Legacy cannabis operators are the ones who bore the brunt of prohibition and paved the way for a new, legal market to flourish; one worth billions and one that has been unwelcoming (at best) to these industry OGs. Cannabis activists and many longtime business owners are pushing for the inclusion of legacy brands in the world of legalized pot. Otherwise, states are missing out on billions of dollars annually as illicit sales continue to thrive, even in recreational markets.
The cannabis industry has changed a lot over the last few years, but fundamentally, we all want the same thing: progress, although that could have varying meanings for different people. For more articles like this one, and for exclusive deals on flowers, vapes, edibles, and other products, remember to subscribe to The THC Weekly Newsletter. Also save big on Delta 8, Delta 9 THC, Delta-10 THC, THCO, THCV, THCP & HHC products by checking out our “Best-of” lists!
What are legacy cannabis operators?
Legacy operators are the trailblazers who started their cannabis businesses before it was legal, and are much more in-line with ‘stoner culture’ and history. The term can refer to business owners who run “grey market” dispensaries that have not yet become legally compliant, or street dealers who continue operating the same way they have been for decades.
While some legacy operators have no intentions of going legit, an overwhelming majority say they would if the process wasn’t so expensive and permeated with red tape. With so many different and constantly changing regulations to adhere to, and startup costs in the hundreds of thousands, it’s no surprise that legality is out of reach for many.
Take De’Shawn Avery from New York, who has been selling flowers for years and claims he “provided a very in-demand product when there was no product.” Before legalization, savvy entrepreneurs like Avery were a community staple that many of us were very grateful for; after legalization, they began to worry about the future of their businesses and what their roles would be in the new industry.
Avery, and generations of other legacy dealers, fear they don’t fit the modern-day archetype of a cannabis businessperson. “It’s usually not Black people or people with records who are favored when it comes to money-making opportunities,” he pointed out.
And he’s not far off the mark for thinking that way. A few states have started to keep information on demographics within the cannabis industry and a study conducted by Marijuana Business Daily found that only 4.3 percent of cannabis companies are owned by African Americans, 5.7 percent were Hispanic/Latino owned, and 2.4% were owned by Asian Americans. That leaves 87.6 percent of pot business that are white-owned, most of which are also male-owned companies.
To make matters worse, in most states people with prior felonies face additional restrictions when applying for cannabis business licensing. So, let’s say a legacy operator gets arrested on felony drug possession charges, then cannabis becomes legal in their state the following year. Despite having experience in the industry, existing clientele, and the perfect opportunity to transition from working in the shadows to being a legitimate business owner; they would have to wait 3 to 10 years before they could legally apply for a license. At that point, all the other businesses in their area would be already established, have possibly stolen some of their customers, and it would be even more difficult to get a foot in the door.
The cannabis industry is definitely more inclusive than others, but often, still holds on tightly to that ‘old-boys club’ mentality that can make women, minorities, and those longtime legacy operators feel shut out.
For a perfect example of the struggles faced by cannabis legacy operators, let’s take a quick look at what has been going on in California since the state passed proposition 215 and legalized medical marijuana back in 1996. At that point, the industry was still small and totally fringe. Most residents did not even know that cannabis had been legalized medicinally for so many years, and there were only a small number of dispensaries scattered throughout the state.
By the time I turned 18 (in 2008) and was able to get a ‘medical card’ (which was shockingly easy and practically every pothead I knew had one), the industry had become very recreational. “Dispensaries”, or retail pot shops, were popping up everywhere. I once bought weed from a guy who was running his “dispensary” out of a detached garage on is property in the middle of Victorville, a small town in the high desert on the way to Vegas.
That “anything-goes” state of the industry led to the eventual passing of Proposition 64 in 2016, which legalized the possession and recreational use of cannabis for anyone 21 years of age or older. A lot of the businesses operating under the original medical regime, or under the table as many were, could not meet all the demands of operating in the new legal market, and thus, were forced to shut down or continue running illegally.
One of the biggest issues, aside from the exorbitant costs of licensing, were local moratoriums and that zoned only certain areas for cultivation, retail, and other cannabis operations. By July 2021, still just 31 counties and 181 cities (out of 58 and 482, respectively) allow any type of marijuana businesses within their jurisdictions.
“We voted for a law, and we are blocked at the local level,” says Andrew DeAngelo, a long-time California cannabis activist, industry consultant, and co-founder of legacy dispensary chain, Harborside Collective. “There are big counties that are known for growing weed where it’s banned,” he adds.
States are losing billions
This excessive regulation, greed, lack of consultation or legal help, and over-taxation has resulted in an estimated loss of up to 75% of potential cannabis revenues in some markets. In California, for example, data firms peg the number at around $5.6 billion dollars lost to the illicit market every year, that’s just over one half of the market’s total value in the state.
