Legal pot is imminent in Colorado and Washington. Are they ready?

A few days from now, in January, people in Colorado will be able to walk into shops and buy marijuana – no doctor's prescription required. In the state of Washington, they'll be able to do the same thing by March or April.

Thus, 2014 will mark a radical departure from the norm of the past 80 years, when marijuana possession and sales were treated as crimes by societies throughout the globe. (Even in the Netherlands, famously pot-tolerating, marijuana is not officially legal.) As other states weigh whether to follow the leads of Colorado and Washington, they will watch to see if a marijuana industry that is legal and regulated by government – rather than illegal and hounded by government – turns out to be less damaging than a black-market underground one.

The answer to that question is probably years away, as the two states fine-tune their approaches to oversight and as researchers study the effects of legalized pot on crime rates, teenagers' use and addiction rates, impaired driving, tax revenues, and a host of other potential costs and benefits.

"There is stuff we're going to get wrong – whether it's tax rates, enforcement, the relationship [between recreational and] medical marijuana," says law professor Sam Kamin at the University of Denver, who served on a task force that recommended regulations for Colorado's marijuana industry. "The hope is that we have a system that is easy enough to change ... and that people will have some patience and realize we're the first jurisdiction in the world trying to do this."

In some ways, both states have a head start on grappling with marijuana oversight: They are among the 20 that already allow the sale and use of marijuana for medicinal purposes. But the leap to legalization for recreational use, which voters approved in November 2012, is a huge one, and devising a regulatory framework that will pass muster with the federal government has consumed much of the past year.

Indeed, an inherent tension exists between the states' new pot laws and federal law, which classifies marijuana as a banned drug. Not until August did the Justice Department articulate its stance toward the states' laws, saying it would not interfere so long as Colorado and Washington regulate the new market well and enforce eight priorities, including the following:

- Preventing use by minors.

- Preventing pot that is grown for sale in the state from migrating out of state.

- Preventing the diversion of marijuana revenue to organized crime.

- Preventing state-authorized activity from being used as a cover for illegal activity.

- Preventing drugged driving and other adverse public-health effects. 

Whether the states can show they are meeting the Justice Department requirements remains to be seen. They have put in place similar but distinct regulations. State officials approach the coming year with confidence in their frameworks, but also a measure of trepidation.

Among the chief concerns is figuring out how to balance supply with a demand that no one yet knows. In both states, businesses are concerned that initially there won't be enough marijuana to meet demand. But officials' priority is to ensure that no excess marijuana goes out of state. Washington has put an annual cap on production, and Colorado may soon follow.

Colorado's Jack Finlaw, chief legal counsel to Gov. John Hickenlooper and co-chairman of the marijuana task force, explains how his state's system is intended to work:

"One of the overarching goals [of regulation] was to make sure we produced the right amount of marijuana and priced it the right way so as to not produce so much marijuana that it got [shipped] out of state," he says. "We didn't want to tax it so heavily that the black market would persist, but we wanted to tax it enough to generate enough revenue to give us money to regulate and do education efforts."

The fact that Coloradans will be allowed to grow marijuana at home, Mr. Finlaw says, is one of the more worrisome aspects, because of its potential to feed the black market. But changing that would be difficult. "Home grow," as the practice is known, is part of the constitutional amendment that voters approved, and outlawing it would require voter sign-off.

In the state of Washington, meanwhile, retailers worry that when they're ready to open their doors there won't be any state-approved marijuana to sell. That's because the in-state network of growers is small (compared with Colorado's), and no one has yet received a grower's license for the recreational market.

"Imagine a series of hoops you have to jump through, and then put those hoops in a room that is completely black – because there still are questions, crucial things we don't know," says John Price, a self-described "cannabis policy expert." About 4-1/2 years ago he founded Northwest Patient Resource Center, a medical marijuana dispensary, with two stores open in Seattle and a third awaiting a license. His plan is to switch to the recreational market. "From a guy that's going to apply to open up three stores, where's my cannabis going to come from?"

Despite the uncertainties, advocates of legal marijuana express confidence that their way is better than sticking with the status quo of outlawing pot. "Marijuana prohibition has been just as colossal a failure as [was] alcohol prohibition," says Mason Tvert of the Marijuana Policy Project, a codirector of the 2012 campaign to legalize marijuana in Colorado. "I don't think it will be long before we look back and ask why it took so long to end marijuana prohibition."

A very cooperative industry 

With 14 other states weighing looser marijuana laws (among them Alaska, California, Oregon, and Rhode Island), perhaps no one has more invested in having Colorado and Washington succeed than the industry itself. As a result, its representatives are often the ones who support regulation and taxes – and who draw a distinction between themselves and the anything-goes pot activists they sometimes refer to as "whacktivists."

"I'm proud – we're really at the forefront of regulating it," says Ralph Morgan, cofounder of OrganaLabs, which specializes in high-quality carbon-dioxide extraction methods with marijuana, and a partner at O.pen Vape, which makes vaporizers (akin to electronic cigarettes). "Colorado truly is the lab for the rest of the country."

Mr. Morgan, who also owns a dispensary in Denver, is among those in the industry who worked closely with the state as it crafted regulations. They supported measures that they might have been expected to oppose, such as taxes and limits on billboard advertising. Morgan was even OK with a proposed ban in Denver on front-porch pot-smoking, which ultimately was voted down. "I'd rather err on the side of being conservative" in a bid to earn the goodwill of skeptics, he says.

