the distilled-spirits industry's expert on marijuana--and he talks about it frankly. C. W. "Chris" Carriuolo, executive vice-president and the number-three man at Heublein, Inc., says his big (1.8 billion dollars in sales) liquor, wine and foods company is continually monitoring the mind-altering substances. "We want to know what we compete with outside the liquor industry."

Carriuolo says Heublein was conducting interviews some years ago when it discovered that wine seemed to go better with marijuana than did the harder stuff. It made sense, he says. "I think it's stupid to sit there and blow smoke in each other's faces. You've got to have another social lubricant and wine seems to be it. You couldn't handle both marijuana and hard liquor and still have social graces."

Heublein applied for trademarks on Acapulco Hots, Acapulco Gold and Acapulco Green in October 1970. But only Acapulco Hots was actually developed--as a cheese dip. If marijuana were legalized, would Heublein either sell it in bulk or manufacture it in cigarette form? (The century-old concern, which made Smirnoff the nation's top-selling vodka, is widely regarded as one of the savviest consumer-marketing outfits in the U. S.)

"Heublein as a corporation wouldn't be interested in marijuana by choice," says Carriuolo. "But if the Government chose to distribute grass through our legalized distribution system, rather than invent a whole new bureaucracy, and we were designated as a master distributor or manufacturer, we would have no choice. We'd simply assist them in marketing a legal product."

What's more, Carriuolo thinks marijuana will be legalized nationally, though he doesn't want to speculate when. "I think they have no choice. It's easy to come by, plus it's creating such a huge illegal business. When something reaches those proportions, you have to do something to control it."

Realistically, the big distilling houses wouldn't celebrate legalization. A Sea-grams, a Brown-Forman or a Schenley wouldn't risk its reputation trying to turn a few bucks on legal marijuana--at least in the beginning. Instead, it would more likely be the smaller entrepreneurs--regional, private-label distillers and aggressive liquor distributors--who would try to package and peddle pot. They have little to lose. Moreover, they know local liquor-store owners, state and county politicians, alcohol-beverage-control-board staffers and taxation mechanisms. Predicts one longtime liquor-industry observer: "There will be tremendous consumer confusion when marijuana is legalized--but the little guy [distiller or distributor] will have his grass suppliers lined up early and will get in there first."

Could he make a dent? If 20 percent of the states and counties were to ratify legalization in the first two years, the beverage-alcohol industry could generate an estimated one and a half billion dollars in revenues from marijuana--exclusive of taxation--without losing much of the market to grass smokers.

Paraphernalia

Despite their awesome financial resources and sheer muscle in the market place, U. S. tobacco and liquor companies would be groping their way in the dark if marijuana were legalized. Concerned about alienating middle America and leery of regulatory reprisals, the tobacco and liquor industries might tiptoe into the marijuana market, testing the water each step of the way. But by the time they were ready to take a full-scale plunge, they would probably find themselves scuttled by a scrappy band of savvy merchandisers--the nation's paraphernalia "industry."

Don't laugh. Many of the hippies who skulked around a decade ago selling crude pieces of brass pipe and brown-rice rolling paper to incense-heavy head shops, are now 30-year-old corporate chieftains heading multimillion-dollar companies. They're canny merchants and daring dealers, not afraid to take a chance. And, more importantly, they know the market place. Indeed, paraphernalia producers and purveyors know what it takes to turn smokers on--literally. And brand-hip buyers trust them.

"We're just the legal tip of a huge iceberg," says Vaughn Ermoyan, publisher of Paraphernalia Magazine, one of the industry's two trade journals. Ermoyan, who claims a 20,000-reader monthly circulation, says the industry has 25,000 retail outlets, mostly head shops--the so-called psychedelicatessens--plus 1200 manufacturers and 300 distributors of varying sizes and sales volumes. That doesn't include record stores, T-shirt shops, motorcycle-accessory stores, tobacco and gift shops, liquor stores, car washes, surf shops, water-bed stores and drive-in dairies that sell smoking gear.

