The cannabis market continues to grow throughout the United States, but that doesn’t mean all states’ cannabis programs are growing equally. In fact, some states are lagging behind significantly.
This growth disparity is true in states that have legalized both medical and adult-use cannabis as well as those that have only legalized medical marijuana. The question many people have been asking is why is this happening?
One of the biggest obstacles that causes states’ cannabis programs to lag behind is state regulations, which have far-reaching effects. Let’s take a closer look at some of the ways that regulations directly affect product accessibility, which directly contributes to the success (or failure) of a state’s legal cannabis program.
Seven Key Factors that Limit State Cannabis Program Growth
Based on data from the Cannabiz Media License Database, several primary factors can be attributed to the growth, breadth, and depth of a state’s cannabis program. If a state is lagging in one of these areas, accessibility will be negatively affected and the growth potential of the program will be limited:
1. Age of Program
The longer legal cannabis (medical and/or recreational) has been available in a state, the larger the legal market in that state is likely to be. Common sense tells us a program that has been around for a short time hasn’t had time to grow and mature. For example, the programs in Minnesota and New York are newer than the programs in Washington and Colorado.
Ideally, as a state’s program matures, regulations should be set in a way that allows the program to grow. In this ideal situation, more licenses will be granted, more conditions will be qualified for medical cannabis, prices will stabilize, accessibility will improve, and the program will have a chance to be successful. When this doesn’t happen (California provides a good example), industry growth will be limited.
2. Medical Conditions Covered
In Cannabiz Media’s research, four key medical conditions were identified as needing to be covered in order for a state’s medical cannabis program to have a chance for significant growth. If a state covers all of these conditions, its medical cannabis program has a much greater chance of thriving than a program in a state that covers one, two, three, or none of these conditions.
These four conditions are chronic pain, muscle spasticity, spinal cord injuries, and post-traumatic stress disorder (PTSD). However, the most important condition that must be covered for a state’s medical cannabis program to grow is chronic pain.
High taxes can make or break a state’s legal cannabis program. This includes taxes that businesses and consumers are required to pay, such as cultivation taxes, excise taxes, sales tax, and more.
California provides one of the best examples of how taxes can significantly limit the success of a state’s legal cannabis program by reducing product accessibility. The problem in the state is so bad that in November 2019, California cannabis industry professionals sent an “SOS” to the state’s leaders urging them to make regulatory changes that would help the legal industry and hurt the illegal industry that continues to thrive in the state.
At the time, an informal coalition of more than a dozen leading cannabis companies and associations lobbied the state to make changes that would address three key obstacles: taxes, onerous regulations, and too few licensed cannabis businesses.
Fast forward to 2020, and high taxes are still a problem in California’s cannabis industry. A tiny ray of hope came this month when the state’s lawmakers approved Assembly Bill 1827 which froze tax increases on marijuana until July 2021.
4. Local Rules
Rules set by counties, cities, and even neighborhoods can affect the potential growth of a state’s cannabis program. In many states, municipalities are allowed to ban legally licensed cannabis businesses from operating within their borders.
For example, fewer than 40% of California’s municipalities have regulations in place to allow legal medical cannabis businesses to operate within their borders and far fewer allow adult-use sales. Similarly, approximately 1,400 cities in Michigan opted out of allowing marijuana businesses to operate within their borders.
When this happens, patients and consumers have to travel further to get cannabis products, which makes it far less accessible to them. As a result, consumers might choose to purchase through the black market rather than through the state’s legal cannabis market.
5. Program and License Structure
Some states have extreme restrictions related to marijuana business licenses for growing, manufacturing, and dispensing. For example, some states require vertical integration of cannabis operations so a single license holder controls the cannabis from seed to sale. Cannabiz Media refers to these as “stacked licenses” – where a single license holder must control cultivation, processing, and dispensing.
Stacked license structures make it much easier for states to monitor activity in the industry, but the structure also limits competition and market growth. This license structure has caused controversy in multiple states. For example, a Florida court ruled that the state’s requirement for vertical integration was unconstitutional in 2019.
6. Physician Registrations and Dispensary and Retailer Licenses
People need to have access to a product in order to buy it. If they can’t buy it, the market can’t grow. In some states, there are far fewer doctors registered to recommend medical cannabis then in others making it can be difficult for patients to find and visit participating doctors.
Furthermore, some states have licensed very few medical cannabis dispensaries or adult-use retailers, which means patients and consumers might have to drive hours to purchase marijuana products.
To put these numbers into perspective, think of it this way: Minnesota is 87,000 square miles, and the state originally capped the number of medical marijuana dispensary licenses to eight. That meant there was one license for every 10,000+ square miles (if the licenses were evenly spread across the state, which they were not). Fortunately, Minnesota regulators announced in December 2019 that the number of dispensaries would double to 16, but in many other states, the number (and locations) of dispensaries continues to hinder accessibility.
Bottom-line, in many states, patients and consumers need to travel far distances to access legal cannabis products. There is no doubt that this reduces sales overall, limits the success of a state’s legal programs, and bolsters the black market.
7. Supply Chain Problems
State and local rules can also create bottlenecks across the cannabis industry supply chain – from testing to sales. This can lead to a shortage in products, increased prices, and lower accessibility for medical marijuana patients and recreational marijuana customers.
For example, research from Michigan’s Marijuana Regulatory Agency found that getting cannabis products tested, as required by state laws, takes an excessively long time. There are not enough testing labs to test cannabis products before they can be placed on the market for sale. In fact, the research found it takes up to a month to complete the necessary testing.
The researchers concluded that the testing backlog directly affects cannabis pricing and is one of the reasons prices remain high in Michigan.
Not All States are Alike
While the seven factors discussed in this article directly affect the growth of cannabis industries in many states, they’re not the only factors in play, nor does each factor impact every state. This is an industry filled with state-by-state nuances, and it is absolutely safe to say that no two states are alike.
What is clear is how these barriers affect a state’s cannabis program and its growth potential. In simplest terms, they cause less competition, higher prices and reduced accessibility for consumers, and none of those are results you want in a free and open market.
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Originally published 9/9/16. Updated 9/4/20.
Susan Gunelius, Lead Analyst for Cannabiz Media and author of Marijuana Licensing Reference Guide: 2017 Edition, is also President & CEO of KeySplash Creative, Inc., a marketing communications company offering, copywriting, content marketing, email marketing, social media marketing, and strategic branding services. She spent the first half of her 25-year career directing marketing programs for AT&T and HSBC. Today, her clients include household brands like Citigroup, Cox Communications, Intuit, and more as well as small businesses around the world. She has been working with clients in the cannabis industry since 2015. Susan has written 11 marketing-related books, including the highly popular Content Marketing for Dummies, 30-Minute Social Media Marketing, Kick-ass Copywriting in 10 Easy Steps, The Ultimate Guide to Email Marketing, and she is a popular marketing and branding keynote speaker. She is also a Certified Career Coach and Founder and Editor in Chief of Women on Business, an award-winning blog for business women. Susan holds a B.S. in marketing and an M.B.A in management and strategy.