Monday, November 27, 2017

Los Angeles’ marijuana plan: the illusion of social equity

Los Angeles is deciding to focus on racial equity in their recreational marijuana licensing system, but I think the way they are going about it suffers from a serious problem in framing. Their concept of equity relies too heavily ensuring that the small number of people who get marijuana licenses includes some local low-income minorities. Instead of making sure a few minorities are among the small number getting rich off of the recreational marijuana business, true equity would be the not letting any individuals get rich off of it. All the potential profits should go to help people across the city.

Portland, Oregon has 155 recreational marijuana stores and a population of 639,863. Assuming Los Angeles ends up with a similar ratio of stores to people, that would be 963 marijuana stores. This estimate is close to projections of the number of medical marijuana dispensaries operating legally or illegally in LA: 1500.

Let's assume LA actually manages to create a system that is even capable of giving out licenses in a way that corrects for the city's history of racist arrests, so the vast majority go to low-income minorities. Let’s also assume everyone who gets a license is capable of running a successful small business -- something that is also not guaranteed given high failure rate for small businesses -- and manages to create a business worth a million dollars.
  • The best possible scenario is that these efforts effectively serve as a lottery with just a few hundred winners in a city of 4 million people. Big rewards delivered to a tiny group is a strange way to correct for broad social discrimination.
  • The worst case scenario is the city spends a significant amount of money and effort helping a few low-income individuals trying to start marijuana businesses, but due to a federal crackdown or normal business problems, many end up worse off.

If Los Angeles wants to focus on true social equity, the better strategy would be not to worry who gets the licenses but who gets all the profits. The profits should go to the public, not to individuals or companies. The Los Angeles government could directly run all the marijuana stores, like North Bonneville, Washington has. Or the city could give licenses only to existing community non-profits with a proven track record and an explicit commitment to use all proceeds for certain activities like free health clinics. Or the city could focus on maximizing taxes and licensing fees to allow the city to extract almost all the value.

The recommended approach of giving special loans or waiving licensing fees for a few ‘deserving’ individuals is not how to create true equity. That is the illusion of equity. The fact that the Los Angeles Cannabis Task Force: Social Equity Committee was made up of “ both inside and outside the cannabis industry in Los Angeles” including “existing business owners, entrepreneurs, [and] investors” is likely why it used this limited problematic framing. Their idea that give the licensing system the veneer of social justice and equity, but still assure a few well placed people will make the profits.

Currently, LA is planning to set aside some of its marijuana tax revenue to help communities hurt by the drug war. The city could amplify this plan to make sure all of the profits from the marijuana industry go towards programs like free pre-k for all low-income residents.

Finding ways to make sure almost every dollar of profit goes to the city government would do way more to help communities hurt by the drug war than effectively handing out a handful of lottery tickets.

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