"We own the under-35 market," he brags. "You've got to understand that we're businessmen today. This isn't 1967 and 'Brother, can you spare some change?' "

No one knows for sure how big the paraphernalia industry is. Ermoyan figures it's already one billion dollars in sales and growing. Andy Kowl, publisher of Paraphernalia Digest, the industry's monthly newsmagazine, estimates sales at $350,000,000. The guesstimates are $650,000,000 apart because manufacturers are almost paranoiacally secret about their operations. If Macy's never talked to Gimbels, both were motormouths compared with the ferociously competitive paraphernalia titans who claim their products and distributors are regularly ripped off by hungry newcomers.

But that's slowly changing. Less than two years ago, 60 manufacturers and distributors of "smoker's accessories" each anted up $250 to form the Paraphernalia Trade Association. Today, there are nearly 200 members and a new name, Accessories Trade Association (the original name was changed because the abbreviation P.T.A. was an obvious red flag that taunted straights, and heat from the community is the last thing paraphernalia peddlers need).

"We organized for mutual protection," says Kowl, a former publisher of High Times who sits on the A.T.A. board. "Smaller communities are suddenly trying to pass antiparaphernalia ordinances. While many efforts fail, a few have succeeded. We're a fat target."

Ironically, the legal attacks are solidifying the industry and giving it strength. The A.T.A. built a $60,000 war chest at a one-day fund raiser and has since retained Stroup's newly formed nationwide law firm of Stroup, Goldstein, Jacobs, Jenkins & Pritzker as legal counsel. A Western division of the A.T.A.--the California Progressive Businessmen's Association--has been formed to attack the constitutionality of local ordinances and fight other attempted bans or merchandising constraints. Ermoyan, one of the most passionate promoters of the association (it also has roughly 100 members and raised $50,000 for courtroom battles), says it's inane and illegal for small-town politicians to go gunning for legal paraphernalia vendors. "All we're selling is the shot glasses and the swizzle sticks."

In spite of the skirmishes, paraphernalia sales are on the upswing--especially of rolling papers, which rang up an estimated $200,000,000 in sales in 1977, a 400 percent leap in just five years. Meanwhile, sales of roll-your-own tobacco plunged from 12,300,000 pounds in 1971 to 5,000,000 in 1977, according to the Tobacco Merchants Association of the U. S. "It's pretty obvious," says Mel Bruce, recently retired tobacco advisor for the U. S. Bureau of Alcohol, Tobacco and Firearms, "that the difference is picked up by marijuana."

One of the world's biggest rolling-paper manufacturers openly admits that it's looking ahead to the day marijuana is legal. Rizla Products U.S. Inc., affiliated with Rizla Ltd. of Wales, acquired Sarah's Family, a bong manufacturer in Inglewood, California, that had been selling $1,300,000 in paraphernalia a year but was cash short and couldn't grow. The deal was the first real acquisition of a paraphernalia outfit by an outsider.

"We're definitely positioning ourselves," says Robbie Blumenthal, the 26-year-old former vice-president of Rizla U.S., the company's North American distributors. "I believe marijuana will be legalized and paraphernalia companies will explode." He says Rizla is keen on acquiring similar companies, "so when the big guys come around, they've got a strong base."

The Young Turks of the paraphernalia industry have no hang-ups about becoming marijuana moguls. Don Levin, 31, founder-president of Adams Apple Distributing Company, a privately held Chicago-based concern that grossed over $10,000,000 last year selling pipes and papers, can see packs of Apple grass cascading out of an automated rolling machine.

"Companies like ours can get machines that could roll or package cigarettes the same as large tobacco companies do," says Levin. "Certainly, we have more connections with growers and distributors. Marijuana growers and tobacco buyers are from two different worlds. A grower couldn't trust a big tobacco company and doesn't have the marketing capability to get the big stores."

