Occupational and Business Licensing of Recreational Marijuana
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Policy Brief

Occupational and Business Licensing of Recreational Marijuana

In order to allow new marijuana markets to flourish, occupational licensing must be constrained to the bare essentials.

Occupational licensing, while presented as a form of consumer protection, is oftentimes a tool used by industry incumbents to prevent competition and keep wages high. In a new industry like recreational marijuana, there are few incumbents. Rather than preventing new market entry by adding licensing requirements to existing professions, occupational licensing for marijuana reduces all market entry by raising application costs and requirements. Not only can this reduce economic opportunities, but by preventing a legal market from developing, the black market will continue to be the chief supplier of recreational marijuana—fundamentally undermining the goals of legalization.

In the U.S., only nine states and Washington D.C. have legalized recreational marijuana, and marijuana businesses are legal in seven (Maine, Vermont, and D.C. do not have laws in place for legal sales). In the states with regulations for legal sales to take place (Alaska, California, Colorado, Massachusetts, Nevada, Oregon, and Washington), starting a business that cultivates, distributes, or sells retail marijuana requires a state-issued license (see appendix for specific licensing regulations for these states).

Licensing for marijuana businesses is presented as necessary for public safety by ensuring those involved in the new industry meet high standards of safety and quality. Requiring licenses makes it easier for the state to regulate the marijuana industry and limit the supply of marijuana. Fees to start a marijuana business, in addition to taxes, are an incentive for states to implement a legal recreational market as well.

It is important to realize, however, that all government regulations and licensure processes come with a cost. All state and local license applications must be approved or denied by government employees.

In California, the Bureau of Cannabis Control had 102 positions authorized for FY 2017–2018 and 215 have been approved for FY 2018–2019. The Bureau’s budget proposal states that if only half of the proposed licensing staff had been approved, “The Bureau will not be able to issue licenses in a timely manner. This may encourage prospective licensees to remain in the illegal market.” The Department of Cannabis Regulation in Los Angeles claimed to need to quadruple its three-person staff to keep up with licensing demands. This spring, 21 new positions were approved.

In Oregon, the Liquor Control Commission stopped taking new applications in June 2018 so licensing staff can focus on license renewals and deal with application backlog. Government’s quest to collect as much revenue as possible from new marijuana industries creates an incentive to raise license fees. Limiting entry into the market with other burdensome requirements also can make enforcement easier for government agencies. While reducing the size of the legal market and maximizing revenue benefits governments in the short run, it also results in higher marijuana prices and consequently enables the black market to continue to be the main supplier of marijuana. The goals of occupational licensing must be balanced with the costs imposed on taxpayers and harms to the legal marijuana market.

The goals of marijuana legalization are typically to reduce harms from black markets and allow for legal jobs in the marijuana industry. Unfortunately, there are few publicly available justifications for current licensing regimes that explain how the regulation serves the public. In order to allow new marijuana markets to flourish, occupational licensing must be constrained to the bare essentials. Licensing burdens justified as public health measures are actually detrimental when the legal market is stifled.

Applying for a marijuana license is a complex, expensive process. Marijuana license fees are much higher than average occupational licenses in the U.S. and are even higher than most liquor license fees in each respective state. Further, there are limitations on who can apply based on criminal conviction history.

Licensing burdens justified as public health measures are actually detrimental when the legal market is stifled.

Local control potentially adds another layer of burdensome licensing requirements. While decentralization and local level decision making are typically preferable, too much local control for marijuana will undermine the development of a functioning legal market.

As currently-legal states consider revisions to their regulations, it would be wise to open up employment opportunities in the marijuana market and to reduce fees to levels at least comparable to alcohol. With high licensing fees and burdensome regulations, the problems facing California should serve as a cautionary tale.

These recommendations could be especially useful to New Jersey policymakers. Legislators have discussed regulations containing many of the same problems that have undermined legalization in other states. These include sweeping local control, criminal conviction restrictions, and onerous wealth restrictions and residency requirements for licensure. These restrictions will reduce entry into the industry, which will hinder the development of a legal market.

Full Brief: Occupational and Business Licensing of Recreational Marijuana

Allie Howell is a research intern at Reason Foundation.