Auctioning marijuana licenses — exponentially

The City of Oakland enacted, a while back, an annual fee of $211,000 for each of four “marijuana factories.”[1] Other schemes to raise revenue through licensing at all levels of commerce are numerous. Requiring licenses for everyone in the supply chain conforms with evolving international standards for tobacco.[2]  Making licenses expensive or otherwise restricting them narrows the supply chain at a possible choke point.[3]  Consumer licenses have been suggested, [4] and correspond to cards issued to medical marijuana patients.

Auctioning[5] licenses could let government share the proceeds of legalization. An annual license auction might be optimal. After the first year, the incumbent might be able to outbid others because of intangibles it developed from the first year’s license. (Entrenched incumbent sellers are not necessarily a good thing.)

So what if the incumbent had to outbid competitors by a compounding excess? Say 10 percent. So the second year, the incumbent would have to pay 110 percent of the next bid; in the third year, 121 percent, and so on. After ten years, the incumbent would have to bid some 2.5 (1.1 to the 10th power) times the next bid to prevail. That rule could spread the wealth and power around — or finance spending, allow tax cuts, or reduce debt.  Related party rules, of the kind the Internal Revenue Code has raised to an art form, would be needed to prevent incumbents from disguising their real interests.
[1] Ray Sanchez, “Oakland Approves Four Marijuana Factories,” ABC News (July 21, 2010), available at http://abcnews.go.com/Business/US/oakland-approves-marijuana-factories/story?id=11209664.

[2] Department of the Treasury, Report to Congress on Federal Tobacco Receipts Lost Due To Illicit Trade and Recommendations for Increased Enforcement 13 n.26 (Feb. 4, 2010) available at http://www.ttb.gov/pdf/tobacco-receipts.pdf [hereinafter “Treasury Tobacco Report”].

[3] State and Federal, supra note175, at 236.

[4] Mark A.R. Kleiman, Against Excess Chapter 4 (Laws), available at http://www.sppsr.ucla.edu/faculty/kleiman/book/.

[5] Caulkins et al., High Tax States, http://law.uoregon.edu/org/olr/volumes/91/2/documents/Caulkins.pdf, at 1052.

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Author: patoglesby

From 1982 to 1990, I worked in tax policy for Committees of the United States Congress. In recent years, I was Adjunct Lecturer at UNC-Chapel Hill's Business School and then Adjunct Professor at its Law School.

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