Paraphernalia companies have proved themselves creative capitalists, and legal marijuana could be marketed as just another product line. Burt Rubin, a 33-year-old former metals trader, and his partner, 35-year-old Robert Stiller, previously a data-processing manager at Columbia University, introduced a double-width (80 millimeter) rolling paper that forever ended the frustrating chore of trying to lick and stick two single sheets together. Today their E-Z Wider papers are the backbone of their New York City-based company, Robert Burton Associates, doing $8,000,000 in annual sales.

Rubin, who has lectured on entrepreneurship at the Wharton School of business, recently widened his product base, introducing a filtered water pipe invented by a moonlighting design engineer from one of the country's blue-chip corporations. "We're marketing it as a pipe 'system' because it's sleek and doesn't have that Sixties head look." Rubin--praised as a "marketing genius" by Stroup ("He literally broke the straight market by getting E-Z Wider into 7-Eleven stores")--says he wants to diversify into consumer products like pens and bottle openers. Would he expand into legal marijuana? "Purely as a manufacturer," Rubin calmly replies.

What about expansion capital? Most paraphernalia companies probably couldn't establish the credit lines it would take to capitalize financially on legalized marijuana, but that shouldn't deter the would-be marijuana merchant, says a manufacturer known as the godfather of the paraphernalia industry. He says that foreign banks with American branches, especially Japanese banks, have plenty of cash and are eager to lend it.

"They don't get into the morality of marijuana," says Gene Cuthbertson, who designs and imports ceramic, silver, gold and jade paraphernalia that looks more like jewelry and statuary than head gear. Cuthbertson knows how to raise money and finesse lenders, all right: In his "other life," he was a cofounder of Equity Funding Corporation of America, subject of one of Wall Street's greatest scandals. Cuthbertson, unaware of the scam and shoved out in a power play long before the collapse, came out with $1,000,000 in cash, built up a stock-brokerage firm and got out of that in the early Seventies in order to get into paraphernalia.

His timing couldn't have been better. While other smokestone, pipe, bong and stash makers were catering to the hardcore weed freaks, Cuthbertson organized The Dealer in Santa Monica, California, to create high-fashion merchandise for boutiques, fine tobacco stores and chic gift shops. Retailers who might have resisted at first often find the subtle design and 50 percent markup irresistible.

That kind of pioneering will eventually give paraphernalia respectability and an entree into finer department and specialty stores, even before legalization. And after the barriers are ripped down, Bijan--the pricy, celebrated Beverly Hills haberdasher--thinks there would be a rush, on Rodeo Drive, at least, for distinctive toke gear. "If it were legal tomorrow, I would carry elegant smoking accessories--very chic, very fun. Last Christmas, I sold a diamond cigarette holder with an 18-carat cigarette case for $40,000."

The real profits in legal pot wouldn't necessarily come from the Tiffany trade, though the connoisseur smoker is likely to spend heavily. The paraphernalia industry has the pole position in that pricy market place. One manufacturer sees the more pragmatic head-shop owners tossing out their Day-Glo posters and tacky T-shirts and transforming their stores into gourmet Cannabis emporiums on the order of a fine coffee gallery. Depending on local ordinance, a proprietor would carry a library of rare strains, varying in strengths and quality.

Tobacco shops are inching into the market, though an official of the Tinder Box stores insists marijuana and fine tobacco don't mix. One shopping-center developer isn't convinced: When Newman Properties of Long Beach drew up a Tinder Box lease, it actually specified that when the time comes, marijuana sales must be included in gross sales--to help the landlord company determine the rental override it's to receive each month.

Agriculture

Legalizing marijuana could inject a four-billion-dollar jolt of economic adrenaline into American agriculture. It would give farmers a new cash crop, lure perhaps a half million people back to the land and turn abandoned and idle acreage into profitable miniforests of leafy plants.

But some analysts predict there would be a shortage of pot farmers at first. W. W. "Billy" Yeargin, managing director of the Tobacco Growers' Information Committee and an ex-tobacco farmer himself, doesn't think the country's 625,000 tobacco growers would grow a single row of weed if it were legalized.

