Cannabis License Lotteries Break The Industry

Canna Advisors
August 20, 2021

Why States Should Avoid Lotteries for Awarding Cannabis Licenses

If your company had to hire people with very specific abilities and qualifications, would you interview to hire the best, or run a lottery and take what you get? It seems like a straightforward question, so why are some states resorting to lotteries to issue cannabis business licenses?

During the past few years several states and towns have shifted from conducting a competitive application process to a “raffle” to issue licenses to operate cannabis businesses. This is likely due to a misguided attempt to avoid litigation, which it hasn’t. It has not only resulted in litigation; it favors the wealthy and damages attempts to heal the social injustices caused by the prohibition of cannabis. In short, it makes the politicians’ jobs easier but does the exact opposite of what they say they’re trying to accomplish.

1) Cannabis Lotteries Do Not Avoid Litigation

In December of 2020, Rhode Island accepted applications for a lottery to issue 6 new dispensary licenses. A total of 28 companies, many based out of state, submitted a total of 45 applications for the lottery. After 5 months of reviewing the submissions, the process is now mired in litigation as those determined not to qualify for the lottery are appealing the decision. To further complicate matters, Rhode Island has been unable to find a third-party company willing to conduct the lottery for fear of being caught up in new litigation. Now the state is seeking a state agency to run the lottery. We can see where this is going.

2) Cannabis Lotteries Harm BIPOC Americans

The War on Drugs was designed to harm Black and Brown Americans. This is one of many elements of structural racism in America. A huge problem with racism is the tendency to view minorities as a monolith, with any individual of the group viewed as interchangeable. We should use the cannabis industry to attempt to heal the damage caused by the racist War on Drugs. An anti-racist approach to this is to ask individuals via an application what they will do to repair those harms. A racist approach is to hand a license out at random based on one’s skin color. At best, the odds are equal that the license will go to a BIPOC American who wants to use their cannabis business to heal these wounds as opposed to a BIPOC American who has no cultural attachment to a minority group nor believes that racism is an issue—again, that’s at best. In practice, only the wealthy can gamble on a lottery, making the former group less likely to even apply.

In Illinois, where a lottery is now being discussed, Democratic Rep. Carol Ammons, of Urbana questioned whether a lottery accomplished the social equity spirit of the initial marijuana legalization legislation.

“My dispensaries in Champaign-Urbana can be owned by a group from other states, taking the resources from Champaign-Urbana to Michigan, Ohio or some other state,” Ammons said. “I don’t do lotteries.”

3) Cannabis Lotteries Are Bad for Business

It is an ingrained American tradition that if you work hard and become the best at something you reap the benefits. Lotteries are games of chance played only by those with the means to literally gamble away tens of thousands of dollars. It not only provides a disservice to those that really do work hard to become the best qualified, it ultimately harms the consumers and the state itself.

Long-Term Business Success Is Questionable

The City of Santa Ana California conducted a cannabis license lottery in 2015 which randomly awarded 20 licenses. Seven months later only two of those twenty licenses were active. This delay in job creation, access to medicine and tax revenue hurt everybody involved.
In April of 2021, Arizona issued 13 new dispensary licenses via a random drawing that cost applicants $25,000 to enter. Demitri Downing the founder of The Marijuana Industry Trade Association said “So, you had to be a wealthy individual to get into this lottery and umm and some people just got wealthier.”

4) Cannabis Lotteries are Bad for Consumers

The cannabis industry is arguably the most regulated industry in the country. From seed to sale the product is tracked and tested. This is a good thing because it protects the interest of the consumer. With this much effort being put into regulating the operators it is imperative a similar level of selection should go into choosing the operators. The fruits and vegetables at my local supermarket are far less scrutinized than the cannabis products sold through a dispensary. I certainly would not shop at a supermarket that chooses its produce suppliers via a raffle.

Luck Leads to Legal Battles

While neither a competitive application or lottery process may be perfect, they have both led to litigation and delays, negating the primary motive for choosing a lottery. However, one is based on those that put in the most effort, and are ultimately the most qualified, and the other depends on dumb luck. Whether I’m choosing a medication for my ailing mother or a product for my own consumption, I’d prefer to deal with a qualified company rather than a lucky one. If I were a state regulator or tax collector, I’d prefer to deal with a qualified company rather than a lucky one. State regulars should DO THEIR JOBS and pick the most qualified applicants. If you want to sell raffle tickets, go work at a carnival!

How to Manage Future Lotteries

As much as industry experts continue to pour their energy into preventing license lotteries, they often are inevitable. For those states, we recommend contacting our cannabis license team to discuss your options and how to best position yourself for a win. While lotteries tend to favor the lucky, there are just one part of the building process when developing your cannabis business. Our team has decades of experience and is ready to tackle the the uphill license lottery battle alongside you.

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