Using Group Motivations to Improve Cannabis Industry Outcomes
Written on 14 April 2023
by Ruth Fisher, PhD
- Improving Industry Outcomes
Anyone in cannabis who’s paying attention knows that the industry is seriously dysfunctional for a number of reasons. Some of the more salient ones are:
- Caps on licenses, high Licensing fees, and taxes create barriers to entry and profitability
- Onerous regulations constrict activity
- Many licensed businesses are barely profitable, if not insolvent
- Lack of sufficient information and education constrict activity
- Many people outside the industry are opposed to licensed cannabis activity
Like many others, I spend a good amount of time thinking about how to improve the situation to achieve better outcomes. Taking a game theoretic approach, I need to understand who the different sets of participants in the industry are and what motivates them. Once I know that, I can figure out how to tweak the industry’s incentive structures to get better outcomes.
If you were to ask, “Who participates in the cannabis industry and what motivates their participation?” One could respond simply and quickly with, “There are buyers and sellers. The buyers want the medical or recreational effects and the sellers want money.” Of course, that’s true. Yet, such a superficial understanding of the market won’t get you very far into any analysis that seeks to determine what’s happening and why. On the buy side, there’s the question of, “Why cannabis?” For recreational (adult use) users, one obvious alternative is alcohol – so then, why do buyers choose cannabis over alcohol? Similarly, on the medical side, why do buyers choose cannabis over alternative medications? As for sellers, why sell cannabis and not some other product?
The first thing is to identify the major participants in the industry:
- Buyers/Users of licensed and unlicensed recreational or medical cannabis products and/or services
- Sellers of licensed and unlicensed recreational or medical cannabis products and/or services
And now, why do these groups participate in cannabis, as opposed to some other industry?
As with many “newly visible” industries, the cannabis industry contains a rich population of legacy market participants who have always been there, but who have existed in various marginalized sectors of society, largely outside the purview of mainstream people. And as the industry continues to slowly transition — achingly slowly for most in the industry — from underground to mainstream sectors of society, others have flooded into the industry. Currently, the cannabis industry is comprised of a diverse population of people, attracted by a number of different motivations. I’ve identified five distinct basic motivations driving participation in the cannabis industry:
- To benefit from spiritual/lifestyleeffects
- To benefit from therapeuticeffects
- To benefit from recreationaleffects
- To earn money
- To regulateactivity
Naturally, people may be attracted to participate in the industry by more than one distinct motivation (see Figure 1). Specifically,
- People who seek the spiritual/lifestyle effects of cannabis also enjoy both therapeutic and recreational benefits, and many also participate in the industry to earn money by selling cannabis-related products and/or services.
- Many people argue that “all cannabis use is therapeutic,” which suggests there is a substantial overlap between recreational and therapeutic motivations for participating in the industry.
- The vast majority of people who participate in the industry to earn money also use cannabis for spiritual/lifestyle, therapeutic, and/or recreational purposes.
- By definition, all licensed therapeutic and recreational activity is regulated. Also, virtually all regulators are surely motivated to participate in the industry to earn money for their state or city (i.e., fees and taxes).
Figure 1: Relationships between Cannabis Motivations
Let’s take a deeper dive into each of these groups and try to understand a bit more about “why cannabis?” (See Figure 2 for a summary illustration.)
Of course, the legacy community is not a homogeneous group; members come in all shapes and sizes. Many legacy users have inhabited environments where cannabis has been regularly and openly used, long before licensed markets started to emerge. For many of them, cannabis use generally serves as part of a larger lifestyle that has strong cultural and spiritual aspects and that bestows on members of deep sense of community. Many in the legacy community are anti-establishment folks and are wary, if not disdainful, of government and of the mainstream community, which has held the legacy community in such disregard for decades.
With respect to participating in licensed cannabis markets, some legacy users are currently participating or would participate if the regulatory environment were sufficiently accommodating. Other legacy members, on the other hand, continue to operate underground and would never participate in licensed markets.
Beyond the legacy community, as markets have opened up to licensed cannabis activities, new users, young and old, have been attracted to the industry by the prospect of licensed (legal) cannabis use motivated by spiritual/lifestyle benefits. At the same time, legacy individuals and other new entrants have also been attracted to licensed markets to provide products and services that enhance the experiences cannabis consumers generate from using cannabis. Clearly, though, huge amounts of cannabis activity – production and consumption alike – continues to exist outside the bounds of licensed markets.
For members of the older legacy community and for newer people attracted to this part of the industry, an answer to the question, “why cannabis?” may be “because of the recreational, therapeutic, cultural, spiritual, and community effects associated with its use.”
