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Ohio's marijuana proposal was lambasted for creating a cartel. But pot cartels could work.

Ohio's marijuana legalization ballot measure lost big on Tuesday night. About two-thirds of the state's voters said no to the proposal. And the loss seems to be the result of one issue: The measure would have given wealthy campaign contributors exclusive rights to commercially grow pot in the state.

But while that may have been the initiative's political downfall, it actually wasn't its biggest problem when it came to policy.

It's certainly true the measure's structure was dangerous: Setting a precedent that wealthy people can get together and legalize an entire industry for their own profit isn't something that should make many Americans comfortable. And a poll from the University of Akron suggests that's exactly why Ohio's measure lost: Most Ohio voters back legalization, but they don't support giving the state's pot farms to wealthy landowners.

But the biggest problem with the initiative was actually an entirely different issue: It let the 10 marijuana farms grow way, way too much pot, which could have led to bad public health consequences, low tax gains, and even federal intervention. And, in fact, a legal drug cartel, monopoly, or oligopoly could be the best way to minimize these negative consequences while eliminating a black market for marijuana that's empowered criminal groups for decades.

The Ohio initiative's big problem: It let farms grow too much marijuana

Ohio voted on whether to legalize marijuana in 2015. John Minchillo/Associated Press

Let's back up. Ohio's legalization measure would have taken a few steps: It would have legalized pot and allowed its commercial production and sales, and it would have given the state's 10 marijuana farms to wealthy campaign contributors — as an explicit gift for their support for the legalization effort. Then it would have set up a commission that would have regulated the industry.

The commission's main mission was to ensure there was enough marijuana in the state to meet Ohioans' demand for the drug. It could even, after four years, create new pot farms in case the existing 10 weren't keeping up with demand. And it would conduct market surveys with the primary goal of making sure demand was met.

But it's hard to imagine how those 10 farms couldn't have kept up with demand. Each of them was given 20 to 80 acres for pot production. As Mark Kleiman, a drug policy expert at New York University's Marron Institute, put it to me, that's "a shitload of marijuana." Jon Caulkins, a drug policy expert at Carnegie Mellon University, agreed that Ohio's measure allowed the state to grow more pot than it could possibly need. And that would lead to very low prices, since there would be plenty of supply to meet demand.

Flooding the market with cheap pot is bad primarily for public health. Marijuana is by and large a relatively safe drug. But its biggest risk is the danger of dependency. As Caulkins put it to me, "At some level, we know that spending more than half of your waking hours intoxicated for years and years on end is not increasing the likelihood that you'll win a Pulitzer Prize or discover the cure for cancer." Very cheap pot would make it easy for someone to pick up and sustain a marijuana habit.

But there are other reasons that putting this much marijuana in circulation could have been a bad idea. For one, it could have potentially made the tax gains for marijuana very, very low — since the tax was pegged to pot's price, a low price could have led to lower tax revenues. Kleiman characterized this as "the theft of public property."

An abundance of pot would also make it more likely that pot would fall into criminal hands or flow across state lines, which could have drawn the ire of the federal government. The Obama administration has taken a hands-off approach to states' marijuana legalization laws, but it has warned legal pot states that it would act if legal marijuana ended up in the hands of criminals or in states that haven't legalized. States that have legalized pot have taken steps to strictly regulate marijuana cultivation and sales to make sure they fall in line with the Obama administration's demands — but Ohio's initiative would grow so much pot that it would make this kind of oversight much tougher.

Of course, this is totally backward from the criticism that many marijuana legalization advocates leveled at Ohio's measure: They argued that the state's 10 legal pot farms would be able to collude and drive up the price of marijuana. They explicitly called this a cartel, monopoly, and oligopoly. But here's the thing: A monopoly or oligopoly might be the best way to legalize marijuana — just not in the way Ohio's legal pot advocates went about setting it up.

The best way to legalize marijuana might be a monopoly or oligopoly. Really.

A marijuana flag at Coachella.

David McNew/AFP via Getty Images

In a 218-page report for the Vermont legislature, the RAND Corporation outlined the best possible options for legalizing marijuana. The idea was to eliminate the black market for pot that's driven billions in revenue to criminal organizations for decades, while making sure pot didn't get too cheap — to the point that it would become way too accessible to potential drug abusers.

At the top of RAND's proposals: a government-run monopoly. Under this approach, the state would handle or at least heavily oversee the production and sales of marijuana from start to finish, giving the government maximum control of how much supply enters the market and what the prices are. This is a proven idea: States that have done this with alcohol sales have kept prices higher, reduced access of alcohol to youth, and reduced overall levels of use. But it's quite different from the Ohio measure, which would have given 10 farms to more than 20 private individuals, not the government.

But if a government-run monopoly isn't an option, the next best idea might be an oligopoly of highly regulated private growers. In this model, the state government would set up a limited number of pot farms and would hand out licenses to farms in a competitive manner so bidders have to prove they know what they're doing. It's the same basic idea as the monopoly: By limiting who produces pot, the state can manage supply — and therefore prices — more easily. This is essentially what New York state did with its medical marijuana market by allowing just five companies to grow pot in the state.

The main idea behind these initiatives is to counteract what critics call "Big Marijuana." Under a completely commercial system, drug policy experts say it's very likely that big companies will over time take over the industry — similar to alcohol and tobacco. And this industry would have an explicit interest in selling to the heaviest marijuana users, since they tend to be the best customers. For example, a study of Colorado's pot market conducted by the Marijuana Policy Group for the Colorado Department of Revenue found the top 29.9 percent heaviest pot users in the state made up 87.1 percent of demand for the drug.

Colorado marijuana demand

A monopoly or oligopoly system would counteract this by giving the government a lot of control over how pot can be made and sold. Ideally, it would keep prices just high enough to avoid the excesses of the legal industry, but low enough to eliminate the black market that has so benefited criminal organizations over the decades.

Of course, all of this is very different from what Ohio's legal pot advocates proposed. That state's measure would have set up just 10 farms, but who got the rights to these farms would not have been decided competitively through a regulatory body. Instead, the farms went to wealthy donors who contributed to the legalization campaign as an explicit gift for their support. Not only does that seem like legalized bribery, but it took away the competitive bidding process that could make an oligopoly-like model work in the first place.

Still, Ohio seriously messing up the idea doesn't mean the concept is fundamentally flawed. If done right, it could have avoided the seriously detrimental possibilities that Ohio's measure presented — all while maximizing the criminal justice benefits and minimizing the public health concerns of legalizing marijuana.

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