The cannabis industry is growing faster than ever in the United States, so it’s not surprising that many people and businesses want to get into the industry. Big businesses are no exception, but the entrance of big businesses in the marijuana industry comes with positive and negative results depending on who you ask.
Many people believe that the entrance of (or development of) big businesses in the marijuana industry will lead to monopolies, lower quality products, and a shift of revenues away from mom and pop businesses in local communities to out-of-state (or out of country) corporations.
The Start of Monopolies and Oligopolies in the Cannabis Industry
As Sean Williams of The Motley Fool warned back in 2017, “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 several 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 allow vertical integration, which actually leads to the development of markets dominated by one or a few players.
We’ve already seen this happen in multiple states that allow or require vertical integration of the cultivation, processing, and sale of cannabis products.
To clarify, 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 in a vertically integrated structure), 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).
For example, in Rhode Island, the state’s medical marijuana program is dominated by just three vertically integrated businesses. The dozens of smaller licensed growers in the state are forced to drop prices to sell to those three outlets, and those three vertically integrated companies control the market. In addition, the three vertically integrated companies can grow their own cannabis. The result is an oligopoly controlled by three companies.
Other states, like Colorado, have ceased to award additional licenses to marijuana companies thereby creating oligopolies. In California, oligopolies are forming in a different way. Regulations passed leading up to opening the state’s adult-use market in 2018 allowed large businesses to exploit a loophole and obtain as many cultivator licenses as they could afford.
Across the country, smaller marijuana businesses are struggling to compete with other bigger marijuana companies. In Maryland, large out-of-state companies (including several well-known cannabis companies that are publicly traded on the Canadian Securities Exchange) have been quietly taking control of multiple cannabis dispensaries through management agreements or acquisition plans that circumvent the state’s regulations limiting ownership to one dispensary. Cannabis business owners, patient advocates, and even Maryland lawmakers have voiced concerns that monopolies could develop if the activity isn’t stopped.
The Future of Marijuana and Big Business
Bottom line, whenever every business that 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.
There is no arguing that the market is large, growing, and highly attractive. 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.
In other words, big businesses are just getting started in the cannabis industry, 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 continue to face challenges and consumers won’t be completely satisfied.
Originally published 3/4/17. Updated 6/14/19.
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.