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From legacy to legal, the cannabis market belongs to who?

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Three years ago, Canada legalized cannabis, but the market did not come with products familiar to most Canadian customers. Beloved small growers and their brands could not make Health Canada‘s initial cut, including a shortlist of former licensed producers. A shift from legacy to legal industry occurred, but license holders don’t own the industry because the cannabis market belongs to consumers.

Legacy cannabis — the black market — was slowly shut down after legalization. After establishing regulations, the shift restricted most product and brand promotion, limiting consumer connection and knowledge. Producers also struggled to maintain quality for a reasonable price.

And so, customers became harder to satisfy in part because of regulations. Beyond quality, however, industry experts think the legal market completely lacks brands and high-quality products to attract customer appeal.

Legacy brands were free to market themselves, but the legal industry belongs to consumers despite the regulation imposed restrictions.
A lighter is granted endless marketing potential compared to Canadian cannabis.

A brand house rolls up a piece of Big Cannabis

Old-school home growers, on the greener thumb, have spent years sussing quality. Whereas, for three years, Canada’s legal cannabis industry has struggled to overcome a plague of bad bud. Product is put on shelves dead after irradiation and typically left to dry out in monotone clunky cardboard-cocooned containers. During a phone call, Trang Trinh, the founder of TREC Brands, agreed that the legacy market is an asset while also urging that customers are key.

What I noticed is that everyone was focused on funding capacity and pumping dollars into infrastructure and no one was focused on selling to the end consumer. And what I learned during my days working with really large clients and companies at Deloitte, and what I learned from all of these transactions, is that people always come first. 

Trang

Raid after raid, brands fell from the free market

However, many Canadians were left deserted after decade-old traditional, legacy market brands were wiped out three years ago, raid after raid. Industry experts agree that companies spent millions of dollars on infrastructure that simply functioned as a sponge for investors. Therefore, it’s evident that the legacy market’s role continues to be suppressed rather than adequately replaced by Big Cannabis.

Labels in Canada’s market remain sorely short of colour and information, speckled instead with overstated warnings. These shortfalls disengage consumers from the legal market, encouraging them to fall back on legacy, tradition and the brands and small businesses consumers used to love.

TREC is acquiring Agripharm with hopes of growing in the Canadian market. Over the last three months, they captured a 1 percent hold on the dry flower market in BC, Alberta, and Ontario, doubled from six months prior. They plan to integrate vertically, backwards into the Canadian market to more than double a revenue currently on pace for $10.5M in 2021. But does their success rely on the cannabis market, which truly belongs to the consumers?

Consider that legacy market producers are known to establish an independent network and dip. Additionally, that Agripharm is one-third owned by Canopy Growth. And small growers have launched off of and away from Canopy in the past. 

Is the legacy market a foundation for Big Cannabis?

El Hasho, known formally as Mike Imposimato, is a legacy market hash producer (hashishin). El Hasho is a well-recognized figure in the hash and solventless cannabis extracts industry. Co-founded by El Hasho, alongside John Fowler and Scott Walters, BIG (Blaise Independent Growers) processes cannabis under an agreement with Agripharm, a licensed cannabis producer. This is one example where legacy growers and processors act as a key in a market sorely lacking experience. As such, Trang agreed that Imposimato — alongside other extract artists — accounted for a piece of their decision.

That is one component that inspired the transaction [with Agripharm], but the deal also checks a lot of other boxes for us.

Trang

Three current owners comprise the licensed producer her company plans to acquire in the coming months. And still, details regarding management and ownership have yet to be completely sussed in the transaction. Regardless, Canopy Growth Corporation, Organa Brands, and Green House Genetics collectively own Agripharm and have become shareholders of TREC (Trust, Respect, Ethics, and Compassion) with a 35 percent claim. But will vertical integrations promote strength in the partnership, or will acquisitions encourage experts from the legacy market to move into their own business?

TREC will actually commercialize the products, meaning that we will facilitate the listings with the boards and sell to retail partners, and also from a marketing perspective, get consumers to pull. 

