See updates below.
How did this happen? Well, Paul seems to be suffering from a fit of desperation in the aftermath of a weird college bong controversy , followed by a series of super-lame "soft on crime" attacks  from his Democratic opponent, Jack Conway. The whole situation is an ugly throwback to the polarizing crime politics of the 1980's, and it's just pathetic that Rand Paul fell for it.
Sure, marijuana reform may not sell as well in Kentucky as it does in California, but posing as a typical drug warrior politician serves only to undermine Paul's credibility with libertarians while failing to deflect his opponent's inevitable attacks. By backing down, Paul lost the ability to defend his position and connect with a huge number of voters who share his views. Meanwhile, his past statements in support of medical marijuana will still be held against him by the few people who actually have a problem with it.
The worst part is that if Paul loses the election, it may appear to vindicate the "soft on crime" attack strategy that his opponent deployed. Who knows what would have happened if Paul had actually stood up for himself and turned the tables by pointing out that Jack Conway wants to continue arresting cancer patients at an enormous cost to tax-payers. It may or may not have worked, but it's better than backing down and letting your opponent redefine your political identity.
Whether Rand Paul will be the next Kentucky Senator remains be seen. But it's clear he won't be the next Ron Paul.
Update: As some commenters have pointed out, we don't have a direct quote on this from Rand Paul. Here's what the AP story  says:
Paul, a tea party favorite, shows libertarian leanings on drugs. He said he is opposed to the legalization of marijuana, even for medicinal purposes. But he also has called drug sentences of 10 to 20 years too harsh.
Some of you felt that he may have been misquoted, and that's a possibility, although the story is a week old and hasn't been corrected or disputed by Paul. I also agree that the real drug warrior in the KY Senate race is clearly Jack Conway. My comments focused on Paul because I wanted to illustrate a point about why it didn't make sense for him to shy away from his position on marijuana reform. I agree that Rand Paul is still the better candidate when it comes to drug policy, I just wish he'd handled this situation differently.
Update 2: Mike Meno at MPP got in touch  with the Paul campaign and was told that Rand Paul is standing by his state's rights position on marijuana policy. That means the AP quote is inaccurate. Unfortunately, Paul also refuses to say whether he personally supports marijuana reform, other than to allow states to make their own decision about it. So his position is better than my initial post suggested, but not as good as I previously believed it to be.
I'm sorry that I passed along AP's misleading characterization of Paul's position and I certainly wouldn't want drug policy reformers to get the wrong idea about Rand Paul.
(This article was published by StoptheDrugWar.org's lobbying arm, the Drug Reform Coordination Network, which also shares the cost of maintaining this web site. DRCNet Foundation takes no positions on candidates for public office, in compliance with section 501(c)(3) of the Internal Revenue Code, and does not pay for reporting that could be interpreted or misinterpreted as doing so.)