Smaller California Co-Ops Competing with Larger Growers

Cannabis plants in a cultivation area

Smaller California Co-Ops Competing with Larger Growers

Jun 05 2019, by Jessica McElfresh in Legal Blog, Marijuana Business

Owing to the expense of opening and operating an adult use cannabis business in California, the state’s cannabis industry is at risk of becoming dominated by a few large players. These big companies are better able to raise capital, pay fees, and hire the personnel needed to plan and execute a successful business strategy. Now, some small cannabis businesses are grouping together into marijuana co-ops so that they can also enjoy some of the advantages enjoyed by their larger counterparts.

California’s new adult use cannabis regulatory system is bringing a sea of change to an already established industry. Many of the old ways of doing business are gone for good. Whether you are an industry veteran or a newcomer, you will need reliable legal counsel for your cannabis business to succeed during these changing times. At McElfresh Law, we’ve built our name on our ability to give sound help and effective representation to some of Southern California’s leading cannabis businesses.

If you want to learn how to make your venture succeed, call a marijuana business lawyer today at (858) 756-7107, or reach out online to schedule your consultation.

Can the Co-Op Model Help Smaller Cannabis Growers Survive?

Acquiring the largest scale growing licenses can be challenging, so large cannabis growers have begun the practice of “license stacking.” They buy dozens of small-grow licenses in one area, effectively operating them as one entity. This model is successful, because the single holding company has the resources to pay the permitting, licensing, insurance, and legal fees needed to operate on a large scale. At the same time, a large company can streamline and save on marketing, distribution, and testing costs.

Currently, California’s adult use cannabis regulations limit each individual member of a cooperative to 10,000 square-feet of canopy area, and a total plot area of four acres. By banding together, these small growers can compete with larger corporations that are stacking licenses. This is possible, because the co-operative enjoys many of the same advantages of their corporate equivalents. Such advantages include:

Lower Operating Costs

The individual cultivators who join a co-op can pool their resources to lower operating costs. In addition to saving on legal help and local permitting fees, co-op members can save up to $2,000 per year on insurance, and $1 per plant they purchase in bulk. Finally, co-ops can build and operate their own processing facilities, which is generally too costly and difficult for a single cultivator.

Stronger Distribution

Now that distributors are a necessary step between cultivators and retailers, some small businesses are getting left behind. Marijuana co-ops can not only get the attention of distributors, but they can provide them with a consistent flow of product that smaller operations cannot provide.

Better Branding

Cultivators need to get the attention of distributors, but also future customers. Co-op members can pool their resources to invest in an effective branding strategy to grow a large and faithful customer following.

Large corporate operations will always have a pricing advantage. There’s simply no better way to grow a lot of product and minimize costs. What co-ops cannot match in terms of economies of scale, however, they can compensate for in quality. Small cultivators spend more time with their plants and are generally able to produce a higher quality product than their larger competitors.

Going the co-op route is not a guaranteed recipe for success. Cultivators can and will disagree on important issues, and having mechanisms for effectively managing disputes and making decisions is essential. In addition to these procedural issues, co-op members need to ensure that they share a common vision before banding together in the first place. Just being in the same neighborhood and growing cannabis is not going to be enough for you to share a successful venture.

Do You Have Questions About Marijuana Co-ops and Your Business? Contact Us Today

Whatever the size or nature of your cannabis business, you will need a good lawyer to succeed in California’s complex and fluid regulatory environment. Running any business is hard, but operating in the cannabis industry presents many additional challenges. If you make a mistake, you and your colleagues could end up behind bars. With so much at stake, you owe it to yourself and to your investors to get the best legal counsel you can find.

Call McElfresh Law today at (858) 756-7107, or reach out through our online form to schedule an initial case evaluation with a San Diego cannabis business lawyer.