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Rivalry among existing competitors: (strong for companies who’s fragmented in the
industry/medium for companies with vertical integration)
Threat of new entrants: (Strong, very hard for new entrants to obtain all the legal
authorizations/ medium for company who’s already have the infrastructure)
Require licenses (local and state) for different types of marijuana businesses
(growers/distributors/transporters/manufacturers/retailers...)
Growing facilities and skilled labor
Depending on the season, suppliers have more bargaining power (supply from
outdoor and greenhouse cultivation increases sharply during the fall).
Cf. table 5
Bargaining power of buyers: (low, as a drugs buyers have not much bargaining power on the
price)
The major marijuana companies should continue to integrate the three stages of the values chains.
We know how hard it is to obtain different types of licenses. Once you get it, you should not split the
chain for many reasons. Legal marijuana companies have dominant position on the market. The cost
and availability licenses are different by states. Some states don’t allow a lot of licenses thus split the
chain will allows other to get licenses and therefore potential competitors to enter the sector. Other
states have strict eligibility criteria like Colorado; licensees must be US citizens, be state residents,
have clean criminal records, and meet other standards, but there is no quantitative limit on licenses
issued. The result of the mandatory local authorizations and state licenses is that there is a
concentration in the business industry. Some states dispensaries are required to supply their own
marijuana; therefore, they need vertical integration in those jurisdictions.
The continued growth in the marijuana industry encourages the companies to vertically integrates
the stages for economies of scale if you want to be leading player in the sector. A lot of consolidation
through merger came out for exploit those economies of scale. It benefits them also to avoid
bargaining power of suppliers.
Marijuana companies as a lot of direct and indirect costs. The main indirect cost are taxes and
licensing fees, fixed asset depreciation, and overheads related to security, compliance, marketing,
and administration. As marijuana is an agricultural product, you can suffer crop losses caused by
disease, power outages, quality deficiencies, theft, and climatic adversity (including wildfires). All
those costs and risks can influence your price thus the bargaining power of buyers will be affected if
buyers can buy the same marijuana at a lower price. The vertical integration will help to have a better
competitive price on the market. We can notice that the price became lower because the growth in
supply outpaced growth in demand. Smaller business without integration will soon be no longer
competitive with others big companies.
The vertical integration will allow companies to have more budget on marketing and R&D to offer
more cannabis-based products. It will reinforce your position against existing competitors and having
a more diversified offer for your customers.