Um document released by The Daily Beast, with information on the lobbying activities of the cannabis industry in the United States of America (USA), namely the attempt to restrict the number of market participants and delay legalization between states, is once again drawing attention to the oligopoly practices that can arise in the establishment of legal cannabis industries for recreational purposes. The emerging cannabis industry in the US, with sky-high revenue projections, promises of social justice and rules set from scratch, is the next big thing, compared to Sillicon Valey.
The US Senate seriously debates federal legalization for the first time. Analysts project increases in legal cannabis sales from $17,5 billion last year to $70 billion in 2028 — exponential growth mostly fueled by early adult sales in East Coast states like New York and the potential of a legal national market.
On the other hand, cannabis businesses in popular West Coast states like California and Oregon are struggling. Among the various problems, there is particular concern about the pressure posed by high taxes, low margins and oversupply, as companies large and small compete to enter the competition.
To avoid this uncertainty and ensure high profits, the largest cannabis companies in the United States of America, some of them publicly traded and valued in the billions of dollars, are promoting and supporting regulations that would make the government to hand them over to what critics say is a “quasi-oligopoly”, according to the author of a leak from a internal document delivered to The Daily Beast. "They don't want to compete," said the industry insider and author of the leak of a "privileged and confidential" document. The document is a presentation dated June 17 entitled “Intentional Federal Regulation” given to the policy committee of the United States Cannabis Council (United States Cannabis Council, USCC), a Washington-based lobbying group representing some of the country's largest cannabis companies. The source spoke on condition of anonymity, for fear of being removed from the organization and suffering further professional reprisals.
USCC refutes allegations
The charges were categorically refuted by the leadership of the USCC - a Washington-based lobbying organization that spent $337,5 this year lobbying the Senate, according to recent documents, and whose members include major cannabis companies such as Curaleaf, PharmaCann or Cresco Labs.
The USCC claimed that the submission was just a third-party argument that the organization was not keen to accept and that in fact legalizing cannabis across the country, without careful rules, could produce a tobacco-industry-style cannabis oligopoly, and that today's companies are a bulwark against it.
In a statement, Steven Hawkins, the organization's CEO - who is also executive director of the Marijuana Policy Project - said the presentation, according to the author's page, was prepared by MPG Consulting and an attorney at Perkins Coie, a listed law firm. on the USCC website as a member, and that does not represent the group's priorities. “The presentation does not speak for the USCC and its source misinterprets or is misrepresenting our views,” Hawkins said.
Unlike on the West Coast, cannabis legalization in the Midwest and East, passed by state legislatures rather than voter initiatives, is often accompanied by strict government limits on how many companies will receive licenses to grow and sell the products. Limited licensing allowed few companies enough to earn licenses to become stakeholders countries valued at several billion dollars in just a few years.
This is the system that created the cannabis industry and it is this system that the USCC wants to enshrine, according to the source. "They want ten licenses in each state just for them," the source told The Daily Beast. The USCC CEO denied this, insisting his group has no position on license limits. "We don't have a position on limited licensing," he told The Daily Beast. “We would not oppose or support efforts to lift or expand licensing limits. Our primary concern is a successful national transition to legal and regulated cannabis,” he added. “Maintaining existing programs through the transition will help prevent significant market disruptions, protecting consumer safety, tax revenues and social equity programs, while helping to prevent windfalls to the illicit market.”
In a separate statement, a spokesperson for Perkins Coie, which represented PharmaCann, another USCC member, in a recent merger, denied that the law firm was involved, despite its logo appearing on the first slide of the presentation. The spokesperson did not explain the discrepancy. Sal Barnes, managing director of MPG Consulting and lead author of the presentation, also denied that his group advocated anything resembling an oligopoly of the cannabis industry. “This presentation does not advocate a limited license system in any way, nor its delivery or context,” he said. “My assumption is that your source is based in a high-producing state, like California or Oregon, and you have a personal interest in exporting cannabis nationally as quickly as possible.”
External critics identify interest plan
However, according to outside critics who have seen the document and who have placed it in the context of other USCC public policies and associated companies' actions and lobbying efforts, it is really a blueprint for how entrenched interests can dominate the sector. And even though the people behind the proposal say it was just a rejected plan, those same critics argue that it's more likely a strategy that's already at work and that an oligopoly of the cannabis industry is the real objective.
“They are trying to gain government influence to subject people to the influence of corporate cannabis. It's a political game," said David C. Holland, a New York City cannabis commercial attorney active in the industry, who LOBBY for legalization in that state and who reviewed a copy of the document. “It's a strategy of exclusion through legislation rather than inclusion through competition,” he added. “This is not how American business is supposed to be.”
To control a market and maximize profits, including potential resale value when potential customers can include companies like Amazon and the tobacco industry, the best way to make big money from cannabis is to ensure that virtually no one else can play the game. And that's exactly what the big cannabis industry wants, including LOBBY like the USCC and companies that organization represents, critics say.
What's in the secret document
Additionally, they argue, several elements of the released presentation – including the potential to delay inter-state trade, the critique of the hemp industry as a model to be avoided, and the enshrinement of existing state markets – were part of the USCC public comments on the Cannabis Administration and Opportunity Act (CAO). That's the federal legalization bill submitted Senate Majority Leader Chuck Schumer and Senators Cory Booker (D-NJ) and Ron Wyden (D-OR) over the summer.
