california’s launch of its adult-use cannabis market in 2018 was especially unique in that it already had one of the most robust and multi-decade long pre-existing medical markets, with tens of thousands of quasi-legal growers, extractors, manufacturers, and retailers widely distributed and operating throughout the state.
when california voted to legalize adult-use in november 2016 with the passage of prop 64, state licensing became dependent on local municipal approval, requiring cities and counties to put ordinances in place if they were to allow commercial cannabis businesses.
though 54% of californians and over two-thirds of the counties voted in favor of prop 64, due to lack of local resource and knowledge, and residual stigma against the plant, over two-thirds of the counties effectively banned cannabis by either refusing or delaying implementation of commercial cannabis ordinances. the resulting regulatory patchwork created cannabis “deserts”, with patients in need resorting to driving hundreds of miles to secure legal and tested cannabis products.
that, in addition to the cumbersome new requirements implemented with the launch of adult – use sales in january of 2018 (e.g.: testing, child-proof packaging, requirement to wholesale product through a state licensed distributor, etc.), permitting fees, taxes (both state and local, and compounding, ultimately the highest of all adult-use markets), and delays in licensing by local municipalities, collectively resulted in multiple waves of “extinction” of legacy operators, the folks that fought for and risked their lives and freedom to bring widespread education and access to this life-changing plant.
and as the resulting price-hikes at retail outlets drove many existing medical consumers into the illicit market (where price per gram is roughly half that of the legal, licensed market), the state collected less than half of the tax revenue it projected for in 2018 and the illicit market jumped 6 points from making up 74% of all consumer spending in 2017 to 80% in 2018.
unsurprisingly, these waves of extinction, regulatory burdens, limited consumer access, and price increases at retail, in addition to the accelerated global reform, destigmatization, and investment capital making its way into the industry, have all-together expedited consolidation and acquisition by large-scale, well capitalized operators (which some are already calling “big cannabis”), and whether or not california chooses to take some radical corrective measures will be the determining factor behind just how many of these legacy operators survive.
while the extinction (which is still ongoing) of the legacy operator was expected and unfortunate, it was to some degree the necessary “sacrifice” required in the name of progress.
without the support of big pharma, alcohol, tobacco, cpg, etc. – who went from heavily lobbying against state and federal cannabis reform to supporting, investing in, and in some instances lobbying for cannabis – the end of cannabis prohibition and ultimately wide-spread, accessible, and affordable cannabis would not be a reality. with some of these major players making some recent major moves (beverage giant
constellation brands’ $4b investment in canadian publicly traded canopy growth and marlboro’s altria investing $1.8b in cronos), and big pharma very patiently waiting on the sidelines, plus global pressure of international cannabis markets coming online, we can expect some form of federal reform, and soon. and while we’ll see price spikes at retail outlets in the near-future as regulatory changes continue to take place on a state-by-state and federal level, we can expect prices to come down over time as more markets come on line, regulations loosen, and more investment capital and operational experience drive scale.
most importantly, however, as cannabis is classified as a schedule 1 drug in the united states (in the same category as heroin and ecstasy), which by definition have “no currently accepted medical uses”, researchers, universities, and pharmaceutical companies are severely limited, if not entirely hand-cuffed, in their ability to research this plant and its many medicinal benefits. in turn, they are limited in their ability to develop cannabis-derived pharmaceutical products that are reliable, efficacious, ultimately prescribed by doctors, and covered by insurance. as a result, the majority of current ongoing cannabis-derived pharmaceutical development is taking place outside the us, with israel being a dominant player (and one of the first) in cannabis r&d.
in fact, many us companies are already eyeing israel as a hub for cannabis formulations and genetics, as even with us federal rescheduling on the horizon, israel is lightyears ahead in its r&d, from agri-tech to med-tech. nonetheless, without the global power, influence, and capital of us clinical trials & research, we’re still years away from having widely developed, affordable, and accessible cannabis-derived pharmaceuticals.
while the importance of bringing cannabis-derived pharmaceuticals to market can not be understated, patients have effectively been medicating themselves with full-spectrum plant and extract for millennia – in fact, some research shows that full-spectrum cannabis medicine tends to be more effective than formulated cannabis-derived pharmaceuticals, primarily made up of isolated components.
due to the nature of the plant, challenges in patenting the plant and its genetics will always leave room for the whole-plant producers, for which there will be a holistic/wellness & recreational consumer market (obviously dependent on local regulations).
this resulting bifurcation of the “pharmaceutical” and “commercial” channels will not only open a supply of safe, tested, and reliable cannabis medicine, but also the access to this medicine via multiple channels (prescription, over-the-counter, licensed dispensaries, etc.), allowing the consumer choice in how they choose to access and interact with this plant. while much work is still to be done, consumer choice, in my opinion, is the ultimate win.
the article was published in the first cannabis edition