"Tobacco is grown in the Bible Belt and growers are traditionally conservative, God-fearing people who have always disliked the idea of mind-bending drugs," says Yeargin. "To a farmer, marijuana is something every criminal takes just before he goes out to rob or kill somebody. I think they'll be appalled or repulsed at the thought of growing it."

Not Fate Baker Everett, a 60-year-old farmer in Palmyra, North Carolina. Everett, his two sons and seven farm hands grow tobacco, plus peanuts, cotton, corn, soybeans, cucumbers, hogs and cattle on their 2300 acres. In 1978, Everett sold his 2800-pound tobacco crop at the dirt-cheap price of $1.30 a pound. "I'm not saying I'm for it, 'gainst it, that it's good for you, bad for you," he says. "But if the price of marijuana is set so the farmer can make money, you're going to have marijuana running out of your ears--I guarantee you that."

If pot were legal, people who own no land would sharecrop and become growers, predicts Stroup, who is lobbying hard for a legalized scheme--he calls it the "Grow America" plan--in which the "little guy can make money off the land." As Stroup envisions it, the landowner would get a percentage of the proceeds when the marijuana is harvested; the grower, who does all the work, would pocket the rest. "Growers are sharecropping today, running in the dark at night, dealing with a skittish landowner who stands to net ten grand this year for a couple of circles right in the middle of his cornfield."

Stroup says legalization would spawn limited-partnership "grower syndicates" and people would invest in pot without getting their hands dirty. "I may not want to go out and farm myself, but I might throw in a few hundred or a few thousand dollars with a friend who is an expert grower. He becomes the general partner. We become limited partners. We take our share of the proceeds in cash or grass or maybe both." Stroup contends at least one Arkansas grower is syndicating on the sly today.

Legalization could be a two-edged sword. It might not stamp out smuggling, but it could suck some of the mammoth profits out of potrunning and would surely send the wholesale grass price plummeting.

Great for the consumer, but what about the outlaw domestic grower who doesn't mind risking a bust to make a financial killing (there are plenty, for example, in California, where marijuana's one billion dollars in annual revenues edges out grapes to make pot the state's top cash crop)? That grower may discover that the back-straining labor and tedious manicuring of each plant isn't worth it if his sinsemilla suddenly drops to $80 or $100 a pound instead of the $1400 to $2000 a pound it brought as an illicit drug.

Bob, a 30-year-old graduate architect, and his wife, Jane, an elementary school teacher, had planted vegetables on part of the 120 abandoned acres they're home-steading in the Deep South. The first year, the couple barely made enough money to eat. The following year, a neighbor gave them some free marijuana seeds and they made $66,000 in cash in just four months--from 366 marijuana plants grown on a 50' x 100' patch.

Bob and Jane didn't just throw down the seeds and stand back, though. Both sweated 14 hours a day and, by September, had harvested 103 pounds of male leaf, which fetched $10,000, and 40 pounds of female flowers, which sold for $1400 a pound. Says Bob: "We were first-timers and manicured the plants [with tiny eyebrow scissors] too well. We worked lots of hours for every pound we sold." And they worried 24 hours.

Legal-pot advocates say the average commercial grower would be delighted to grow weed--risk-free--for $100 a pound wholesale. That's still a whopping return on investment compared with other agricultural crops.

"Growers are sick of living like fugitives, worrying about overflights, having a prized patch busted a week before harvest, after giving it three months of round-the-clock care," says Christian Taylor, president of the 3500-member United Marijuana Growers Association in Gainesville, Florida. "When marijuana is legalized," he vows, "we'll triple our membership."

Chances are some new U.M.G.A. members might be private farmers who grow neither tobacco nor illegal marijuana today. Farmers everywhere might find marijuana a profitable new optional crop. But, like all commercial pot farmers, they would have to subject themselves to new state scrutiny and probably licensing if legalization were passed Federally and ratified locally.

