Florida Court Rules Vertical Integration In Marijuana Industry “Unconstitutional”

Florida Court Rules Vertical Integration In Marijuana Industry “Unconstitutional”

Florida has watched from the sidelines for years as other states such as Colorado, Oregon, and California legalized recreational marijuana. Numerous groups are clamoring for legalization recreationally, and simultaneously, the Florida laws that created a vertically integrated business model for distributing medical marijuana were rejected by Florida’s 1st District Court of Appeal.

With Florida in an apparent state of flux related to both sides of the cannabis industry, will the state’s regulatory parameters favor large corporations or individuals? It’s most likely going to play out gradually in the courts — but significant changes are coming to the Florida cannabis industry, one of which was a recent rescinding of a ban on smoking medical marijuana.

Governor Flip-Flop

Florida governor Ron DeSantis, who initially claimed vertical integration went against free-market principles, has reversed his position on the matter. In January 2019 he spoke out in favor of breaking up the vertically-integrated companies that monopolize the market in his state. Then, in an about-face, his office asked the appellate court to reconsider its ruling.

When millions (or billions) of dollars are at stake, it’s likely that his change of heart had to do with pressure from industry heavy-hitters, lobbying for the six vertically-integrated medical marijuana businesses that operate nearly all (122 of the 144 statewide) dispensaries in Florida. For example, MedMen’s license in Florida cost the company upwards of $54 million, and one of the largest income-producing cannabis companies in the country, Truelieve, attributes the majority of their revenue to the Florida market. This indicates that the big players in the cannabis industry already have a dog in the fight, and they’re not going to acquiesce to regulations that hurt their bottom line.

Horizontal vs. Vertical

Most states with legal recreational cannabis are horizontally integrated, which requires separate licenses for every part of the business — from growing to manufacturing to distribution to retail outlets. In Florida, however, the state-issued licenses are vertically integrated from the start, and the license owner can operate within every step of the supply chain, from seed all the way to the final sale of the product. In California and Oregon, for example, the way to become vertically integrated is to own different types of licenses simultaneously.

By eliminating vertically integrated licenses in Florida, it is anticipated that the result will be more products to select from, due to more (read: smaller) companies able to operate in the industry. Right now, cannabis companies can only sell the products they make, meaning Company A cannot sell products from Company B, for example. Removing vertical integration is anticipated to free the market — Company A can now sell any product they want to, for instance.

What’s Next?

Because the current vertically integrated cannabis system has been deemed “unconstitutional” for how it caps licenses and allows for the monopolization of the entire industry by a few select companies, a 1st District Court of Appeal decision in the state capital of Tallahassee means time — because the case deals with the constitutionality of a state statute, it will go to the Florida Supreme Court, which takes between 12-18 months to process.

Legal experts predict that Florida, a state whose legislature is very involved with policymaking, will eventually grandfather in the existing vertical licenses before issuing a number of dispensary and cultivation permits, for example. The state legislature has plenty of work on the horizon. From creating licenses that support horizontal integration to clamping down on black market product diversion, to creating regulatory provisions that the Department of Health can monitor. The policymakers in the state will most likely ensure tight regulation for the marijuana industry, similar to the regulatory oversight of alcoholic beverages and gambling, both of which are highly-regulated and limited in scope.

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About Brian Ellis

With 6 years' experience in business journalism, Brian is the person we turn to for anything related to the business of cannabis. His news coverage spans topics including marijuana business and finance. Brian's work features on marijuanareferral.com, marijuanamerchantaccount.com and marijuanainsuranceagent.com.