It’s the only state so far that has seen recreational sales shrink following legalization. And the massive busts of illegal businesses rage on as high taxes and insane operating costs drive up prices, which are then passed on to the consumer. Instead of paying more money for crappier product, many people just stick to buying it from their dealers or illegal dispensaries that charge less and don’t pay taxes.
Not to mention the convenience of buying from dealers, who have traditionally operated on a text-and-delivery or text-and-pickup basis. Even with a growing number of drive-throughs and delivery services, it’s still so much easier to buy from your local plug sometimes.
A ‘less-than-welcoming’ industry
The B2B side of the cannabis world is just like any other industry, and to be successful, you’ll need to be familiar with all the legislative and business jargon that comes with a billion-dollar industry. In cannabis, things can be much more complicated as far as regulations and business dealings are concerned; so the list of topics you’ll need to know, at least at a base level, can get quite expansive.
“I’ve had to educate myself tremendously just to make sure I can speak the language that these people are speaking,” says Marie Montmarquet, co-founder of MD Numbers, a family of weed brands from cultivation to retail that previously operated a delivery business prior to legalization. “So, if I’m in a meeting and they’re talking about 1031 Real Estate transfers, I know what 1031 Real Estate transfers are.”
The ultra-capitalistic environment coupled with constant oversight and regular contact with law enforcement and state/local governments, fosters an environment that feels stuffy, tense, and inhospitable – especially for anyone who has faced their own legal turmoil over cannabis, and still cannot fully trust those powers that be.
Nomenclature: Legacy market vs black market
Much like the politicized issue of the words “marijuana” vs “cannabis”, there is an ongoing debate about replacing the term “black market” with different phrases, one of which is “legacy market”. Black market doesn’t apply solely to cannabis, it refers to any economic activity that happens illegally.
The selling of illegal products, of course, is a black market activity. But selling legal products in ways that are not prohibited also classifies. Like buying cigarettes in one state and selling them in another, for example. Cigarettes are legal in every US state, but because tobacco tax codes vary so much, you cannot legally buy cigarettes in Arizona and go sell them in California for a profit.
The idea has been floating around that using the phrase “black market” is outdated and culturally insensitive. Danielle Jackson (Miz D), a Vancouver-born artist, advocate and entrepreneur, was one of the first to say publicly that “legacy market” should be used over “black market” when describing pre-legalization cannabis businesses. Her comment got overwhelming support from the audience.
Many are tweeting in agreeance, such as Jennifer Caldwell , partner and technical lead at Cannabis License Experts, who added that, “To me, the term ‘black market’ implies a negative connotation of illegality and illegitimacy. Whether people are growing illegally or not is a complex topic at the moment.”
Seeing how much money is on the line, legal states are beginning to offer incentives to make the transition more seamless for legacy cannabis operators. In California, in addition to the $100 million bailout, Governor Newsom has suggested expungement of cannabis-related convictions as well as an extension to allow licensees that have missed the deadlines to transition; albeit at high costs and great inconvenience, still. Other states are taking similar steps to ensure these business owners – the true backbone of the industry – are less excluded.
With legacy dealers, the experience can be a very mom-and-pop, tight-knit atmosphere, so word of out is key to the growth of these businesses. When big businesses come and take over all the available retail locations, cultivation spaces, and advertising channels, there’s little room left for any small businesses to make a name for themselves.
“We’ve seen in lots of other states that big pharma, big tobacco, alcohol and large companies are all prepared to move in and just take over right away,” says New York State Senator Liz Krueger. “We don’t want that to be the story in New York. We want the story to be small mom-and-pop community-based businesses starting and growing and expanding…[and] we want people who are selling in the communities that they live in, in the illegal market and out of the illegal market.”
“We don’t need anybody that’s coming in here just for the financial aspect,” added Edgar Cruz, CEO of cannabis brand Ekstrepe, based out of Long Beach, California. “We all understand that this is a cash cow now. What we need is support for our communities to make sure that we are included in this kind of cultural-based industry.”
This is a lesson that every state or country considering legalization needs to take note of. Despite the financial success of the legal cannabis industry, we need more education and resources, coupled with less taxes and regulatory red tape to harness the untapped knowledge, connections, experience, and economic wealth that exists in the legacy market. Otherwise, consumers will continue shopping for illicit products, states will lose billions, and legalization will have done little more than prevent people from getting arrested for pot possession in certain areas; which is an amazing feat but doesn’t contribute much to the sustainability of the industry.
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Disclaimer: Hi, I’m a researcher and writer. I’m not a doctor, lawyer, or businessperson. All information in my articles is sourced and referenced, and all opinions stated are mine. I am not giving anyone advice, and though I am more than happy to discuss topics, should someone have a further question or concern, they should seek guidance from a relevant professional.
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