Debate on Dispensaries

In 2012, Washington State became one of the first states to legalize marijuana for recreational use with the passing of Initiative 502. Initiative 502 permits the creation of a statewide legal market for marijuana in Washington.  The state plans to monitor the distribution and regulation of pot under similar margins as the liquor industry, and has issued the Washington Liquor Board regulatory control over the emerging cannabis market. The board plans to issue 334 licenses through a lottery system to retailers who meet specified standards that are aimed at preventing vertical integration. By implementing a market based on a limited number of licenses, policy makers are strengthening barriers to entry into the industry and furthermore promoting market power of pot retailers.  This policy is controversial among lawmakers in Washington who recognize the importance of preventing abuse of the now legalized drug while also avoiding the risks of market power that could arise in such industry.

Proponents of the licensing system argue market power is a good thing for the industry as it will increase the price and reduce the quantity of cannabis being sold in the market and therefore restrain customers from becoming habitual users. Opponents of the licensing system are concerned about the parallels of this system to the alcohol industry as well as the high potential profits the firms would gain with market power. Many fear it will not be an effective long-term structure as more and more states begin to legalize the drug in the coming years. As the industry grows and gets wealthier through monopoly profits it will gain more lobbying power within the political sphere that could ultimately result in the power to decrease taxes and change legislation to benefit their industry. If there is enough collusion within the industry, ultimately an oligopoly similar to Anheiser-Busch could arise that could act as a benefactor within the industry. If Becker’s theory is correct, however, and the policies the industry seeks are truly inefficient, it will incite enough opposition from other groups to prevent passage. Opposition in this case is likely to come largely from the preexisting medical marijuana industry, whose market has been noticeably infringed upon with the passage of the bill. How states should handle the legalization of marijuana is certainly a topic of debate, but if we take some insight from Becker’s theory, it is clear that by keeping the medicinal and recreational industries separate competition between these groups can keep the lobbying power of each industry as a whole in check.