Voucher privitization of growing privileges

UPDATED 14 May 2015:  I disparage the option of  Voucher privatization in this article more than I would now. Voucher privatization might be too unwieldy to work on a state level, but it’s conceivable on a county or sub-jurisdiction level.

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Tax folks like to work through theory.  So here’s a here is a trip to Theoryland, designed to exhaust the options for allocation of the privilege to sell marijuana commercially.

Maybe a state will say not everyone can grow marijuana commercially. If a state makes that decision (whether it should limit growing is not the subject here), how might the privilege to grow and sell marijuana be allocated? By lot, on the merits, by growing history, by charging steep fees, by annual auction, or how?  I’ll get into those options later.  Voucher privatization is a democratic model for sharing the wealth. OK, it’s not practical, certainly not in the short term.  But it sets up a model for comparison.

A legalizing state creates a valuable new asset – the privilege of growing marijuana commercially – that is worth money.  That asset can theoretically be divided up among residents. Here’s how that might work:  The state passes out transferable vouchers to all residents, or voters. This is like Alaska’s Permanent Dividend Fund, which sent $1,884 in oil dividends to each qualifying resident of the state for 2014. Drilling down on a possible option for marijuana: Every voter gets one transferable Quota Share. Each Quota Share is entitled to an equal fraction of the year’s total production target, set by the state. (The target marijuana production total would need to reflect the likelihood that Quota Shares would find buyers; some would not – they would lapse unsold.  The target involves layers and layersof guesswork.)

Marijuana businesses bid and compete for Quota Shares issued to individual voters. Each year, new Quota Shares are issued.  Growing without Quota Shares might be banned, or extravagantly taxed.  The state could limit growers to a certain number of Quota Shares (and thus grow areas), and require a threshold amount, a minimum, to produce at all.

Annual distributions and other safeguards might be able to prevent some of the haphazard results of the one-time, permanent distributions of vouchers for privatized shares of post-communist enterprises late in the 20th century. Making the public have a non-tax stake in marijuana commerce would make ordinary citizens tend to oppose marijuana taxes – but the public would benefit directly from Quota Shares rather than indirectly from taxes as citizens. Meanwhile, the Quota Share process should push up the after-tax price of marijuana.

Voucher privatization is like a lottery where everyone enters and everyone wins a little something. Voucher privatization shares the wealth, but Quota Shares could sell for pennies until the black market is marginalized.

Guessing at numbers consists only of wild speculation. While actual allocations would be done at the state level, national numbers are available to work with. The RAND Report for Vermont suggests that 1,900 acres could satisfy national demand. That’s 827,640,000 square feet to split among 320 million people. So each Quota Share would allocate a little over two square feet. Say the total crop is now worth $40 billion, as the RAND Report suggests.  (Watch out:  The speculation gets even wilder.)  Say that a huge portion of the prohibition premium could operate for the benefit of owners of Quota Shares.  For instance, say half of the total consumer price eventually went to pay for legality. Then 320 million people would divide up $20 billion, so a Quota Share would be worth some $62.50. (Good luck getting that price.)  If the 78 million voters in 2014 divided it up, the raw number would be a little over $250 each.

But Quota Shares would sell for far less until the black market is marginalized. At first, the black market may remain so strong that the legal market can hardly compete. In that case, Quota Shares could be worth so little that a mechanism to handle them will seem too bulky.  For now, Quota Shares fail the practicality test.

There might be glimmer of possibility for this apparently far-fetched notion if incumbent medical growers got temporary growing privileges as a transition rule, for two or three years.  Then any new method of allocation might be on the table.  Quota Shares might be worth the trouble.  But any new experiment faces an uphill climb.

 

 

 

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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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