In the middle of a cannabis-filled room is an 800-pound gorilla, confusing the plans of countless stakeholders to revolutionize the industry, make significant advances in health and wellbeing, and generally improve the versatility of this clever little plant, the surface of which we have I just started scratching. What kind of big, hairy animal is that? It is the unspoken but serious need to limit the number of licenses distributed at the state level.
This is not a new topic, but the need to address it becomes more pressing as the likelihood of national cannabis legalization becomes more real. Before that happens, every single state that legalizes cannabis must limit the number of licenses it grants. The legal cannabis industry has to answer the question: when is enough, enough?
Michigan legalized recreational cannabis in 2018. It is estimated that the state adult use market will generate $ 3 billion in retail sales when fully mature and create approximately 24,000 jobs annually. By comparison, Colorado’s 2012 voter-approved adult-use industry generated approximately $ 2 billion in retail sales and creates approximately 40,000 jobs annually, according to the Colorado Department of the Treasury.
State-licensed companies in Michigan’s medical and recreational markets can grow up to 511,500 plants. The number explains that a rapidly growing number of growth licenses are being approved in both markets. That equates to roughly 400,000 pounds of usable cannabis. Supply will far exceed demand if states don’t determine the numbers exactly how many licenses they need to meet existing or anticipated consumer needs. Officials could prepare cannabis companies for a crash before they ever harvest a single plant.
States can prevent an impending disaster by taking four steps.
1. Limit cannabis licenses
There is enough reliable data to suggest that states can destroy their entire industry by not limiting the number of licenses at the cultivation and retail level. Look at Oregon and Colorado. The two states are considered pioneers, and both can teach us about the dangers of oversaturation. Market saturation in Oregon and Colorado has already driven prices below a cultivator’s competitiveness. This has a negative impact on the cannabis industry as many young companies in pioneering states look for a blueprint of what to do – without always realizing what not to do. Oregon was having well-documented difficulties managing its growing industry. In 2019, the state’s growers produced 1 million pounds of excess plant material, which caused prices to drop to the lowest in the country and several growers to go out of business. Newly legalized states like Michigan need to be careful in their approach to cannabis supplies.
2. Prevent consolidation
Competition is good for all businesses, but too much competition can be harmful. Without borders, no one should be surprised if cannabis companies become unprofitable, which could lead to mass consolidation in the years to come. Michigan’s influx of cannabis suppliers, if continued at the current pace, could lead to the same oversaturation that Oregon has experienced. No doubt bigger guys will come out and take out the little guys. Yes, the process may technically be capitalism, but does it really create a competitive market? More correctly said, the situation is called commodification. If we allow this, many enterprising young cannabis companies will fall or be gutted before they have a chance to take advantage of their efforts or contribute significantly to the emerging market.
3. Regulate prior to the legalization of the federal government
The licensing problem is a symptom of a much bigger problem. It’s impossible not to limit licenses while trying to regulate growth. Take Oregon again: to say the state is oversupplied is an understatement. Authorities estimate that adult cannabis room demand is only 50 percent of supply from legal producers. Legalization without the right regulations can only allow black market operators to thrive and at the same time weigh on the burgeoning legal market. We could end up with the largest, unpoliced black market industry in the world, which will seriously hamper the growth of the legal leisure industry.
A laissez-faire approach to regulation will lead to an explosion of unregulated cannabis over-saturating the market. Now is the time for policy makers to listen to industry leaders and regulate appropriately before federalization opens the floodgates.
4. Reduce the greatest threat
The negative stigma surrounding cannabis is no longer the greatest threat to operators. That honor now belongs to the black market. The expected shift in consumers from illegal to legal markets is not happening as quickly as many had predicted. State regulators need to think longer. Create regulations and standards that enable safer production and distribution as well as easier overall acceptance of compliance requirements. Regulators have an important role beyond providing legal access to cannabis: they must remain consistent in enforcing industry compliance. This will help new and existing consumers understand the benefits of legal products, further improve education in the marketplace, and enable safer, controlled, and market-oriented expansion.
The first adult cannabis stores opened in Michigan in December 2019. One of the goals of the state was to remove cannabis from the black market. But illicit sales haven’t stopped, and licensed stores are struggling to get enough cannabis to meet demand. Restricting licenses could alleviate this situation.
Limits can lead to endless possibilities. Without them, the industry faces major, interrelated challenges. Simply creating license restrictions will solve one of the problems mentioned above, and the others will of course improve as well.
Joe Ori has been a litigator for more than twenty years and was named Illinois Super Lawyer for seven consecutive years. He founded what is now Angelini, Ori + Abate Law, immediately after studying law and has represented clients with catastrophic personal injury and death. In 2019, Ori transformed his passion and advocacy for cannabis into a Michigan-based company Six laboratories.