The Grant is Greener

In California, legalized cannabis is a $5 billion industry. But are excessive taxes and a hodgepodge of municipal regulations hampering the market? A group of Cal Poly professors are investigating just that.

Agribusiness Professor Michael McCullough was awarded a $445,000 grant from the California Department of Cannabis Control to study how California’s regulation of the cannabis industry impacts markets and growth potential. Cal Poly is one of only two California State University campuses to receive the funding, which is part of a larger $20 million investment in research by the state at 16 colleges and universities.

McCullough has done extensive research in the beer and wine industries and specializes in California production agriculture and the implications the regulatory environment has on producers. He will work alongside Professor Lynn Hamilton, Assistant Professor Dan Scheitrum and graduate and undergraduate students over the next two years to examine the effects that local regulation throughout California has had on market concentration and prices, and how differences in local regulation can impact market power, unfair competitive practices and the growth of the California cannabis market.

The research will detail local cannabis regulation across the supply chain and throughout California to identify instances that may have created unfair competition. The research team will then combine extensive industry interviews with price and quantity data and market concentration to estimate market power in local areas. Ultimately, the project will examine state policies that could mitigate non-competitive effects of market concentration.

“The cannabis industry is very similar to the alcohol industry,” McCullough said. “When the use, sale and cultivation of marijuana was legalized in California in 2017, local municipalities were left to figure out for themselves how to regulate it. This created a vast array of differing regulations.”

McCullough added that some of these regulations may have created local monopolies and unfair practices in the industry that can lead to higher-than-normal margins and prices, as well as a reduction of the quantity of legal cannabis sales. “The goal of our research is to evaluate different state policies that could potentially reduce the impact of these practices and therefore create a healthier California cannabis industry.”


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