People who are attracted to cannabis for its therapeutic effects are also a heterogeneous lot. Some medical users have serious conditions, such as epilepsy, cancer, or MS, from which they’re seeking relief, while others use it to help with less critical conditions, such as insomnia, stress, or pain. Of course, medical users are generally motivated to use cannabis because they find it to be a safe and effective means of generating therapeutic effects. In fact, a significant number of medical users specifically choose cannabis as a means of harm reduction, that is, because it’s less toxic than other therapeutics (licit or illicit, prescription or over-the-counter) that they’ve used.
Tremendously inspiring are the numerous people for whom cannabis has been a literal lifesaver. Unbelievable numbers of people work tirelessly as patient evangelists, spreading awareness of the therapeutic potential of cannabis after its use literally saved the lives of, or otherwise immensely increased the quality of life for, either themselves or their loved ones. One of the better-known examples is that of Paige Figi, whose tireless efforts kindled a vast movement in support of CBD use for pediatric epilepsy after it helped relieve her daughter Charlotte’s seizures. Countless others, motivated by altruism, a sense of purpose, anti-establishment anger, and some also by money, promote awareness, education, research, and specifically-formulated products to help relieve medical conditions.
For members of the therapeutic community, then, an answer to the question, “why cannabis?” may be “because it’s safe and effective,” “because it’s less toxic than other medications I’ve tried,” or “because cannabis worked when so many other treatments failed.” Many people in medical cannabis would further respond with, “because the traditional healthcare industry deserted or even scorned me, while the cannabis industry welcomed me.” As with the legacy community, there are big passion/spiritual and community elements that motivate participation by many in the medical cannabis industry.
The classic motivation for using cannabis is for its recreational effects. But even people who use cannabis recreationally are a multi-faceted group. Some use it regularly, while others only occasionally. Many people use cannabis recreationally in the same traditional ways they use alcohol, namely to relax and unwind, to enjoy social situations, or to escape. Many people use cannabis rather than, say, alcohol because of its harm reduction qualities, that is, cannabis doesn’t induce hangovers, and it’s less damaging to physical health (in fact, it may promote wellness). In addition to the traditional effects people use cannabis to achieve, many also use cannabis in ways that are much more therapeutic in nature, such as to help elevate mood or to enhance clarity of thought, athletic performance, or workout recovery.
For recreational users an answer to the question, “why cannabis?” may be “because it provides the benefits I want without the unhealthy side-effects that other close substitutes induce.”
A large portion of the early licensed cannabis businesses were started by longtime users of cannabis, who already understood cannabis cultivation and use. Many had experience, some extensive, in selling cannabis products and services in illicit markets. Many were eager, others hesitant, to transition into the legal markets. These early sellers tended to be motivated by their passion for cannabis, their desire to share the cannabis experience with others, and a desire to earn money while doing so. In contrast, many later entrants were attracted by the prospects of staking their claim in the cannabis gold rush.
For early sellers an answer to the question, “why cannabis?” may be “because it’s what I’m passionate about, and I want to earn money by using my expertise to provide cannabis products and services to others.” For many later sellers, the answer is often “to make money.”
At the federal level, cannabis activity is overseen by the FDA and the DEA. At state and local levels, cannabis activity is overseen by state legislatures, cannabis commissions, and law enforcement. Based on my ongoing research and experience with the regulatory history of cannabis, I have concluded that regulators appear to have four overriding concerns when it comes to establishing licensed cannabis markets:
- Ensuring products available for sale are safe for consumption
- Preventing unauthorized manufacture and use, particularly use by minors
- Ensuring all taxes are paid
- Minimizing opposition to cannabis by the public
Figure 2: Motivations for Participating in the Cannabis Industry
Improving Industry Outcomes
Decreasing Burdensome Regulations
Decidedly absent from the list of regulators’ primary concerns is creating an environment that is conducive to financial viability of licensed businesses. In particular, regulators appear to lack an appreciation for just how oppressive high licensing fees, high taxes, and burdensome regulations – including restrictions on zoning and on direct-to-consumer sales – are for businesses, especially for small business, and especially given the ready availability of illicit market supplies. Many businesses are on the verge of insolvency for a variety of reasons, many regulatory in nature (see also next section below). Also, many licensed businesses are operating with one foot in licensed markets and the other in unlicensed markets. Between competition from illicit operators and that from semi-licensed operators, it’s increasingly difficult for businesses that are trying to operate in a fully compliant manner to remain profitable.
Some states are responding by trying to crack down on unlicensed market activity. Yet, the decades-long war on drugs has established just how ineffective it is to try to stamp out unlicensed activity in the face of strong demand that’s not met by licensed markets. The only way for regulators to minimize unlicensed activity is to make licensed activity more widely available, less burdensome, and more inclusive. With lower fees, taxes and regulations, licensed businesses will be able to charge lower prices, thereby attracting buyers away from unlicensed products. In the process, unlicensed market activity will shrink and tax revenues will expand. In other words, more relaxed regulations will increase business viability, thereby satisfying sellers, while simultaneously decreasing illicit activity and increasing revenues, thereby satisfying regulators.
