Two words may sink adult-use marijuana: vertical integration

Commentary by R.E. Graswich

Imagine a social justice initiative where the key benefactor says no thanks.

That's the dilemma facing Prop. 64, which would allow adults in California to buy and use small amounts of marijuana without a medical recommendation.

Prop. 64 is one of the most controversial proposals on the November ballot. Despite major financial support from the venture-capital world, the initiative is not popular among people who know the cannabis industry best -- legacy cultivators whose work has made California marijuana the nation's best and most popular variety.

Many independent and craft growers are becoming increasingly vocal about their opposition to Prop. 64, which would establish a legal framework and regulation for a commercially unique ag product worth billions of dollars.

"The growing consensus is that this is a really bad regulatory framework," Hezekiah Allen, executive director of the California Growers Association, told the San Francisco Chronicle.

The lack of industry support is hugely problematic for proponents of Prop. 64, which by mid-July had already received $125 million in support from Silicon Valley venture capitalist and Facebook co-founder Sean Parker.

The reluctance of industry pros to climb on board the Prop. 64 bandwagon means other groups opposed to the initiative -- including many cities and counties and law enforcement organizations -- have a united front and compelling story to tell voters over the next four months.

In that story, Prop. 64 is nothing more than a scam by global investors to industrialize and dominate California's marijuana patch.

Two words define how that domination will occur -- vertical integration.

The initiative does establish a five-year moratorium before state licenses can be issued for large-scale cannabis farms. The five-year waiting period is the major appeasement in the proposal on behalf of independent growers.

But it's not enough, many growers say.

They believe the proposed adult-use law has a more sinister aspect. It allows conglomerates to hold multiple licenses, which creates an opportunity for vertical integration of the cannabis industry and lets cultivation, manufacturing and retail sales to be controlled by big players.

The only key industry sectors off-limits to big cultivators and manufacturers would be testing and distribution. 

Few phrases are more divisive in the cannabis industry than "vertical integration."

By allowing corporate entities to hold licenses for large-scale farms, big manufacturing plants and multiple retail stores, the vertical integration of the cannabis industry would be complete.

Industry advocates fought and won a similar battle against vertical integration last year, when legislation was created to regulate medical cannabis in California. Under medical cannabis rules, cultivators can hold a manufacturing license, but they can't distribute or sell the product in retail markets. 

Medical cannabis rules generally follow the "three tiered" alcohol system that has operated in California since the end of Prohibition. Large scale beer, wine and spirit companies can't distribute their wares and hold ownership in bars, restaurants and liquor stores. 

Under Prop. 64, a future Budweiser-type conglomerate of cannabis could own the brewery and the saloon -- potentially making the marketplace a closed shop.

That's vertical integration. And it's making legacy cultivators in California back away from Prop. 64.