There is legitimate concern that the federal legalization of marijuana could open the cannabis industry to a corporate takeover. In other words, large corporations with the financial resources could gradually take over the market by expanding their own operations and acquiring others. This is generally seen as a bad thing. However, corporate operations could help the cannabis industry in some ways.
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A Fractured Industry
As things currently stand, the cannabis industry is a fractured one. This is largely due to the differences between federal and state laws. Things are not so bad in terms of industrial hemp and the products derived from it. Because industrial hemp is fully legal, it can be produced just about anywhere. It can be easily shipped across state lines. The same is not true for marijuana.
Also known as cannabis, marijuana contains the one ingredient federal law still does not allow: THC. Any producer who grows cannabis cannot ship it across state lines. A processor who makes THC products also cannot ship them out-of-state. As such, the cannabis outfits in most states are small businesses. They operate within a limited market by necessity.
There are definitely some benefits to this model. Smaller businesses are more nimble. They are more able to meet customer demands in ways that corporations will not even entertain. But there is a downside as well. In a fractured market, prices tend to be higher because efficiency is lacking.
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It is Always a Trade-Off
The fact is that choosing one business model over another always involves a trade-off. The corporate model offers greater efficiency and lower pricing. The non-corporate model offers greater flexibility and a more personal approach. Yet neither model is perfect in every way.
As for the corporate model, its strength is the economics of scale. Going big allows companies to do a lot more with their resources. Outside of the cannabis industry, a perfect example of the economics of scale is Walmart.
Walmart is so big and so resource-rich that it can afford to buy mass quantities of wholesale products and sell them at discount retail prices. They make their money on volume. Furthermore, their nationwide footprint is so extensive that they can run their own logistics operations at a very reasonable cost. Size gives them that advantage.
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Size in the Cannabis Industry
Size and the economics of scale operate the same in the cannabis industry. Consider cannabis extraction. According to CedarStoneIndustry, a Houston company that builds and installs hemp and marijuana extraction equipment, extraction is one of the most complicated, time consuming, and costly parts of the process that gets cannabis from field to retail store.
A small operation might not be able to afford solvent or CO2 extraction equipment. So they settle for steam distillation. They are not able to produce large enough batches to keep up with corporate competitors. Furthermore, they do not get as much consistency. The result is that their prices are higher and their inventory more limited.
Leveraging the economics of scale allows a corporate operation to invest in more costly extraction equipment, equipment that produces a higher concentration on a more consistent basis. That company produces more product. The result is greater variety and lower prices.
There is no doubt that cannabis products are very expensive in most markets. That is partly due to the fractured nature of the industry. Should cannabis be legalized by the federal government, the fractured market could quickly become consolidated. A consolidated market would be a corporate market, but there would be benefits to that model. Lower prices are but one of them.
