Baptists and Stoners- Oakland Approves Plan to Set Up 4 Marijuana Factories, Public Choice High Begins

July 21st, 2010

The City of Oakland has approved an ordinance that allows the industrial production of marijuana. The opening of these four factories illustrates a number of very important public choice principles.

From the LA Times:

Oakland’s City Council on Tuesday approved an ordinance that could make it the first city in the state to permit industrial marijuana production, a path-breaking decision that could spur the commercialization of a crop largely grown in hidden gardens.

The plan would authorize four potentially enormous pot factories, but makes no provision for the hundreds of growers who now supply Oakland’s four dispensaries, which sold $28 million in marijuana last year. The council, however, promised it would develop a plan for these growers before permits are awarded next year for the four large-scale marijuana operations.

Good news, right? Well not everyone is happy. In a classic case of Baptists and Bootleggers, or perhaps Baptists and Stoners in Oakland’s case, existing growers of marijuana are displeased, and oppose the opening of these factories:

The 5-2 vote came after two hours of testy debate between pot growers who argued the proposal could destroy their livelihoods and businessmen who said it could turn Oakland into the Silicon Valley of pot, create jobs and generate new tax revenues. The audience booed, hissed and talked back, causing City Council President Jane Brunner to repeatedly admonish the crowd.

Steve DeAngelo, who runs Harborside Health Center, the city’s largest dispensary, led a campaign to urge the council to accommodate these growers in the ordinance.

“These growers are not anonymous miscreants burning down houses and bringing crime to neighborhoods,” said DeAngelo, who buys marijuana from more than 400 growers. “They are real people, decent people with families to support.”

Additionally the city is erecting serious barriers to entry in order to grow marijuana. This will further keep out the mom and pop small marijuana cultivators.

The proposal has ignited a contentious debate in Oakland over whether the city should be in the business of deciding who gets to be a marijuana mogul. The annual permit fee would be $211,000, a high barrier for smaller growers. Many fear that after years of risking federal prosecution, they will be shut out just as Oakland seeks to legitimize pot cultivation.

Unsurprisingly, the 4 pot factories approved engaged in some serious rent seeking to receive those coveted licenses, and perhaps captured the council members that approved their permits.

Oakland keeps a list of people who have expressed interest in the permits. On Tuesday afternoon, Arturo Sanchez, who oversees the city’s marijuana regulations, said it had 192 names.

But much of the attention has focused on just a few successful businessmen who have been vocal about their plans and their intent to win permits. They have money, buildings, proposals and ready access to the council members, but only recently became interested in medical marijuana.

Wilcox, a retired construction firm owner, wants to convert a complex of aging industrial buildings he owns along Interstate 880 into what could be the world’s largest pot factory, raising about 58 pounds of marijuana a day, more than enough to handle Oakland’s consumption.

Two other entrepreneurs, Dhar Mann and Derek Peterson, partners in a hydroponics store called iGrow, have a team already working on designs for a multi-level operation in a 57,000-square-foot warehouse that they have an option to lease. Peterson said he had no doubt their proposal would win a permit.

And of course, the city will profit from the regulation of this industry through the form of taxation:

Bringing what has been a secretive and lucrative cash business into the open would also allow Oakland to tax it, potentially adding millions of dollars to its ailing budget. The city, which has led the state in its innovative approach to marijuana, was the first to adopt a pot tax, which is 1.8%, but is considering asking voters to approve a substantial increase.