As an emerging industry with sky-high revenue projections, lofty social-justice promises, and ground rules currently being written from scratch, no business in America prompts ready comparisons to Silicon Valley like legal cannabis.
But though analysts project legal weed sales to balloon from $17.5 billion last year to $70 billion by 2028—exponential growth fueled by the beginning of adult-use sales in East Coast states like New York and the potential of a legal national market, as the U.S. Senate for the first time seriously debates federal legalization—cannabis businesses in legacy West Coast states like California and Oregon are struggling. Among other problems, they’re being squeezed by high taxes, low margins, and oversupply as companies large and small rush to enter the fray.
To avoid this uncertainty and to guarantee high profits, the country’s biggest cannabis companies—some of them publicly traded with valuations in the billions of dollars—are angling for regulations that would see government hand them what critics say is a near-oligopoly, according to source who leaked an internal document to The Daily Beast.
“They don’t want to compete,” claimed an industry insider who provided the “privileged and confidential” document—a presentation dated June 17 titled “Intentional Federal Regulation,” given to the policy committee of the United States Cannabis Council, a Washington lobbying group representing some of the country’s biggest cannabis companies—to The Daily Beast.
The source spoke under the condition of anonymity, for fear of being removed from the organization and suffering other professional repercussions.
Leadership from the USCC—a Washington, D.C.-based lobbying organization that’s spent $337,500 so far this year lobbying the Senate, according to recent filings, and whose members include major cannabis companies such as Curaleaf, PharmaCann, and Cresco Labs—rejected the characterization of its policies as false.
Most significantly, they said, the presentation—which actually suggests nationwide marijuana legalization without careful rules could produce a Big Tobacco-style oligopoly in cannabis, and that current companies are a bulwark against that—was merely a third-party pitch the organization didn’t accept.
In a statement, Steven Hawkins, the organization’s CEO—who is also executive director of the Marijuana Policy Project—claimed that the presentation, which according to its author page was prepared by MPG Consulting and an attorney from Perkins Coie, a law firm listed on the USCC website as a member, does not represent the group’s priorities.
“The presentation does not speak for USCC, and your source either misunderstands, or is misrepresenting, our views,” Hawkins said.
Unlike on the West Coast, marijuana legalization in the Midwest and East, passed by state legislatures rather than by voter initiative, has often come packaged with strict government limits on how many businesses will be issued licenses to grow and sell the products. Limited licensing has allowed the few companies lucky enough to win licenses to become national players valued at multiple billions of dollars in just a few years.
That’s the system that created Big Weed, and it’s this system that the USCC wants to enshrine, according to the source. “They want ten licenses in each state for just them,” they told The Daily Beast.
Hawkins denied this, insisting his group has no position on license caps.
“We do not have a position on limited licensing,” he told The Daily Beast. “We would not oppose or support efforts to lift or expand licensing caps.”
“Our top concern is a successful national transition to legal, regulated cannabis,” he added later. “Maintaining existing programs during the transition will help prevent significant disruptions in the marketplace, safeguarding consumer safety, tax revenues, and social equity programs while helping prevent a windfall for the illicit market.”
In a separate statement, a spokesman for Perkins Coie, which represented PharmaCann, another USCC member, in a recent merger, denied that the law firm was involved at all, despite its logo appearing on the presentation’s first slide. The spokesman did not explain the discrepancy.
Sal Barnes, the managing director of MPG Consulting, the presentation’s lead author, also denied that his group advocated for anything resembling a Big Weed oligopoly.
“This presentation does not advocate for a limited-license system in any way, neither in its delivery or context,” he said. “My assumption is that your source is based in a large production state, such as California or Oregon, and has personal vested interest in exporting cannabis nationally as soon as possible.”
But according to outside critics who viewed the policy presentation—and who put it into the context of other publicly-available USCC and member companies’ policy positions and lobbying efforts—the document is really a blueprint for how entrenched interests could dominate the industry.
And even if the people behind the proposal say it was just that—a rejected plan—those same critics argue it’s more like a strategy that’s already in action, and that a Big Weed oligopoly is the industry’s real goal.
“They’re trying to borrow influence from government to put people under the influence of corporate cannabis. It’s a political game,” said David C. Holland, a New York City cannabis business attorney active in the industry who lobbied for legalization in that state and who reviewed a copy of the document.
“It’s a strategy of preclusion through legislation rather than inclusion through competition,” he added. “This is not what American business is supposed to be about.”