Improving Financial Viability of Businesses
A combination of onerous taxes and regulations, large surpluses in supply, and various unmet expectations of business owners, have caused many cannabis businesses to verge on insolvency (for a more detailed explanation, see my previous blog, Anatomy of a Cannabis Price Crash).
As indicated above, a large portion of early entrants were people with a history of cannabis use. Presumably, many early entrants believed that familiarity with cannabis was a sufficient basis for success in the industry. Unfortunately, as people have flooded into the industry, each trying to stake his or her claim, the industry has become intensely competitive and much more difficult to survive.
Particularly problematic is the huge, ongoing uncertainty in the industry about if and when cannabis will be descheduled and thus able to flow across state lines. Cultivators in natural grow states (WA, OR, CA, CO) have generated massive gluts in supply, which are causing prices to crash. These growers are eager to export excess supplies to other states, which would stabilize prices and fuel profitability. In the meantime, they’re forced to incur losses until prices stabilize (many are diverting supplies to illicit markets across the nation). Needless to say, many don’t have the funds to do so and are exiting the market.
Success in cannabis currently requires a combination of factors, including:
- Knowledge of cannabis
- Expertise in the specific area of operation, e.g., cultivation, processing, sales.
- Knowledge of business operations in general, and operating in regulated industries in particular
- Deep pockets until the industry settles
The industry has been attracting people from other industries (e.g., pharma, big beverage, CPG) with the expertise to formalize cannabis operations by implementing good manufacturing practices that will enable companies to better comply with regulations while scaling operations. A challenge has been for participants from different backgrounds (cannabis vs. other industries) to appreciate each other’s expertise. Early entrants from the cannabis industry complain that outsiders don’t understand the nuances of cannabis, while entrants from other industries often express disdain for the “informal” methods employed by early entrants. In truth, both sides need each other to be successful and will have to learn to work together to benefit from what each has to offer.
In the early days of legalization, dispensaries housed large glass jars containing loose cannabis buds sold by the ounce. Customers could examine and smell the product before purchase. Those days are long gone. Cannabis flower is now sold in hermetically-sealed single-serving packages whose contents are difficult to assess before buying.
As the industry continues to evolve, the trick will be to create businesses that have all the expertise needed to sustain profitable operations while maintaining the passion and earthy essence of cannabis, which has always been such an important part of the industry.
Efforts of sellers who are motivated by money and lack a connection to or understanding of the plant are falling flat in their efforts to connect with other industry participants. On the flip side, business owners from the world of cannabis who lack an understanding of good/formal business practices are struggling to pass testing and inspection requirements and otherwise comply with regulations.
In the end, though, while I understand the need for safety and consistency and good manufacturing practices, it seems to me that the onerous regulations, the increasing numbers of sellers seeking only to make a quick buck, and the drive by pharma and CPG people to purify and isolate and disconnect the product of its natural essence, so that millions and millions of identical products can be quickly and cleanly generated, is creating a sterile industry. Is this what progress looks like? Maybe for some. Yet, I bet that as forces continue to dissociate the licensed market from cannabis’s original, much more organic essence, people will increasingly revert back to the unlicensed markets where they can retain the original spirit and passion they had before legalization – with all its suffocating requirements and cut-throat competition – began.
Promoting the Provision of Information and Education
Cannabis is a complex plant that contains dozens of active ingredients. Furthermore, people have unique constitutions, so they react to cannabis in idiosyncratic ways. As a result, finding the right cannabis product that will generate the particular therapeutic or recreational effects a user is seeking is a complicated process. Consumers need to understand how to determine which products are right for them, sellers need to understand how to determine which products to recommend to consumers, and growers/processors need to understand which products to provide that will satisfy the needs of consumers. To achieve all this, everyone in the industry needs readily available information on the compounds contained in every cannabis product, together with some understanding of which compounds will generate which effects for which users. Without this information and knowledge, consumers will end up with products that do not satisfy their needs. Consumers will stop buying, and the industry will dry up.
So many people in the industry know this. So many people have been working passionately to drive transparency of information and to educate others about the plant. Unfortunately, information penetrates slowly, and the educators have been thwarted in their efforts to monetize the promotion of transparency and the provision of education.
In the traditional healthcare industry, the provision of information/education is provided by a variety of entities:
- Product manufacturers provide expansive product labeling to consumers, per requirements enforced by the FDA.
- Drug companies provide product education/information to doctors and direct-to-consumers as investments in future sales of their products.
- Doctors provide product education/information to patients, which is funded by patients’ payments to doctors for their services, most of which is reimbursed by health insurance.
- Pharmacists provide product education/information to patients, which is ultimately funded by drug companies as investments in future sales of their products.
