Fall Research Expo 2020

The Cannabis Industry: Vertical Integration Laws

Vertical integration for dispensaries means that dispensaries are able to cultivate the products that they sell. Some states, like Colorado, have had it be a requirement for dispensaries to have some sort of vertical integration for reasons such as product quality. Many states require separate licenses for dispensaries to be able to produce their own product. Most commonly, the licenses offered are for selling, cultivating, and processing marijuana. Some states also require additional licenses, such as transportation licenses. On the other hand some states where only medical cannabis is legal, dispensaries are not-for-profit and are encouraged to cultivate their own products. Other states have all-encompassing licenses where there is mandated physical boundaries between grow spots and sales areas.

This project goes over the different laws by each state. The infographics depict which states follow certain laws and how vertical integration can bypass the processing and transportation steps before products are sold. The poster also shows both sides of the Vertical Integration debate.

PRESENTED BY
PURM - Penn Undergraduate Research Mentoring Program
Wharton 2023
Advised By
Jose Miguel Abito
Join Bailey for a virtual discussion
PRESENTED BY
PURM - Penn Undergraduate Research Mentoring Program
Wharton 2023
Advised By
Jose Miguel Abito

Comments

This topic is super interesting. Studying cannabis is extra complicated because of all the legal/regulatory barriers! I'm curious about the cannabis industry in general. Is it a highly fragmented market with lots of small players or are there a few players that dominate the industry? 

Cassie, great question! This varies a lot state by state. A lot of states new to legalized cannabis (often only where its medical) will have a limit on how many retail licenses are issued by their cannabis board. One trend I noticed, that I think would be a great expansion on this research, is that states without vertical integration tended to have a lot more entities (retailers, growers, processors etc.) that were part of the cannabis business. The most closely examined state we looked at was Washington, which had thousands of such entities (usually with pretty funny names).

Really interesting work! I was wondering if, in your research on the arguments against VI, there were specific mentions or concerns over large scale monopolization of the industry beyond entrepreneurs shutting out smaller, mom and pop stores? Could just be because of how new the industry is, but I could maybe see something of that scale happen down the line as the industry grows and matures.

Yes! This is a common concern with many other factors tied into it (race, socioeconomic status etc.). Most of the cases I looked at were in Washington State since they had the most available sales data, but in my own exploratory research I remember reading about how in (I think) Ohio there was rich people who were taking their money from already thriving non-cannabis related businesses and moving to Ohio (from out of state) to buy cheap land for cultivation and storefronts for retailing, before license applications were even out. It's often the case that in VI states the first ones operating are also the largest and could become monopolies. After this case states started implementing a required residency rule of as little as 6 months to something like 6 years. For most states, there's also a certain amount of licenses that are registered at a time to make the application competitive and thus the market (which is why some mom and pop shops get pushed out in VI states).

Do you think large companies producing the vast majority of cannabis is a problem? Monopolization is dangerous yes, but could smaller companies operate like the alcohol industry and become sellers or produce niche strains? In other words, is protection for mom and pop shops in the states against VI worth it? 

Such an interesting topic, and I also liked your poster design!  I'm curious about the relationship between political climate and policies on this topic in each state. Is favoring vertical integration for dispensaries considered more "liberal" or "conservative", and if so, how does that inform policy for the cannabis industry?