For Legal Pot Shops, Regulation Can Become Mob-Style Extortion

For Legal Pot Shops, Regulation Can Become Mob-Style Extortion

In early September, former political wunderkind Jaisel Corriea, mayor of Fall River, Mass., was indicted for the second time in the past 12 months, and in mid-October he announced he would not seek re-election. The last time Corriea was indicted, it was because he committed wire fraud and filed false tax returns. This time, he’s charged with extorting several applicants for legal marijuana dispensary licenses in the city. 

 

Allegedly, Corriea demanded up to $250,000 in bribes from several prospective marijuana vendors (along with a percentage of the stores’ sales) before officially allowing the dispensaries to open. This seems like an unsurprising development for a corrupt local politician like Corriea, but it’s actually just business as usual for local governments. 

 

Without resorting to mob-style extortion, plenty of towns across Massachusetts have made it similarly difficult for marijuana dispensaries to open legally. The state voted to legalize recreational marijuana in November 2016, but it took until the end of 2018 for shops to open in Massachusetts. Why the delay? Regulatory hostility, mainly at a local level. 

 

As of July 2018, roughly half of the municipalities in Massachusetts either banned or imposed moratoriums on recreational marijuana sales — often thanks to fears retail marijuana venues would change a town’s culture or aesthetic. Over 80 of those indefinite bans are still in place. Meanwhile, the state-run Cannabis Control Commission delayed the opening date for legal marijuana shops until over two years after the referendum. 

 

But even when governments do allow legal dispensaries to exist, they do it poorly. They’ll charge outrageous licensing fees before a business can even get off the ground, handicapping the same poor people the law change was meant to help. As a Reason Foundation report found, most states with legal recreational marijuana charge dispensaries licensing fees much higher than those for alcohol licenses. In Massachusetts, the state government charges anywhere between $625 and $25,000 for marijuana licenses, while the price tag is kept between $22 and $10,000 for alcohol licenses. 

 

Even after paying these licensing fees to the state government, local governments want another cut as well. Through so-called “host community agreements,” dispensaries have to pay 3 percent of their sales to local governments for their first five years, ostensibly to address the social impact of the dispensary. This comes on top of the 10.75 percent state-level excise tax and 6.25 percent retail sales tax. But, often, that’s not all. According to a report from WBUR, many host community agreements include requiring additional payments to either local governments or charities. A dispensary in Milford, for instance, has to pay the town government $250,000 a year, regardless of sales. As David O’Brien, president of the Massachusetts Cannabis Business Association, pointed out, liquor stores don’t face the kind of shakedown that marijuana dispensaries do, despite costing the town similarly.  

 

These start-up payments weigh heavily on prospective businesses. Too, because marijuana is still illegal at the federal level, financial institutions are unwilling to lend to new dispensaries. As a result, lower-income people cannot gain access to the new legal market, since they tend to have both less savings and less access to credit. That’s why progressive presidential candidates like Sen. Cory Booker have supported legislation to not only legalize marijuana on a federal level, but also to allow low-income and minority communities to enjoy the benefits of legalization after bearing the brunt of America’s War on Drugs for so long. 

 

But these ridiculous state and local regulations and fees make that a lot harder. It’s not surprising that state tax revenue from marijuana sales has been well below expectations, as town governments have either prevented dispensaries from opening altogether or excessively leaned on them for revenue for themselves.

 

Mayor Corriea’s alleged mob-style extortion practice should seem like an anomaly. But it’s not, because local governments hamstring and bilk marijuana businesses all the time, albeit through legal means. That’s why these regulations have to go — they just create more opportunities for dishonorable politicians like Corriea to further exploit the same people who, for decades already, have been terribly hurt by bad laws. 

 

Alex Muresianu is a Consumer Freedom Fellow at Young Voices. Follow him on Twitter @ahardtospell

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