Posted on September 22, 2020 by MGT Consulting Group
State governments have responded to the public’s desire for cannabis by legalizing medicinal and recreational cannabis. Today, cannabis is legal to purchase recreationally in 11 states, while medical cannabis is legal in 33 states.
Cannabis is classified as a Schedule I drug, so it is controlled on the federal level. States have the individual authority to license, regulate, and enforce the cultivation, processing, and sale of cannabis, both medically and recreationally.
To support licensing, regulation, and enforcement activities, states levy application and permitting fees on growers, processors, retailers, and employees operating in the state.
Cannabis fees vary widely by state. For example:
|State A||State B||State C||State D|
|License Fee – Grower||$40,000||$5,750||$2,500||$4,000-$40,000|
|License Fee – Processor||$40,000||$4,750||$2,500||$40,000|
|License Fee – Retailer||$30,000||$4,750||$7,000||$25,000|
Each state has its own statutes and regulations for its cannabis program. These differences mean that each state’s costs for licensing and regulation are different. This has several implications:
- Does the state know what it costs to regulate their program?
- Do the application and permit fees to recover the costs?
- If costs exceed revenues, what adjustments are needed?
- How do license processes compare to those in other states?
- Are there ways to reduce the costs of reviewing and issuing applications?
Players in the legal market pay those fees. Some growers skirt the licensing process because of the fees, so the legalized market has not eliminated the illegal market.
In most states, the balance should be found between having fees collected not exceed the costs of providing services and ensuring there is no burden on General Revenue Fund resources.
The best practice is to determine how cannabis fees compare to costs. If fees are less, states should identify the gaps and adjust accordingly. If fees exceed the costs, states should carefully review their costs to ensure they have identified them all.
Finally, if a state’s process is expensive relative to the fees it charges, are there ways to streamline the process and reduce costs?
As the cannabis market becomes more competitive, licensees will bring pressure to reduce costs. States should be prepared to address potential challenges to their fees.