The wholesale LPH licensee procures LPH directly from the farmers at mutually agreed to rates and stores it in non-duty paid bonded warehouses. Duty is paid by the wholesale licensee when LPH is transferred to wholesale godown of the wholesale licensee who alone can have a bonded warehouse.

The retail LPH, licensee procures LPH from the wholesale LPH licensee at mutually agreed to rates on the, basis of permits issued by the Department and after paying permit fees.

Since LPH is a restricted commodity, it can be sold by licensed retailers only to those consumers who have consumption permits issued by the Department under NDPS Rules. These permits are issued on recommendations of a Committee constituted by Government comprising a nominee of the Collector, medical officer of the area, concerned District, Excise Officer and a public representative. (Bhang not being a restricted commodity, anyone can purchase bhang for his own consumption).
Separate groups of LPH and bhang are formed on the same pattern as that of Liquor groups. The reserve price of each group (separately for LPH wholesale, LPH retail and bhang retail) price is based on the revenue potential of the group in terms of the number of registered consumers of LPH as also on the basis of previous year's obtained price.

Competitive bids are invited for each of the LPH / bhang group and licenses are' granted in favor of the highest bidder. The obtained price comes to be known as the annual license fee. This amount is in fact the sitting cost for the licensee which permits him to procure LPH and bhang and trade in the same.

The annual license fee is realized in monthly installments. One-third of the annual license fee is charged from the licensee as advance security and the balance two-thirds is realized by way of eight monthly installments, security being adjusted against the balance remaining four months.