Health Uncategorized

Is the Rationale for Licensing Cannabis Distribution Reasonable?

Entrepreneurs looking to get into the retail business can sell a virtually unlimited number of products without obtaining a special license. For instance, you could sell all sorts of health supplements with nothing but a local business license. You wouldn’t need a state license for those particular products. So why is cannabis different? What’s the rationale behind licensing dispensaries and pharmacies?

Lawmakers and regulators cite a plethora of reasons to justify licensing. As I see it, they all boil down to control. States with decriminalized medical and recreational cannabis want to maximize control over the industries within their borders. Licensing is one tool for maintaining that control.

Pharmacies in Utah

The best way to drive home this point is to compare states. Let us start with Utah, a highly conservative state in which medical cannabis is allowed but recreational marijuana is not. Utah’s population is just over 3.4 million. It currently has about 75,000 medical cannabis card holders. That works out to about 2% of the state population.

Surprisingly, there are only 15 medical cannabis pharmacies serving the entire state. What’s more, the operators of Brigham City’s Beehive Farmacy say that all but one are located in urban centers.

Utah lawmakers are stingy with pharmacy licenses for two reasons. First, they want to ensure that every pharmacy they license can get a large enough share of the market to maintain a viable business. Allowing too many licenses would saturate the market and ultimately put some of them under.

Second, lawmakers believe that limiting licenses will go a long way toward helping prevent distribution for recreational purposes. Fewer pharmacies make it easier for regulators to keep their eye on things, thus improving enforcement efforts.

Pharmacies in Oklahoma

Oklahoma is on the opposite side of the spectrum. There are virtually no limits on the number of licenses the Sooner State will issue, explaining why there are now 14,000 pharmacies trying to compete. Unfortunately, many in Oklahoma think the state’s medical cannabis program is out of control. More than one official has speculated that operators are abusing the licensing system by using medical pharmacies as recreational dispensaries.

The one positive in Oklahoma is robust competition. Unlike Utah, Oklahoma medical cannabis patients enjoy more affordable prices and a larger selection of products. But price and selection come at a cost: Oklahoma’s medical cannabis industry is on the verge of collapse because growers and distributors can’t make enough money to stay in business.

Competitive Natural Selection

Assuming that licensing is more about maintaining a competitive market than anything else, one needs to consider whether it is better to let the government control markets or turn control over to consumers. Utah’s market remains strong even as the number of medical cannabis users continues to rise. But in Oklahoma, industry players are witnessing what I call competitive natural selection.

It’s clear that a state the size of Oklahoma does not need 14,000 medical cannabis dispensaries. The market is definitely saturated. Business owners without the financial means to compete will ultimately need to shut their doors. But that is normal in a capitalist environment. Should those business owners never have been given the opportunity to try?

If the rationale for limiting distribution licenses is to maintain a healthy market for all license holders, then the implication is that the government should choose who gets to open a business and who does not. That’s not the American way. Competitive natural selection is. Anyone who wants to open a business should be able to do so. Success or failure is up to the individual.