A proposed bill in New Hampshire to legalize cannabis use for adults and establish retail sales differs from the approach most states have taken toward marijuana legalization in that it would establish state-run retail marijuana stores similar to the state’s distilled spirits retail monopoly.
A crucial difference between adult-use cannabis and alcohol, however, is that cannabis is still a Schedule 1 controlled substance at the federal level. Growing, manufacturing, or selling cannabis is a federal crime. Thus, while the state can serve as a retailer of distilled spirits without violating federal law if New Hampshire runs cannabis dispensaries, they could be considered a federal criminal enterprise.
As a result, New Hampshire would be in violation of federal law and its state employees and officers could be subject to arrest at any time and any or all of the state’s assets could become subject to seizure by federal law enforcement. In addition to potential criminal liability, New Hampshire’s employees and officers could be grouped together and subject to civil penalties under federal racketeering laws.
Attorney General Merrick Garland has said the Biden administration isn’t interested in pursuing marijuana prosecutions: “I do not think it the best use of the department’s limited resources to pursue prosecutions of those who are complying with the laws in states that have legalized and are effectively regulating marijuana.”
While federal charges may seem unlikely under the Biden administration’s Department of Justice at the moment, this or future administrations could change directions so there are very real legal risks. With the threat of federal prosecution in the background, similar proposals for state-run marijuana dispensaries in New Mexico and Virginia were ultimately abandoned in favor of a private commercial model in which the state grants licenses to private companies to operate highly regulated cannabis enterprises.
States have found no shortage of private entrepreneurs willing to run state-licensed marijuana businesses and assume the potential risks of federal criminal and civil liabilities while still generating significant marijuana revenues for state governments that grant the cannabis business licenses.
Of the 18 states that have established adult-use, recreational cannabis markets, all of them grant marijuana business licenses to private entities to run the operations while promulgating extensive rules to govern the manner of operations, tracking and storage of inventory, advertising and packaging, testing requirements, and a range of other issues. (Reason Foundation has produced a conceptual framework for state cannabis regulation designed help guide policymakers through this effort.)
States like New Mexico and Virginia that operate state-run liquor systems initially gravitated toward proposals for state-run cannabis facilities out of an instinct to regulate cannabis in the same way those states regulate alcohol. However, while states did adopt differing approaches to the end of alcohol prohibition, there is little argument that distilled spirits meet any definition of a “natural monopoly.” In fact, the approach taken by alcohol regulators often involves excessive government involvement in private industry where the key interests of public welfare could be better addressed through regulation alone. To that end, it would be better to regulate alcohol in the same way that most states have regulated adult-use cannabis than vice versa.
New Hampshirites seem to agree with this sentiment, as evidenced by a February poll by the University of New Hampshire (UNH) which found “nearly three-quarters (74%) support legalizing marijuana and only 15% are opposed.” Similarly, a UNH poll in May 2021 found 78% of those surveyed said if “marijuana were legalized for recreational use, they would strongly (57%)or somewhat (21%) approve of it being sold at licensed retail outlets and taxed.”
State authorities both implicitly and explicitly acknowledge through House Bill 1598 that they have no expertise in operating a cannabis business, even if doing so would not be in violation of federal law. HB 1598 would assign only the retail function to the state while recognizing that private entities should cultivate, manufacture, package, test and distribute all cannabis products.
The fiscal note even points out that the New Hampshire Liquor Commission (NHLC) plans to hire private consultants to train state employees on how to sell cannabis:
“Commission proposes to enter into a contract with an organization with expertise to advise the commission on product selection, aid in training cannabis store personnel and purchase the cannabis on behalf of the commission for resale and distribution to the 10 state-owned stores.”
To its credit, while governments shouldn’t be running retail stores, New Hampshire has run its distilled spirits retail operations relatively well, with a goal of selling at relatively low prices with high turnover to encourage sales to out-of-state residents that may face higher prices in their home states. The lack of sales taxes, too, provides an incentive for residents of nearby states to make distilled spirits purchases in New Hampshire—the NHLC’s own numbers indicate over half of its sales revenue comes from out-of-state residents.
But the private sector is far more equipped to effectively serve consumers if the state legalizes marijuana. And given the potential legal risks of New Hampshire of establishing itself as a federal criminal enterprise in violation of federal drug laws, it should, under no circumstances, consider a similar approach in the adult-use cannabis market.
Most of House Bill 1598’s language wisely recognizes that private firms handle the risks of operating in the cannabis supply chain better than public agencies can. The law would keep cultivation, testing, and other vital functions in private sector firms’ hands. It even calls on private firms to train the government employees who would be tasked with operating state-run retail stores. But state-run marijuana stores would be a mistake. State lawmakers should recognize that retail marijuana operations should be private and competitive, with consumer demand as the only regulator of the number of stores allowable.