Indie distribution fails smell test

Submitted by R.E. Graswich

Very few special interest groups enter the State Capitol with clean hands and altruistic motives, but the scheme by several California business groups to erase independent distribution mandates for commercial cannabis is uniquely rotten.

Five trade groups -- the California Retailers Association, the California Manufacturers and Technology Association, California Restaurant Association, California Business Properties Association and National Federation of Independent Business -- sent a letter to Gov. Jerry Brown and state legislative leaders asking to throw out the three-tiered model that separates distributors from growers and retailers.

Also signing the letter was a murky investment group called Truth Enterprises and the California Cannabis Industry Association. The latter is the only entity among the signatories with any real cannabis track record.

The business groups want vertical integration -- the ability to monopolize all cannabis from seed to sale.

Vertical integration would let global conglomerates control California's cannabis industry, top to bottom. Cultivation, manufacturing, distribution and retail sales -- all would be dominated by a handful of corporations, big money players with scale and resources to rule the industry.

To make their case, the trade groups chose a bizarre example. They pointed to the state's alcohol industry, which they suggested was a failure, and claimed independent distribution was an entry point for organized crime.

There's one big problem with that argument. It's a lie.

The three-tiered system was designed after Prohibition ended in 1933, precisely to remove organized crime from the spirits, beer and wine trades. For 84 years, the program has worked to protect the industry, consumers and taxpayers.

More recently, independent alcohol makers and merchants have thrived under California's independent distribution system. Small batch liquor manufacturers, vintners and craft brewers have never been stronger.

Independent distributors collect taxes and help with promotion. Manufacturers are free to concentrate on what they do best, with proven and reliable access to the marketplace. Retailers are free to offer diverse brands delivered by multiple distributors.

The three-tiered system has become a "best practice" feature of California's booze industry, a reputation well earned and enhanced since the days of speakeasies and bathtub gin.

Here's what would happen without independent distributors:

If state authorities did away with three tiers for alcohol, most bars would serve only beer, wine and spirits created by one manufacturer. Pubs would become "tied" houses -- owned or controlled by a few global liquor, beer and wine companies.

A similar fate will destroy free-market, regulated cannabis if vertical integration is permitted.

Naturally, there should be exceptions to the three-tiered rule. Vertical integration makes sense when craft farmers band together, form small cooperatives and sell straight to consumers.

In beer, craft brewers occasionally act as their own retail distributors and sell direct from their factories. Similar rules can apply to boutique cannabis cultivators.

Independent distribution has worked for generations with alcohol. The last thing California needs is a cannabis market dominated from seed to sale by a handful of global players, beholden to no one but investors.