Trang

To satisfy customers, they hope to rely on brand development and their new partners to produce quality products. A new report by Deloitte, HiFyre, and BDSA suggests 86% of consumers are willing to pay a premium for better products and that craft cannabis climbed 158% since 2020. Due to regulations, though, high-quality cannabis takes considerable effort to produce. Furthermore, brands do not yet play a role in the market according to Deloitte’s report.

Another recent study proved that consumers unknowingly make decisions based on terpene profiles. So, quality is quintessential, and the secret behind repeat customers is finding a perfect ratio between THC ratio, aromatics, and effects. Terpenes, however, face many unfortunate restrictions before they can reach a consumer’s palate. Improved product management and distribution can solve the issue of year-old, oxidized cannabis, except in provinces that host their liquor board as a centralized middle-man.

In early October, a cannabis retailer in Pemberton, BC, noted extracts produced under Agripharm brands — alongside several other products — were sold out on the BC Cannabis Stores Wholesale Website, the solitary access point for BC stores. To be fair, though, Agripharm is located in Creemore, Ontario.

Canopy Growth Corporation (CGC, WEED). November 17, 2021.

Buying power, a cannabis market big or small belongs to the consumers

In any case, consumers might see more legacy market producers at least enter the legal market if access was more convenient for consumers. In the event they do, a brand house might have a chance at success relative to Canopy’s independent track record of dumping dollars. But will customers make the same transition, or will their traditions and sales be dedicated to the legacy of the free market?

Another legacy market network is currently drafting into Canada’s legal industry that carried several unlicensed brands in the shadows throughout the gantlet of legalization. Those familiar with El Hasho might recognize the brand house, Ghost Drops.

At the end of the day, albeit grand with opportunities, stock options are not traditional or viable in a cannabis market that belongs to consumers and patients. Any brand house’s success will rely on the craftsmanship of farmers, hashinins, and extract artists. So is any brand house or distributor in the right laneway to preserve and express those terpenes despite a haze of regulation and law, or will a farm-gate cannabis model better fit the market?

Let us know in the comments if you think legacy producers should draft into legal operations or keep hashing it out on the free market. And stay tuned to learn how the shift the cannabis industry took during the pandemic paled in comparison to the legacy market shutdown.





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‘Millions Of Pounds’ Of Legal Weed Diverted To Underground Market In CA — Guess Who Seems To Be Turning A Blind Eye?

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By Nicolas Jose Rodriguez

A suit filed last week in state court by a California retail chain against the Department of Cannabis Control (DCC) alleges that criminals have been legally buying an unknown number of cannabis distribution licenses, reported MJBizDaily.

The DCC is responsible for, among other things, establishing, implementing, maintaining, and enforcing a track and trace program for reporting the movement of cannabis products throughout the distribution chain.

3 Busted Myths On Today's Cannabis Consumers From California
Photo by Viviana Rishe via Unsplash

Through this lawsuit, HNHPC, Inc., a state/local licensed dispensary in Santa Ana, seeks to compel the DCC to perform its legal duties.

According to HNHPC, the DCC’s failure to perform its legal duty to implement systems to properly track and flag questionable transactions has led to the exponential rise of “Burner Distros,” which conceal and launder State-grown cannabis for delivery to unregulated markets without paying significant legally mandated taxes.

According to the suit, operators (usually legal cannabis operators) purchase or obtain distribution licenses in various local jurisdictions, often where cultivation operations are prevalent and/or where such licenses are relatively easy to acquire. They do this by using an array of different “front men” who agree to attach their names to the licenses.

RELATED: This State Is Home To The Largest Marijuana Black Market

Once licensed, the Burner Distros purchase large quantities of cannabis from cultivators within the State. By law, Burner Distros are responsible for paying all mandated taxes although they “may or may not pay” them, alleged the Plaintiff.

HNHPC is informed and believes the system implemented by the DCC, called “METRC,” can be re-designed to identify Burner Distros, but it would require the State to amend its current agreement with the developer of METRC.

