The Cannabis Column

If Rip Van Winkle nodded out a few years ago and awoke today, he would be amazed at the transformation of the cannabis issue. Marijuana is being sold over the counter in several states, primarily for medical use but under broader regulatory programs in Washington and Colorado. In states that haven’t provided regulated access, decriminalization laws have once again begun to spread. While legalization remains a primary political objective nationwide, an emerging cannabis industry now concerns itself with competitive, regulatory, and investment-related issues. This is a new era in cannabis reform.

Marijuana arrests have been, and remain, the central issue in cannabis policy for most of the nation. Reducing and/or eliminating arrests and penalties for marijuana possession, cultivation, and sales remains the priority for most marijuana consumers, activists, and concerned public interest groups.

A new issue, though, is in the process of transforming the national and local debate over marijuana. The new era of cannabis reform is not so much about justice as it is about who will be able to profit from the new and lucrative marijuana market.

New groups have emerged to herald this new era. Organizations such as The Arcview Group, the National Cannabis Industry Association, and the Medical Marijuana Business Daily seek to advise, represent, and organize the entrepreneurs shaping this new industry.

A lot is at stake – and not just money. What will shape the new marijuana market? Will large multi-national corporations, characterized by diverse local-level small businesses, or some mixture, monopolize it? Will government regulation crowd out the small-scale producer? Will people be able to grow marijuana for their own use and sell small amounts to friends? Will taxes inflate the cost of marijuana or will legalization and competition reduce the cost to reasonable and economically justifiable levels? Will recreational legalization eliminate the medical marijuana industry? Will the medical marijuana industry oppose widespread legalization to protect their monopoly on legal sales and preserve their ability to sell marijuana for high prices set by the illegal market?

Behind all of these questions is one fundamental matter: who will profit from marijuana’s legalization? Profit is key in this new era of pot. Some will argue that it has always been this way, but that is beside the point. This is the way it is now and for the foreseeable future. And as a result of this new era, business theory and practice is becoming more important than political theory and practice.

Joseph Schumpeter was an Austrian economist who derived an influential economic theory about entrepreneurial behavior. It is called creative destruction. Money and resources, by way of commerce, flow through established channels. Entrepreneurs create new combinations of goods and services. These new products and industries attract resources. Entrepreneurs divert resources from old channels to the new ones produced by their innovation. Investment, for example, flows from old industries to new industries and profit-making opportunities are transformed by the emergence of new combinations of goods and services. The creation of new markets destroys old markets as these new markets attract money and resources away from old markets. This is creative destruction.

The new era of marijuana law reform is one in which the new market in legal cannabis is destroying prohibition. As legal marijuana markets continue to make money, political influence will focus on the destruction of the remaining legal barriers to cannabis use and commerce.

The competition is shifting from those for and against marijuana reform to those competing over a share of this new multi-billion dollar market. Different forces will shape this industry – different from those affecting the political struggle but well-known to the world of business.

The next several columns in this series will examine the forces that will shape and determine the profitability of the emerging marijuana market. These forces all seek a share of the profits of industry. The new game in the world of marijuana is called strategy, and the objective of strategy, in business, is to create a sustainable competitive advantage. Prohibitionists, medical marijuana vendors, cannabis entrepreneurs, government regulators, and marijuana consumers will all be playing this game for the foreseeable future. This is the new era of cannabis reform, and from now on this will be the focus of the Cannabis Column.