Last year, I spent a lot of time exploring what worked and what didn’t as various states rolled out full-scale medical and recreational legalisation of cannabis. It’s something I’m interested in as a policy question, but also as something with more immediate ramifications. I live at the heart of the Emerald Triangle, and the industry has been an everpresent force in my life since childhood; you do not live in Mendocino County without being touched by the thriving black market at its heart.
Many people were surprised when counties like Mendocino didn’t vote overwhelmingly for legalisation, and why many old-time growers and other marijuana-related businesses weren’t leaping at the opportunity for full legalisation. That betrayed a simplistic understanding of the factors that drive the market and the people in it: Prohibition means feeding the prison-industrial complex, losing out on taxes, endangering communities thanks to black market activities, and is also just ridiculous, so legalising is a good thing, right? Well…that’s a question with some complicated answers and we are going to see them play out in the coming years as states like California wrestle with how to effectively turn a massive black market industry into one that’s out in the open.
Some businesses are excited to hit the sunlight. There are certainly advantages for them, including the ability to access the traditional banking system, to get VC capital involved in their businesses, and to protect the welfare of consumers with well-controlled products. For consumers, the risks of getting products contaminated with pesticides and mold are going to be a lot lower, and they’ll get more reliable products, as they have to be tested and their products disclosed. Marijuana is turning into a legit business.
And that’s where it starts to run into trouble. Many of the people with the most experience, skill, and investment are going to be cut out of the market because of prior convictions, something Oakland tried to address with parity laws. Others are going to find themselves supplanted by people with a more mercenary approach to the industry — if you think big tobacco hasn’t been waiting in the wings to swoop in, you are sorely mistaken. The tobacco industry is eager to leap into every step of the marijuana supply chain, especially given the growing antipathy to smoking tobacco products that’s causing them to lose money hand over fist.
Mom and pop operations, for lack of a better term, are not going to be able to keep up. In addition to the tobacco industry, other big commercial investors are interested in getting involved with legalisation, making it easier to actually do business on a big scale. People without capital and the connections to resources that could help them access capital can’t match the prices of people with substantial financial backing. In Colorado, for example, we saw numerous businesses pop up, including new and old operators, and then they were slowly forced closed by a handful of big players with supply chain monopolies.
Because the current structure of taxation is one that penalises marijuana-related businesses in a way that almost no other type of business experiences. Complicated, labyrinthine tax law means that the best chance at actually making a profit is maintaining your own supply — growing, and having staff with the specialised skills to do that well, manufacturing your own cannabis products, and selling them at retail. As soon as you start outsourcing, costs go up.
Which isn’t to say that consumers are necessarily going to feel that. One consequence of legalisation is that the market is actually likely to crater. The black market introduces numerous lines of risk that make it more complicated to supply a product. When everything is aboveboard, those disappear, and costs drop precipitously. That’s why assumptions that, for example, the black market economy will neatly map over with legalisation are fallacious and ill-informed. Marijuana-based businesses understand this, which is one reason why many are reluctant to support legalisation. They have a vision of seeing their profits evaporate while they’re muscled out by well-heeled newbies on the block who may not have the roots and connections to the industry, but do have money, and lots of it.
In the end, legalisation creates substantial net good — I’ve long supported it and continue to do so. But it’s not as simple and rainbowy as people seem to believe it will be. Some of that is predicated on how the state chooses to regulate it. And it’s worth noting that excessive regulation tends to favour those with the technical and legal skills, and finances, to navigate it. If you turn marijuana-based businesses into a monstrous snarl of regulations, including potentially both state and municipal and/or county laws, you’re going to create a system that’s ripe for exploitation by those who understand policy, and a losing proposition for those who do not.
That means that the industry will ultimately go the way of so many other vices in the US — heavily dominated by a handful of players who control it at almost every level. Those players have extensive experience and formidable legal teams to draw upon as well as the cash reserves to prop up their businesses while they stabilise and before they begin to make a go of it. They also have the lobbying power to push for regulations that will maintain the new status quo — because the cooperative owned by Black women, or the disabled farmers, don’t stand a chance against the deep and formidable pockets of VC-backed startups and the tobacco industry.
Image: s.e. smith