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Gov. Brown Seeks to Eliminate Cannabis Third Party Distribution Model

Marijuana manufacturers fear they might have to operate under antiquated Prohibition style laws precluding them from the distribution of their own products. Governor Brown’s office, however, published on Tuesday a 92-page document outlining proposals to streamline cannabis laws in his state. He included the proposals in a trailer bill of his 2017-2018 budget.

Related: State Police Scrutinize Oregon’s Billion Dollar Black Market for Cannabis

In its current iteration, 2015’s Medical Cannabis Regulation and Safety Act dictates medicinal cannabis and medicinal cannabis products must be distributed through a third party and not the manufacturer.

The MCRSA does this by restricting the number of type of licenses cannabis businesses may hold. “The distributor is responsible for arranging testing of the flower or cannabis product prior to it going to market,” describes the Bureau of Cannabis Control in the trailer bill. “A distributor can hold a transportation license, but is precluded from holding any other license type.”

But, the language in Gov. Brown’s 2017-2018 budget eliminates the third party distribution model. The Administration recommends instead AUMA’s open distribution model.

“Allowing for a business to hold multiple licenses including a distribution license will make it easier for businesses to enter the market, encourage innovation, and strengthen compliance with state law,” states the document. “To ensure the integrity of the testing is maintained, all distributors must arrange for an independent licensed testing laboratory to select a random sample, transport it to a laboratory, and test the product.”

The Administration proposes to maintain AUMA’s vertically integrated licensing structure for both adult use and medicinal cannabis licensees.

“Overly restrictive vertical integration stifles new business models and does not enhance public and consumer safety,” states the Bureau. “AUMA has restrictions to protect against the over concentration of licenses in areas as well as monopolies. It also requires that testing licensees to be independent of all licensees in other categories. “

Although the fight is not over, the language came as relief to marijuana industry participants, like founder Kenny Morrison of , an Oakland-based marijuana edible company.

“I don’t want to be reduced to one page in someone else’s catalogue,” founder Kenny Morrison said. “Independent distributors would only work with established brands, so my company would be safe, but it’s not what is best for the industry or the cannabis patient.” The VCC Brands founder believes this would limit consumer and patient options.

“When a young innovative company cannot bring a product to market themselves and have to rely on someone else to do it, there is a smaller likelihood that innovative product will be a success or get into the patient’s hands. Medical cannabis is in its infancy. There’s gonna be a whole lot of new and innovative products entering the space in the coming years to distribute. But without the sales numbers, distributors won’t be interested.”

He adds: “This is no longer 1933. We have seed-to-sale software. We did not in 1933 have the ability to ensure supply chain integrity like we do today. So, 21st Century technology needs to be leveraged and understood to help this new industry flourish.”

Cannabis industry participants concern themselves that the International Brotherhood of Teamsters, a labor union, has pushed the third-party distributor model. The Teamsters cite their desire to minimize the possibility of antitrust issues. The United Food and Commercial Workers Union (UCFW) has come out in opposition of the Teamster’s plans. Teamsters had opposed Proposition 64, also known as the Adult Use of Marijuana Act (AUMA) before taking a neutral stance.

“Special interests advocate for the wrong policy. Their self-interests are evident,” says Mr. Morrison. “It is not what is best for the cannabis industry. Their policy position is a self-serving one, and their argument is not based in reality.”

Barry Broad, legislative director of the California Teamster Public Affairs Council, says his organization is not hiding its self interest.

“This is a growing industry and we’d like it to grow unionized,’ he says. “‘To have local government, organized labor and law enforcement all together is a pretty potent alliance. What’s on the other side? A couple marijuana people with illusions of grandeur?’” The marijuana people disagree.

“The main crux of the Teamster’s argument was cannabis manufacturers could not be trusted to distribute their own products,” Mr. Morrison summarized. “I find that argument silly. If you don’t trust me to distribute it safely you shouldn’t trust me to make it.”

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