Louisiana bill would enact a legal cannabis market with high barriers to entry 

A version of this comment was submitted to the Louisiana House Committee on Judiciary on April 18, 2024.

We applaud the overall intent of Louisiana House Bill 54, which would create a regulated cannabis market for adults aged 21 and older. Following the passage of an initiative last fall to enact a regulated cannabis market in Ohio, 24 states and the District of Columbia have now legalized the possession of cannabis in amounts reflecting personal use. Nearly all these jurisdictions also provide for a regulated commercial industry to supply consumers with safe and legal products. There is no sign that these states intend to rescind their legal cannabis markets. Polls indicate overwhelming public support for cannabis legalization. In other words, the movement toward marijuana legalization is expected to continue and Louisiana has many legal state marketplaces from which it can glean insights. 

Certain provisions of House Bill 54 are troubling because they would establish substantial barriers to entry that would result in a less dynamic marketplace offering fewer opportunities to entrepreneurs and professionals and fewer options to consumers.

In particular, §4765(A)(1)(a) would limit the total number of producer licenses statewide to 10, while §942(B)(1) would limit the total number of retailer licenses statewide to 40. These limits are arbitrary.

Similar limits in other states have led to public corruption of some state and local officials who award these licenses. Moreover, arbitrary license caps tend to result in market concentration by well-heeled license applicants while entrepreneurs of modest means are frozen out of the industry. As in the markets for all consumer goods, demand is the best regulator of supply. 

In the bill, §4767(C)(1) and §943(B)(1) would allow regulators to charge up to $100,000 for the award of a producer or retailer license. Similarly to license caps, these fees establish a high barrier to entry into the marketplace that ensures only well-capitalized firms gain access.

Together license caps and high fees can impair market dynamism and social equity within the regulated cannabis industry. We recommend that states like Louisiana actively seek to minimize these barriers to entry when legalizing cannabis.

The producer licenses described in §4765(A)(1) would require vertical integration from cultivation to the packaging of retail goods. In most states, cultivation and manufacturing are separate license types because each function requires different forms of capital equipment and expertise to accomplish.

By contrast, a proposal for vertical integration of these functions further elevates the capital requirement necessary to participate in the market because a licensee must have the wherewithal to construct multiple types of facilities and retain the expertise to operate them. Again, this structure would make the market less dynamic. We recommend allowing licensees to operate at the size and scale they can manage by separating these functions into multiple license types. 

In the proposal, §4765(A)(1)(b) would require producer licenses to be geographically apportioned throughout the state. Louisiana lawmakers may be concerned about consumer access to lawful products because so-called “cannabis deserts” can result in a proliferation of illicit activity. However, access can’t be addressed through geographic apportionment of retailers alone. Consumers could not purchase directly from wholesalers so wholesaler location is irrelevant to consumer access.

Cannabis producers often prefer to cluster their operations nearby for two reasons: (a) they can share services like farm labor or security, and (b) they can reduce costs and experience synergies by locating closely to other members of the supply chain. We recommend eliminating the geographic apportionment of producers. 

§4765(A)(1)(d) would require the majority of ownership in a cannabis licensee to belong to individuals who have resided in Louisiana for at least five years. Federal courts have been clear that residency requirements or preferences violate the Dormant Commerce Clause of the United States Constitution, which prohibits state barriers to the free movement of people, capital, and goods. The federal First Circuit Court of Appeals recently struck down residency requirements in Maine.

§947(3) would make it unlawful for a cannabis retailer to sell or give away any consumable product that is not a cannabis product, including pre-packaged food or water. At a minimum, retailers should be able to sell or give away pre-packaged non-alcoholic beverages to prevent dehydration of consumers or employees. 

§947(5) would forbid “entertainment of any type on the premises of a retail location.” Other jurisdictions have shown that retailers can safely provide entertainment and the provision of this entertainment may be a way for licensees to establish their competitive positions. In any case, the language used in §947(5) is overly broad and could be interpreted to mean a retailer cannot display a television set, for instance. 

Many of the provisions contained in Louisiana House Bill 54 are reasonable to achieve the objectives of a regulated cannabis marketplace, including the general powers and duties of the commissioner described in §4764. However, the bill’s scope could also be expanded in positive directions, such as by facilitating financial services, clarifying the regulatory authority and taxing power of local governments, or accommodating home grows.

Key provisions missing from House Bill 54 also include a clarification that cannabis-related contracts are enforceable under Louisiana law, protections for holders of professional licenses who work with cannabis clients, and protections for parents who lawfully consume cannabis. 

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