In the cannabis industry, regulators require minimal labeling requirements, generally of a select few active ingredients. No big cannabis product companies exist to provide information to sellers or buyers as investments in future sales. Most budtenders who sell cannabis products to patients are not trained by dispensary owners, because most dispensary owners do not see the value in educating their budtenders. Even the cannabis doctors who qualify patients for medical cannabis use generally do not provide (adequate) education to their patients.
Many independent groups have emerged specifically to educate consumers about cannabis. These are people who are generally driven by a passion for the plant, together with their desire to spread the word and help others benefit from its potential. Most of them, though, have been unable to get paid for their services. Patients are used to receiving the education they need either from their doctors or from their pharmacists, without having to also pay an independent third party for that information.
The industry as a whole would benefit tremendously from having educated market participants (for a more detail, see my previous blog: Will High THC Cannabis Continue to Dominate Markets?). Users would achieve better effects, increasing their willingness-to-pay and/or their volume of use. Sellers would be able to sell a larger variety of products, charge higher prices, and earn greater profits. Greater sales volumes would generate more tax revenues for regulators, as well as help improve safety and reduce opposition to cannabis. Everyone wins!
There are several possible ways the provision of education could survive:
- Regulators could allocate some of the cannabis sales tax revenues to fund education.
- Regulators could provide sales tax breaks for medical cannabis sellers if they use those tax savings to fund education. Of course, this would only benefit medical users.
- As competition for sales intensifies, sellers (growers, brands, and dispensaries) who want to avoid a race to the bottom on price could offer education as a means of inducing customer loyalty. Some are doing this, but not nearly enough.
In the end, providing education requires joint cooperation by different members of the cannabis community, which, as yet, has not been forthcoming. I’m hopeful that at some point the industry will figure it out.
Improving Industry Acceptance by Outsiders
There is still much resistance by a large portion of the population to legalizing adult use cannabis. Many of these people have been deeply affected by the decades-long stigmatization, and a good portion of these folks will go to their graves resisting cannabis use. At the same time, there is also a significant portion of the mainstream population of actual or would-be users or supporters of adult use cannabis, under the right circumstances. More education about the true nature of cannabis is sorely needed. So many people are woefully misinformed, and many would support cannabis use if they had accurate information. A less resistant public would put less pressure on regulators to continue to impose overly-strict regulations.
At the same time, I think many people would be more accepting of cannabis under two conditions.
First, growing and smoking cannabis both emit very strong, quite distinct, and often skunky odors. Persistent cannabis odors have been the subject of lawsuits and the alleged cause of decreases in property values and quality of life. A 2019 survey of 1,000 US adults reported that the vast majority – 84% – support cannabis use, yet over half still reported its smell in public being either a major or a minor problem. While there are new and existing technologies that attempt to control cannabis odors – more so in confined spaces – the odor continues to be an ongoing problem that the industry needs to solve.
To their credit, members of the cannabis community have long been crying out for the legalization of cannabis lounges where cannabis users can have their own spaces for smoking cannabis, but regulators have been very slow to move on this. Regulators would go a long way in stemming resistance to cannabis by the general public of they did a better job at providing spaces where cannabis users could legally congregate and consume cannabis with friends without bothering non-participants.
While innovators are developing new technologies to address the problem, noxious cannabis odors are an ongoing issue for both cannabis production and consumption.
The other condition under which I think current non-users would be more accepting of cannabis use is if smokers did not glorify smoking.
The first report of the Surgeon General’s Advisory Committee on Smoking and Health was released in 1964. It was a landmark first step to diminish the impact of tobacco use on the health of the American people. Over the course of more than 40 years, the Centers for Disease Control and Prevention’s Office on Smoking and Health has been responsible for 34 reports on the health consequences of smoking.
Anyone over, say, 30 is keenly aware of the massive anti-smoking campaigns – Reports from the Surgeon General, public service announcements, bans on advertising, labels requiring graphic descriptions of the harms from smoking, etc. – that have been waged since the Surgeon General’s initial report on the harms from smoking were released in 1964. As much as people have been colored by the anti-cannabis stigma, so too have they been colored by the anti-smoking stigma.
Smoking cannabis flower remains the most popular form of cannabis use, and I believe it will continue to remain a significant form well into the future. However, I think people in the cannabis industry should appreciate just how averse the general public – and especially anyone involved in the traditional healthcare industry – is to smoking. I am not denigrating cannabis smokers. I am simply presenting a viewpoint held by a large number of people outside (and I bet not a small number inside) cannabis. If the cannabis industry wants to win more support for cannabis use from people currently outside the industry, when appropriate, it should focus more on promoting non-smoking forms of consumption to would-be users.
 See, for example, https://quantaa.com/blog/571-what-will-cannabis-deschedulization-look-like