How Big Alcohol Is About to Get Rich Off California Weed

Article by Sara Solovitch, Politico


Under the new regulations, licensed distributors were given control over measurement, taxing and testing for all medical marijuana before it can move to the retailer. The rules are modeled on the system that emerged at the end of Prohibition to wrest control from mobsters and their illegal liquor empires. States required wholesalers to bring alcohol from the manufacturer to the retailer, a system that has proven fantastically lucrative for distribution companies. Some of those players are now poised to make millions of dollars as the middlemen in California’s burgeoning medical marijuana market.

The familiar alcohol distribution model gives comfort to California law enforcement and state regulators who still view marijuana growers with suspicion, even 20 years after medical marijuana was legalized. But it runs counter to the 22 other states that have legalized marijuana in some form where cultivators sell their wares directly to retailers.

“We made some challenging compromises and the distributor model was by far the most challenging,” acknowledges Allen, who found himself allied with interests like law enforcement he and his family once considered enemies. “But it was the foundation for what we’ve done.”

It might also be the foundation for marijuana policy across the country. In November, Californians will vote to legalize marijuana for recreational use, a ballot initiative that has received backing from Napster’s Sean Parker and Lt. Gov. Gavin Newsom, who’s running for governor in 2018. Polls indicate 60 percent support for the measure, which, if passed, is expected to grow the state’s $2.7 billion marijuana market into an industry worth $15 billion or more in five years. Hedge fund managers, venture capitalists and savvy entrepreneurs have begun flooding into the arena, alert to opportunities for legal profits that dangled out of reach when marijuana was underground. The sheer size of California’s market (U.S. sales totaled $5.7 billion in 2015), along with pressure from prominent marijuana policy advocates, could influence other states contemplating legalization (there are eight with measures on the ballot this fall) and permanently shape the regulatory landscape nationally.

But the transformation is causing discomfort within California’s community of renegade pot growers, many of whom worry that their long wished for legitimacy may end with them being coopted by the implacable force of corporate America.

Not so, says Allen, who argues that the alcohol distribution model will ultimately prove the guardian of that very culture. “There’s going to be big business in this industry, we can’t keep it out,” he concedes. “[With this model], we can put all the distributors in the Big Business box and we keep the boutique businesses for ourselves. Yeah, this is big money, big business, but it’s contained.”

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