Panel for NORML: “Legalization as an Economic Stimulus for All”

UPDATE:  Just tweeted (5 November 2017) that Oakland’s set-aside project is slowing legalization to a halt.  This link is illustrative:  “New hitch in Oakland pot permit pipeline.”

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The NORML Conference in DC on September 11 has me on a panel that with the proposed title, “Legalization as an Economic Stimulus for All.” And we may get into this question: “How is it that we can create a market that is inclusive to those who have been most disproportionately affected by prohibition?”  http://norml.org/conference

My take is: Let the government own the means of production, and hire people who were disproportionately affected. The government monopoly model is happening in North Bonneville, Washington, and in the State of Louisiana. Or take tax revenue to help those folks, or, in a less targeted way suggested by Arwa Mahdawi, to help African-Americans who have suffered especially from the War on Drugs.

OK, set-asides are a tool to spread wealth. Set asides for minorities are a standard feature for jobs, and for government contracts to provide goods and services.

But set-asides for actual jobs, and contracts to provide goods and services, are quite different from set-asides for cannabis licenses. (Even set-asides for government contracts are may be abused by “fronting” by moneyed, non-minority real parties in interests.)

A cannabis license, unlike a job or a government contract to provide goods or services, is more like a lottery ticket than a check. The “winner” of a cannabis license needs to

  1. Raise enough money to start up the business and run it.
  2. Compete in a new and developing business market.

Jobs don’t require either of those steps. Government contracts, once awarded, avoid the competition problem (#2). And problem #1, raising money, kind of goes away for lenders who know the borrower has a government contract in hand.

This is very preliminary thinking.

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Another formulation of the question is: Who benefits and how when it comes to the industrialization of marijuana?

Big picture.  Some consumers don’t care about the make-up of the industry.  I thought Responsible Ohio in 2015 was a travesty, but NORML supported it.  Russ Belville did, more wholeheartedly.  The main point supporting that view was – nothing is more important than to stop people from getting arrested.  Everything else is a side issue from that perspective.

That’s not my perspective.  I’m an analsyst, not a consumer advocate, but NORML has been of enormous help as I’ve tried to think about revenue from marijuana.

It makes me just a little nervous when a consumer lobby starts taking positions on buiness issues.  Consumer lobbies are fragile – free rider problem, Tragedy of the Commons.  Business interests are financed better.  Sometimes, business can create phony consumer lobbies, like the Beer Drinkers of America. http://articles.latimes.com/keyword/beer-drinkers-of-america-organization.  Business money can take over consumer positions, maybe.

It cheers me up that NORML sees an advantage in the anti-advertising rule of 280E, which the industry wants to repeal.  No take-over there.

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Now about the make-up of the industry, here are some old and preliminary thoughts, from a post that copies another post.  I did not get into set-asides to rectify the injustices of the past, which is a subset of “On the Merits,” but I worry that setting aside licenses (1) won’t share the wealth much, and (2) will provide only a possibility of success in a cut-throat industry.  To rectify the injustices of the past, I think about government (municipal) stores providing lots of secure jobs rather licensing plans providing a few risky opportunities:

Legible version at https://newrevenue.org/2015/05/14/a-7th-way-of-picking-growers/

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Picking Winners: Deciding Who Gets to Grow Marijuana Commercially, (https://newrevenue.org/2015/10/20/picking-winners-to-grow-marijuana/)  describes in detail six ways to pick winners, who get the privilege to grow:

1               Self-selection (Responsible Ohio ballot ploy)

2               Voucher privatization – Share the wealth

3               Grandfathering existing growers

4               Lottery

5               Steep fees

6               On the merits.

Professor Sam Kamin of the University of Denver Law School points out that Colorado has a seventh way of controlling production. It allows anyone who qualifies to get a license to grow 3,600 plants. And existing growers who can sell most of what they are growing can get additional licenses to grow more. (Details from Regulations are below.)  I’d call this method “All Comers — First Come, First Served.”

But “The State Licensing Authority, at its sole discretion, may adjust any of the plant limits described in this rule on an industry-wide aggregate basis for all Retail Marijuana Cultivation Facility Licensees subject to that limitation.” https://www.colorado.gov/pacific/sites/default/files/Retail%20Marijuana%20Rules%20through%2001302015.pdf

That’s just like the system that the federal government used to limit tobacco production. In early 1938, for instance, Agriculture Secretary Henry Wallace “proclaimed a marketing quota for the 1938 flue-cured crop of 705 million pounds, in contrast to the 1937 crop of 850 million pounds.” Anthony Badger, Prosperity Road, page 151.

 

Why limit who can grow?  One reason is “to protect the industry:  You want to limit how much can be grown for sale; if so, you might start by limiting who can grow commercially.”

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Here are details from Colorado’s rules: [omitted]

Professor Kamin clarifies:  “Increases aren’t actually by business, but by license.  This is a subtle, but important, difference.  Everything here is license based and for grows each license has a count associated with it.  So you have businesses (as we generally understand them) that might have 20 or 30 licenses – grows, retail, MIPs.  Each of those has to be bought, renewed, etc.  They can also be sold.  We’re in a period of real consolidation.”

[An aside: I disparage option 2, Voucher privatization, in the article more than I would now. Voucher privatization might be too unwieldy to work on a state level at first, but it’s conceivable on a county or sub-jurisdiction level from the get-go.]

 

 

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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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