The Cannabis Consumers Coalition was founded to advance free market principles protecting consumers from the harms of oligopoly marijuana markets created by restrictive legalization frameworks that limit licensing or create artificial barriers to entry. Consumers are harmed by these market restrictions because limiting competition ultimately hurts A) consumer choice, B) market innovation, C) competition over price and quality in the market, and D) consumers' and voters' rights to honest services of their governments.
The focus of today's post is the last point: restrictions on licensing and decentralization of gatekeepers for access to the market creates very significant incentives for governmental corruption. The Cannabis Consumers Coalition is currently working on a report about the prevalence of substantiated governmental corruption issues in state marijuana licensing regimes -- we can tell you that in every venue where the number of licenses are restricted, there are significant allegations of bribes and other hallmarks of political favoritism in the market.
Today, Mona Zhang reported in Politico that:
The downfall of Fall River’s young mayor wasn’t just a tragedy for the thousands of people who invested their hopes in him: It was emblematic of a rash of cannabis-related corruption across the nation, from Massachusetts to California to Arkansas and beyond.
In the past decade, 15 states have legalized a regulated marijuana market for adults over 21, and another 17 have legalized medical marijuana. But in their rush to limit the numbers of licensed vendors and give local municipalities control of where to locate dispensaries, they created something else: A market for local corruption.
Almost all the states that legalized pot either require the approval of local officials – as in Massachusetts -- or impose a statewide limit on the number of licenses, chosen by a politically appointed oversight board, or both. These practices effectively put million-dollar decisions in the hands of relatively small-time political figures – the mayors and councilors of small towns and cities, along with the friends and supporters of politicians who appoint them to boards. And these strictures have given rise to the exact type of corruption that got Correia in trouble with federal prosecutors. They have also created a culture in which would-be cannabis entrepreneurs feel obliged to make large campaign contributions or hire politically connected lobbyists.
For some entrepreneurs, the payments can seem worth the ticket to cannabis riches.
For some politicians, the lure of a bribe or favor can be irresistible.
Correia’s indictment alleges that he extorted hundreds of thousands of dollars from marijuana companies in exchange for granting them the local approval letters that are necessary prerequisites for obtaining Massachusetts licenses. Correia and his co-conspirators — staffers and friends — accepted a variety of bribes including cash, more than a dozen pounds of marijuana and a “Batman” Rolex watch worth up to $12,000, the indictment charges.
Cigar bars were his preferred meeting spot, where he rendezvoused with aspiring marijuana licensees to ascertain their willingness to pay bribes, prosecutors allege. When one marijuana vendor asked him why he demanded so much money for a letter in support of his business, Correia said he needed the money for legal fees. A year earlier, he had been indicted on charges of wire fraud and filing false tax returns in connection with his tech startup.
“All government contracting and licensing is subject to these kinds of forces,” said Douglas Berman, a law professor at Ohio State University who authors a blog on marijuana policy. But “there are unique facets to government contracting in [the cannabis] space that makes it uniquely vulnerable to corruption.”
It's notable that this kind of corruption does not exist in the hemp industry -- that is, the federally legal cannabis that contains >0.3% delta-9 THC. That's because federal law does not contemplate restrictions on licensing and state hemp programs generally do not restrict licensing or create artificial barriers to entry or the market. Legal hemp farmers can go to any state in the United States, get a production license with a minimum of expense or effort, and grow as much as they want. Winners -- and losers -- are determined solely by what the market will bear. The same should be true for marijuana -- and the artificial line between marijuana and hemp should be erased.
Political corruption in the marijuana industry is solely an artifact of artificial scarcity and political favoritism. Ordinary Americans -- particularly voters and entrepreneurs -- are being deprived of the honest services of their politicians and the Constitutional guarantees of economic liberty. Only a robust defense of free market principles holds hope for true equity and consumer protection.