In 1977, authors of the Kentucky Marijuana Feasibility Study envisioned a plan whereby the state's Department of Agriculture would manage a state-wide monopoly on pot. Anyone could grow a few plants for personal use and licenses would be issued to farmers who wanted to grow marijuana as a cash crop. As the researchers saw it, a license holder could grow a maximum of 100 pounds a year. Between 15,000 and 30,000 licenses would be issued and licenses would cost $5 to $25.

The Kentucky study theorizes that growers would sell their Cannabis crops to the state at various state-operated marijuana warehouses. There, it would be graded by color, texture, over-all appearance and, of course, potency. The THC would be measured and its strength quantified, just as the percentage of alcohol in liquor is expressed as a proof. Once graded--a scientific challenge, since each plant has its own personality--the pot crop would be bought by the state of Kentucky for $20 to $100 a pound.

Authors of the Kentucky Marijuana Feasibility Study contend that the state's weed warehouses would be the nerve center of Kentucky's legalized marijuana industry. The state would package pot by the ounce, primarily in leaf and bud form, and seal it with an official stamp that denoted the grade, weight, strength and suggested retail price. According to the study, pot would be sold to retail stores that held a marijuana-resale license.

Overall, marijuana wouldn't be the economic salvation of the American farmer, whose ranks are being thinned annually. The Department of Agriculture says the nation's 2,700,000 farms will shrink to 2,000,000 by 1989. But marijuana farming could be an important industry by the late Eighties if the public were allowed to participate.

Finally, legalized marijuana would also mean new growth for some industries peripheral to agriculture but related, nevertheless: the nation's eight-and-a-half-billion-dollar seed business . . . and even the home greenhouse industry.

"Weeds do quite well when they're fertilized," says Gary Myers, executive vice-president of The Fertilizer Institute, Washington, D.C. Myers says agronomists haven't experimented with fertilizers designed to spur super growth of pot. But he thinks there is enough brain power in the industry to create some chemical nutrients for Cannabis sativa. Even if marijuana meant a scant one percent increase in fertilizer sales, that's an $85,000,000 impact.

As for marijuana seeds, theoretically, a company would buy from domestic growers, package the product and distribute it through the same outlets that would retain prerolled manufactured joints or bulk grass. Licensed marijuana merchants would sell seed from around the world, envisions Jack Herer, author of Grass: The Official Guide for Assessing the Quality of Marijuana. Herer, president of International Safe & Security, a stash-device manufacturer, says the finest indica seeds from Lebanon and Afghanistan would be packaged and marketed along with choice Santa Marta Colombian, primo Hawaiian (preferably Maui and big island) and coveted Oaxacan seeds. There would be limited offerings of seeds from prize-winning blends and strains developed by master horticulturists. Higher-priced seeds would have their "roots" traced on the back of the package to assure the buyer he was actually getting pedigreed pot.

This whole business of legal grass and connoisseur seeds bodes well for the greenhouse industry. Historically, greenhouse manufacturers have relied on amateur horticulturists and professional flower growers for the bulk of their revenues. But with legalized marijuana, sales could really bloom. The economic impact of Alaska's legalization scheme is already being felt as far south as Fort Worth. Ted Lange, president of Texas Greenhouse Co., one of the industry's largest, says, "There has been a sharp jump in inquiries from Alaskans wanting our literature."

That doesn't surprise Anchorage attorney Robert Wagstaff, NORML coordinator for the 49th state, who reports that most of the Alaskan home-grown grass is raised in greenhouses. Says Wagstaff: "It's difficult if not impossible to get marijuana to flower indoors up here. A greenhouse can create a Florida or California climate anywhere."

The greenhouse industry, conservatively pegged at $45,000,000 in annual sales, claims it isn't gearing up for an onslaught of private and professional pot farmers. But there's little doubt that those farmers could provide a very lucrative market. What's more, since marijuana plants can tower 10 to 15 feet, greenhouse companies would be selling bigger, sturdier, costlier hothouses. "I'm not talking about those prefabricated, fiberglass, polyurethane-covered things--we call them blow-aways," says the Texas Greenhouse chief executive. "I'm talking about aluminum-and-glass greenhouses that're built to last."

