Does California Law Limit Localities’ Legalization Options?

Do municipalities in Washington State and Maryland have more freedom to experiment with marijuana legalization than those in California?

Here’s the context:

A cautious way of legalizing marijuana is to have government stores do the selling. That may sound like socialism, or Democratic Socialism. But it’s the plan that teetotaling Baptist businessman John D. Rockefeller, Jr., urged for alcohol at the end of Prohibition. He put habit-forming intoxication in a separate category of commerce, separate from commerce where the free market works best.  Government stores not only allow more control of commerce, they can allow the government a revenue advantage.

And since March 2015, for marijuana, North Bonneville, Washington, has been using just that method.

Now Oakland, California, home of America’s first marijuana tax, approved by voters by a 4-to-1 majority in 2009, is considering municipal ownership of all new marijuana businesses. Rather than complete control, as in North Bonneville, which would immunize the businesses from RICO attack and provide an argument for total federal income tax exemption – beyond 280E protection – Oakland is considering issuing licenses only to businesses in which it has a 25 percent stake, and a seat on the board.

Hancock, Maryland, has pioneered that model, though more modestly, taking 5-percent ownership of a company with a state growing license.

But maybe California law doesn’t allow municipal investment in most for-profit businesses. Here’s the assertion, by State Rep. Rob Bonta: “state laws prohibit public entities, like cities, from having a stake in businesses, both nonprofit and for profit.” I don’t know whether that’s true, or whether inserting a corporation or other entity into the chain of ownership would make that set-up legal.  California law explicitly allows for municipal ownership of utilities, like electricity and water providers.  Does that mean cities can’t own anything else?

A more recent press report focuses on eminent domain issues, and doesn’t mention prohibition of municipal ownership.

So it remains to be seen whether California cities can’t do what cities in Washington and Maryland can.

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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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