Retail bans and license limits are bad for marijuana legalization

By Diane Goldstein

Recently, Sacramento’s cannabis market was embroiled in an international scheme involving Andrey Kukushkin, who owns a significant share of the city’s retail permits.

Though it’s easy to focus on corruption and scandal, it’s even more critical that we scrutinize the cannabis licensing system and the role of local elected officials in turning permits into a commodity.

When Californians overwhelmingly voted to legalize adult-use cannabis in 2016, they also unintentionally instituted a dual licensing system for cannabis retail. Legal cannabis businesses must first obtain a permit from the city where they operate before the state will issue a license. This set-up, hailed as “local control,” empowers county supervisors and city council members throughout the state to decide if (or how many) cannabis retailers can operate within their jurisdiction.

But rather than embrace the intent of Proposition 64 and match the level of voter support with the appropriate number of cannabis dispensaries and delivery services, local officials doing the opposite. Nearly 80% of cities and counties have banned cannabis retailers, and many others have set arbitrary limits on the number of licenses. As a result, legal cannabis—whether it is medical or recreational—has failed, and will continue to fail, to integrate into California’s legitimate economy.

Currently, Sacramento, a city of 500,000 people, only allows 30 cannabis retail licenses, despite more than 54% of the city’s voters supporting Prop. 64. While the city plans to award as many as 10 more licenses to social equity applicants, that still leaves Sacramento with only 1 license for every 14,000 people.

Where did this license cap come from, and what’s the rationale behind it?

This number is not based on real demand. As a result of the city’s decision to restrict licenses to so few, they have become tremendously valuable commodities, essentially creating a legal license cartel. Only the most wealthy and well-connected business owners are able to obtain permits, whether by playing within the rules or by backroom deals. Small businesses have run California’s cannabis economy for decades. Shutting them out now is a slap in the face.

Imagine if there were similar caps on the number of pharmacies. This process inherently breeds corruption. It is not the role of local government to create choke points in burgeoning industries, but rather to create sensible regulations that protect public health and safety.

Arbitrary caps on cannabis business licenses inherently breed corruption and increased crime. When businesses are forced to break the law, some may be more willing to sell unregulated products, or to sell to minors.

It’s estimated that three-fourths of California’s retail cannabis market is unlicensed. This not only deprives California of budgeted tax revenue, but it neglects the intent of Prop. 64 to not only decriminalize the industry but also provide a space in the market for communities of color that have been disproportionately and negatively impacted by the failed war on drugs.

While Sacramento has a social equity program, the fact that only five licenses were made available shows that it is an afterthought. When applicants complete the training program, there are no licenses left for them.

It has been three years since California voters passed Prop. 64, yet still the vast majority of cities and counties ban retail sales of cannabis. Until the number of permits adequately match local demand and repair the damage of marijuana prohibition, we will continue to see corruption and crime in the headlines.