Every day, the marijuana industry continues to grow faster than ever, so it’s not surprising that many people and businesses want to get into the industry. Big businesses are no exception. However, the entrance of big businesses in the marijuana industry comes with positive and negatives depending on who you ask.
While big businesses can drive the price for marijuana down in the short term, that doesn’t mean prices will stay down after smaller businesses are pushed out of the industry. In addition, many people believe that the entrance of big businesses in the marijuana industry will lead to lower quality products as well as the shifting of revenues away from mom and pop businesses in local communities to out-of-state corporations.
The Start of Monopolies and Oligopolies
As Sean Williams of The Motley Fool explained last year when marijuana prices started to drop, “The culprit for the substantial drop in marijuana prices appears to be big businesses infiltrating the industry and flooding the market with product. As with any industry, if big business can push the little guy out, they’ll have considerably more liberties down the road to raise their prices back up and capture a juicier margin, along with greater market share.”
It’s not surprising that investors have been scrambling to get into the marijuana industry during the past couple of years, and truth be told, some consolidation in the currently fragmented industry isn’t necessarily a bad thing. However, the threat of monopolies or oligopolies developing is very real — not just in terms of big businesses naturally usurping smaller businesses but also in terms of state regulations that actually lead to the development of markets dominated by one or a few players.
For example, Williams cited a bill in Florida when medical marijuana regulations were being crafted. The bill would allow the existing companies that grew, processed, transported, and dispensed medical marijuana to be the only companies allowed to participate in those activities in the future. The number of marijuana cultivators would only grow if the population for medical marijuana grew.
Other states, like Colorado, have ceased to award additional licenses to marijuana companies thereby creating oligopolies as a result. In California, regulations passed leading up to opening the state’s opening of the adult-use market in January 2018 allowed large businesses to obtain as many cultivator licenses as they could afford.
Currently, smaller marijuana businesses are struggling to compete with other bigger marijuana companies. For example, Colorado’s publicly traded AmeriCann secured $10 million in equity to build a one million square foot cannabis cultivation and processing facility in southeastern Massachusetts. The facility was purchased from the Boston Beer Company, the maker of Sam Adams, for $4.475 million in cash and will be called the Massachusetts Medical Cannabis Center. It’s likely to be the largest commercial marijuana facilities in the country. Interestingly, AmeriCann does not grow or distribute marijuana. Instead, it will lease the facilities to growers and processors to create its licensed “Solanna” line of cannabis-infused products. For example, 130,000 square feet of greenhouse, lab, and research space will be licensed to Coastal Compassion Inc.
While the majority of big business competition is between small and large marijuana companies today, it’s inevitable that more large corporations that have not yet delved into the marijuana industry will do so in the near future.
The Proliferation of Stacked Marijuana License Structures
Big business’ deep pockets and state regulations that create monopolies and oligopolies are only part of the competition problem in the marijuana industry. Another part is related to states’ marijuana business licensing structures.
Most states regulate how marijuana licenses can be structured. Cannabiz Media defines these structures as fully stacked (where a single business is required to handle all operations from seed to sale), partially stacked (where a single business can or is required to handle more than one operation but not all from seed to sale), and unstacked (where different businesses handle different operations across the supply chain from seed to sale).
Of the states that have defined their marijuana regulations, a total of 12 states require marijuana licenses to be fully stacked: Arizona, Delaware, Florida, Hawaii, Maine, Massachusetts, Minnesota, New Hampshire, New Jersey, New York, Rhode Island, and Vermont. Seven states require (or allow) licenses to be partially stacked: Connecticut, District of Columbia, Illinois, New Mexico, Oregon, Pennsylvania, and California. Eight states issue unstacked licenses: Alaska, Colorado, Maryland, Michigan, Missouri, Montana, Nevada, and Washington.
Bottom line, whenever every business who wants to be in an industry cannot enter the market, competition will not flourish. The result is the same whether businesses are shut out due to state regulations or because big businesses have deeper pockets and force smaller players to leave. Fewer players equals less competition which usually leads to higher prices and limited market growth. Only free competition ensures fair prices and market growth as well as innovation and product accessibility.
The Future of Marijuana and Big Business
There is no arguing that the market is large, growing, and highly attractive. Big businesses are just getting started, and they’re here to stay. However, there are factors at play that limit business growth in this industry, and unless competition can flourish, businesses will face challenges and consumers won’t be completely satisfied.
Originally published 3/4/17. Updated 3/30/18.
Susan Gunelius, Lead Analyst for Cannabiz Media and author of Marijuana Licensing Reference Guide: 2017 Edition, is also President & CEO of KeySplash Creative, Inc., a marketing communications company offering, copywriting, content marketing, email marketing, social media marketing, and strategic branding services. She spent the first half of her 25-year career directing marketing programs for AT&T and HSBC. Today, her clients include household brands like Citigroup, Cox Communications, Intuit, and more as well as small businesses around the world. Susan has written 11 marketing-related books, including the highly popular Content Marketing for Dummies, 30-Minute Social Media Marketing, Kick-ass Copywriting in 10 Easy Steps, The Ultimate Guide to Email Marketing, and she is a popular marketing and branding keynote speaker. She is also a Certified Career Coach and Founder and Editor in Chief of Women on Business, an award-winning blog for business women. Susan holds a B.S. in marketing and an M.B.A in management and strategy.