Beer Companies Don’t Care About The Median Drinker

Mark Kleiman has done some of the most interesting policy analysis of illegal drugs that I have ever read.  He argues that home grown marijuana should be legal (and some polls show that the majority of Americans agree), but large-scale farming of marijuana should be illegal.  Does that make any sense?  Read on.

Kleiman’s analysis suggests that if factory farms produced marijuana, and Walmart distributed it, marijuana would be so cheap that it would be given away for free at restaurants and convenience stores like ketchup or salt.  His analysis suggests that high quality pot would be cheaper than ketchup packets and low-quality pot would be cheaper than salt.

Kleiman estimates that low-quality marijuana would have production costs that are similar to the cost of producing hemp.* Current production costs for hemp are around $500 per acre which means that if farmers grew marijuana varieties instead of hemp varieties, they could produce 800 joints (at .5g/joint) for only 20 cents!  Twenty cents isn’t the price per joint, it is the total price for enough marijuana to roll 800 joints.  This kind of low-quality marijuana is being sold today for well over a thousand times more money.  At the other end of the quality spectrum, the highest-quality marijuana probably has production costs that are similar to that of grafted greenhouse tomatoes which cost up to $20,000 per acre, but that still means that the very best quality marijuana would only cost under $20 per pound which translates to a little over 2 cents per joint.  Yglesias points out that:

[Factory farming] would make pot far and away the cheapest intoxicant on the market, absolutely blowing beer and liquor out of the water. Joints would be about as cheap as things that are often treated as free. Splenda packets, for example, cost 2 or 3 cents each when purchased in bulk.

That would completely change the economics of intoxicants.  For example, bars often give out free salty snacks because they make patrons thirsty and cause them to spend more on high-profit beer.  If pot were legalized, Taco Bell might give away free smokes (on hookas, so patrons don’t take it out and smoke elsewhere), in order to sell more Doritos which apparently are the food of choice for potheads.  It would be cheaper to give away marijuana to customers for free than the cups of tap water, packets of salsa, and parking that Taco Bell currently provides for nothing.

If marijuana were truly legalized, then companies like tobacco giant Phillip Morris would produce joints and companies like Walmart and Taco Bell would sell it.  Kleiman opposes the marriage of Taco Bell and marijuana because he fears the power of professional marketers to change our society and the power of a marijuana lobby to influence our government.

A legal cannabis industry, like the legal beer industry, the legal tobacco industry, …and the legal gambling industry, would do everything in its power to expand its sales, including taking political action to weaken whatever regulations and minimize whatever taxes were imposed.

Well, again, why not? What’s wrong with persuading someone to engage in what would be a perfectly lawful behavior?

Nothing, if the behavior is harmless as well as lawful. Everything, if the behavior predictably inflicts harm on the person being persuaded.

But cannabis use (like drinking, eating, and gambling) is harmless to most of the people who engage in it. Is it wrong to suggest that someone start [it] simply because it might turn into a bad habit?

Might. “Aye, there’s the rub.” To the consumer, developing a bad habit is bad news. To the marketing executive, it’s the whole point of the exercise. For any potentially addictive commodity or activity, the minority that gets stuck with a bad habit consumes the majority of the product. So the entire marketing effort is devoted to cultivating and maintaining the [abusers.  Addicts are] a gold mine to the industry.

Take alcohol, for example. Divide the population into deciles by annual drinking volume. The top decile starts at four drinks a day, averaged year-round. That group consumes half of all the alcohol sold. The next decile does from two to four drinks a day. Those folks sop up the next thirty percent. Casual drinkers – people who have two drinks a day or less – take up only 20% of the total volume. The booze companies cannot afford to have their customers “drink in moderation.”

The relationship is obvious once you think about it. One of what the beer commercials of my youth called “real beer drinkers – people who drink a case or more of beer a week” is worth two dozen people who only consume a drink a week, which is roughly the national median.

Not everyone in those top two deciles has a diagnosable drinking problem; you could have four drinks every day and never be actively drunk. But that’s not the typical pattern. Most of those folks have an alcohol abuse disorder. And they [have always been] the target market. “An innkeeper loves a drunkard,” says the Yiddish proverb, “except as a son-in-law.”

Since the alcoholic beverage industries are as dependent on alcohol abuse as a chronic drunk is on his wake-up drink, they fiercely resist any effective policies for curtailing it, starting with higher taxes. (Contrary to myth, taxation takes most of its bit out of heavy drinking rather than casual drinking, because alcohol is a much bigger budget item for heavy drinkers.)

