More than a dozen states are now considering legislation to create new legal medical marijuana or adult-use recreational cannabis markets. That is in addition to a pending ballot question appearing in Oklahoma next month that would enact a new adult-use marijuana market.
While state cannabis legalization proposals have evolved and improved in many ways in the decade since Colorado and Washington voters approved the first adult-use markets, some mistakes have also been replicated from state to state.
Here are three common mistakes seen in statewide proposals being considered this year.
Social equity plans are poorly designed to achieve nominal goals
Advocates for social equity within the cannabis industry argue that restorative justice measures are necessary to compensate for decades of discriminatory government action during the drug war. President Richard Nixon’s administration admitted racist motives in pursuing and promoting the drug war, and there is a lot of statistical support demonstrating that the drug war has been prosecuted in discriminatory ways.
However, most social equity plans found within this year’s state legislative proposals fail to target relief toward actual victims of the drug war—those who were arrested or convicted and have borne the collateral consequences of those convictions, such as barriers to employment, higher education, or small business loans. Instead, they create loopholes that allow third parties to intercept the benefits intended for these victims. These programs do not restrict eligibility to those arrested or their immediate families. Instead, a person can qualify to intercept benefits intended for these victims if they lived in a neighborhood where others were arrested or if they agree to hire entry-level employees from this neighborhood, regardless of whether those hired suffered any damages from the drug war.
Such broad eligibility parameters allow social equity programs to be manipulated. Illinois offers a cautionary example. Illinois’ only operating social equity dispensary is owned by “wealthy and connected” insiders, according to the Chicago Tribune, including a retired city narcotics detective. Their dispensary opened recently in the affluent River North area of Chicago. This group qualified as a social equity licensee simply because they pledged to hire at least six employees from neighborhoods with historically high arrest rates—even if the specific employees hadn’t been arrested.
States should rethink legislative language allowing non-victims of the drug war to intercept cannabis business licensing preferences or other relief measures intended for victims of the drug war.
Better yet, states should avoid capping the number of business licenses available and minimize fees so that individuals with modest means can afford to compete. Current legislative proposals would erect substantial barriers to entry into the legal cannabis marketplace, including a limitation on the number of licenses and exorbitant licensing and application fees. The well-heeled tend to dominate when marijuana business licenses are limited. As former Minority Cannabis Business Alliance Executive Director Amber Littlejohn says, “The best thing you can do for social equity is open up the market.”
New York’s experience shows that high barriers to entry can impede the transition of legacy suppliers to the regulated marketplace and result in the perpetuation of the drug war. There, state and local authorities have begun a broad campaign to arrest unlicensed cannabis retailers or seize their assets. Meanwhile, barriers to the legal market are so tight that regulators only approved 36 dispensary licenses statewide despite receiving 900 applications, and the first legal location didn’t open until nearly two years after authorizing legislation passed.
Current legalization proposals in Delaware, Hawaii, Maryland, Minnesota, and Nebraska would replicate these flawed approaches. Instead, states should restrict the eligibility for social equity criteria to direct victims of the drug war or their immediate families and minimize barriers to entry into the legal marketplace.
Residency requirements for licensure are unconstitutional
Federal courts have been clear that the states that condition cannabis licensing upon an applicant’s residency within the state run afoul of federal Dormant Commerce Clause provisions that prohibit state-imposed barriers to the free movement of people and capital. Courts have already struck down residency requirements in Maine and New York on that basis, while Colorado and Oregon proactively repealed their requirements. Still, state residency requirements or preferences have been included in current cannabis legalization proposals in Iowa, Nebraska, New Hampshire, and Tennessee.
Labor peace agreements cannot be required as a condition of licensure
Federal courts have also been clear that the National Labor Relations Board has exclusive jurisdiction to regulate private-sector labor relations. In 1986, the U.S. Supreme Court specifically ruled that issuance of a privileged type of business license could not be conditioned on the applicant signing a labor peace agreement. While California, Illinois, and New York have unlawfully imposed this requirement, Michigan regulators abandoned the proposal after hearing testimony from Reason Foundation. Current proposals in Delaware, Hawaii, and Minnesota would make this mistake.
While states should legalize cannabis, experience in states that have already legalized shows that flawed legislation and regulatory rules can cause the resulting legal marijuana markets to struggle. Additionally, some legislative flaws invite lawsuits that could imperil or delay adult-use marijuana markets.
Many of the current marijuana legalization proposals being considered by states across the country could be strengthened by correcting these common mistakes.