Cannabis Legalization Must Address Monopoly Dangers
By Shaleen Title and Matt Stoller (September 21, 2022)
This article was originally published as an Expert Opinion Analysis in Law 360
This year, as a majority of voters in both parties continue to favor cannabis legalization, more people in the U.S. reported smoking marijuana than tobacco cigarettes. With public support still growing, it's only a matter of time before the federal government finally repeals its prohibition of the drug.
Such a change should be exciting to anyone who wants a more just, humane society. But a dangerous trend lurks behind the good news: Big Tobacco, among other powerful industry groups, is now lobbying for control over the legal cannabis market. The reasons why should worry us.
How marijuana legalization happens and the regulatory structure that emerges is, in many respects, a more important question than if it should happen. Done properly, and to foster community health, legalization could end a pointless crusade against a plant and all the people who use and sell it, and all its attendant costs.
But if we hand control of the process to conglomerates like Amazon.com Inc or the tobacco giant Altria Group Inc., the change could usher in harmful use and a resulting backlash that erases the hard-won victories of social justice and public health advocates.
As policymakers prepare to open the door to a national marijuana market, they must beware of monopolies — and structure the industry accordingly.
Consider the history of another major mind-altering product: alcohol. In 1919, the U.S. government banned the sale and possession of alcohol due to moral concerns and an epidemic of alcoholism. Little more than a decade later, confronted with crime and corruption that resulted from Prohibition, the nation reversed course, and Prohibition was repealed.
But the reversal didn't return alcohol laws to the pre-1919 status quo. Instead, new policies allowed individual states tight regulation over the industry. Most prevented vertical integration, separating retailers, distributors and producers from one another to prevent consolidation, promote open markets and maintain more effective regulatory control over businesses.
Such a framework prevented the emergence of dominant alcohol conglomerates, fostered local control, kept use relatively low and all but eliminated organized crime activity.
After years of corporate lobbying, these protections have ebbed in much of the world; the alcohol industry has reconsolidated, and problematic alcohol use has, in turn, increased. In the U.K., which gradually deregulated its alcohol markets, prices dropped dramatically, and deaths from alcoholism spiked.
Still, alcohol regulation in the U.S. can illustrate novel approaches to avoid monopolies and uplift small businesses. Some states allow exemptions for small beer suppliers to directly reach customers through tasting rooms and direct sales at festivals, for example, and some also allow small wineries to ship directly to consumers around the country, as the recently introduced Small and Homestead Independent Producers Act would allow small cannabis farmers to do.
We can see parallels in our approach to cannabis today. Because of federal prohibition, marijuana is only regulated at a state level.
So far, 19 states have legalized the drug for adults 21 and over, but cannabis products can't legally cross state lines. Despite the practical and enforcement headaches this sometimes creates, this restriction has also fostered an array of different regulatory strategies to satisfy the needs of local communities.
Federal prohibition thus creates something of a paradox: It pushes businesses and consumers into a quasi-legal gray zone, but also enables a healthier industry overall in places where it is legalized by thus far holding off the emergence of powerful corporate entities able to establish national monopolies.
People in the U.S. still can't buy marijuana on Amazon, and we don't have Monsanto Co.-produced edibles, or a cannabis-brand sponsored Super Bowl. Instead, the cannabis industry is still controlled by relatively small- and medium-size businesses, which are rigorously regulated and under local control.
This has allowed for anti-monopoly approaches like that of Washington state, which prohibits vertically integrated cannabis companies, and exemptions for small businesses in places like Massachusetts, which allows only cannabis microbusinesses to deliver the products it manufactures directly to consumers.
Legalizing cannabis in a way that allows for unlimited commercialization and a corporate free-for-all — which all the federal cannabis descheduling bills currently in Congress would do — threatens to undermine those approaches and put small growers and local stores out of business.
By descheduling cannabis without any plan for a transition to an interstate market, both the Democrat-led Cannabis Administration and Opportunity Act and the Republican-led States Reform Act would predictably lead to market consolidation toward a powerful cannabis monopoly, creating avoidable social and health harms seen with alcohol and tobacco markets historically.
Such a market would make today's cannabis industry look like a diverse and healthy ecosystem in comparison.
A consolidated marijuana industry would lead to a host of legal and regulatory issues. As we've seen in virtually every industry, from banking to airlines, corporate consolidation leads to large companies that are too big to fail and too powerful to regulate.
Without anti-monopoly protections hardwired into federal regulations from the start, we can expect a revolving door of regulators going back into the industry, endless lobbying to eliminate regulations that are obstacles to profit, and the progressive undermining of permitting and licensing.
