Colorado’s cannabis industry is now open to outside investors, and industry consolidation is about to mushroom

Colorado’s cannabis industry is now open to outside investors, and industry consolidation is about to mushroom

HB19-1090 could turn the cannabis industry into Big Tobacco 2.0

VicesNovember 13, 2019 By Will Brendza

When Jared Polis signed HB19-1090 he put an end to Colorado’s prohibition of publicly traded cannabis companies. Now, this state’s cannabis industry has been opened wide to outside investors, and things are about to change drastically for the people and businesses involved.

Sure, this new law will bring a lot of capitol into the cannabis industry. Sure, it might bring new cannabis products from companies that have tried to stay away from Colorado in the past. It might even force the price of cannabis down in the long run, because larger companies can build operations and efficiencies of scale, that small cannabusinesses can’t achieve on their own.

But it also means that small cannabis companies are going to be gobbled up faster and faster. By inviting these massive publicly traded companies from out-of-state to come invest in Colorado's cannabis industry, Polis has cranked on the throttle of consolidation.

And there will be consequences for that, according to Jeff Hunt, the director of Centennial Institute.

“The marijuana industry is quickly becoming Big Tobacco 2.0,” Hunt told the Denver Post. “By allowing publicly traded companies to invest in marijuana, Colorado is creating marijuana conglomerates with the sole purpose of getting as many people using the drug as possible. Similar to tobacco, we will experience public health problems for a generation due to ‘Big Marijuana.’”

Until now, cannabusinesses have not had the financial wherewithal to push their products like Big Tobacco or Big Alcohol pushes theirs. They don’t have the same kind of corporate capital fuel that drives a company like Philip Morris International or Imperial Brands. Their marketing and investment potential has been confined to their local region.

But not anymore. Now, many of Colorado’s smaller cannabusinesses are being swallowed (or will be soon) by larger companies. As soon as the bill became a law, Medicine Man Technologies announced that they could acquire MedFarm Holdings and Medicine Man Denver, claiming that their new growth potential was, “both substantial and compelling.”

Not surprisingly, this bill was supported by some of Colorado’s biggest and most powerful cannabis companies. Native Roots threw down $15,000 to lobby for support of the bill. The Green Solution paid $16,251; Medicine Man spent $18,000; and Beyond Broadway LLC chipped in a whopping $20,000.

And now, those lobbying costs seem to have paid off.

Chuck Smith, the CEO of Denver-based Dixie Brands, is exulted at the prospect of scaling his business to new proportions. “By permitting access to capital through private and public investments with appropriate guardrails, this bill ensures that Colorado businesses keep their headquarters in the state, remain competitive, invest in research and development and other innovation and continue to contribute significant tax dollars to the state,” he said.

Which are fair points: Bigger cannabusinesses will generate more tax dollars for the state. And local business owners, stand to gain a lot from out-of-state investment.

But at what cost? There is a reason you don’t see the same kind of diversity of artesian tobacco products that you find with cannabis. Once all of the smaller businesses have been bought up and consolidated into mega-cannabis-conglomerates, there will be less incentive for these big businesses to offer the same high-quality products we’ve enjoyed since legalization. Local Mom and Pop grow ops will be squashed by massive corporate farms and many locally owned dispensaries and product makers will start selling out.

Not only that, but the financial power that conglomerate businesses wield, is enough to shut down any smaller competitors who refuse to bend the knee. Once these big businesses are established, starting a small-cannabusiness from scratch is going to be even harder than it is today. Instead of competing with other local businesses, you’ll be contending with the biggest and most influential players in the industry.

This new bill stands to change the landscape of cannabis in Colorado. It will essentially inject Colorado’s cannabis industry with near-endless capital investment potential, creating an environment that will kill off small businesses in droves. There will be benefits, sure. But do they outweigh the consequences?

Colorado will just have to wait and find out.