RELATED: Marijuana Legalization Makes Black Market Weed Cheaper, Heroin More Expensive

In addition, the suit alleges that the DCC and the State have purposely turned a blind eye to illegal Burner Distros in order to keep excess cultivation tax money flowing in.

“This leads to two inevitable and ultimately devastating consequences,” claims the suit.

  • A cheaper illicit-market cannabis undercuts the legal industry, for starters.
  • A huge hit to state tax revenue, which the suit estimates could be in the “hundreds of millions of dollars.”

The practical result: The legal market has been propping up the illicit market instead of replacing it, said Elliot Lewis, CEO of Catalyst Cannabis Co., a California retail chain that operates six stores. Catalyst’s parent company, HNHPC, is the plaintiff in the suit, per MJBiz.

Marijuana Legalization Makes Black Market Weed Cheaper, Heroin More Expensive
Photo by Matthew Karila via Unsplash

“More legal product is going out of the state than is being sold legally in the state,” Lewis added. “The only question is, is it two times, three times, four times?”

Industry executives say the lawsuit is important because it exposes a problem that state regulators and lawmakers need to address.

“I’m really happy this lawsuit is coming to light because it’ll force the state to act,” said Vince Ning, CEO of Oakland-based marijuana distributor Nabis.

Others in the industry seem to agree that the lawsuit is exposing a serious flaw in the regulatory system that is “cutting the financial legs out from under the legal market,” wrote MJBiz Daily.

This article originally appeared on Benzinga and has been reposted with permission.



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Once illegal brands are taking over the legal cannabis market

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Before legalization, cannabis enthusiasts perfected their products with the hopes of participating in the legal market. The legacy market, a term used largely to describe these prohibition pros, offers years of expertise that can ultimately lead to better products.

Licensed producers are seeing this value, offering many of these players partnership deals to bring their products to market. As a result, the legacy-to-legal pipeline is thriving—and for the industry and the consumer, that’s a very good thing.

“Legal, illegal, it doesn’t matter to us. We grew up in a time when all this stuff was illegal.”

Matt Zysman, co-founder Shatterizer

Victory is sweet for gummy brand

Tabitha Fritz and her husband Ari Cohen started selling gummy edibles at Toronto’s popular Green Market in Kensington back in 2016. It was a popular launch point and Fritz’s Cannabis Company, as it is called now, grew into something the couple were dedicated to.

However, the legal market remained the goal for the couple. In order to make the transition from the illicit market to the regulated space, they had to start preparing for the licensing process.

“It wasn’t sustainable,” says Fritz. “We have kids, we have a family, we need to make sure that we’re not freaking out every time the doorbell rings.”

So they shut down their website, stopped selling gummies, and got to work transitioning into the legal market. Fritz’s teamed up with Medz Cannabis, a producer aiming to bring on ‘innovative, quality-centric and legacy transfer brands.’

“It took almost about a year to actually make the transition; it was really, really difficult,” Fritz says. ”It took a lot longer than we expected, and it cost more money than we expected it to cost, but here we are now, and I’m selling gummies.”

The rise of a different kind of cannabis entrepreneur

Medz Cannabis has become a convenient pathway into the legal market, with more brands coming up all the time. Day-to-day, it means Fritz and Cohen are working in a facility alongside other small producers, many of whom also come from the legacy market.

“There’s a few of us who are trying right now to form a co-op of small producers, legacy market people,” she says. The co-op’s aim is to help incubate a new generation of cannabis industry players, hopeful that they can lead and shape the industry’s future.

A little more Kensington Market, a little less Bay Street.

Fritz and Cohen are proud of their transition from legacy to legal markets. (Fritz’s Cannabis Company)

“All of the sudden we have this network of knowledge and ideas,” she says. “I think by collaborating and having people right there with us who feel the same way, it helps us do better.”

The old face of the industry “was a group of people who are almost entirely made up of white guys in suits,” she says. “I think what we’ve seen now is that doesn’t work, it doesn’t translate in cannabis, and that’s a good thing.”