In order to command a market and maximize profits, including a company’s potential resale value when bidders might include Amazon and Big Tobacco, the best way to make lots of money in weed is to ensure virtually nobody else can enter the game. And that’s exactly what Big Weed wants, including lobbying firms like USCC and companies that organization represents, these critics say.
What’s more, they argue, multiple elements from the leaked presentation—including potentially delaying interstate commerce; a critique of the hemp industry as a model to avoid; and enshrining existing state markets—made it into the USCC’s public comments on the Cannabis Administration and Opportunity Act (CAO). That’s the federal legalization bill introduced by Senate Majority Leader Chuck Schumer and Sens. Cory Booker (D-NJ) and Ron Wyden (D-OR) over the summer.
“I’m not sure if I believe in coincidence five times,” said Bradford Sodowick, an assistant clinical professor of finance at Drexel University, who teaches a class on cannabis business, who also reviewed the presentation.
In Sodowick’s analysis, the source’s description of the document is consistent with what Big Weed appears to be working towards, he said.
“This is history repeating itself. Everyone wants to be a monopoly, or an oligopoly in this case,” he added. “They want to basically have control, and by the time controls are loosened, there’s no way any little farms can keep up.”
“You don’t have to teach finance at Drexel like I do to know what’s going on here,” he added.
Specifically, the leaked document highlights “Stable State Markets” as the “core” of legal cannabis’ “success” to date. It alludes to an unspecified delay before interstate cannabis markets can be opened, and for existing state markets to be preserved and stabilized in the meantime. (Hawkins denied the group was “seeking delay or a specific timeline” for interstate commerce.)
That means enshrining state laws that restrict the number of businesses allowed to grow and sell cannabis, according to the source, an insider with both the USCC and the Marijuana Policy Project, the advocacy group that ran early legalization campaigns.
Such laws are credited with allowing a limited number of billion-dollar cannabis companies to emerge—some of which have flipped their licenses for tens of millions of dollars in cash and stock to larger players. For example, limited state licensing is why an investment trust paid a total of $49 million for a former tool factory in Massachusetts that’s licensed to grow weed.
For its part, the presentation also touts state “equity programs”—in which a certain percentage of licenses may be guaranteed to people of color or individuals identified as harmed by the drug war—as a key social-justice corrective.
The problem, as critics have long noted, is that though well-intentioned, so-called equity programs have so far failed to deliver, and have allowed some cannabis companies to present a woke pose while still reaping most of the profits.
In New York State, for example, 50 percent of the adult-use licenses to be issued will be “equity” licenses reserved for people of color and drug-war victims. That sounds nice, but as critics point out, those small businesses will have to compete with the ten companies with massive headstarts, already licensed to grow and sell medical marijuana, who are currently building operations in anticipation of adult-use licensing sometime in 2022 or 2023.
Another slide from the leaked presentation—a graph that notes the consolidation in various other industries—signals where Big Weed wants to go, according to the source. At the top are industries like mobile phones and alcohol, where just a few firms control nearly all of the market.
“The transition from the growth to consolidation phases of the industry life cycle is where wealth creation occurs,” a caption to the graph reads. “The Cannabis industry has not reached that point yet. The Cannabis Industry mut [sic] be given the chance to experience proper growth.”
That consolidation is absolutely Big Weed’s goal, the source argued to The Daily Beast. Third-party observers agreed.
“I see an oligopoly play afoot,” said Shad Ewart, a professor of business at Anne Arundel Community College in Maryland, where he teaches classes on cannabis entrepreneurship, who also reviewed a copy of the presentation as well as the USCC’s CAO comments, and noted “overlap and commonality.”
“They represent clients/members that hold these licenses and therefore it’s their duty... to represent their members’ best interests,” he added. “I just think they don’t ever consider a world without licenses and caps, and therefore everything is written with that in mind and from that perspective.”
“Their goal is to keep caps on the number of licensees (whether grow, process, or dispense) because their members directly benefit,” he continued, noting that the value of rare licenses become inflated due to artificial scarcity and “each license holder gets a bigger piece of an expanding pie of customers.”
Hawkins vigorously disputed that the presentation was consistent with his group’s larger agenda.
“These are not our slides, or our views,” he told The Daily Beast, later adding, “Our board considered a wide range of viewpoints and created an original set of comments which represent our position.”
