For some, US marijuana industry becoming a David-versus-Goliath battle

Image of a cat and a lion, depicting small vs. big businesses

Is the U.S. marijuana industry evolving into a David-versus-Goliath confrontation?

A number of marijuana business officials and advocates characterize today’s cannabis industry as figurative warfare, pitting large companies seeking to dominate the market against smaller operators and entrepreneurs just wanting a foot in the door.

“I think it kind of is ‘big business’ versus everybody else,” said Matt Abel, a Detroit attorney who has been involved in legalization efforts and the industry for more than 20 years.

Consider the following within the past three years:

  • A fight in Michigan between the Cannabis Manufacturers Association – comprised of several large companies – and others in the state’s medical marijuana industry over cultivation rights for caregivers, testing protocols and a proposal to issue microbusiness licenses.
  • Moves by multistate operators in Arizona and Illinois to allegedly take control of social equity licenses or block efforts to boost the permissible canopy size for craft growers, respectively.
  • An attempt in 2019 in New York by a handful of MMJ licensees to outlaw home cultivation.
  • A new report by the Minority Cannabis Business Association, which identified state-level license caps as a barrier to equity, a policy that is generally favored by larger marijuana companies and multistate operators.
  • Opposition in Delaware to a recreational marijuana legalization bill by the state’s existing MMJ businesses – including Columbia Care – which argued the bill as written would “decimate” their operations. Adam Goers, Columbia Care’s senior vice president of corporate affairs, countered the New York-based MSO doesn’t oppose legalization but instead had issues with how that bill was written. He also wrote in an email that Columbia Care supports adult-use programs that “set social equity businesses up for success.”

Abel, for his part, is critical of many large marijuana companies.

“They’re greedy,” he said. “They want all the market share.”

But lumping multistate operators into one bucket is an oversimplification and risks villainizing good actors, countered Jason Erkes, chief communications officer for Cresco Labs, a Chicago-based MSO.

“I don’t think you can lump all the MSOs together as having a singular agenda or supporting/opposing things for the same reasons – it’s all in the details,” Erkes said.

He added that Cresco is supportive of expanding craft-grow operations in its home state of Illinois but said the measure needs additional safeguards to ensure the licenses remain in the hands of minority entrepreneurs.

The CEO of Massachusetts-based MSO Curaleaf Holdings, Joe Bayern, recently made the case to MJBizDaily that “big cannabis can be good cannabis.”

“There is a misperception around ‘big cannabis’ that we’re keen to correct,” Bayern said.

“Our scale means that we can invest in the highest-quality products, cultivation and processing facilities and in our team members and our communities – so that we set industry-leading standards. …

“It also means that we can invest in product research and development to continue to bring new, innovative products to market.”

Big guys versus everyone else?

Others share Abel’s view that a big-versus-small divide is emerging nationwide as the industry grows and becomes more valuable.

On one side, multiple sources contend, are larger companies angling to become as profitable and dominant as they can.

On the other are smaller actors that want to break into the industry – such as social equity entrepreneurs, craft growers and the like.

“It really is big business versus the consumer and craft grower,” said Rezwan Khan, the president of the Global Alliance for Cannabis Commerce (GACC), a trade association that supports free-market policies, open markets and a lack of license caps.

“What we’re seeing is there are organizations out there that are really pushing to put some type of either full block of federal legalization, or a major push out, because they want the opportunity to build their businesses,” Khan added.

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Khan parted ways with the U.S. Cannabis Council (USCC) last year after he sat through what he said was a presentation by an attorney representing one of the group’s members.

The pro-legalization trade group counts among its ranks “many of the largest cannabis companies.”

Khan argued the attorney’s presentation equated to “a lobbying effort to stop federal legalization,” with the aim of protecting existing market share in various states.

The Daily Beast reported on the presentation, which the USCC did not adopt as a formal position and said was only part of a discussion among its members.

The USCC’s CEO, Steve Hawkins, said that the presentation was “considered, put down and forgotten about.”

But Khan argued similar policies are being proposed to lawmakers at the federal and state levels by companies that don’t care about social justice issues related to marijuana or anything consumer-related.

“There are companies that are publicly traded, and now, they have motivations that are a little different than the rest of us,” Khan said. “Their motivation is: What are their shares worth? What’s their return for their investors?”

“When that becomes their focus and motivation, often those machines get pushed in a direction that are at odds with the consumer or the small business,” Khan added.

But Cresco’s Erkes argued that companies such as his support small operators as well as greater participation in the industry among minorities and those affected by the war on drugs.

“It’s equally about helping our business as it is for social equity licensees to have access to low-cost capital – and we support craft-grow canopy expansion in Illinois – just not for those that want to flip their license to the highest bidder, as we’d like to see diversity and the licenses stay with who the law intended them for,” Erkes said, referring to the federal SAFE Banking Act and the recent controversy over an Illinois bill to boost the canopy size for small cultivators.

Dividing lines can be blurry

The interstate-trade question is one of the biggest looming over the industry amid the possibility of federal legalization, according to another source involved in congressional lobbying efforts who requested anonymity to speak candidly.

That’s because if federal legalization results in the national distribution of legal marijuana, it would likely disrupt the business models of MSOs, many of which invested huge sums in indoor grows in northern states, attorney Marc Hauser wrote in a column for MJBizDaily last year.

Those grow facilities would likely plunge in value once cannabis grown under the sun in Arizona or California can be shipped legally to New York, lawyer Geoff Korff noted in a separate MJBizDaily column.

“The industry is almost in a state of a cold civil war right now … about this idea of interstate trade as part of comprehensive (federal) reform,” the source told MJBizDaily.

“When we’re talking about trade associations, the actions of some of the biggest funders/companies are in contradiction to the stated good intentions of the trade associations.”

The source singled out Columbia Care and its reported opposition to the legalization bill in Delaware, but the source also said that was only one of many such examples.

“A lot of these companies would rather see just SAFE Banking and 280E reform – or just 280E reform because they already have banking – and not the end of prohibition, because it’s better for their bottom line,” the source said.

Columbia Care begs to differ

But Columbia Care’s Goers countered in an email that media reports in Delaware about the MSO’s position on the adult-use legalization bill were misconstrued and that the company doesn’t oppose legalization.

“Adult-use bills are difficult to pass,” Goers told MJBizDaily via email.

“Columbia Care continues to advocate for adult-use programs that provide improved access and affordability for medical patients and that set social equity businesses up for success.”

Goers also said his company has actively supported “new market entrants, specifically social equity and minority-owned businesses” in Illinois, New York, Colorado and Virginia.

“We do this through direct incubation efforts, funding, and sponsoring educational boot camps,” Goers wrote. “We support an expanded and diverse industry.”

In short, Goers contended, big companies can be a positive force in any industry.

For his part, Abel doesn’t see the industry rift going away anytime soon, contending it’s in the interests of larger companies to protect their market share and expand further.

“They’re not going to stop. They’re just going to keep pushing,” Abel predicted.

“They have the resources. The little guys don’t have the resources they do.”

John Schroyer can be reached at john.schroyer@mjbizdaily.com.