“We have a chance to sort of rebuild everything in the way that makes the most sense for the world doing forward. It’s some creative destruction in there.”

Not everyone has been able to ‘go legit’

Others have not found the transition so easy.

For a couple of years around the start of the legal market, edible-maker and Treats and Treats founder Yannick Craigwell’s name showed up in the news a lot.

The then-brand-new legal cannabis industry was supposed to be a godsend for people like him—small-time cannabis entrepreneurs who possessed the talents, experience, and products that the legal industry wanted.

When news outlets wanted to understand who these people were and what they wanted, many of them called Craigwell.

Craigwell would tell you he is a baker who makes edibles, not an edible-maker who bakes; this distinction is crucial, he says, because it affects both the process and the final product.

“You realize how hard it is just to get over to that side,” he says. “Once you think you’ve gone through a door, you realize no, you’ve just put your foot in the door frame. The door’s not really open yet.”

To stay truly independent remains difficult and expensive—for people like Craigwell, the best option is still to try and cut a fair deal with a licensed producer. As producers realize the value of products from the legacy market, those deals are starting to get better.

So far, that’s been more marathon than a sprint for Craigwell. The hope, for him and plenty of other businesses like his, is that the wait pays off and allows him to carve out a little corner of the legal cannabis industry where his ‘baker’s process’ can flourish.

‘Legal, illegal, it doesn’t matter to us’

And then there’s Val McCulloch and Matt Zysman, the creators of the Shatterizer dab pen.

One effect of the blurring lines between legacy and legal is it brings in characters like McCulloch and Zysman — enthusiastic about pot and evangelical power users of their own product.

The pair took a homemade ‘Frankenstein’ vape and turned it into a tidy device and sustainable family business. They seem cut from a different cloth than a lot of the legal industry.

They supported their legacy market friends with the Shatterizer vape, now they have a line of cannabis concentrates to match. (Twitter @aglibs)

Although they were never quite ‘illegal’, they were always legacy-market adjacent. Part of an early cohort of cannabis vaporizers aimed at medical patients and adult-use enthusiasts alike.

“We weren’t out growing or selling any cannabis products,” Zysman says. “But we were supporting a lot of legacy friends with our hardware.”

Now, they’re rolling out their own brand of shatter—the planned next step for them, and their first true legacy-to-legal product.

“We just wanted to make sure that when it was fully legal to produce extracts, that we could participate,” Zysman says.

“We’ve always dreamed of having an extracts brand,” McCulloch says. Part of that is that they both love extracts, and want other people to love them, too. “We have a real opportunity to educate here. To have some fun.”

For them, the strict lines between legacy and legal don’t matter all that much. Their allegiance is not to the cannabis industry but to the cannabis community, on whichever side of the law they fall.

Rather than legacy and legal being strictly opposed to one another, their view on it is that both can sustainably coexist.

“Legal, illegal, it doesn’t matter to us,” Zysman says. “We grew up in a time when all this stuff was illegal. It wasn’t an issue for us then, and it isn’t an issue for us now.”

“Since going into the legal side with our extracts, we’ve still been supported and embraced by our friends in the legacy community. We’re all doing what we’re passionate about. There’s room for everybody to play.”

Kieran Delamont's Bio Image

Kieran Delamont

Kieran is a writer and photographer based in Nova Scotia, located in Mi’kma’ki, the ancestral and unceded territory of the Mi’kmaq people. His work has appeared in Broadview, The Walrus, Maisonneuve, and elsewhere, and he has been writing about the cannabis industry since 2016.

View Kieran Delamont’s articles





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Are High State Marijuana Taxes Really The Cause Of The Tenacious Black Market?

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Cannabis advocates have argued for years that legalization is the key to ending the black market pot trade. However, it’s been more than a decade since Colorado became the first state to legalize the leaf for recreational use, and the illicit marijuana market hasn’t gone anywhere.

