When government awards lucrative licenses to only a limited number of businesses, the possibilities for controversy, favoritism, and even corruption are limitless.
Currently, there are three medical marijuana dispensaries operating in Rhode Island, which combined, generate over $50 million in annual sales. Due in part to lobbying by Mark Ryan, who represents certain marijuana interests and enjoys close ties to the House Democratic leadership, the General Assembly enacted legislation which increased the number of medical marijuana dispensaries from three to nine. Furthermore, the General Assembly mandated that any new regulations pertaining medical marijuana receive legislative approval before going into effect.
Quickly, the marijuana interests represented by Ryan built a new state-of-the-art medical marijuana facility and Green Reservoir Inc. was formed. But when the R.I. Department of Business Regulation stated it would not accept license applications for new medical marijuana dispensaries until they adopted new regulations, Ryan’s law firm threatened to sue if Green Reservoir was not immediately given a license.
Soon afterwards, Gov. Gina Raimondo filed her own lawsuit against the General Assembly alleging the new law violated the separation of powers provision in the Rhode Island Constitution by requiring legislative approval of the medical marijuana regulations. Subsequently, the Department of Business Regulation proposed new regulations that would award new medical marijuana dispensary licenses through a lottery in which one new dispensary would be located in each of six geographic zones in the state.
In response, House Speaker Nicholas Mattiello stated that these proposed regulations “may not be consistent with the intent” of the General Assembly. Although some politicians may pass legislation with the intent of enriching those close to them, awarding medical marijuana licenses through a lottery would be a more transparent and fair approach to follow.
The current scramble for medical marijuana dispensary licenses could match the controversy which swirled around the rush for cable television franchises years ago. In 1969, the Rhode Island General Assembly passed legislation to allow franchises to be granted to companies seeking to operate cable television systems. Unlike other states, the power to award these profitable cable television franchises was bestowed upon one person – Archie Smith, the administrator of the Division of Public Utilities and Carriers, a political appointee. Over 34 applications were filed seeking a cable franchise. Dozens of hearings were held. Volumes of documents were submitted. But throughout the proceedings, Smith refused repeated requests “to announce the areas for franchising or the criteria for selection of awardees.”
Finally, in November 1974, Smith issued his decision which divided the state into nine different zones and awarded cable franchises to nine companies, one for each zone. Smith rejected a number of experienced, well-financed, multi-state cable system operators. Instead, he gave preference to applicants with local connections.
One such company was the Rhode Island CATV Corporation. This company was given the state’s largest and most lucrative franchise area, which consisted of Providence, North Providence and Pawtucket. Dennis Roberts II, a member of a prominent political family, was a major shareholder of this company and served as its counsel. (Years later, it was revealed that former Gov. Dennis Roberts and Superior Court Judge Edward Gallant were also major shareholders of this company).
But certain companies with local ties were not so well received by Smith. For example, Vision Cable Company, an affiliate of the Providence Journal, was not awarded a franchise because Smith feared that the Journal would use its cable television affiliate “to propagandize its bias.” After inspecting Journal publications over a period of several years, Smith concluded that “news concerning businesses which Journal directors are associated must be considered too sensitive to be published” and cited a Columbia Journalism Review article from 1971 in support of his opinion. (The Providence Journal’s publisher denied Smith’s assertions.)
The controversy then shifted to the courts. The rejected applicants challenged Smith’s decision in Superior Court. In November 1976, Superior Court Judge Ronald Lagueux reversed Smith’s decision on the basis that Smith violated the law by awarding franchises based on information not contained in the evidentiary record. Judge Lagueux’s decision was then appealed to the Rhode Island Supreme Court. In November 1979, this litigation ended in a settlement agreement in which Rhode Island CATV Corporation agreed to transfer its franchise rights in Pawtucket to Vision Cable Company.
No sooner was this lawsuit resolved when multiple lawsuits were filed over the identity of the actual owners of Coastal Cable Vision Inc., the company awarded the cable television franchise for Newport County. One group claimed that former state representative George Newbury had secretly owned all of Coastal Cable Vision’s stock. Another motley group alleged that Newberry had secretly been given only a portion of the company’s shares due to his “political influence.” In the end, both sides ended up losing, when a new cable television franchise for Newport County was awarded to a subsidiary of a multi-state cable television operator. Of course, the real loser from all this litigation was the people of Rhode Island, most of whom did not get access to cable television until the 1980s.
Whenever the government awards a limited number of licenses, it should avoid doing so in a manner that could benefit politically connected businesses. A flawed licensing process can lead to accusations of favoritism, suspicions of corruption, and endless litigation. Even awarding licenses on a first-come, first-serve basis may end up rewarding businesses with political inside information.
Awarding medical marijuana dispensary licenses through a lottery involving qualified applicants would mean that the winning applicants were chosen in public and at random rather than behind closed doors by politicians. Other states like Arizona and Washington have also awarded licenses to sell medical marijuana through a lottery process.
Marijuana gives off a rather foul odor. One way to avoid adding the stench of corruption to marijuana’s smell is to use a lottery system to award medical marijuana licenses.
Steven Frias is Rhode Island’s Republican National Committeeman, a historian, and recipient of The Coolidge Prize for Journalism.