When the Washinton State Liquor Control Board
(LCB) decided to license just 334 marijuana stores, it made
permission to operate such a business a scarce and valuable
commodity. But when the LCB received more than 2,100 applications
for those 334 licenses, it did not cash in on that artificial value
by auctioning them. Instead it used
lotteries to winnow the field in each jurisdiction with more
applications than licenses (which was most of them), saying
applicants who received the lowest numbers would get first crack at
qualifying. Guess what happened next.
The Kitsap Sun
reports that David Comeau, who drew the second lowest number in
the lottery for Bremerton, where the LCB plans to issue two retail
licenses, recently sold his business, Better Buds, to C&C Shop
LLC, which came in 13th, for $150,000. Comeau, whose business
exists mostly on paper, will also receive 10 percent of C&C’s
net monthly revenue (or $10,000 a month, if the revenue is lower
than that) for as long as the company’s store is open. Since the
application fee was $250, that’s a pretty good payoff. “We just got
really, really lucky,” Comeau told the Sun. “It was
absolutely like winning a real lottery.” He is not the only one to
recognize the value of such luck:
Other marijuana lottery “winners” are rushing to sell. Several
businesses were listed this week on Craigslist after placing high
in retail lotteries. One was asking $1 million, another wanted $2.5
million. Comeau predicted a “frenzy” of marijuana business
acquisitions this month.
John Davis, who operates two medical marijuana dispensaries in
Seattle, applied for three of the 21 retai licenses allocated to
that city. The LCB rejected one application, claiming (erroneously,
according to Davis) that the location was in a “forbidden zone”
(i.e., within 1,000 feet of a school,
park, playground, library, recreation center,
child care center, or game arcade). The other two
applications placed 52nd and 96th. Some of the businesses higher on
the list may not qualify for licenses, since they still have to
clear background checks, get their operating plans approved, and
pass inspections. “Some of them will go through the next screen and
make it,” Davis says, “but just don’t have the know-how, the
financing, the ties to a location that will allow them to
open. I think there are a lot of people who were
gaming the system, who don’t really have hope of opening. A number
of the people that are in the lottery now are simply in the lottery
hoping to get a [number] they can sell.”
Technically, they are selling their businesses, which happen to
come with a license, just like a TV or radio station comes with a
broadcast license or a restaurant comes with a liquor license. And
just like the initial recipients of New York City’s taxi
medallions, the winners of Washington’s marijuana lottery are
enjoying a windfall thanks to legally mandated scarcity.
[Thanks to Marc Sandhaus for the tip.]
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