Perhaps worst of all, federal legalization controlled by special interests can lead to the manipulation of the chemical makeup of the product itself to maximize profit and potentially become more addictive.
After adding hundreds of chemicals to cigarettes, the tobacco industry undermined evidence demonstrating that cigarette smoke causes cancer by funding research to cast doubt on its effects. JUUL Labs Inc., the vape brand partially owned by Altria, recently bought an entire edition of an academic journal.
Just as Big Tobacco created front groups to confuse the science of tobacco consumption, we can expect massive marijuana firms to corrupt the science on the risks of cannabis and evaluating cannabis policy.
Meanwhile, problematic drinking is a hugely profitable market sector. For instance, deaths from liver disease caused by alcohol during this deregulatory period for the industry have tripled since 1999, in what the American Journal of Medicine calls an "epidemic of heavy alcohol consumption." Big Alcohol is already circling the U.S. cannabis market and investing in Canadian cannabis brands.
This is not fearmongering. Not only have we seen these tactics before — in Big Tobacco, Big Alcohol, Big Pharma and Big Tech — but now the very same companies that developed them are lobbying for and attempting to influence federal marijuana legalization.
Since states began legalizing cannabis, we have made tremendous progress to level the playing field for small business owners and support historically excluded communities and those disproportionately harmed by cannabis prohibition.
Almost 900 people are enrolled in a Massachusetts program that prioritizes people harmed by the war on drugs and is funded by 15% of the state's marijuana license revenue, for example. And New York state gave local hemp farmers the first shot at growing legal cannabis, and is ensuring justice-involved individuals can own the first retail stores.
If we end federal prohibition without prioritizing anti-monopoly principles and planning for the transition of existing state regulatory and social equity programs, then this progress toward more diverse and equitable cannabis markets will be reversed.
Small cultivators and manufacturers currently competitive in their own state markets will not be able to compete once companies like Amazon Basics and others begin shipping their own products and exercising outsized influence over laws and regulations.
While sponsoring papers and D.C. happy hours promoting cannabis legalization, front groups backed by Big Tobacco and Big Alcohol are aggressively seeking to dominate the conversation over federal legalization and social equity. They are presently advocating for policies that would benefit them and arguably hurt small and minority-owned businesses — including immediate moves to allow interstate commerce with no managed transition.
Fortunately, some relatively modest adjustments to existing federal legalization bills could fix these problems and ensure that local small businesses and local policy initiatives have a chance to adapt and compete in a future interstate market.
When undoing federal prohibition, policymakers should disqualify corporate actors most likely to promote harmful products to maximize profit from entering the cannabis industry, starting with the tobacco and pharmaceutical companies that have track records of doing precisely this in their respective fields.
And as states wisely did with alcohol decades ago, we should prohibit vertical integration, meaning that growers, distributors and retailers should be legally separate corporations, with these separations enforced to ensure no single firm can control the entire market directly.
Beyond disqualifying bad corporate actors and prohibiting vertical integration, lawmakers should explicitly limit how much of the market one person or entity can own or control — both nationally and at the state level. They should create a licensing program that limits the amount of cultivation, processing or retailing capacity available to any entity.
Because industry consolidation is often the most significant way that monopolies form, policymakers should block mergers where any party has above a certain amount of revenue, unless the buyers affirmatively demonstrate that the deal would serve the public interest.
Online sales present a unique set of challenges, and legislators should at the very least prohibit platforms from owning or controlling a cannabis business. Services like Amazon Basics may work for batteries, but it does not work for a mind-altering substance.
Finally, we must have adequate enforcement to investigate contracts, shell companies and attempts to exploit loopholes and get around licensing and acquisition limits. Monopolies are easier to prevent in the first place than to break up after it's too late.
Would-be marijuana monopolists are hoping that money and lobbying will allow them to take over cannabis without anyone noticing. They're wrong. Collectively, we have decades of experience to draw from and a population as supportive of anti-monopoly measures as it's ever been. We must take advantage of the historic opportunity to pass sensible laws that proactively create a fair, competitive marketplace.
Shaleen Title is co-founder and CEO at Parabola Center for Law and Policy. She is the author of "Fair and Square: How to Effectively Incorporate Social Equity Into Cannabis Laws and Regulations."
Matt Stoller is director of research at the American Economic Liberties Project. He is the author of "Goliath: The Hundred Year War Between Monopoly Power and Democracy."
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.