Contact Us


Disruptive Competition Project

655 15th St., NW

Suite 410


Washington, D.C. 20005

Phone: (202) 783-0070
Fax: (202) 783-0534

Contact Us

Please fill out this form and we will get in touch with you shortly.
Close

High Barriers to Entry: Licensed Medical Marijuana Providers Fight Against Marijuana Legalization

· October 25, 2012

Categories

[Nothing in this post should be taken as a stance on the marijuana legalization movement.  Just highlighting the phenomenon of incumbents using regulation as a barrier to entry.  We step on enough toes as it is…]

We at DisCo write a lot about disruptive competition in different industries — food trucks, Uber and Airbnb — but one we haven’t written about yet?  Marijuana.

This election season brings several states with marijuana legalization questions on the ballot.  As NPR reports about Washington state:

The most vocal opposition, meanwhile, is coming from purveyors of medical marijuana.

What does this have to do with disruptive competition? (Arguably, this is artificial disruption… because the incumbents are fully protected by regulation and the competitors are just looking to be able to grow/sell their own product.  No classic “disruptive” business models—at least not yet.)

It’s pretty typical, really.  One of the persistent themes surrounding tech-enabled market entrants has been that established incumbents respond to the competitive threat by manipulating regulatory structures to hamstring the upstart.  The same appears to be true here, in a somewhat more ‘organic’ market: licensed sellers of medical marijuana are the established, dominant parties in the industry, threatened by competition from new entrants that would result from legalization.  Being well acquainted with the levers of existing regulatory structure, they resort to political action to maintain their exclusive status.

(It is also hard for them to argue against legalization on moral grounds… given their line of business and their “liberal” interpretation of “medical” in many cases [including its “medical” use in dog biscuits].  As one of the incumbents who is interviewed complains against the proposed laws “compromise” that includes banning the operating of a motor vehicle with certain levels of THC in the bloodstream.  It is pretty clear that the incumbent push back is solely for self-interested economic reasons.)

More from the article after the jump…

“We’ve reached a place in our society, nationwide, where now a majority support marijuana legalization,” Holcomb [who runs the “Yes” Campaign] says.

She may be right: In a Rasmussen poll earlier this year, 56 percent of respondents favored legalizing and regulating marijuana. The Washington initiative is getting support from across the political spectrum, including two former U.S. attorneys, the Seattle city attorney and even the Republican candidate for Senate, Michael Baumgartner. The most vocal opposition, meanwhile, is coming from purveyors of medical marijuana….

Without naming names, Holcomb accuses some medical marijuana entrepreneurs of wanting to keep pot in a profitable gray area — unregulated and untaxed. It’s a concern echoed by King County Sheriff Steve Strachan.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.