The ICPC is an overlapping and parallel conference at the United Nations Commission on Narcotic Drugs (UNCND). It is organized by FAAAT, For Alternative Approaches to Addiction Think and do tank. FAAAT is what we in the social sciences call a global civil society organization, or a Transnational Advocacy Network, or sometimes even an “alter-globalization” social movement organization.
The UNCND produces a “World Plan of Action” report on the subject of drug control every 10 years. It is part of an ecology of what we call in the social sciences “global governance institutions” that form the “top layer” of legal frameworks for prohibition worldwide. The UNCND is a fairly old global institution. It was established in 1946. It has been a central node for the creation of prohibition’s global frameworks, along with other United Nations (UN) institutions like the UN Office on Drugs and Crime (UNODC).
That “top layer” is responsible for worldwide prohibition, but it has been changing in the last several decades. This process has been documented by the Transnational Institute’s (TNI) Drugs and Democracy program, another global civil society institution. Two of their academics, political scientist Martin Jelsma and historian David Beweley-Taylor, have been publishing for more than 20 years on how the drug war consensus has been destabilized in that top layer.
Anyway, although it’s short notice, Tony may be able to represent CASP in early December, given that his invitation specified his affiliation with us in particular, which is pretty cool and evidence of CASP’s global reach.
Last May, I received an unexpected request for feedback from The Federal Commission for Addiction Issues in Switzerland. Well, sort of unexpected, more like extremely occasional. I’ve been invited to meet with and provide feedback on cannabis legalization before to and with Germany officials; the City of Montreal, Canada; and the province of Nova Scotia, Canada. Given that our Senior Research Associate Dr. Tony Silvaggio has been invited to present at the December International Cannabis Policy Conference by the same people, I thought it would be a good moment to publish my answers to their questionnaires. So here you go.
Markets, products and consumption modes of cannabis in the US
Dominic Corva
The purpose of this interview is to understand how cannabis regulation in some US States has impacted cannabis markets, cannabis products, as well as consumer segments and consumption models.
Could you help us understand the mechanisms of the current US cannabis market? What are the main sub-markets (medical, retail, other) and how are they separated/linked?
Please develop here:
The markets have three legal dimensions and a hyper-differentiated policy geography, where local policy matters more than anything, including legal dimensions.
“Legal” by state refers to adult use state policies that always have local control options, which at this point are mostly opting out, even in legal states. The state legal frameworks are extremely different from each other (homegrow availability, license restrictions, out of state investment allowance, etc.)
“Medical” refers to a lot more than it used to. In addition to the early, unregulated, quasi-decrim initiatives, we now have varying degrees of medical cannabis regulation and in one instance, Washington State, a medical cannabis program controlled by a recreational cannabis program. Medical also now refers to “CBD-only” statutes; international investigational new drug programs such as Epidiolex; and people buying CBD products like herbal supplements in grocery stores (totally unregulated).
“Illegal/Informal/Illicit/Black/Unregulated” are all terms that are applied to the third market sector, although there are many ways in which the first two are directly connected to this third market sector. It is clearly the largest type of cannabis market. Most of these commodity chains originate inside the U.S. at this point, as opposed to about 15 years ago when domestic consumption of domestic product became dominant over international product. International product is still a significant chunk of the unregulated market, but it is not the majority and is mostly from Mexico.
They can be connected formally (the “15 day window” for bringing genetics into legal production licenses in Washington, for example, as well as any transition window for the implementation of a “legal” market). So, genetics are a huge common denominator for all the markets.
They can be connected informally, through diversion from legal markets to other markets; and the legal plasticity of unregulated cannabis supply for medical markets (untracked origins for products going in both a regulated and unregulated direction); this includes aforementioned CBD markets.
They are connected by geographical commodity chains, starting in one kind of market in one place (usually the North American West) and heading elsewhere.
They are connected by consumer demographics and consumption trends — older people tend to participate more strongly in legal markets, younger people in unregulated markets.
They are connected by investment money, especially these days the Canadian stock exchange.
They are connected by ancillary services across all markets, such as lab testing, grow medium, and real estate markets.
And they are connected by the knowledge and activities of workers and owners exercised in time and/or place depending on the desired outcome of their market activities.
What were the main recent developments in the US markets and what is their impact on demand and supply of cannabis?
Please develop here:
The main recent development in US markets are supply floods, which California legal market is not yet at but will be soon (they are still in legal market formation mode, five months after licensing began).
It’s important to understand that the West Coast flower glut began in 2010, when wholesale prices dropped in half after several decades of steady but slow decline. 2017, however, saw another 50% price drop, probably due to overproduction in southern Oregon.
