Opinion: US cannabis industry is a tale of two markets

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Andrew DeAngelo (Courtesy photo)

The regulated U.S. cannabis industry is a hot mess.

That might be the only thing everyone in the industry agrees on.

Right now, there are two markets for cannabis in most of the country: One is the traditional underground market; the other is the state-legal, licensed market.

It’s a tale of two markets, and there’s a collision course happening between the two.

Those of us who’ve been working with the plant for decades – and made it legal – are mostly no longer part of the licensed industry.

In California, almost all the growers from the days I owned and operated Harborside – one of the state’s first legal dispensaries during the 2006-18 medical marijuana framework – are no longer in the regulated market.

It wasn’t possible for those legacy cultivators to overcome the barriers to entry in the adult-use framework.

They gave up on licensing, went back underground or pivoted to hemp-based cannabinoids.

Now, they’re as determined to crush the licensed weed industry as they were crushed out of it – and they’re winning.

The investors and corporate executives who took over Harborside and other cannabis companies have failed to make money for their shareholders, which was the reason they took over in the first place – and they have failed to create products and experiences that delight customers.

The band plays on

The state-legal industry is like a band that cannot read music, has never rehearsed, recruited an inexperienced band leader and now is expected to play Carnegie Hall.

Nothing is in tune and the audience is walking out.

Markets such as California, Colorado and Michigan are contracting and not growing.

This isn’t because people decided to stop smoking weed; it’s because they’d rather get it underground, where the prices are right and the quality is better.

They want a pure and authentic sound coming from the stage.

A collision course leading to “enforcement” and Prohibition 2.0 is already happening and will grow as corporate cannabis continues to lose to the legacy market.

Cannabis corporations throw fits to politicians, spend millions lobbying for stiffer penalties and even jail time for anyone who dares to grow a plant or sell someone a bag.

Two years ago, I hosted a panel at MJBizCon attempting to build bridges between corporate and legacy cannabis.

I spoke of “dual markets” – one licensed and one not – as a fast march to bad outcomes for everyone.

Two years later, it appears the war of mutual destruction is on.

Illicit-market crackdowns

Enforcement against unlicensed operators in California and now New York is on the rise.

Millions of taxpayer dollars are going to law enforcement and regulators to shut down unlicensed operators.

There’s a strong feeling among corporate stakeholders that Prohibition 2.0 can be won and that enforcement will clear the playing field for their companies.

Those of us in the know understand that corporate executives don’t stand a chance unless they stop building moats around their businesses and start helping to tear down walls for everyone.

It will mean they have to support frameworks that force them to compete with smaller, nimbler and, perhaps, higher-quality operators.

And the legacy folks are going to have to learn to compete with “scale,” once they can get licensed and open their businesses.

Both sides will have to endure their hardships.

A level playing field such as this would allow “free markets” to decide who the winners and losers are.

This is basically how it was in the underground scene for decades: Whoever had the best weed or the best prices got the business.

How will it end? 

Right now, the illicit market versus the regulated market is yet another long, drawn-out war.

Big companies become activists only when their licenses get yanked – not when it comes to sharing the market or even allowing people to grow their own plants.

Not all big companies have this search-and-destroy ethos, but enough of them do to build impossible barriers to entry in most state-regulated frameworks.

And the rest usually remain silent when the moats are being dug to keep legacy people out.

Here is the thing: There’s no keeping legacy out because they have to feed their families, too.

The legacy market coped with prohibition for decades, so this is a cakewalk for them.

Outcompeting the legal market doesn’t even cause them to break a sweat.

Competing within the unlicensed market is the challenge, as every two-bit crew from here to Russia is getting in on the action while politicians and corporate cannabis folks keep throwing bad policy against the wall, hoping it sticks.

That band can’t play a note.

A tale of two markets and one hot mess of a situation – a war of mutually assured destruction.

People are still in prison for weed. Prohibition 2.0 is on the horizon. Big players are dying in their own moats. Legacy folks are barely getting by. Politicians don’t have a clue, and the public is more confused about cannabis than ever.

The projected “green rush” really is the blues for cannabis in America right now.

Will the band ever start playing together?

Andrew DeAngelo, a global cannabis consultant and strategic adviser, has worked on voter initiatives to legalize medical and adult-use marijuana and co-founded Harborside Oakland dispensary as well as the Last Prisoner Project, a nonprofit group dedicated to releasing individuals incarcerated for MJ. He can be reached at info@andrewdeangelo.com.

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