How Vertical Integration Failed FL Patients & Cannabis Businesses


How Florida’s Vertical Integration System Failed Patients and Businesses

Most of us will hear the phrase “don’t judge a book by its cover” at least a hundred times in our lifetimes.  Unfortunately, it seems that we have not yet collectively applied that insight to cannabis. Too often we meet people who believe cannabis is bad because it is federally illegal. Then, those same people flip flop when their state offers a medical cannabis program. This is exactly what we saw when Florida approved the sale of medicinal cannabis through a vertical integration system.

For those unfamiliar with Florida’s vertical integration, it is a system that limits the number of companies allowed to hold a Medical Marijuana Treatment Center (MMTC) license and sell cannabis within the State. MMTC licensees must also handle every aspect of their supply chain from seed to sale.

Basically, only the few companies who can afford to spend upwards of $50 million on a single license and manage everything from growing to processing & distributing cannabis are able to enter this industry. How this does not violate antitrust laws is beyond me. Since I’m not an attorney, however, I will leave the debate of vertical integration’s constitutionality to the courts.

As a Florida resident, I would like to speak on the how this system fails the patients and cannabis businesses. By restricting the number of MMTC license holders to a small group of wealthy individuals, Florida essentially created a legal cannabis cartel.  So, while having access to medical cannabis feels good on the surface, Florida’s vertical integration system appears neither medically nor economically beneficial to the residents themselves.

Since this system was approved, dispensaries struggled to properly manage their supply chains, product quality declined, and affordability is still a challenge for many patients.


Vertical Integration’s Impact on Florida’s Medical Cannabis Supply Chain

When you force anyone to complete specialized tasks they are not equipped or trained to handle, they will likely focus on the one area they are strong at while producing low quality results in almost everything else. In this case, MMTCs are good at making money, but not necessarily growing or processing cannabis. As a result, issues are popping up at every stage of their supply chain. For instance, a major challenge is with the lack of communication between cultivation facilities, dispensary storefronts and corporate executives.

These supply chain issues make themselves obvious with a quick scroll through social media feeds. Some patients report purchasing cannabis only to find empty containers when they get home. Others think they are buying one strain, but realize it’s something completely different when they try the product. Less dramatic, but still important is when patients read company collateral that says one thing while meaning another thing because the MMTCs marketing team did not have much cannabis specific knowledge. 

How can we expect one organization to be great at every single aspect of such a complex industry? We can’t and shouldn’t. Just as we would not blame a group of teachers for their school’s failing grade, let’s not blame dispensary workers for the mistakes of a flawed government policy. I know it’s easy to yell at the budtender for inconveniencing you, but it’s really not their fault or responsibility to fix anything – that all falls on our policy makers in charge.

If we want dispensaries to more effectively manage their inventories, Florida should implement a horizontal integration system. One that allows multiple businesses to play specialized roles across the industry and offers dispensaries the flexibility needed to solve customer problems quickly.

Impact on the Quality of Medical Cannabis in Florida

Since the vertical integration system restricts MMTCs from working with specialized third-parties, the overall quality of cannabis products in Florida continues to decline.

According to Jon Gettman and  Michael Kennedy, “There will not be as great of an incentive to compete in terms of price, quality, and service in order to make a profit” when a regulatory authority allows government to pick winners and losers.  (Let it grow—the open market solution to marijuana control)

Want to see how this plays out on a practical level? Go to a few MMTCs and you might find that they are often out of stock, packages are mislabeled and patients can’t say for certain what they are getting when they walk out of the door. These challenges are exactly why patient education is more important than ever. However, education is virtually nonexistent in many dispensaries even though they are all required by the Florida Department of Health to offer it. (see OMMU’s Application for MMTCs, Sec. 7.3.c)

While it’s bad enough that only a few dispensaries actually offer cannabis education services to their patients – even fewer train their staff for the proper handling of complex patient questions. How can this be? The answer becomes clear when we consider how much Florida dispensaries have to juggle due to this vertically-integrated system. Plus, MMTC stakeholders are more likely to focus on what will make more money, not necessarily what is best for patients’ wellbeing.

For instance, I remember shopping at a couple of Southwest Florida dispensaries and quickly realized that the staffs were not educated on cannabis at all. When asking them about the effects of a certain strain, one employee informed me that she “does not know because [she] does not have a license to use this kind of medication.” Well, that’s odd. You sell weed and can’t speak on strains?

Anyway, the employee then showed me a set of products with a red, green and yellow color-coded system. “Use green in the morning, yellow in the afternoon, red at night. What do you need?” Honestly, I had no idea what I was looking for as I just received my medical cannabis card that day. Since I had a 50% off coupon already, I bought one of each to try. 