Some reports show that 80% of California’s weed sales are still made in the black market, despite full-scale legalization. Nevertheless, this is not legalization’s fault, according to the advocacy groups. They blame high taxes as one of the primary reasons that black-market marijuana won’t die.

Marijuana Legalization Makes Black Market Weed Cheaper, Heroin More Expensive
Photo by Matthew Karila via Unsplash

“By raising the price of marijuana for consumers, these costs undermine a major competing purpose of legalization: elimination of the black market,” claims a political study published last year by Reason Foundation. “As demonstrated by alcohol and cigarettes, excessive taxation can influence consumers’ decisions to patronize the black market.”

In many ways, statewide marijuana legalization, even without the high tax rates, has stoked black market commerce nationwide. Aside from an influx of unlicensed pot shops operating in legal states — making it challenging for legal operations to remain profitable — illegal growers are using the liberal pot laws to produce a surplus of illicit pot and export it to areas of prohibition.

As I pointed out in a 2018 column for Forbes, marijuana legalization makes the black market better in prohibition states. It allows pot consumers in places like Indiana and Kentucky, where weed is still as illegal as ever, to purchase several different strains, concentrates, edibles, anything really. This crucial part of the illicit trade has nothing to do with high taxes.

It’s all about demand.

Taxation instead of criminalization is what cannabis advocates have spent decades trying to sell. It was the leading advantage long before anyone ever thought that weed would eventually go legal. “Can you imagine how much money the government would make if they would just legalize it?” was the typical spiel coming from the mouths of defenders of the doob. But now, they complain that the taxation scheme isn’t all it’s cracked up to be. Still, it’s not even that local and state governments are failing to generate substantial revenues by selling weed to adults 21 and over. Colorado continues to collect roughly $50 million a month from legitimate pot shops.

RELATED: Marijuana Legalization Makes Black Market Weed Cheaper, Heroin More Expensive

Nevertheless, the illicit pot trade doesn’t appear to be going anywhere soon. As we’ve seen over the years, states that have legalized marijuana for recreational use are not willing to give up tax dollars for the sake of crippling the black market. Illinois has one of the highest tax rates in the nation. Meanwhile, Colorado voters will decide later this year to increase pot taxes to boost out-of-school learning.

Will this hike drive more customers into the black market? Some industry experts argue that Colorado pot consumers are too invested in legal weed to return to the black market now.

how the costco of cannabis will upend marijuana black market
Photo by Yarygin/Getty Images

“Even if taxes inch up and black market prices go down, an eighth of weed is still the same price — if not cheaper — as it was through a weed dealer in 2014,” wrote Herbert Fuego for the Denver Westword. “That’s good enough for most people who don’t smoke every day, and heavy users now find the most reliable concentrates at dispensaries.”

Other cannabis industry officials admit that the black market pot trade is probably going to stick around a while. “I don’t think we’re ever completely going to eliminate the illicit market, I think that’s probably unrealistic,” Steve Hoffman of the Massachusetts Cannabis Commission told Politico.

RELATED: Why The Black Market Continues To Thrive — And What Is Being Done About It

The real cause of the tenacious black market pot trade isn’t high taxes. It’s nationwide prohibition. Once the federal government legalizes it like alcohol and tobacco — something Senate Majority Leader Chuck Schumer is trying to do — more states will jump on board the trend, if for no other reason than the tax revenue. Schumer’s plan comes with a 25% tax rate, which some states worry will cause financial hardships. “If a national market is not rolled out carefully and in stages, large companies, particularly existing tobacco-focused companies, will be able to move into new markets immediately, displacing and pushing out smaller players,” wrote Colorado Attorney General Phil Weiser

It will be these large corporations, however, that stand the best chance at competing with a tax-free black market.

In the end, adult-use marijuana laws in every state are the only way to effectively combat the black market. As long as there is a spot of prohibition, there will be an opportunity for criminal organizations to capitalize. Even when fully legal, just like with alcohol at the end of federal prohibition, illicit operations will continue to hang around for a while. Eventually, though, the people will pay to get their pot legally and the black market will become almost nonexistent. Almost.



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