The new trend
Highly regulated substances live in a world where the federal government defers to state regulators and often times state regulators defer to local regulators. Michelle Korsmo, President and Chief Executive Officer of the Wine & Spirits Wholesalers of America, drafted a letter to the Washington Post reiterating the believe that the 21st Amendment allows the states to regulate alcohol how they see fit. And she also highlighted the importance of local regulatory control.
In many states including Illinois, a retailer selling liquor products cannot obtain a state liquor license without first obtaining a local liquor license.
Illinois allows great discretion for locals to control what goes on within their borders. A local government controls the number of retail licenses issued and can even prohibit the sale of alcohol.
Local control in many states has a strong history in terms of controlled substances, but will it last?
Recently, a developing trend shows that there is a movement to change the game and impose laws and policies that usurp local power and eliminate the traditional deference that has existed for generations.
Cannabis is similar to alcohol
As cannabis is a new field with very little history, we will treat it like its highly regulated cousin, liquor, for this analysis.
Recently, a bill introduced in Illinois pre-empts local control in a specific area and governs that the local government is required to abide by state laws and can not make any laws that are contrary.
Illinois Senate Bill 54 creates a third-party facilitator license which allows the license holder to deliver alcoholic liquor on behalf of the retailer. The proposed law would require a license holder to file quarterly reports with the state and provide information related to the delivery.
More importantly for this discussion, the bill proposes to preempt “Home Rule” in Illinois. The Illinois Constitution developed “Home Rule” to enable local governments to “exercise any power and perform any function pertaining to its government and affairs including, but not limited to, the power to regulate for the protection of the public health, safety, morals and welfare; to license; to tax; and to incur debt.”
Even though the Illinois Constitution provided broad “Home Rule” powers to local governments, the state constitution allowed the General Assembly to makes laws that provide for the exclusive exercise of state power in areas reserved for “Home Rule.”
This legislation proposes to adopt this language for regulating third-party facilitators.
Further, this legislation proposes that the regulation and licensing of the third-party facilitator are exclusive powers and functions of the state. And that any home rule unit may not regulate or license these third-party facilitators.
In California state regulators ignored the pleas of law enforcement groups and local governments and decided that marijuana deliveries could occur anywhere in the state.
Law enforcement and local governments argued that allowing statewide delivery without any local power to regulate would erode local government control over cannabis.
In California localities that impose an all out ban on the sale of cannabis within their borders, are powerless to stop the sale of the drug to its residents.
From law enforcement and local government points of view, they decided to ban sales of cannabis because of the dangerous risk associated with the drug, and based on the risk, they decided they did not want cannabis in their community.
Nevertheless, state regulators chose to allow deliveries into their communities.
Making sense of usurping local powers
In Illinois the rumor is the law is being proposed by a major supermarket chain. Big retailers sometimes face headwinds in Illinois when they want to allow delivery or curbside pickup.
One big retailer’s representative expressed frustration with the Illinois law and how the localities can decide at a moment’s notice to ban your business operations. For example, Algonquin, Illinois banned curbside pickup in 2015 and limited the sale of alcohol within the licensed premises. Some believe this was in response to a proposed business plan of a major retailer.
By introducing the third-party facilitator law, major retailers are attempting to control the process on what is allowed. In other words, they will dictate the procedures and not the local government.
Traditionally, the Illinois Liquor Control Act allows the local government the ability to control what occurs within its borders. This proposed legislation aims to take these powers away, in a limited area, the state will dictate the governing standards to the local governments.
Interesting enough, this legislation goes outside the traditional function of licensing, which is to license those parties within the three-tier system. Major retailers have become so fed up with the myriad of local rules and regulations that they are mandating a non-three-tier license to remedy their problems.
In California the issue does not pertain to the funky rules of local regulators, but whether the cannabis companies can participate in the market. With cannabis legalized in the state, only one in seven California cities allowed the sale of recreational adult use cannabis. https://www.mercurynews.com/2018/04/15/exclusive-analysis-only-one-in-seven-california-cities-allow-recreational-marijuana-sales/
The usurping of local control in my opinion pertains to expanding the market for a legalized good. Allowing delivery will increase the sale of cannabis goods and allow companies to access markets that local laws would otherwise shut them out from.
Many states setup laws for highly-regulated industries, such as cannabis and liquor, to allow the local governments to control how the product is sold, or whether the product’s sale is limited to the specific retail premise. The reason being is the local government deals with the effects and safety issues surrounding potentially dangerous and highly-regulated products.
But we are now seeing a new trend that is breaking away from this principle. It’s the principle that if the local government gets in the way of commerce by being too burdensome, then we will legislate their powers out of existence.
By attempting to license non-three-tier entities and by mandating that cannabis can be brought within their borders in opposition to local laws, we are seeing that the traditional deference to the locals may go the way of temperance and may be dead.
Will local powers still exist for regulating alcohol or cannabis? Probably, but they may only survive until another big whale comes after them!