cannabis vertical integration licenses

Vertical Integration: Why Should You Care?

Vertical integration is when one company owns two or more stages of production normally operated by separate companies

How Cannabis Supply Chains Vary by State

Let’s discuss vertical integration. It may sound boring but it’s helpful to understand as a voter, patient, and consumer.What Is Vertical Integration

What Is Vertical Integration?

Vertical integration is when one company owns two or more stages of production normally operated by separate companies. In the case of cannabis legalization, it means one company grows, processes, and sells cannabis.

State Regulations Determine Vertical Integration

States with regulated cannabis markets can require, prohibit, or allow vertical integration. 

  • Colorado REQUIRES medical growers to also sell cannabis
  • Washington PROHIBITS growers from processing or selling cannabis
  • Michigan ALLOWS medical growers to also process and sell cannabis

The Good: Vertical Integration

  • Limits number of businesses the government needs to oversee; reducing government resources and spend required to monitor the industry
  • Reduces price at point of sale as a result of supply chain efficiencies and reduced mark ups as cannabis moves business-to-business through the supply chain before being sold to the end patient or consumer
  • Growers have greater access to and knowledge of the end patient or consumer enabling the grower to be responsive to patient and consumer preferences

The Bad: Vertical Integration

  • Significant capital and facility square footage required to own two or more stages of production; catering more to people with deeper pockets therefore limiting the diversity of business owners and business sizes in the market
  • Growers are farmers, processors are chefs or scientist, and dispensaries are retailers often times people do not have all skills so depth is sacrificed for breadth impacting product quality and limiting job opportunities
  • Growers and processors have to work with dispensaries to better understand patient and consumer preferences

Vertical Integration & Big Cannabis Lobbying

Vertical integration is a lesser discussed aspect of cannabis legalization but it’s important to understand as it impacts opportunities to enter the market as a licensee, general employment opportunities, and cannabis product variety and quality. In my observation, it’s also an indicator of how closely big cannabis is working with state legislators to define cannabis regulations as vertical integration benefits big business.

Florida’s Vertical Integration Woes

Florida is a great case study in how vertical integration impacts the cannabis market “As of July 5, six vertically integrated MMJ businesses operated 120 of the state’s 142 dispensaries.”

TL;DR Vertical integration is good indicator of how closely involved big cannabis business is with the state rule-making process

Share this post

Share on facebook
Share on twitter
Share on linkedin
Share on pinterest
Share on print
Share on email

Leave a Comment