Dear Pot Lawyer,
Will my local mom-and-pop cannabis producer be here 10 years from now?
I don’t have a crystal ball, but the Harvard Business Review has extensively studied the development of new industries, and offers some findings that shed light on a likely future, and it is a vicious one. HBR has identified four stages of development that every industry follows, and calls these stages the Consolidation Curve.
1. Opening—The Consolidation Curve theory suggests that newly deregulated industries (such as cannabis) go through an initial spurt of mass diversification. Small players, benefiting from relatively low barriers to entry, hop into the market with ease and even the largest players maintain a relatively small market share. This stage is critical because those that will survive long-term are furiously pursuing market share and developing barriers to entry into the market, setting the stage for the second phase.
2. Scaling—This stage begins with a flurry of mergers and acquisitions, all focused on scooping up market share. The large players that emerge from the fray begin forming long-term empires with significant brand loyalty. This is probably where Oregon is right now. We’ve seen an influx of foreign capital buying up successful brands while vertically integrating production, processing, wholesaling, and retail as these well-funded players attempt to survive to stage three.
3. Focus—This stage involves a lot of jockeying among the major players seeking to establish themselves as among the few true powerhouses of the industry. These titans will shed the poorly performing companies that they acquired in stage two, focusing on profitability over market share. At this point, it becomes incredibly difficult for startups to enter the market. The larger players will focus on crushing, purchasing, or copying newbies.
4. Balance and Alliance—According to the HBR, this is the ultimate fate of all industries. True titans control a vast majority of market share and have settled in with an understanding that future growth will be incredibly difficult. Competitors form uneasy alliances, resigned to more or less upholding the status quo. Coke and Pepsi are a great example. While they still compete fiercely, neither is in any danger of disappearing from the market.
Will the future see a struggle between “Coke Cannabis” and “Pepsi Pot”? Probably, but cannabis is somewhat unique because it’s being deregulated in spurts. Companies in early-adopting states will be in stage two or three before late-adopting states have even entered stage one. It should be fascinating to compare the early development of Oregon’s cannabis industry with the early development of the later states to adopt legal recreational cannabis. Hopefully, Oregon players will be well positioned to expand into and eventually dominate these new markets, bringing significant income to our state. We’ll have to stay tuned to see what happens.
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