The flower glut feets the concentrate glut, as prices for wax, oil, and hash are dropping precipitously in every market characterized by a flower supply glut.
Closed State legal markets have different dynamics, but certainly Washington and Oregon are experiencing parallel price drops for flower and concentrate.
And then there’s edibles. The edible market is a fairly large, fairly recent legal and medical cannabis market development, as those demographics are more inclined to consume cannabis by eating or vaporizing it. Unregulated markets basically allow consumers to make their own edibles, so historically it hasn’t been a big part of unregulated markets.
Of course there’s also the recent phenomenon of cannabis vape pens, which are somewhat adjunct to the edible market.
On the production side of things, the big development in medical and unregulated markets has been the shift (back) to outdoor production, as prices fall low enough to be fatal for energy-expensive indoor production. In legal markets, the incentive is different and lots of investment cash goes into large indoor warehouse production, but that again is unsustainable as prices drop.
Distribution developments include more and more distribution any way you could imagine, from the United Postal Service to planes, automobiles, and cyber marketplaces. There is no way to control cannabis movement except to create regulated markets that provide better quality at lower prices, with wide retail spread and sanctioned mobile distribution.
On the horizon: production in the Global South, especially in places that are adopting medical and regulated models like Uruguay and Colombia. I expect commodity chains to re-globalize fairly quickly once the current UN infrastructure crumbles from defection.
In your view, how will the US cannabis market look like in ten years from now? Will it still grow and diversify?
Please develop here:
US cannabis markets will be commercial, but probably not yet global in 10 years. The U.S. remains prohibitive at the local level, where cities and counties that opt out of regulated frameworks for cultural, political and industrially competitive reasons outnumber localities that opt in. In about 10 years I can see that hitting a tipping point, but not tipped.
The range of cannabis products (edibles, concentrates…) has developed over the last decade. Can you tell us what are the main product families and what approximately are their respective market shares?
Please develop here:
Please see above comments, with a special note: CBD-infused products have the biggest, fastest growth potential as they are being treated in policy (not law) like herbal supplements. And they can be added to just about anything.
Do you see other type of products coming to the market in the next years? If yes, what type of products and for which type of customers?
Please develop here:
Pharmaceutical medications (as opposed to herbal medicines) have enormous growth potential and will be used to treat everything from PTSD to anxiety to epilepsy, so the demographic reach of products will widen from birth to death. Products that cater to hospice patients — both pharmaceutical and herbal/complementary medicines — will proliferate extremely fast.
Young people will consume less cannabis as it loses its “rebellious” appeal.
What is known about the demographics of cannabis users? Has the legalization and regulation of cannabis markets changed the profile of cannabis users?
Please develop here:
Please see above comments.
Looking at the current cannabis regulations in US States: What are their main strengths and weaknesses?
Please develop here:
Their main weaknesses are their attachments to prohibition culture and control. As a result, most new laws and regulations reflect very little understanding of cannabis markets on the one hand and the power of local control to render State (and national, in the case of Canada) frameworks irrelevant. Taxes are too high, barriers to entry are too high, and authorities grapple poorly with the contradictory desire to create markets on the one hand and limit their spread, on the other. Age limits are a problem: in the US at least a third of cannabis is consumed by college-aged and younger people, meaning that at at least a third of current demand will always be met by unregulated markets. Canada allows provinces to set their own age, and many of them are choosing 18. That’s more realistic.
Smoking regulations are another major weakness: in the US, smoking anything at all in cafes, public places, and private residences has been zoned out. This presents a major challenge for legal consumption access for anyone that does not own their own home.
On a related note, cannabis retail and consumption is currently restricted or banned for public events, where lots of people consume cannabis (such as music shows, for example). California will be an interesting exercise in seeing how this can play out, since there is some room for permitting cannabis consumption at fairgrounds with special permits.
In the US, cannabis businesses are burdened not only by taxes that are too high to be competitive with unregulated cannabis, but also 280e Federal tax code that does not allow them to deduct costs of doing business. That means most of the new regulated cannabis industry has very little to no profit margin. So, the US Federal Schedule is a huge weakness for new cannabis markets.
Regulated cannabis markets also lack access to banking — ownership has to be surrendered to investors to raise capital, instead of having access to loans. This is also a strength, though, since it limits the flow of speculative capital that could inflate what is already an unsustainable market bubble.
But the biggest weakness of new cannabis markets is real estate, where rents command a huge premium and are controlled strictly by local zoning.
