Why Government Fees Are Almost Always a Business Killer

Why Government Fees Are Almost Always a Business Killer

Government fees are part of life. Whether assessed by Washington, one of the states, or a local government, fees are a tool by which governments fund themselves. The problem is that they are almost always business killers. And the higher a particular fee is, the more damage it is likely to do.

A recent example illustrating this very thing is found in Montana, where lawmakers used the final two weeks of the 2023 legislative session to pass two bills that ultimately increased the fees on cannabis businesses to the point of endangering many of them. A district court recently granted a 60-day preliminary injunction against the fees, but the relief may be short lived.

A Graduated Fee Structure

Prior to the law being changed in 2023, cannabis dispensary owners in Montana paid a $5,000 fee for each license, regardless of the number of dispensaries being operated. Now the fee is based on a graduated model. The first license still costs $5,000. But each additional license increases the fee by another 5K. That means the second license costs $10K, the third costs $15K, and so on.

The graduated feed structure makes operating multiple pharmacies in Montana nearly impossible. That is why a number of dispensary owners got together and sued the state. They claimed that allowing implementation of the new fee structure as planned could put them out of business. At the very least, it would prevent them from opening new dispensaries in the state.

Why Fees Are Imposed

Whether it is medical cannabis, sports and recreation, or any other industry, governments impose fees for a variety of reasons. First and foremost is the need to raise funding to cover regulatory obligations. In Montana, fees are assessed against the cannabis industry to cover the costs of regulating the state’s cannabis program.

It’s the same in Utah, where fees are substantially less. The other substantial difference in Utah is that state lawmakers have limited the number of allowable medical cannabis pharmacies to just 15. Pharmacy operators could not expand in the state even if they wanted to. The owner of the Beehive Farmacy Brigham City thinks that is good. Limited competition keeps all of them in business, according to Beehive ownership anyway.

Competition aside, another reason for imposing fees is to force prospective business owners to put legitimate skin in the game. States and local municipalities are reluctant to issue business licenses to entrepreneurs because they fear do not have what it takes to maintain the long game. By assessing sizable fees, they guarantee entrepreneurs have the financial resources to make a go of it.

Why It’s Still a Bad Idea

Government leaders can offer all sorts of reasons defending the many fees they assess. But at the end of the day, fees are still a bad idea. Why? Because the ability to assess fees equals the ability to control business. And government controlling business is never good.

It could be that Montana lawmakers changed their fee structure for cannabis businesses with the ultimate goal of driving cannabis out of the state. But even if that’s not the goal, allowing the graduated fee structure to be implemented could do just that.

If you think that is far-fetched, take a look at California. The Golden State has the largest economy among all 50 states. It also has the largest recreational cannabis market in the country. And yet, licensed dispensaries and growers are facing imminent collapse thanks to sizable fees, heavy taxation, and onerous regulation. They are genuinely facing extinction because lawmakers cannot resist the urge to assess fees and collect taxes.