Public Banking and Taxing the Wild Frontier: Part Two

Legalization Is Pushing Small Cannabis Farmers Out, So Lets Make the Pot Profits Work for Everyone

A large chunk of hippy counterculture took a turn toward a rural agrarian lifestyle in the 1970’s in a movement called ‘back-to-the-land’ and subsequently discovered a path to riches. Marijuana is illegal under federal law so smoking it became a mark of the renegade subculture — growing and selling it even more so. Growing cannabis was a way for the people of this movement who sought to reconnect with nature and disconnect from mainstream American society to support themselves. What began as a practice for supplementing an alternative lifestyle up in the secluded mountains of northern California blossomed into one of the most lucrative industries on the west coast today, with much of the cannabis heading east to find markets in the rest of the country. Within a single generation, the hippy subculture turned from gleefully impoverished idealists seeking self-sustenance to rich independent farmers when the full financial potential of this crop was inevitably realized.

Money was never the objective when hippies started cultivating cannabis in the mountains, but by the time President Reagan declared a war on drugs small-time farmers were making millions. It was a curious transformation riddled with irony: a people trying to escape individualistic materialism and found a communal ethic out in the woods suddenly found an easy path to riches. Just how much money changed the culture is debatable. What is undeniable though is that the marijuana that was grown in Northern California found its way into a vast unregulated market worth billions of dollars. It would only take a few decades for politicians to start eye-balling that black market money, especially with the negative perceptions of smoking marijuana cooling off nationwide.

As of January 1st, 2018, the law approved by a simple majority of all Californian voters are in effect, attempting to bring cannabis cultivators back into the fold of the taxable California State economy. No longer will the industry operate in a strictly core-periphery dynamic: the secluded hills and favorable climate where cannabis is grown are now heavily targeted by entrepreneurs. The old-school cannabis farmer lived in a community that developed a sense of freedom and independence while simultaneously feeling besieged by the federal government. Paranoia was a shared sentiment that reinforced defiant hippy beliefs about authoritative American culture and produced an ethic of mutual aid. High profits, a protected geography dubbed the “Redwood Curtain,” and a healthy degree of solidarity among cannabis farmers allowed for a mutated form of hippy counterculture to persist. But once the word got out around the mid-nineties more people started flowing into Humboldt, Mendocino and surrounding counties in what became known as the “Green Rush” (because cannabis is the new gold). The profit margin was just too darn high to keep people from jumping on the bandwagon that hippies inadvertently created and sustained.

It’s a story that has been told before and people started to notice the continuity of the back-to-the-land hippies with the American culture they initially broke off from. This perceived connection brought local author Ray Raphael into the study of the revolutionary America with his popular history books. [Ray Raphael] Having written books on nature, northern Californian geography and marijuana farmers in Cash Crop: An American Dream, he then went on to become a decorated heterodox historian of the revolutionary period with an eye towards everyday people and their struggles. Near the end of Cash Crop, Raphael writes, “As a rags-to-riches story, the marijuana boom goes straight to the heart of American mythology.”

“A heightened sense of individualism — that definitive ideal of Americanism, the theoretical hub of our social philosophy — is central to the ideology of marijuana growers. The flamboyant and free-spirited “do-your-own-thing” of the original back-to-the-land movement has evolved quite effortlessly into more traditional manifestations of American individualism: an obsession with private property and a conservative reaction against governmental intrusions into private affairs.” (p.160)

It’s as if hippies tried to escape America in their communes only to find more America. Instead of a utopia of liberation they found the Jeffersonian ideal of the yeoman farmer, an independent and self-sustaining landowner in a vibrant community. After the communes disintegrated, the spirit of communitarian values persisted and even thrived thanks to influx of bags full of greenback dollars. But were the new riches creating greater resiliency or altering the culture to one of materialistic wealth accumulation?

