MedMen - "The Case for a Merit Based Oligopoly"

Next year California starts down the path to become the world’s biggest legal marijuana market. By 2020, legal recreational marijuana sales in California will total $4 billion, according to Arcview Market Research. Taken together with an anticipated $2.5 billion in medical marijuana sales, the California market will be bigger than the nation’s entire legal cannabis market is right now, which is about $6 billion.

So far 33 states have decriminalized marijuana possession, 29 have legalized medical use and eight, including California, have legalized adult use.

Attorney General Jeff Sessions’ posturing aside, the question of federal legalization isn’t about if but how: two-thirds of Americans live in states with some form of legal marijuana, the majority of us believe the Prohibition should end, and political support for this is growing among Republicans and Democrats alike in Congress.

Much like the alcohol industry, the federal government is likely to set some minimum standards, but regulating the market will fall mostly upon states and municipalities. Will the best model be one of relatively unfettered competition or a highly-regulated oligopoly?

The answer will have major repercussions upon our communities. That’s because despite legalization at the state level, 88 percent of the estimated $50 billion U.S. marijuana market is still sold illicitly, according to research firm BDS Analytics. So there’s still no regulatory oversight of or tax revenue from most of the overall market. If the legal pot market doesn’t significantly shrink the black market, legalization will be judged a policy and regulatory failure.

Regulations vary widely from state to state and legal markets have yet to mature in many of them but a look at the experiences of Illinois and Colorado in legalizing cannabis suggests that the best path forward may be along the lines of what California plans to put in place.

Illinois launched its medical marijuana program last year but 99 percent of the marijuana consumed there is still bought illegally, according to BDS. Much of this buying is by recreational users not qualified under the law but there are also medical users who can’t easily access legal dispensaries. There are just 52 licensed dispensaries in the entire state.

By contrast, consider Colorado, which legalized adult use in 2012, the first state to do so. In Colorado there are more than 1,000 licensed medical and recreational marijuana dispensaries for a population less than half the size of Illinois’s. This gives Colorado the highest per capita rate of dispensaries in the nation

Yet despite easy access to legal pot, about a third of the pot sold in Colorado is still illegal, accessible from underground contacts and unlicensed vendors accountable to no one.

In both states, the incentives for illegal trade in the pot business remain high. Growing pot is relatively easy and cheap. But growing high quality pot with labor standards, free of pesticides and with consistent quality is hard. With a built-in consumer base that has remained relatively constant for decades regardless of legality, cannabis is a black market with a low barrier-to-entry for anyone hoping to make a quick buck.

The solution for shrinking the illegal pot market isn’t to license a pot dispensary on every corner nor to license very few. The answer is a well-regulated, merit-based oligopoly that incentivizes long-term stability, quality and compliance over short term profitability. This is the model that California is putting in place.

California voters legalized medical marijuana in 1996, but the state never regulated its commerce. The regulatory task fell upon municipalities, which lead to a mosaic of regulations throughout the state. But starting next year, the state will take over regulation of both medical and recreational marijuana and cities and counties will continue to have a lot of say about how and where marijuana businesses operate.

In Los Angeles, for example, the number of dispensaries will be limited to less than 150 initially. By some accounts there are currently about 1,000 marijuana dispensaries in the city though only 130 or so are operating legally. In the months to come, Los Angeles will create a formal licensing program for cannabis business and crack down on illegal operations.

This is the correct path because pot isn’t coffee. The government should closely monitor the production and distribution of marijuana. A framework of unfettered competition would create a race to the bottom as prices drop, something that is already happening in Colorado and Oregon.

A well-regulated, merit-based oligopoly, on the other hand, would limit the number of players to well-financed companies with a long-term game. These players can take advantage of economies of scale and compete against illegal operators and shrink the black market for pot for good.

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He implemented a savvy hiring strategy, filling MedMen with talent from established mainstream companies such as BlackRock, Capitol Music Group, the Los Angeles Times and Monsanto.

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“I’m great at making deals,” he told Marijuana Business Magazine. “I’m never going to pretend that this has been my special plant for 30 years. When I got into this industry, I didn’t smoke weed. So I’m not going to pretend. The one thing I’m not is inauthentic.”

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Bierman said it also helped that he had established a regulatory affairs department that tracked the city and state’s rulemaking processes, and had a pulse on when regulations were going to come forward.

“We were able to do that because politically we were so active in Los Angeles, we had a really good sense of what the future would look like,” Bierman said. “We had a seat at the table and were part of the discussion as those rules were being contemplated. Because we had that foresight we could anticipate what the value of this thing would be come 12, 24 months from the time we did the deal.”

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mexweed said:

looks like these guys are crashing and burning pretty hard, a number of lawsuits and ever closer to bankruptcy, thank god

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mexweed said:

looks like these guys are crashing and burning pretty hard, a number of lawsuits and ever closer to bankruptcy, thank god

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