Florida can diversify medical cannabis players and maintain safe, secure markets
Between the COVID-19 pandemic, protests and the election, an ongoing Florida Supreme Court case on the state’s cannabis industry has not received much media attention. The case challenges “vertical integration,” the statute that requires Florida’s medical cannabis companies to manage all aspects of the business — from growing to processing to sales — in-house.
While Florida lawmakers established vertical integration and license caps in
2016, it is not a requirement in many states, such as Ohio and Michigan, that have achieved safe and secure cannabis markets. As a large political swing state, and one of the few southern states with a legal medical program, the court’s decision could inform regulatory frameworks in new cannabis markets, including the five states that just passed cannabis legalization measures. To that end, the court recently held a second round of oral arguments, an unusual move indicating the importance of getting this right.
Across the country, most states with legal cannabis programs have some form of vertical integration, but only about 10 states mandate it. For example, Massachusetts, which has fully legalized cannabis, only requires vertical integration in its medical markets. Colorado, on the other hand, no longer requires vertical integration, but still allows for it to not harm its early-market entrants. This type of hybrid model allows vertically integrated businesses to maintain that business practice and newer licensees to determine which parts of the supply chain they want to own, rather than forcing them to wear many hats. Meanwhile, Washington prohibits vertical integration to ensure a handful of licensees cannot control their markets or put product quality and safety at risk.
In addition, requiring vertical integration increases businesses’ entry costs, one side effect that cannot be ignored. In Florida, the mere application fee for a cannabis license is over $60,000, more than double the price of the next most expensive state program. This, coupled with Florida’s law that only allows for a limited number of licensees — of which there are currently only 13 licensed operators, a lower number than states with smaller populations — makes it difficult for new entrants to join the market.
To better empower local businesses to succeed, generate tax revenues and create new jobs, upfront costs such as state licensing and application fees must be critically evaluated. To ease cost constraints without sacrificing the strong oversight that vertical integration yields, Florida could look to best practices among other legal cannabis markets. In 29 states and the District of Columbia, track-and-trace systems are required through legislation or agency rules to ensure no illicit cannabis products are sold in the medical cannabis market and no legal medical cannabis products are sold outside the regulated supply chain. By physically tagging cannabis products and electronically tracking their movement along the supply chain until point of sale, track-and-trace technology can more affordably and efficiently support cannabis industry oversight, transparency, and safety.
Regardless of how the court rules, there are still countless other ways state policymakers and regulators can configure a strong legal system for their market to thrive without sacrificing public health and safety. If vertical integration is struck down, it’s not the end of the world for Florida’s legal cannabis industry. On the contrary, there is precedent for states evolving from vertical integration. Colorado stopped requiring vertical integration in its medical market in 2019 and, in our experience, efficient use of monitoring systems including track-and-trace helped support that transition. In addition, striking down vertical integration might also have a positive effect of better supporting a more diverse and inclusive industry in the Sunshine State.
More broadly, this country still is in the early stages of legalization. We have the opportunity to get it right from the outset. We can achieve a highly regulated and secure cannabis market while also accommodating a diverse set of business interests, both small and large.