In a particularly ominous passage Raphael writes,

“From a democratic point of view, perhaps the biggest failure of the traditional capitalist system is its tendency for consolidation. Small businesses continually go under, either driven out or swallowed up by their larger competition. Even in agriculture, the family farm is no longer a viable unit; high-tech agribusiness drives prices down to where small, labor-intensive farmers can no longer compete. Apparently, consolidation is an inevitable feature of capitalism — except in the case of marijuana farming. In the marijuana industry there are structural forces which counteract the natural tendency toward centralization. The combination of illegality and geographic isolation provide built-in guarantees against consolidation. The larger the operation, the higher the risk — so there’s a strong incentive to stay small and decentralized.” (p.171)

With the protective barrier to consolidation and bigness gone, replaced by legal farms able to withstand the very high start-up costs, the pioneers of cannabis farmers face an uncertain future. The high taxes, lawyer and filing fees, new labeling requirements, and more have prevented most farmers from becoming legal compliant. As of March 2018, over 99% of cannabis farmers have not gotten through the onerous licensing process. [Report: 99% of Cannabis Growers Are Still Unlicensed] Especially onerous is the excise tax — just like Alexander Hamilton leveled on the whiskey distillers. The cannabis excise tax comes in at a whopping 15%, with multiple sales taxes accompanying it along the supply chain until retail. This has caused the price of legal cannabis to jump about 50% at the same time as the price of illegal cannabis sold on the street plummets. So many people began growing this plant during the green rush that it resulted in a glut in the market supply, without adequate means for those new farmers to go legal. After prop 64 took effect, people who once could live off of their marijuana crop now find themselves in dire straights.

At the time of writing this piece, politicians are signaling that they will attempt to lower the excise tax in a bid to draw more cannabis farmers into the fold. [California considers cut in marijuana taxes in bid to lure legal users] Such would be an act of mercy and justice for the pioneers of an industry that will net the state billions in additional tax revenue. In a contentious hearing at the board of supervisors meeting in Humboldt country (ground zero for early cannabis farming), citizens poured into the halls to plead for lower taxes and the end of corporate loopholes that favor the wealthy. [Frustration and Fear: Local Cannabis Farmers Ask for Help, Claim Measure S Could Put Them Out of Business and Deprive County of Their Tax Revenue] It’s still unclear whether the barriers to entry will remain so high, but people are pushing back and want to be a part of the legal economy. The demand is now for an easier way to join the state regulated economy rather than escape it. The pot growing community has come a long way since the idealistic days of nonconformity.

The desire for access into the regulated market is mainly to prevent the consolidation of industry that Ray Raphael wrote about in Cash Crop. People had always known that legalization would encourage big agribusiness to move into their backyard; without proper permits, law enforcement would end up taking down the smaller business instead of targeting the large ones like it did in the past. Legalization mixed with high taxes has meant that the scale of cannabis farms is getting bigger, a reversal of the tacit agreement between the community and federal drug enforcement that kept operations small. It is the fear of monopoly capitalism that supersedes fear of big government for the people out west — it is the Left Coast after all. The only game left in town is tweaking the rulers so that the law promotes a decentralized industry instead of one dominated by a few players. If we believe with Raphael that capitalism inevitably consolidates into monopoly power, then fair laws that protect small farmers are the only check cannabis farmers have left.

With the law kept as is, small farmers will likely be phased out of the market. Bigger farms tend to yield more product with fewer costs in what economists call “economies of scale” or, in other words, capitalist consolidation. Perhaps the back-to-the-landers are facing a reckoning for failing to curtail gangs from extracting as much black market profits from the region or for looking the other way when signs of environmental damage were all too apparent. [Outlaw Weed Comes into the Light] But there are forces at play that dwarf the collective power of this little haven that hippies found in Northern California. The next step for counterculture on the west coast will be to engage with those greater forces and follow the money instead of stash it.

If cannabis farmers (whoever ends up with the legal profits in the industry) could pool their money together into a bank that the entire state of California has access to as deposits for loans, a great victory would be achieved. A public bank would be the saving grace of the hippies and cement their legacy as a true force against American mainstream capitalism. This would complete the journey of the back-to-the-landers after their escape from American culture. They could take their place alongside the populist farmer movements like the NonPartisan League that willed the Bank of North Dakota into existence. [How the Nation’s Only State-Owned Bank Became the Envy of Wall Street]

The best part is, one doesn’t even have to be a cannabis farmer nor ever have been in the cannabis industry. All we have to do is educate people on the benefits of public banking and for those people to lobby California politicians. [Public Banking Institute] The crucial factor on this issue is linking cannabis profits with accessible deposits for the rest of California. [A Public Bank for Pot Entrepreneurs? How About the Rest of Us?] Such would be practical way to bring economic justice to everyone in the state (and galvanize a nationwide movement) instead of just those under the majestic Redwoods.

For the next installment, I’ll give a brief history of the controversy over the whisky tax in the 1790’s before moving on to public banking.

Author: billrosethorn

(Geo)Philosopher. Building bridges between populism and geopolitics for fellow earthlings.

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