Medication

Several times a year, Dr. J. Thomas Ungerleider, a UCLA associate professor of psychiatry, says he receives a fat shipment of either 3000 "round, firm, beautifully rolled" joints or a large supply of sesame oil-coated capsules packed with THC. To make the actual pickup, Dr. Ungerleider takes special security precautions. He has to go to a designated post office, identify himself to a stranger and sign a receipt.

Ungerleider's supplier is understandably cautious. He's not afraid of a bust; he just doesn't want the choice dope to fall into the wrong hands. Who is Ungerleider's dealer? None other than the National Institute on Drug Abuse (NIDA). That's right, your Uncle Sam. The pot comes from the Government's own private patch--the Research Institute of Pharmaceutical Sciences' fenced and floodlit five-acre marijuana farm at the University of Mississippi, where 200 strains of exotic Cannabis sativa are being scientifically nurtured.

Ungerleider is one of a select group of dedicated scientists who are getting Government grass as part of a probe into the therapeutic uses of marijuana. At UCLA, he's spearheading a two-year study, funded by the National Cancer Institute, to document whether or not marijuana is more effective than the antinausea drug Compazine in relieving the retching and vomiting suffered by cancer patients undergoing chemotherapy treatments.

During the ten months prior to the time this is being written, 12 states legalized marijuana as a controlled medication--bringing the total to 16. Similar legislation is in various stages of the legal process in at least ten additional states, and more are expected to follow. In most cases, marijuana manufactured by NIDA would be bought or obtained by the state and distributed through approved physicians to cancer and glaucoma patients. Bills that passed in both California and Washington would allow those states to furnish confiscated marijuana in the unlikely event NIDA shut off the supply.

But if marijuana were legalized nationwide and taxed, would the nation's 10-billion-dollar pharmaceutical industry step in and start producing therapeutic or recreational grass? Would your druggist become your local dealer?

Fear not. First, even the staunchest marijuana advocates are deathly opposed to prescription pot. "No way would we support prescriptions with doctor involvement and all that bullshit," snorts Stroup. "We don't want to hand this over to the doctors and the pharmacists." Goffman would rather see the Government distribute marijuana than have doctors and pharmacists get a hammer lock on sales and rake in fresh profits from a legalization scheme.

Pharmaceutical manufacturers themselves swear they have no interest in Cannabis sativa as a drug. One reason is that they can't seem to produce an acceptable synthetic THC. Eli Lilly apparently tried to develop nabilone, a marijuanalike drug for chemotherapy patients and glaucoma sufferers, but halted its research. "We suspended clinical trials when we found it had toxic effects on animals," says Dr. Louis Lemberger, a Lilly scientist and professor of pharmacology at Indian University. Dr. Lemberger adds that marijuana capsules or tablets aren't well absorbed, anyhow. "Marijuana is much more effective when it's smoked."

Put bluntly, the circumspect, stringently regulated pharmaceutical industry won't turn on to legalized marijuana--unless medical science someday discovers it's a lifesaving cure for some disease. Until then, NIDA theoretically will continue to furnish Government-grown marijuana for medical research and therapeutic treatment.

But don't think the pharmaceutical Goliaths would sit idly by if legal weed were to become the Valium of the late Eighties. And that's a possibility. "If it were legalized," says Dr. Leopold Tuchman, a Beverly Hills internist, "it may come to pass that people could get a modicum of relief from a whiff or two--instead of a martini or three."

Food

Famous Amos is munching on a fat, fresh-out-of-the-oven pecan-and-chocolate-chip cookie and reaching for a glass of milk. "If marijuana were legalized, I'd make up a special batch of X-rated cookies and test-market it. Probably sell them for $10 to $25 a pound. But, man, I've never made any cookies with marijuana in them. Honest. I'd have to experiment. I wouldn't want to sell baaaad cookies."