Later that day, I found out that the dispensary used a butane extraction method for their oils. Yikes! That sounds bad. Maybe I’ll just try the flower, I thought. Oh wait… although I had a medical cannabis card, I was not allowed to purchase flower until I went back to my physician and paid him some obscene amount of money. Once approved to buy flower, it then came in a pod that was nearly impossible to open and I could only use the MMTC’s approved machine to smoke it.

I was clearly not the only one frustrated by this as I learned through social media that people were breaking their flower pods open with hammers just to see the medicine they bought. Had I been educated in the dispensary about these products, I may have been better able to make the right choices for myself as a patient. In the end, I decided to avoid those specific dispensaries and haven’t been back since. What’s funny is that the policy put in place to help these companies make more money is running people away from legal dispensaries.

This complicated approach to selling cannabis actually makes Florida MMTCs appear no different from street level drug dealers. Actually, dealers will likely know more about the plant than some of Florida budtenders. They might even let you see, smell and touch the product before buying. I can’t say that for sure, but I doubt they’d say no if you ask.

Now, while I compare the customer service between dealers and dispensaries, I laugh because some would argue that “the primary goal of legalization should be the elimination of the illicit trade in marijuana and that maximizing market participation through open markets and personal cultivation is the best approach to achieving this goal.” (2014 Study in NIH’s National Library of Medicine)

One of vertical integration’s biggest flaws is that it disincentivized any real attempt at educating either patients or dispensary workers. If presented with the opportunity to help patients make informed decisions versus making a sale, MMTC-employed budtenders will likely lean toward the latter to keep their jobs. Alternatively, in a horizontally integrated system, smart and skilled budtenders would at least have the option of leaving their company and work at a place more aligned with their values. Until we have an open market that encourages small businesses that are dedicated to maximizing the quality of cannabis in Florida, this problem will likely remain.

The Affordability of Florida’s Medical Cannabis 

When Florida approved the medical cannabis program, many patients were excited about the opportunity to treat themselves more naturally. However, due to the vertical integration, another major obstacle for many is still the cost to receive treatment. It costs hundreds of dollars before patients can even go to a dispensary. Then, the products are so expensive that it makes buying on the street more attractive. That said, it’s not uncommon for someone to get their Florida medical cannabis card “as a form of insurance” then buy everything from their regular dealer.

Think about it. Why would a dispensary drop their costs? There’s no real incentive to do so in a vertically integrated market that limits competition and empowers a small number of businesses dominate without any accountability for their actions.

Take a look at Trulieve who reported that “Its vertically-integrated ‘seed-to-sale’ operation has approximately 50% of the Florida market.” Putting this in perspective, approximately 50 percent of the entire Florida medical cannabis market is controlled by a single entity. Since the other 50 percent is controlled by only several other large businesses as noted in a Miami New Times article, this should classify Florida’s cannabis market as an oligopoly. While that’s not illegal, it definitely provides an opportunity for MMTCs to collude instead of compete with each other when setting prices. If they all charge unreasonably high prices, there’s no need to ever cut costs until one rogue MMTC does so first. Or, until the market opens up.

While the MMTCs are making money and the financially stable patients can access legal cannabis, impoverished residents will continue to suffer. Considering that nearly 1 out of 6 Floridians live in poverty, that’s a lot of people to disregard when designing Florida’s medical cannabis laws. As long as MMTCs are allowed to operate under a vertically integrated system, poorer patients (who might actually need treatment the most) will not be able to access the medical cannabis in Florida. Therefore, the State is indirectly forcing the most vulnerable residents to purchase their cannabis on the illicit market, which puts them at risk of imprisonment and us at the risk of continuing a dangerous cycle around cannabis and crime.

Next Steps for Florida’s Vertical Integration

As mentioned in a recent Orlando Weekly post that discusses a lawsuit filed to challenge vertical integrations, “These actions are not only unconstitutional — the entire scheme is a ‘hoax’ that undermines the explicit will of the voters who chose to add horizontal licensing to their constitution in order to ensure the availability and safe use of medical marijuana.”

While I am in no position to say what is or is not unconstitutional, I can see how vertical integration hurts dispensaries’ ability to effectively manage themselves, hurts patients’ ability to access quality medication and hurts trained specialists’ ability to earn a living doing what is clearly needed.

Through horizontal integration, we could see a market that encourages healthy competition and enables companies to focus only on what they are good at. This should ultimately result in better products, smarter consumers and higher revenues for the businesses.

As of today, the Florida Supreme Court is set to hear arguments for both sides on April 22, 2020 and I look forward to seeing the ruling. Do you have any thoughts on vertical versus horizontal integration? Maybe you have experienced purchasing medical cannabis in Florida. Would love to hear you thoughts.

Share them in the comments below!

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Chris Moore
I'm the founder of Network Jane, and I made this platform to help patients interact with medical cannabis advocates who have similar medical conditions.

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