“I'm not sure I believe in coincidences five times over,” said Bradford Sodowick, an assistant professor of finance at Drexel University who teaches the cannabis business, and who also reviewed the presentation. In Sodowick's analysis, the document's source description is consistent with what the big cannabis industry appears to be working on, he said. “This is history that repeats itself. Everyone wants to be a monopoly, or oligopoly in this case,” he added. “They basically want to be in control, and over time, the controls are reduced and small productions don't have the ability to keep up. You don’t have to teach finance at Drexel like I do to know what’s going on here,” he concluded.
Specifically, the released document highlights “Stable State Markets” as the “core” of cannabis' legal “success” to date. It alludes to an unspecified time delay until interstate cannabis markets can be opened and for existing state markets to be preserved and stabilized within that time frame. Hawkins, CEO of the USCC, denied to The Daily Beast that the group was "looking for a delay or a specific timeline" for interstate trade.
On another slide of the presentation, there is a graph that observes the consolidation in several other sectors and that signals where the big cannabis industry wants to go, according to the source. At the top are sectors such as mobile communications and alcohol, where just a few companies control almost the entire market. “The transition from the growth phases to the consolidation phases of the industry's life cycle is where wealth creation takes place,” reads the chart's caption. "The cannabis industry hasn't reached that point yet." However, consolidation is absolutely the aim of the industry, the source argued to The Daily Beast. Others' views were similar: "I see an oligopoly at work," said Shad Ewart, a professor of business at Anne Arundel Community College in Maryland, where he teaches cannabis entrepreneurship, who also reviewed a copy of the presentation as well as the comments from the USCC CAO, and noted “overlap and similarity”. “They represent clients/members who hold these licenses and therefore it is their duty… to represent the best interests of their members,” he added. “I just think they would never consider a world without licenses and limits, and so everything is written with that in mind and from that perspective.”
“Their objective is to maintain the number of licensees (whether for cultivation, processing or marketing) because their members directly benefit,” he continued, noting that the value of rare licenses becomes inflated, due to artificial scarcity and “each holder license holders get a bigger slice of a growing pie of customers.”
USCC CEO Refutes Accusations, But Experts Contradict Him
Hawkins, CEO of the USCC vigorously contested the assumption that the presentation was consistent with his group's broader agenda. “These are not our slides or our views,” he told The Daily Beast, later adding: “Our board has considered a wide range of views and created an original set of comments that represent our position.”
But experts such as Sodowick and Ewart, who participated in reviewing the material, saw the material's alignment with the USCC's subsequent presentation and commentary, as well as its public positions. And some of the member companies' own public statements also appear to contradict the USCC itself. In fact, two companies tell their investors that they are valuable properties, specifically because there are fewer competitors in the market.
In an annual "Management Discussion and Review" report submitted to regulators in Canada, where cannabis is federally legal and where stock exchanges allow companies that deal directly with the cannabis plant to publicly list, Curaleaf notes that “maintains a basically limited operational footprint – in licensed states, with high natural barriers to entry and limited market participants.”
“Most markets in which our licensees operate have formal regulations that limit the number of cannabis licenses that will be granted, helping to ensure that the company's market share is protected in those limited market states under the current regulatory framework.” added to Curaleaf.
In an investor prospectus filed with the US Securities and Exchange Commission, Cresco Labs highlights its holdings in “eight highly regulated and/or limited licenses and therefore limited legal supply markets”. “These markets, where supply and demand can reasonably be predicted, create the foundation on which Cresco has created the opportunity for sustainable growth,” the document adds. Neither Cresco Labs nor Curaleaf responded to a request for comment on this matter.
In an email, Jeremy Unruh, senior vice president for public and regulatory affairs at PharmaCann, a USCC member who holds one of ten licenses to grow medical cannabis in New York state, said he was not familiar with the USCC presentation. Unruh also rejected the idea that the company wants a limited market, noting its support for the New York legalization bill. At the same time, Unruh noted that PharmaCann has been "vocal in its support of the policy that helps keep states relevant in the conversations about federal legalization." “Federal legalization must give respect to the 37 (or 39?) independent state markets that were created in the last two decades,” he said.
Contradictory public statements
Meanwhile, even as Hawkins is adamant that the USCC has no position on the maximum number of licenses, in its public comments to the US Senate on the Cannabis Administration and Opportunity Act, the group specifically asked Congress to "preserve and protect stable state markets”. It also called on lawmakers to "harmonize state regulatory programs across the country as feasible."
“These American cannabis companies have invested hundreds of millions of dollars in intellectual property, brick-and-mortar growing spaces that required significant investments in hydroponics, lighting and infrastructure, not to mention the expensive state and local licenses to grow, produce and distribute cannabis indoors. every state that has a medical or adult cannabis program,” the USCC wrote. The group also advocated a "transition period" of unspecified duration before inter-state trade can begin "to allow [state] markets to develop."
In later comments to The Daily Beast, Hawkins emphasized that the USCC considers "all current adult-use markets to be stable and worthy of protection". “Protecting existing state markets means ensuring they are not wiped out at the stroke of a pen,” she added. “States with existing programs will need to modify them to conform to national standards, but they shouldn’t have to start from scratch.”
“These corporate actors are trying to deny the basic principles of a market economy,” said Justin Strekal, the political director of the national chapter of the National Organization for the Reform of Cannabis Laws (NORML), who is often at odds with the USCC “They are concentrating the full weight of their resources to prevent others from entering the market. That is inherently un-American.”