But experts like Sodowick and Ewart who reviewed the material saw alignment with both the presentation and USCC’s later comments, as well as their public positions. And some of USCC member companies’ own public statements also appear to contradict their lobbyists’ denials that they are moving to ward off competition.
In fact, as two companies tell their investors, they are valuable properties specifically because there are fewer competitors.
In an annual “management discussion and analysis” report submitted to regulators in Canada, where cannabis is federally legal and where stock exchanges allow companies that directly deal with the cannabis plant to list publicly, Curaleaf notes that it “maintains an operational footprint of primarily limited-license States, with natural high barriers to entry and limited market participants.”
“The majority of the markets in which our licensees operate have formal regulations limiting the number of cannabis licenses that will be awarded, helping to ensure the Company’s market share is protected in these limited-market States under the current regulatory framework,” the company added.
In an investor prospectus filed with the U.S. Securities and Exchange Commission, Cresco Labs highlights its holdings in “eight highly regulated and/or limited licenses, and therefore limited legal supply markets.”
“These markets, where supply and demand can be reasonably predicted and forecasted, create the foundation upon which Cresco has created the opportunity for sustainable growth,” the filing adds.
Neither Cresco Labs nor Curaleaf responded to a request for comment.
In an email, Jeremy Unruh, the senior vice president for public and regulatory affairs at PharmaCann, a USCC member that holds one of the ten licenses to grow medical cannabis in New York state, said he was unfamiliar with the USCC presentation. He also rejected the idea that the company wants a limited marketplace, noting its support for New York’s legalization bill. At the same time, Unruh noted PharmaCann has been “vocal in its support of policy that helps keep the states relevant in the federal legalization conversation.”
“Federal legalization must give deference to the 37 (or is it 39?) independent state markets that have been created over the past two decades,” he said.
Meanwhile, even as Hawkins was adamant that USCC had no position on capping license numbers, in its public comments to the U.S. Senate on the Cannabis Administration and Opportunity Act, the group specifically called for Congress to “Preserve and Protect Stable State Markets.” It also asked that lawmakers “harmonize state regulatory programs across the country, as is practicable.”
“These American cannabis companies have invested hundreds of millions of dollars in intellectual property, brick and mortar growing spaces that required significant investments in hydroponics, lighting, and infrastructure, not to mention expensive state and local licenses to grow, produce, and distribute cannabis within every state that has a medical or adult-use marijuana program,” the USCC wrote.
The group also advocated for a “transition period” of unspecified length before interstate commerce can begin “to allow these [state] markets to develop.”
In later comments to The Daily Beast, Hawkins emphasized that the USCC considers “all of the current adult use markets to be stable and worthy of protection.”
“Protecting existing state markets means ensuring they're not wiped out with the stroke of a pen,” he added. “States with existing programs will need to modify them to come into compliance with national standards, but they should not have to start from scratch.”
In both the presentation and in USCC’s public comments on the CAO, billion-dollar cannabis companies position themselves as the small fries—bulwarks against Big Tobacco or consumer-packaged goods firms worth ten times as much who might wish to enter cannabis and take it all over.
But Big Weed and Big Tobacco are both big enough to block new players and squeeze out smaller ones, experts say. In any case, they argue, Big Weed is doing what it can to protect that advantage.
"I think it’s not surprising you have people who are well-established and well-financed trying to create an oligopoly to drive growth and eliminate competition,” said Jim Araby, a California-based union organizer with the United Food and Commercial Workers Local 5, which organizes both small producers and large retail operations.
Araby rejected the notion that interstate commerce would hurt small producers as a “false argument,” and marveled at the price some of the existing large cannabis companies have paid for licenses. In 2019, for example, Green Thumb Industries—another billion-dollar company based in Chicago, where Illinois’ limited market helped gift it a huge market share—paid nearly $60 million in cash and stock to acquire one of the ten New York state licenses.
“How can an entrepreneurial small operator acquire that capital?" Araby asked.
Meanwhile, the underground entrepreneurs currently fulfilling demand in states like New York would be reduced to second-class status, either as employees or token “equity” participants, scrambling for scraps as the big companies run the game, some legalization advocates fear.
“These corporate players are trying to deny the basic principles of a market economy,” said Justin Strekal, the political director of the national chapter of the National Organization for the Reform of Marijuana Laws (NORML), which is often at odds with USCC at the Capitol. “They are marshalling the full weight of their resources to prevent others from entering the market. That’s inherently anti-American.”