The cannabis industry is going through the most difficult period we have seen since states began to legalize more than a decade ago. Due to a litany of issues, including a lack of access to capital and traditional banking, and an unfavorable regulatory environment, businesses in many state markets are struggling. Yet the industry is still expected to continue growing at a robust rate, and multi-state operators are a big reason why.
It is important for independent operators to know that they cannot sit back and assume that either the acquisition-minded MSOs or the state regulators have their best interests in mind when it comes to policy reform. Most MSOs gain market share by purchasing licensed businesses in the states where they want to operate. The momentum that MSOs are currently experiencing is likely to persist as smaller companies look to sell or partner in an effort to appease investors or get a measure of financial return in the current distressed market.
But that doesn’t mean now’s the time to take a low-ball offer and throw in the towel — it’s time to figure out how a Main Street cannabis industry can best coexist with Wall Street MSOs.
Maintaining Diversity and Free Markets
A major concern surrounding the proliferation of MSOs is that the diversity and ingenuity that makes the cannabis industry so special will fade away as the large companies consolidate and dominate. In a federally legal landscape, in order to maintain diversity and keep markets truly free, Main Street Cannabis must push for policy reforms that will keep smaller, independent businesses viable and profitable. A diversity of operators, size of businesses and product offerings must be preserved and perpetuated so consumers can have the options they deserve.
There are several policy initiatives that need to be addressed. First and foremost is taxation. Federal taxes must be structured fairly, so they protect the small businesses that cannot absorb higher tax rates like larger businesses. There are proposals that have been broached in Congress that list tax rates as high as 25%. At a rate that high — on top of state and local taxes — small businesses would be crushed with no hope of survival. That is why it is imperative to educate members of Congress on the need to keep taxes within reason. This will provide a more level playing field where Wall Street Cannabis and Main Street Cannabis can both replace underground markets and thrive. Overtaxation in markets like California are in-your-face examples of why additional taxation from the federal government would be so inhibitive.
Any limitation of business licenses also goes against the interests of Main Street Cannabis and consumers. MSOs have a vested interest in limiting licenses to keep competition down, and strict license caps hurt smaller companies that are trying to get into the industry, including potential minority- and women-owned businesses. New York is a prime example of where limits are in place and barriers to entry are proving too onerous. If that translates to the federal level once legalization inevitably arrives, it will be disastrous for the mom-and-pops of the cannabis world. In a similar manner to how Section 280E of the Internal Revenue Code makes it exceedingly difficult to conduct business, everyone suffers — but Main Street Cannabis suffers far more than cannabis conglomerates.
The future of federal legalization is being crafted now. Sadly, the majority of the lobbying currently underway is being done by a small handful of the largest MSOs. That is not representative of the industry, or how the industry should look and operate once cannabis is legal federally.
Creating a Balanced Cannabis Industry
It is possible to achieve a balance where MSOs and Main Street Cannabis coexist, but time is running out to make sure the voices of smaller, independent cannabis operators are heard as federal policy develops.
“Independent operator” shouldn’t mean “alone” or “solo.” It’s important to recognize the line between competition and collaboration, and to understand how working together now sets the course for a fairer future. Be it joining a trade organization or attending rulemaking hearings and other state policy development, it’s important to be aware and involved in the policymaking that will affect your business.
The fight is not against MSOs or big cannabis, the fight is against the looming potential that the industry will be monopolized at the expense of product variety, diversity of ownerships and staff, and a free market that is truly free.
Achieving national legalization is not easy — it is a monumental task — but it is the only way our industry will reach its full potential. And everyone in the industry needs to play a role, especially independent cannabis operators.