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Barriers to Entry across State Cannabis Markets

Thomas E Howard

Barriers to Entry across State Cannabis Markets
Rocky89 via iStock

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Cannabis law is a new and growing niche for the twenty-first-century American lawyer. Cannabis regulation differs across states. A lawyer who is knowledgeable in cannabis law will help navigate the high barriers to entry and business issues unique to cannabis.

Barriers to entering the cannabis market differ from state to state. A preliminary issue is the number and type of available licenses. The number of licenses available differs amongst the states. Illinois, Pennsylvania, and Missouri set a fixed number, and in California and Michigan, municipalities set the number of licenses. Different states offer wholesale grow licenses. For example, in Illinois, a craft grower may contain up to 5,000 square feet of canopy space on its premises for cultivating plants that are more than 5 inches tall with no restrictions on the number of plants. In Colorado, a retail marijuana cultivation license depends on the number of plants.

Low Barriers to Entry

States with the lowest barriers to entry into the cannabis market tend to have the lowest prices and the hardest time controlling the diversion of the supply into untaxed markets. Oklahoma and Oregon are known for having lower competition for licenses to grow cannabis.

California is large enough to have variable levels of competition for licenses depending on type, location, and if the operator wants to get licensed. Compliance costs drop to zero for the unlicensed grower and retailer, but those operators face certain market risks like criminality, violence, or law enforcement intervention.

High Barriers to Entry

Many states have extremely high barriers to entry into the cannabis market. Illinois, New York, and Pennsylvania create competition for the licenses by scoring an application on various multifactored tests. The applications are hundreds of pages long with detailed plans, standards, and practices, all of which become conditions of the license upon award. Florida even attempted to require all industry players to be completely vertically integrated, which priced out anyone without substantial capital and made Multi-State Operators (MSOs) the only viable candidates. New Jersey’s latest medical round of licenses is heavily awarded to MSOs. Illinois restricts and decentralizes the number of licenses in a legislative attempt to distribute the wealth and prevent vertical integration, resulting in fewer dominant players and nothing local.


The industry’s branding and imagery changes depending on a state’s cannabis legislation, despite MSO proliferation. Washington state has a more fun and organic vibe to its operators, while Illinois operators have a wellness and social responsibility theme. This difference could be attributed to the social equity component currently driving the legislative changes to cannabis laws.

New Industry Trends

A push toward carbon-neutral cannabis and many other new industry trends and developments will continue at a pace so rapid that people in the cannabis industry often refer to it as the firehose of cannabis. Thus, cannabis law is a growing practice area young lawyers may consider joining.