From the viewpoint of producers that kept the cannabis industry alive during decades of prohibition, the big money and corporate interests flocking to the legal marijuana industry are a threat to the existence of small businesses and their independent spirit.
In 2017 alone, the combined American medical and recreational marijuana market brought in between $5.8 and $6.6 billion in revenue, according to Marijuana Business Daily’s annual Marijuana Business Factbook. Those figures are expected to rise, particularly as major investors continue their entry into the industry. The sweeping changes have inspired some states to consider legal protections that offer social equity provisions to aid minority participation, prevent domination by outside investment, and include licensing rules to favor locals and smaller businesses.
Some experts say not all is lost. Marbet Lewis, an attorney with an alcohol and cannabis-focused practice told Weedmaps News that cannabis’ evolution will likely mirror that of craft beer.
“There will be the signature mom-and-pop brands that will survive and hold strong to their roots and ‘homegrown’ image,” Lewis said, adding, “but others will see the opportunity in pairing with larger producers either within their own industry or with competing industries like the alcohol or pharmaceutical companies.”
Lewis added that some of the most notable examples of big money in cannabis today come from alcohol brands including Heineken, Constellation Brands, Molson Coors, and others.
Some smaller cannabis companies have entered into white-label branding agreements that outsource manufacturing for a brand or product. In California, the lucrative practice recently came under reconsideration in a draft of potential permanent rules created by the state’s Bureau of Cannabis Control in late 2019. The changes to white-labeling laws could hamper major and smaller market retailers and brands in California. Similarly, federal and state regulations regarding exporting cannabis products hinder some of the country’s top markets. In Oregon, the Craft Cannabis Alliance has made efforts with other businesses and groups in the state to push for interstate cannabis exporting to correct a market that has experienced plummeting prices from oversupply.
The rapidly changing federal and state laws and regulations have kept some major companies at bay for now. In recent months, Coca-Cola seemed likely to enter the infused-beverage market, but CEO James Quincey said cannabis presents too many safety and regulatory uncertainties. Quincey told CNBC in November 2018 that only CBD currently is worth consideration for the brand. In addition, the CEO said that THC must be legalized, and furthermore, lab-tested before being considered to include in products.
With less access to capital and fewer connections, smaller operators often run into financial distress stemming from licensing, applications and other costly aspects of scaling up the business. Colton Griffin, founder and CEO of the supply chain management tool Flourish Software pointed out pre-qualifying conditions for business applicants in Michigan. These conditions include full background checks for the applicant and supplemental applicants, as well as listing all people and businesses with a direct or indirect ownership interest. Afterward, all applicants must submit their fingerprints. Additionally, applicants must pay a $6,000 fee to begin the process.
Griffin noting concerns surrounding expired temporary licenses in California in particular. Licensing in the state alone was an issue in 2018. A recent Los Angeles Times report found that the state estimated to license 6,000 cannabis shops in 2018. However, only 547 received temporary or annual licenses. At the same time, 1,790 cannabis ventures were paying taxes.
Even larger operations such as the multi-state venture MPX Bioceutical Corporation has to gamble, according to its CEO Beth Stavola. She told Weedmaps News that its grower/processor license in Pennsylvania cost $200,000 and did not guarantee approval, though the permit fee would be refunded if the application was rejected. An additional $10,000 initial application fee would not be refunded regardless of the application’s outcome. For dispensary applications, the structure is the same, except the initial application fee costs $5,000 and the refundable permit fee costs $30,000.
“All states require an application process which takes a lot of time and resources, and forces applicants to meet all of their criteria, which isn’t easy for most companies,” Stavola said. “Sometimes after months of work on an application for a grow or process [license] and tons of money up front, you aren’t awarded a license.”
While some in the cannabis community fret over a potential Big Pharma, monopoly-esque future, others don’t see that coming for some time, if ever. Stavola pointed to the large offering of products and how some patients react positively only to certain items, such as flower. The debate about how to protect the pioneering culture of the smaller producers is far from over, but the industry, like the plant itself, has a long history of resilience.
Andrew Ward is a Brooklyn, NY based freelance cannabis industry writer and copywriter. His work has appeared in numerous weed publications and brand blogs. When not writing about marijuana, Ward loves to cook, hike, and support Chelsea F.C.