Amos, flashing his big cookie-eating grin, doesn't think legalized marijuana would send his sales soaring. He already sells 15,000,000 cookies a year, mostly through department stores and gourmet supermarkets and shops, and grossed $3,000,000 in fiscal 1978. "I don't think it would have the same excitement it has now that it's illegal, especially in food. But, man, I can tell you this," says Amos, "if I started doing a number with pot cookies, the other cookie companies would start baking them, too. If it were legal, the morality question would go right out the window."

The market's already there--and at least one person is already catering to it: An adventurous grower turned baker in the wilds of Northern California dispatches a convoy of four vans into San Francisco periodically to peddle freshly baked macaroons packed with pot. And he's no trench-coated bootlegger, either. Homegrower's Delight Cosmic Cookies are professionally packaged and illustrated with a smiling farmer standing in a marijuana field, holding his hoe and a cookie. There's even catchy Madison Avenue copy on the package promising "One'll do ya." It ought to. The chewy but tasty macaroons, each topped with an almond, are fetching $30 for a box of ten cookies. And you won't find them in a Safeway.

But if marijuana were legalized, would the market be gobbled up by Betty Crocker, Nabisco, General Foods or some other corporate food titan? Would the Pillsbury Doughboy rush slice-and-bake pot brownies to your supermarket freezer section?

Not a chance. "Liquor, cigarette, beer and wine companies are willing to make sin-related products," says Baer. "But General Foods? No way. Suppose it did and the Catholic Church stopped buying its coffee and Jell-O? The public today has tremendous leverage, so why would those companies risk billions of dollars in sales for a few extra dollars of profit?"

So the new marijuana moguls wouldn't have much of a direct impact on the nine-billion-dollar cookie, cracker and snack-food industries--perhaps an estimated $50,000,000 in sales the first year. But imagine the indirect impact if a new high society gets a ravenous case of the munchies. One hundred shares of McDonald's stock today just might be a smart buy.

Will it Really Happen?

Obviously, legalizing marijuana could be a powerful jolt to the U. S. economy. It may not get us out of OPEC's clutches and it wouldn't cure inflation. But legal pot would mean new jobs, new careers, new corporate profits and new Government taxes.

What's the bottom line? No one person or organization knows for sure. As astounding as it may seem, no corporation or Government agency has conducted (or leaked, at least) a comprehensive study on the economic impact of legalized marijuana. This article is the closest anyone has come, and we've found that it's still a very touchy subject.

Even the most ardent marijuana enthusiast agrees that full nationwide legalization is a good decade away. The big issue is health. While no one has ever died from an overdose of marijuana and there is no conclusive medical proof that prolonged pot smoking can destroy vital organs, there are plenty of medical questions to be answered. Until they are resolved, it's unlikely that even the most liberal lawmaker would introduce a Federal bill with any hope of passage.

Unless the people take over. In California, a dry cleaner from Burbank launched a campaign in 1978 aimed at collecting 250,000 signatures for a ballot initiative that would treat marijuana the same as liquor. And a bill reducing criminal penalties for marijuana growing, also in California, where three out of ten people favor legalization, passed the Assembly Criminal Justice Committee the same year. The measure would let a person grow three marijuana plants without risking a felony arrest and a prison stretch. If you're caught growing, you pay a $100 fine.

Hank Koehn, a nationally recognized futurist, thinks it's all part of a new populist movement in which the consumer decides he wants something and has to have it. "You saw it with saccharine," he says. "Everyone accepted the fact that it was bad, but they said, 'I don't care if it is bad, I want it, I want it in foods, I want it available, and therefore I will have it, and I will buy it and someone will sell it.' "

Koehn, vice-president of Security Pacific National Bank in Los Angeles and head of its Futures Research Division, is convinced the "big social issues of the Eighties will be populist issues that come up the same way Proposition 13 came up in California. There will be a series of events around the country and those events will grow until they hit critical mass and gain national attention.

"That's when it becomes a national issue and the people will prevail."

"Garber says Government taxes could total 3.3 billion dollars annually if marijuana were legalized today."