VIDEO: Will Marijuana Monopolies Stifle The Industry?
Welcome to my latest Weed Report. The article below is a condensed transcript; my video contains additional details and several charts.
In a surprising development, some marijuana advocates are emerging as opponents of certain federal and state legalization initiatives. Their fear is that legal language skewed in favor of corporate giants could spawn monopolies that stifle competition.
According to research firm BDSA, global legal cannabis spending grew 4.8% to $32 billion in 2022 and remains on track to reach $59.6 billion by 2027.
As it stands now, 37 states have made it legal to use cannabis for medical reasons, and 19 states (plus the District of Columbia) have made it legal to use marijuana on a recreational basis.
Marijuana remains illegal at the federal level. Several bills to lift the federal ban are stuck in a bitterly divided Congress.
You’d think that pro-marijuana forces would want all federal and state bans lifted, right? Not necessarily. It seems counterintuitive, but lobbyists for many smaller cannabis companies are working against certain forms of federal and state legalization. They fear that the wrong kind of legalization would spawn huge companies that gobbled up market share and pushed smaller, innovative pot entrepreneurs out of business.
A stranglehold on weed…
There’s a Latin phrase I like to use, when it comes to the nexus of capitalism and politics: “Cui bono?” It means: “Who benefits?”
If we see the creation of a coast-to-coast, standardized, federally regulated marijuana marketplace…cui bono? Unless protections for smaller businesses are included, the beneficiaries wouldn’t be your friendly neighborhood pot dispensary. The lion’s share of the spoils probably would go to mega-cap players.
For example, tightly regulating marijuana as medicine might grease the skids for Big Pharma to swoop in and dominate the market. On the recreational side, e-commerce giant Amazon (NSDQ: AMZN) could become the 800-pound gorilla, as it has in so many other industries. In both scenarios, the result could be higher prices and fewer choices.
Federal legalization has long been the cannabis industry’s goal, and it’s still a worthy cause. Lifting the federal ban would prove a massive profit catalyst. But there’s also a downside to consider. We could lose a lot of state-level diversity and innovation.
So, as incredible as it seems, some pro-marijuana activists have actually begun efforts to stop legalization efforts, even at the state level, if they don’t like the language of the proposed laws.
Case in point: Heading into the November 2022 midterms, cannabis advocates fought Arkansas’s legalization measure, Ballot Issue 4, which was sponsored and largely funded by the medical cannabis industry.
Issue 4 would have amended the Arkansas Constitution to allow possession, personal use, and consumption of recreational cannabis by adults, but would allow only licensed commercial facilities to cultivate and sell it. Arkansas already allows medical use of weed.
Opponents claimed that Issue 4 would have allowed existing medical cannabis providers to monopolize the recreational market and limit new competitors. Indeed, Issue 4 was written by the owners of existing medical marijuana cultivation facilities and it would have implemented many regulatory barriers to entry. The initiative was defeated.
Limits on marijuana business licenses, like those proposed by the defeated initiative in Arkansas, are increasingly prevalent. These caps limit entry to the few operators with enough money and political clout to snag expensive permits.
Well-heeled multistate operators (MSOs) are using the lingering stigma around marijuana to justify caps on permits. But the real aim is to curtail competition and create a monopolistic environment.
Consider Virginia. Only four cannabis companies are licensed to serve the state; all four are owned by out-of-state conglomerates.
Funding from Big Tobacco and alcohol companies is raising concerns among marijuana industry watchdogs that these players will push for consolidation in the hands of a few big companies, at the expense of the industry’s vibrancy.
The upshot: Legalization must continue, but with the overall aim of creating an equitable, competitive market without onerous barriers to entry. “Social equity,” to address the wrongs against minority groups committed by the War on Drugs, needs to be a factor too. I’ll be keeping an eye on these trends for marijuana investors.
WATCH THIS VIDEO: The Weed Report: Where Cannabis Meets Capitalism
Regardless of these legitimate concerns, it’s undeniable that new legal markets equal new profits, and higher share prices, for marijuana companies. Indeed, we could be facing a “break out” year for marijuana and the ancillary industry of psychedelics. That’s why I’ve launched an investment service called Marijuana Profit Alert.
My publication provides specific, actionable advice on the best investments in the psychotropic revolution. In my portfolio of holdings, I strive to strike the right balance between risk and reward. Click here to learn more.
John Persinos is the editorial director of Investing Daily.
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