High Wire Act: States Struggle to Balance Expertise and Social Equity in Marijuana Markets
May 29, 2019

Utah issued a proposed rule (R68-27) for its recently approved medical marijuana program that calls for the issuance of ten cultivation licenses with fees of $10,000 per application and $100,000 per license (the rule does not address the sale of medical marijuana). A recent Salt Lake Tribune article addressed the steep cost (which does not include all the other start-up costs, including legal fees) and at least implicitly raised the question that is vexing states from coast-to-coast—how high should the barriers to entry be?

There are strong arguments for high barriers to entry. Marijuana is a medicine for many and should be treated as such. States do not want just anyone to cultivate medical marijuana, just as they do not want just anyone processing Advil. While the standards are slightly more relaxed for recreational marijuana, it is still a product that requires advanced technology and expertise to mass cultivate properly. Only those with substantial resources are generally able to provide the high-quality product required by law. Similarly, states see applications and licenses as a substantial source of revenue. Utah, with only ten cultivation licenses for its medical marijuana program, will generate well over $1.0 million in revenue (and may generate more depending on the licensing and application structure for retail sales/prescriptions). In states with larger populations and/or recreational programs, the application and license fees are a multiple of that and go a long way towards plugging budget holes. And this is virtually guaranteed revenue—it does not depend on estimated future sales.

There are also, however, significant concerns about high barriers to entry, especially with respect to social justice. Many legislators and legalization advocates have championed legalization as a means to correct historical injustices caused by the war on drugs. One way to advance that cause is to allow those harmed by the war on drugs to share in the profits of legalization. The problem, of course, is that those harmed by the war on drugs may not have $10,000 for an application, $100,000 more for a license, and another six figures for start-up costs and legal fees. It is simply not feasible for many of those individuals to enter the industry at the upper echelon.

There does not appear to be a consensus on this issue—not even close. Utah’s proposed rule does not appear to have any social justice concessions while states like Maryland and Illinois have extensive provisions in their regulations and proposed legislation, respectively, that attempt to open the marketplace to social equity applicants. The access issue thus represents another example of “laboratories of democracy” in action, and one that we are monitoring closely.

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