Fred McKinney (opinion): The case for public cannabis retailers

The first customers make purchases at Apothecarium Dispensary last month in Maplewood, N.J., marking the first day of legal recreational marijuana sales in the state of New Jersey.

The first customers make purchases at Apothecarium Dispensary last month in Maplewood, N.J., marking the first day of legal recreational marijuana sales in the state of New Jersey.

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Connecticut deserves credit for making social equity a cornerstone of the legal adult-use cannabis industry in the state. Other states that legalized before Connecticut had language in their laws that acknowledged how earlier cannabis laws had disproportionately and negatively impacted low-income communities of color more than higher-income white communities. Connecticut learned that if you want to compensate these communities, there needs to be specific regulations to address these past wrongs by creating real opportunities for these disproportionately impacted parts of our community.

Connecticut’s cannabis law creates “social equity” licensees. These are Connecticut residents who live in low-income census tracts today or lived in these census tracks in their youth. Social equity licensees must also have household incomes below three times the state’s median household income to qualify.

This past week, the state closed the first round of license applications for lucrative retail licenses. Over 15,000 license applications were submitted. From these applicants, 12 will be provisionally selected. Six of these will be social equity licensees and six will be non-social equity licensees. We know that the state allowed entrepreneurs to submit multiple applications. Like all lotteries, the more tickets you buy, the greater your chances of winning. We will soon see who wins this lottery.

While it is a lottery with every ticket having an equal chance of being selected, I suspect the laws of probability will prevail and that applicants who submitted and paid for multiple applications will be well represented among the winners.

For the 15,000 losers, they will have another chance in the next round of retail licenses to be determined in the future. But whether these losers win in the next round or not, we must ask the question: Is turning a handful of entrepreneurs into millionaires the same as social equity because some of those millionaires once lived in low-income census tracts?

The winners do not have to be Black or brown. The winners do not have to reside in these low-income census tracts today. The winners do not have to have been arrested for cannabis in the past. There is clearly a disconnect between what we are calling social equity and real social equity that would put money directly in the wallets of people who suffered under the regime of illegal cannabis.

I think it is not too early to consider a different approach to the next round of lotteries to address real social equity. When the Alliance for Cannabis Equity completed the Manifesto for Cannabis Equity, we focused our attention on the existing law as if there were no major changes that were being contemplated or were politically possible. I think that was an error.

I am not speaking for ACE, but my proposed change would be for the major cities in Connecticut with significant minority populations, Bridgeport, Hartford, New Haven, Waterbury, New London, possibly others, should be allowed to have city-owned cannabis retail stores. As an economist, I understand that private enterprises often do a better job at meeting customer needs than public enterprises. But the problems of inefficiency, lack of innovation and quite frankly public corruption are problems of design. It is possible to run public companies efficiently.

If the cities and their taxpayers could own cannabis retail establishments operating within their cities and they could be run like public utilities, there is a chance that this industry could produce the social equity that we claim we want. If the cities owned the retailers in their towns, they could control all the revenue, not some measly 3 percent of the revenue with their hats in hand. The fact of the matter is, we do not need private companies to control the retail sale of cannabis.

There are examples of this in related industries. If you want to purchase “spirits” in Montgomery County, Md., or in several counties in North Carolina, or throughout New Hampshire, you go to the county or the state liquor store. I have been in these stores, and they sell the same products that you can buy in private liquor stores in Connecticut.

The irony of cities selling cannabis to residents who were once arrested by the police in those cities for doing the same does not escape me. Yet the case can be made that this is a superior way of spreading the economic benefits of cannabis that is simply not possible by granting licenses to a handful of lucky lottery winners who happen to be social equity applicants.

The criticism of city-owned cannabis stores is the uneasiness of some of having their cities directly involved in the cannabis trade. But this is an argument that makes less sense in an era of cannabis legalization. Once cannabis has been legalized, government at all levels is in this business like it is in every other enterprise in the economy once taxes are involved. The cities should therefore seek to maximize their financial interests while assuring the revenues generated are distributed in ways consistent with social equity.

City-owned cannabis retailers could buy from privately licensed cannabis manufacturers, could work with privately licensed delivery services, and have products shipped from privately licensed cannabis truckers. Everything the state does could stay the same. This could include privately licensed cannabis retailers outside of the major cities. Let those private firms compete against city-owned cannabis retailers. This private sector competition would force city-owned cannabis retailers to be efficient. And given the fiscal state of most of our large urban centers, every effort should be made to create and capture income and wealth for our cities. The cities should demand this change for the benefit of all its citizens and to promote real social equity.

Fred McKinney is the co-founder of BJM Solutions, an economic consulting firm that conducts public and private research since 1999, and is the emeritus director of the Peoples Center for Innovation and Entrepreneurship at Quinnipiac University.