The movement to legalize marijuana in the United States has been gaining momentum. Thirty-three states and the District of Columbia have currently legalized marijuana to some degree, and of those, eleven states and D.C. have legalized recreational use of marijuana. (Selling, possessing, consuming marijuana remains illegal under federal law, but the federal laws against marijuana are rarely enforced, which creates a rather odd situation in the states that have legalized marijuana: those who participate in the marijuana market are still technically engaged in illegal activity, even though that market operates out in the open.) In the absence of uniform federal regulation, those states that have legalized marijuana have adopted different regulatory approaches; most states issue a limited number of licenses to sell or supply marijuana, but have capped the number of licenses in order to limit the amount of marijuana on the market. This makes each license extremely valuable, given that the total value of the marijuana market is estimated to be somewhere in the neighborhood of $52 billion. Additionally, in most states the license evaluation criteria, and the evaluation process, are extremely opaque, and local government officials frequently have substantial discretion regarding who receives these licenses.
Given this combination of factors—state and local officials with the power to issue a small number of extremely valuable licenses through an opaque process—it should come as no surprise that the legal marijuana market has become a hotbed for corruption. Consider just a few examples:
- The unsealed federal indictment of Lev Parnas and Igor Fruman, associates of Rudy Giuliani’s, includes an allegation that these defendants made substantial donations to Nevada state legislative candidates in an unsuccessful attempt to get a license to sell recreational marijuana in Nevada, despite having missed the application deadline.
- FBI officials raided the home of Jermaine Wright, the Mayor Pro Tem and City Councilor of Adelanto, California for soliciting and accepting a $10,000 bribe from an undercover FBI agent to assist in obtaining a license to operate a marijuana business.
- In Fall River, Massachusetts, four business owners allegedly paid $600,000 in bribes to Mayor Jasiel Correia to gain support for their marijuana license applications.
- In Huntington Park, California, eight medical marijuana dispensary applicants sued the municipality in court, alleging that the mayor, vice mayor, and a City Council member conspired with private companies to award the city’s only three dispensary licenses to predetermined companies, thereby defrauding other applicants of their $5,000 application fees.
- In San Francisco, a licensed retailer sued the city and county alleging that the board of supervisors passed over a company that was applying for a license in favor of a competitor that contributed thousands of dollars to the board member’s political campaigns.
What can be done? Many people, me included, would advocate legalizing marijuana at the federal level and establishing a uniform system of nationwide regulation of the industry—not only to address corruption issues, but to ensure that appropriate safety and business standards are maintained and enforced. Shifting licensing and regulatory authority from the local level to the federal level would likely help mitigate the corruption problem, among other benefits. But nationwide legalization and federalization of marijuana legalization may not be a viable short-term solution. Assuming that for the time being marijuana will remain illegal at the federal level (or, even if the federal laws criminalizing marijuana were repealed, that the regulation of the market will remain the province of state and local governments), what can be done at the state and local level in those jurisdictions that have legalized marijuana to address the serious corruption problems that have emerged? There are two key reforms that would help:
- First, states should relax or remove the caps on the number of licenses that can be issued, so that the legal supply of marijuana matches the local market demand in the area. The limited number of licenses makes each license far too valuable, because the demand for (legal) marijuana far exceeds the supply, driving the price up (and, at the same time, ensuring that the illegal market continues to boom.) With a larger number of licenses, there will be more price competition among suppliers, making each individual license less valuable. With more open entry into the market, competitors and regulators will have less of an incentive to run legal risks associated with giving or taking bribes.
- Second, states should set transparent standards for license applications. As discussed above, a key issue that encourages backdoor dealings for license applications is that the process remains a “black box” in which local politicians have an outsized influence on who receives a marijuana license. As different states and localities have chosen to approach legalization in different ways, it makes sense for each to have an individualized application process for marijuana distribution licenses (some states, for example, have chosen to provide licenses only to those who come from communities disenfranchised by the war on drugs). It is therefore not essential for there to be consistent standardization across localities, but it is imperative that the chosen process to be transparent. The application process should feature clear benchmarks, applications should be made public, and the reasons for denial or acceptance of an application should be made available. In doing so, local politicians will not have the capacity to dispense licenses for reasons other than the quality of the application.