Sharing weed wealth — Annual license auctions

A while back, the late Mark Kleiman wrote ““handing out production rights for modest fixed licensing fees . . . [means that] any gain from scarcity pricing will go to the industry and encourage even more vigorous marketing. If, instead, production quotas were put up for auction, the gain could go to the taxpayers. . . . [P]roduction quotas with an auction would be the equivalent of taxes.”

Nineteenth century India, the pioneer in cannabis policy, did just that.  It both imposed taxes and held annual license auctions. “For the retail vend of ganja, charas, and bhang . . . [t]he number of shops is fixed by the Collector according to the demand for the drug. The licenses are sold by public auction for one year.” 

More recently, the State of Louisiana enacted this:  “The Department of Agriculture and Forestry shall develop an annual, nontransferable specialty license for the production of prescribed marijuana for therapeutic use and shall limit the number of such licenses granted in the state.”  That annual cannabis license auction was a backstop or Plan B if state universities elected not to grow cannabis – but they are growing, so there are no annual licenses.

So I don’t know of any annual license auctions in the world today.  But if licenses are permanent, or vested, incumbent license holders will fight to restrict the market.  Annual licenses address that problem.  They may mean that license holders won’t invest so much – no glitzy showrooms to attract retail customers, no advertising campaigns designed to build long-lasting brand awareness.  Storefronts will be minimal, and meager.  The danger of losing a license in next year’s auction makes big investments riskier.  Industry will hate licenses that expire after one year, and that are put up for auction annually.  Maybe you won’t have to be rich to afford an annual license, so the wealthy won’t dominate the industry.

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