[We could almost eliminate drunk driving if we would have liquor store] clerks and bartenders check customers against a list of people who had lost their legal drinking privileges as a result of a criminal conviction for drunk driving or drunken assault. …Would the industry hold still for it? No way.

So the prospect of a legal cannabis industry working hard to produce as many chronic stoners as possible, and fighting hard against any sort of effective regulation, fills me with fear. …The [giant] cannabis companies that would emerge from full commercial legalization would have all of the tobacco outfit’s morals…

The rate of problem use among cannabis users [has been] lower than the rate of problem drinking among drinkers (lifetime risk of about 10% v. lifetime risk of at least 15%) but that’s under conditions of illegality and high price. The risks of chronic heavy cannabis use aren’t as dramatic as the risks of chronic heavy drinking – the stuff doesn’t kill neurons or rot your liver, and generates less crazy behavior than beer does – but that doesn’t make those risks negligible. Ask any parent whose fifteen-year-old has decided that cannabis is more fun than geometry. Of the 10% of cannabis smokers who become heavy daily smokers for a while, the median duration of the first spell of heavy use (not counting the risks of relapse) is 44 months. That’s not a small chunk to take out a lifetime, especially a young lifetime.

Cannabis isn’t harmful enough to be worth banning. But that doesn’t mean that it’s safe to give America’s marketing geniuses a new vice to peddle.

Beer companies don’t care about the median beer consumption or even the average drinks per capita.  They care about the approximately 20% of drinkers who consume 80% of all the beer.  They only care about all the rest of us insofar as they can encourage the kind of risky drinking behavior that could move some of us towards the tipping point of becoming the alcoholics who generate 80% of their revenues.  That is why they focus their commercials on encouraging binge drinking among the young.  That age demographic is the easiest to influence and are the most susceptible to becoming alcoholic.  Nineteen-year-olds have the highest hazard rate of becoming alcoholic (despite being below the legal drinking age) due to their malleable age and large dosage consumption patterns.   The CDC reports that, “About 90% of the alcohol consumed by youth under the age of 21 in the United States is in the form of binge drinks.” Marketing binge drinking is an effective way to convert youth into alcoholics.  Almost eighty-percent of drinkers are above 21 and generally just drink one beer with a meal, but marketing to them is unprofitable because it won’t produce enough alcoholics.

To prevent the median American from becoming a pot addict, Klieman argues we need to prevent the kind of economies of scale that will create concentrated financial interests (like Coors and Philip Morris) that will spend billions of dollars devising devious ways to influence us to become potheads.  I agree with that sentiment completely, but I’m not convinced that the economics are correct.  The world has never known an intoxicant that is so cheap that it will be given away for free.  That could change the economics.  If Doritos is giving away free pot with every bag of chips they sell, it might not be profitable enough for Philip Morris Corp. to spend money hiring marketers to promote.   And if the government imposes high taxes that make marijuana costly, that would help hold down producer profits.   Domino sugar and Morton salt don’t spend much money on marketing their products because these commodities have such low profits that their producers can’t afford to spend much on marketing.

I don’t know if I agree with Klieman that we should only legalize home-production of marijuana because it has bad environmental costs, is terribly inefficient and millions of tiny, inefficient producers are hard to tax and regulate.  It is much easier to tax an industry when a few behemoth corporations dominate some aspect of the supply chain like the cigarette corporations dominate the tobacco industry.  If cigarette smokers directly bought tobacco from backyard producers at farmers’ markets, the government wouldn’t get any revenues and cigarettes would be even less safe because there would be less regulation and quality control from thousands of small producers.  But tobacco would be a lot more expensive, so that could help reduce smoking.

Most research suggests that pot is a substitute for alcohol consumption, so more pot could reduce the consumption of alcohol and perhaps reduce the amount of alcohol marketing that American youth are targeted with. If Kleiman is right, and marijuana abuse is less harmful than alcohol abuse, then IF the total amount of substance abuse does not rise significantly, then greater marijuana use could decrease alcohol abuse enough to create a net benefit for society.

