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Legal Marijuana In South Dakota Without Limited Licenses?

This month's election saw both medical and adult-use marijuana initiative petitions get voter approval in South Dakota. Neither framework contains a numerical limit on licenses, but both contemplate some limitation depending on various factors. The Cannabis Consumers Coalition does not support limitations on licenses that harm free-market competition as we believe consumers are best served by vigorous market competition as to price and quality.

Constitutional Amendment A (adult-use marijuana) provides:

Section 8: In determining the appropriate number of licenses to issue, as required under this article, the department shall: (1) Issue enough licenses to substantially reduce the illicit production and sale of marijuana throughout the state, and (2) Limit the number of licenses issued, if necessary, to prevent an undue concentration of licenses in any one municipality.

Initiated Measure 26 (medical marijuana) provides:

Section 72. That the code be amendment by adding a NEW SECTION to read: Not later than one hundred twenty days after the effective date of this Act, the department shall promulgate rules pursuant to chapter 1-26:

(3) Establishing a system to numerically score competing medical cannabis establishment applicants, in cases where more applicants apply than are allowed by the local government, that includes analysis of:

(a) the preference of the local government

(b) In the case of dispensaries, the suitability of the proposed location and its accessibility for patients;

(c) the character, veracity, background, qualifications, and relevant experience of principal officers and board members; and

(d) the business plan proposed by the applicant, that in the case of a cultivation facility or dispensary shall include the ability to maintain an adequate supply of cannabis, plans to ensure safety and security of patrons and the community, procedures to be used to prevent diversion, and any plan for making cannabis available to low-income qualifying patients;

While it's a positive thing that neither framework creates an explicit limit on licensing, it's disturbing that both frameworks allow for limits on licensing that depend on arbitrary government determinations; notably, both frameworks allow limits on licensing that are specific to local or municipal governments. This is likely a recipe for induced corruption or pay-to-play practices; moneyed operators will hire lobbyists to argue for limits on the number of licenses at the local or municipal level.

In August 2019, the Federal Bureau of Investigation put out a notice specifically noting the risk of corruption is greatest in these kinds of systems:

Mollie Halpern: As an increasing number of states change their marijuana legislation, the FBI is seeing a public corruption threat emerge in the expanding cannabis industry.

States require licenses to grow and sell the drug—opening the possibility for public officials to become susceptible to bribes in exchange for those licenses.

Supervisory Special Agent Regino Chavez...

Regino Chavez: We’ve seen in some states the price go as high as $500,000 for a license to sell marijuana. So, we see people willing to pay large amounts of money to get in to the industry.

Halpern: The corruption is more prevalent in western states where the licensing is decentralized—meaning the level of corruption can span from the highest to the lowest level of public officials.

As recreational marijuana becomes more widespread, Intelligence Analyst David Kirschner says states should expect the corruption problem to increase.

A lawsuit challenging the constitutionality of Amendment A has recently been filed by members of law enforcement with the support of Governor Kristi Noem, a vigorous opponent of marijuana reform. In an interview with the Yankton Daily Press & Dakotan, a spokesman from the South Dakota Chamber of Commerce and Industry further indicated there would likely be further action by the South Dakota Legislature to restrict the implemented framework of Initiated Measure 26.

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