Norton Arbelaez, owner of RiverRock Wellness, agrees. The local industry's willingness to be tightly regulated is what pushed Colorado to the forefront of legalization – ahead of, say, California, he notes.

At Mr. Arbelaez's dispensary and growing facility, in an industrial part of Denver, everything is done by the book. There is $300,000 worth of security around the building, and entrance to the dispensary is tightly controlled. A bar-code system tracks every marijuana plant grown on the site. It's a "seed to sale" system that tracks everything to 0.01 of a gram – designed to prevent any legal marijuana from being diverted to the black market or being sold to minors or out of state.

The dispensary, already selling pot to those with prescriptions, looks like any other high-end retail shop. On a recent day the clientele perused offerings ranging from exotic strains of marijuana – "Chem Dawg" and "T&A Haze" – to various medicinal products.

"These are the breakthroughs that regulation has allowed us," says Arbelaez, indicating the vast range of products.

Arbelaez and Morgan hope recreational marijuana users will appreciate the variety of high-quality products that legalization will allow – and will be willing to pay a premium. But the price, and how supply and demand will eventually play out in a legalized marketplace, is a big unknown.

It may take a year to understand the market – and that means a conservative start is probably best, Arbelaez says. "With scarcity, the price will go up, but that's OK," he says. "Our goal, and the goal of prohibitionists, is that we want safer societies."

What keeps skeptics up at night

Critics tick off many concerns about legalized marijuana, but those that rouse the most urgency are the possible effects on young people and addiction rates.

Christian Thurstone, a child psychiatrist and the medical director of a Denver substance abuse treatment center for adolescents, is one such skeptic. Since medical marijuana became commercialized in Colorado in 2009, the number of patients approved for pot use has spiked, he says. So have referrals to his treatment center.

"It doubled the size of our program," Dr. Thurstone says. "The kids we see now are presenting with ... more marijuana in their system and with more severe marijuana addiction."

Thurstone has followed research on marijuana use since 2009. The share of 12-to-17-year-old Coloradans who say they've used pot in the past month rose from 7.6 percent in 2006 to 10.7 percent in 2011, according to the National Survey on Drug Use and Health. After 2009, he says, the Colorado Department of Education showed a 40 percent jump in the number of suspensions and expulsions for drug use.

Marijuana is particularly risky for adolescents because it may affect long-term brain development, Thurstone and others note. Heavy use during adolescence can create as much as an eight-point drop in IQ, he says – on par with exposure to lead.

Almost 60 percent of new users every year are younger than 18, Thurstone says, and the peak prevalence for use is ages 18 to 20. "We're talking about a substance that's disproportionately used by young people, and it's young people who disproportionately suffer the [health] consequences of it," he says.

Criminalization is problematic, too, he acknowledges. He'd like to see the state find a middle ground between marijuana prohibition and an all-out commercialization that includes a profit motive for firms to develop new heavy users by targeting youths.

Even some who favor ending marijuana prohibition, such as Mark Kleiman, a public policy professor at the University of California at Los Angeles, worry about what that might mean for rates of drug abuse. Professor Kleiman, who has consulted with Washington State about its legalization process, says price won't matter much for the casual pot user. But as inexpensive outdoor growing is allowed in the state, the price will eventually plummet and people will find it easier to use more. As with alcohol and tobacco, he says, most consumption of pot comes from a small percentage of heavy users who abuse the drug.

"Your interest as a commercial pot seller is directly contrary to the public interest," Kleiman says. "The two things that are going to be crucial to how [legalization] ends up working are price and marketing, and we've got inadequate responses to both."

The statistics concerning teen pot use are not all one-sided. Michael Elliott of the Medical Marijuana Industry Group cites a Centers for Disease Control and Prevention survey that shows pot use among Colorado youths fell nearly three percentage points (not statistically significant) between 2009 and 2011, even as average use rose nationally.

"We had the biggest drop [among youths] of all 50 states," Mr. Elliott says.

Already, Seattle hosts more medical marijuana dispensaries than Starbucks stores. This month, thousands of people attended an outdoor "pot party" at the Seattle Center, a vast complex of buildings, lawns, fountains, and the Space Needle on the north edge of the downtown.

Because the gathering was screened from public view, it was perfectly legal, says city attorney Pete Holmes. "At any one time there were 600 to 700 people there – smoking pot," he says.

One outcome of the new laws in Washington and Colorado may, paradoxically, be tougher enforcement against those who break them. For years, prosecutors in both states have brought relatively few minor marijuana cases to court. In Seattle, arrests for possession were high, but in 2010 not a single case made it to court.

Now that the law is clearer, says Seattle's Mr. Holmes, prosecutors and police are better able to enforce it and to target the real drug criminals. "We're treating this a lot like we treat alcohol," he says. "If you're walking down the street in Seattle drinking a beer..., there's a good chance you'll get a ticket. Same with marijuana."

Holmes says the advent of legal cannabis brings many uncertainties.

"We don't know if the black market will be able to undercut the state supply system," he says. "We hope the law doesn't put a bunch of stoned drivers out there."

For now, the answer to such uncertainties, is more-focused law enforcement, he says.

Holmes is one who foresees that legalization will eventually spread to the rest of the country. But for now, he says, "All eyes are on us."

Dean Paton in Seattle contributed to this report.