Cannabis legalization stirs strong passions on every side. But strip away all the arguments for and against and look at it from a purely business standpoint. You will discover that the cannabis industry perfectly illustrates the domino effect in business. It might illustrate it too well, in fact.
This domino effect is clearly seen in the number and types of businesses required to support the industry. To make it work on a large scale, cannabis has to be approached from a mass production mindset. Without mass production, you are left with the equivalent of pre-industrial agriculture. You have a lot of small operations producing limited output. You have high prices and scarce availability.
Small-scale production is still the norm in conservative medical-only states. But in decriminalized states, large-scale production rules the day. All the tertiary industries supporting the industry are like so many dominoes stood on end and arranged in a circle. If one goes down, the rest follow.
All Business Is Cooperative
It seems odd to consider just how cooperative businesses are. Despite the competitive nature of business as a whole, both companies and industries have to cooperate to keep everything working. That cooperation is made easier by the profit motive, but profit cannot encourage a lack of cooperation or everything collapses.
Your three main players in the cannabis industry are growers, processors, and retailers. Growers depend exclusively on processors and retailers for their markets. So like it or not, they depend on processors and retailers to do their jobs.
Processors are almost like the intermediaries. They rely on growers to supply raw material and retailers to buy their finished products. But that is not all. They also rely on companies that design and manufacture marijuana processing equipment. CedarStoneIndustry is one such company. Without them doing what they do, processors would not have the equipment they need to turn plant material into retail products.
Dispensaries the Final Link
Retail dispensaries are the final link in the cannabis chain. They rely on the processors and growers before them. Using the previous example of dominoes arranged in a circle, customer demand forces retailers to rely on growers to grow and processors to process. Without the other two, the retailer has nothing to sell.
Knocking One Domino Down
In between grower, processor, and retail dispensary are the many businesses and industries that provide the services and equipment necessary to get cannabis from plant stage a retail product. Consider those businesses and industries as additional dominoes in the circle. What happens if you knock a domino down?
There is talk of Washington heavily taxing marijuana should Congress ever reach the point of decriminalizing the plant. Would anybody be surprised? Probably not. But both recreational use marijuana and medical cannabis are already taxed in those states that have given them the green light. Piling more taxes on top might not be the smartest thing to do.
A heavy federal tax would inevitably cause already high prices to go higher. People unwilling to pay the tax would go back to the black market. In theory, this lowers demand for legal products. The result is lower demand for legally grown cannabis, legally processed cannabis products, and the tertiary products and services that support both.
The many players in the cannabis industry are so dependent on one another that they are like dominoes stood on their ends. If just one of those players goes out, the entire line of dominoes falls in front of it. Is it any wonder all the industry’s stakeholders steadfastly resist any changes that could disrupt what they do?