I don’t know if marijuana is less harmful than alcohol to the user, but marijuana abuse probably has less externalities upon innocent bystanders because it seems to produce fewer driving accidents and violence than alcohol abuse.  Although both substances impair driving by reducing physical coordination, alcohol also makes people more reckless and overconfident.  In contrast, potheads tend towards paranoia and are more likely to fear getting into an accident.  Kleiman argues that America would be better off decriminalizing marijuana (with heavy taxes and regulation) and also making alcohol harder to get by raising alchohol taxes.  He considers alcohol to be, “the country’s number one drug abuse problem.”  His research suggests that increasing the alcohol tax back to the level it was at in the 1950s would,

prevent 800 homicides and 1500 accidental deaths per year, reduce healthcare costs, reduce teenage pregnancy, decrease domestic violence, protect fetal health and shrink the Federal deficit by $20 billion… [but] not a single politician in Washington has even dared to mention that change, largely in deference to one of America’s most powerful lobbies.  …Tripling the alcohol tax would increase the price of each drink  by about 20%.  …This would reduce total drinking by about 10%, and in turn reduce [total] homicide and automotive accidents by about 5% each.

But marijuana legalization would also create a powerful new lobby and it could cause unpredictable new health problems.  Doritos might put free joints in bags of chips as an addictive loss-leader strategy to increase sales of their unhealthy chip.  Adding an addictive drug to the package would give a whole new meaning to their slogan: “You can’t eat just one.” Although past research has indicated that each marijuana addiction has probably been  less harmful than each alcohol addiction, that research comes from a context where marijuana was illegal and much more expensive compared to alcohol.  Legalizing marijuana might cause an explosion of addiction and that could create much greater harm than we have under our current system of marijuana prohibition. Even if corporate marketing campaigns to promote pot are banned, if pot is legalized, there will still be a grass-roots (so to speak) campaign by enthusiasts to promote pot culture.  Personally, I would  rather avoid being around more of that idiocy.  Legalized pot will cause more stupid, half-baked movies and idiotic t-shirts that are only funny to the people who spend their time dazed and confused.  Grass-roots pot promoters might become as harmful as a concerted Madison Avenue marketing campaign.

It is hard to predict what would happen.  For example, Robert VerBruggen has always had the libertarian view that recreational drugs should be fully legalized until a small increase in the promotion of prescription opioids caused him to rethink what would happen if opioids were completely free market:

In 1999, Americans had fatal drug overdoses at a rate of 6 per 100,000. In 2014, that number stood at 14.8 per 100,000 — a rise of 8.8 per 100,000. To put this in perspective, America’s famously high homicide rate is about 5 per 100,000. And the overdose spike is apparently driven by a policy change much gentler than full legalization.

All of that was caused by new patents on a couple opioid pain killers that gave the pharmaceutical companies a new incentive to market what had been a generic molecule.  Most of the epidemic is in the US because patented pain killers, like all patented pharmaceuticals, are the most profitable in the US. For example, the US and Canada account for 83% of the worldwide consumption of oxycodone, which has caused the biggest overdose and addiction problems.  All due to the fact that the US goverment gives a greater incentive to drug companies because the US government gave a patent monopoly and also allow more marketing and higher prices than other nations.

According to the FiercePharma industry newsletter,

OxyContin sales put Purdue’s Sackler family on Forbes rich list… the Sacklers… are worth a “conservative” $14 billion, ranking their fortune at No. 16 on the list of America’s largest. And it’s all because of OxyContin.

Just like a street drug pusher, Purdue gave out free samples to 34,000 new customers to help get them hooked.  To see more about how a little drug marketing can have big effects upon addiction, Art Van Zee’s published a critique of Purdue’s overzealous marketing campaign in the American Journal of Public Health in 2009.  The Sackler family made a lot more money from the Oxycontin addicts than from the median user, so they had perverse incentives to create opportunities for abuse worth billions of dollars.


*Note that hemp is illegal to grow in the US because it is exactly the same species as marijuana, but with more fiber and less psychoactive THC.  Hemp was legally grown in the US through WWII (and some farmers even got draft deferments to grow it!) and is still legally grown in many other countries including Canada because it is not generally smoke-able except by really desperate potheads. Marijuana and hemp are two varieties of the same species that are bred to produce different products like a golden delicious apple produces very different fruit than an ornamental crabapple even though they are both the same species.  Hemp plants are marijuana plants that are bred for fiber (and/or seed production) whereas marijuana plants are a kind of hemp selected for THC production.  I don’t have personal experience getting high from marijuana, but I have heard that you have to smoke a whole lot of hemp to get high and you might just end up with a headache instead.

Posted in Health, Labor, Medianism

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