The state shouldn't give incumbents an oligopoly on recreational marijuana sales.
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Consider Illinois marijuana producers’ campaign for government aid. As my colleague Brigid Sweeney reported in
this week’s issue of Crain’s, companies holding 21 licenses to produce
medicinal marijuana want legislation legalizing recreational use to
include a moratorium on new state licenses for commercial-scale
production.
In other words, they want a government-mandated oligopoly on a recreational-use market worth an estimated $1.6 billion annually. The moratorium likely would last a year or more, plenty of time for incumbents to build the brand recognition, commercial relationships and scale economies to ward off new competitors.
Barring new licenses—even temporarily—doesn’t protect the public. In
fact, it harms the public by denying consumers the benefits of free
competition. Open markets foster innovation and inhibit price-gouging.
Closed markets empower incumbents to raise prices and dilute incentives
to improve products.
Who does a limit on new licenses protect? Incumbents, of course. They would get sole possession of a lucrative, fast-growing market for some period of time after Illinois legalizes recreational marijuana use. Their chances of earning a healthy return on millions invested in production capacity would improve dramatically.
Government has no business bestowing monopolies or securing anybody’s return on investment. Incumbent marijuana companies took a business risk when they invested millions in Illinois—companies across the economy take the same kind of risk every day. Anybody willing to make a similar investment in Illinois’ marijuana market should have an equal chance to compete.
Arguments in favor of restricting competition amount to little more than horror stories. Some warn that excess production could spur exports of Illinois marijuana to states where pot remains illegal.
That’s a matter for law enforcement.
Restrictionists point to Oregon as a cautionary tale. Holders of more than 1,000 licenses issued by that state harvested bumper crops in 2017 and 2018, creating a massive glut. Prices plunged, producers went under and jobs were lost.
Welcome to capitalism. New (or newly legal) industries often undergo such shakeouts as supply and demand seek equilibrium. Government can’t divine the proper balance beforehand.
In other words, they want a government-mandated oligopoly on a recreational-use market worth an estimated $1.6 billion annually. The moratorium likely would last a year or more, plenty of time for incumbents to build the brand recognition, commercial relationships and scale economies to ward off new competitors.
Who does a limit on new licenses protect? Incumbents, of course. They would get sole possession of a lucrative, fast-growing market for some period of time after Illinois legalizes recreational marijuana use. Their chances of earning a healthy return on millions invested in production capacity would improve dramatically.
Government has no business bestowing monopolies or securing anybody’s return on investment. Incumbent marijuana companies took a business risk when they invested millions in Illinois—companies across the economy take the same kind of risk every day. Anybody willing to make a similar investment in Illinois’ marijuana market should have an equal chance to compete.
Arguments in favor of restricting competition amount to little more than horror stories. Some warn that excess production could spur exports of Illinois marijuana to states where pot remains illegal.
That’s a matter for law enforcement.
Restrictionists point to Oregon as a cautionary tale. Holders of more than 1,000 licenses issued by that state harvested bumper crops in 2017 and 2018, creating a massive glut. Prices plunged, producers went under and jobs were lost.
Welcome to capitalism. New (or newly legal) industries often undergo such shakeouts as supply and demand seek equilibrium. Government can’t divine the proper balance beforehand.
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