How big business, monopolies and vertical integration are affecting the cannabis industry

Be the first to know when new content like this is available!

Subscribe to our newsletter to receive notifications of new posts, local news and industry insights.

Thanks very much! Your submission has been received!

Oops! Something went wrong while submitting the form.

One of the most talked about topics in the cannabis industry in recent years has been consolidation through mergers and acquisitions. There have been many mergers and acquisitions, including deals worth billions of dollars, and there are many more to come.

However, the continued growth and development of large companies with deep pockets in the cannabis industry has many people worried that the result of continued mergers and acquisitions will be monopolies, lower-quality products, and a shift in revenue away from mom-and-pop businesses in the region communities to out-of-state (or country) businesses.

This concern has already become a reality and will continue to become an even greater concern as government programs expand, as interstate commerce is permitted, and as federal legalization occurs.

The beginning of monopolies and oligopolies in the cannabis industry

Monopolies and oligopolies began to develop in the cannabis industry years ago – not only in terms of the usurpation of smaller businesses by big companies, but also in terms of government regulations allowing for vertical integration, resulting in markets owned by one or a few Actors who control the cultivation are dominated. Processing and sale of cannabis products.

Monopolies and oligopolies have another way to develop in the cannabis industry when states stop licensing. In California, oligopolies formed in a different way. Regulations passed in advance of the state’s adult market opening up in 2018 allowed big companies to take advantage of a loophole and get as many breeder licenses as they could afford.

According to Cannabiz Intelligence™ data, a handful of cannabis license holders dominate multiple markets in the United States. In fact, 10 public companies each hold more than 100 licenses — some with more than 200 licenses — and operate in as many as 22 states. These 10 companies are licensed across the supply chain, and some report combined quarterly sales in excess of $300 million.

Based on the data, it’s not surprising that smaller cannabis companies across the country are struggling to compete with larger cannabis companies.

Put an end to monopolies and oligopolies to maintain competition in the cannabis industry

“If we wait until there is already a monopoly acting like Big Tobacco, it will be too late. What we need to do is intentionally prevent it in the first place,” says Shaleen Title, former commissioner of the Massachusetts Cannabis Control Commission, current CEO of the Parabola Center (a drug policy think tank), Distinguished Fellow in Cannabis Policy at the Drug Enforcement and Policy Center Ohio State University College of Law and Vice Chair of the Cannabis Regulators of Color Coalition.

Earlier this year, Title released a report that drew attention to the growing monopoly problem in the cannabis industry, Bigger is Not Better: Preventing Monopoles in the National Cannabis Market. In the report, she suggested a number of steps that should be taken to improve competition in the cannabis industry if federal legalization occurs. Their suggestions include:

• personal growth: Allow people to grow a fair number of cannabis plants for personal use.
• Vertical integration: Prohibit vertical integration, which requires a company or entity to hold multiple licenses throughout the supply chain.
• Market Control Limits: Instead of limiting the total number of licenses available, there should be a limit to how much of a market a single person or organization can control.
• Government Incentives: Incentives should be put in place to encourage states to license small or disadvantaged businesses.
• Ownership Boundaries and Merger Reviews: Ownership boundaries should be enforced and mergers should be reviewed based on evidence of predatory or anti-competitive practices in state cannabis markets.
• Industry Exclusions: Any company that has engaged in financial crime, defrauded the public, or caused significant public health harm should not be allowed to enter or participate in the cannabis industry.
• Enforcement of Anti-Monopoly Limits: Enforcement of anti-monopoly limits with a dedicated interagency task force.
• International trade: Allow states to ban or delay interstate commerce after state legalization occurs to ensure local businesses do not lose state-level benefits.

As the title states, “The rise of MSOs is a sign that antitrust issues are timely and need to be addressed by regulators sooner rather than later.” In other words, it will be too late by the time antitrust regulations develop waiting for cannabis to be legalized at the federal level.

The future of marijuana and big business

Bottom Line: Whenever any business that wants to be in an industry cannot enter the market, competition will not thrive. The result is the same whether companies are shut out because of government regulations or because big companies have deeper pockets and are forcing smaller players out. Either way the result is the same. Fewer players mean less competition, which usually results in higher prices, less product choice, and limited market growth.

As Sean Williams of The Motley Fool warned the cannabis industry back in 2017, “As in any industry, if big companies can squeeze out the little guy, they will have considerably more freedom later on to raise their prices again and capture a juicier margin, along with.” a larger market share.”

Only free competition ensures fair prices and market growth in the long term as well as continuous innovation and product availability. This protects the “community” culture of the cannabis industry and prevents Big Cannabis from developing (much like Big Tobacco and Big Alcohol) where a few companies control the market.

Originally published on 3/4/17. Updated 8/19/22.