A “Perfect” Marijuana Industry Model
There aren’t a lot of blank canvases left in the modern cannabis industry. In my many years as an expert in cannabis policy and regulation – both court-appointed and peer-recognized – I’ve had the privilege to see what has worked and what has not in regulatory models from three dozen states and globally.
When asked, what should an “ideal marijuana market look like”, I go back to 2009 when the DOJ memo came out and shaped much of what the US industry has become. Here, in Colorado, we led the way – I remember scrambling to force vertical integration on growers and retailers from the Green Rush 1.0 and watching just as many shotgun divorces in the process as nearly 70% of those early entrepreneurs failed in the subsequent 18 months.
I helped Colorado’s history Amendment 64 campaign by managing all of Southern Colorado – eeking out victories by 10 voters in conservative El Paso County and sadly shook my head as Colorado Springs ignored the voter’s will to regulate marijuana like alcohol – for over a decade due to local control taking precedence over the will of voters. The banning of felons and the reintegration of expungement and social equity as the mistakes of the past come reconciling.
My work in Puerto Rico 10 years ago helped bring some of those early lessons to the forefront on how to improve and do better from the mistakes of the past. A blank canvas then, I am proud of my work in integrating a medical cannabis system that valued social equity without the term being coined yet and rapidly established one of the most profitable marijuana market models to date in record time (6 months from regulation to patient sales).
It’s been a long time coming to put my ideas and expertise to paper in terms of the pillars of economic viability, strategic planning, and intelligent execution needed to establish the closest concept to “a perfect marijuana industry model”. I acknowledge that some may disagree on points – including friends, colleagues, and contemporaries – but I’ll do my best to illustrate why and how I’ve come to these conclusions.
While the US may only have a few blank canvases to create upon, while politicians may think they know better in their hubris, and while capitalists continue to try and corner guaranteed profits, my aim is to envision a market that serves the most possible, offers an equitable path to those most impacted and responsible for cannabis legacy, and creates a stable market in which cannabis companies may thrive with just enough competition to ensure a variety of products without dropping the bottom out of the price – which serves to only incentivize bad actors and make the rules of these models near impossible to afford compliance with.
While nothing may be perfect without being perfect in its imperfections, I’ll do my best to inform and envision that which will work effectively and with longevity in mind. My hope is that Nations examining their own domestic distribution models and other states still contending with shifting public opinion have a road map based on expertise and experience by which to do so.
Limit Licensing
Out the gate, Milton Friedman, Adam Smith, and Ayn Rand will roll in their graves. However, this line of thinking on cannabis does not preclude people’s ability to cultivate at home. A staunch position I’d advocate for any day – like home beer brewers, cultivating at home will always have its place without remuneration or licensing and is a waste of law enforcement resources to prosecute if a functioning model produces better cannabis at lower costs.
I am informing everyone that the Wild West of cannabis is over in a licensed and regulated marketplace. Not everyone should own a casino, and not everyone should own a marijuana license given the complexities of what that means – cultivation, manufacturing, dispensing, distribution, hospitality, and delivery – and the amount of rules and regulations required to do so with transparency because of industry standard and international/federal violation of the law.
However, this licensing limit is not an arbitrary one. It MUST be based on analyzing supply and demand in any given marketplace. This requires research on consumption percentage in the population, number of heavy users vs light users, to determine the amount of cannabis needed to fulfill flower sales – but also byproduct material for extraction, pre-rolls, and a myriad of other downstream products.
It also starts, most importantly, with limiting licensing based on production capacity – ie: cultivation. Some states have done this with plant count limits and others with a maximum canopy or square footage. This can be tricky as various strains grow longer or more quickly than others and due to improving technology which is yielding more cannabis than ever before. Yet, according to leading economists in the space, the US cultivates 20x to 30x MORE cannabis than is needed in saturated markets – forcing a very slow and painfully wasteful elimination of investments through a death by a thousand cuts.
This runaway cannabis isn’t all destroyed and it tends to depress market prices – making for a bloody race to the bottom and incentivizes bad behavior. Cultivation is also the most difficult and complex licensed operation in the business. In Puerto Rico, we understood that merit for larger cultivations was necessary to ensure the consistency, quality, and cleanliness of cannabis raw material – but we also left room for medium scale cultivations and micro-cultivators to compete by focusing on smaller batch quality.
By examining supply and demand, capping supply capacity to meet demand, the rest of the perfect model picture can be painted on the canvas. But demand without sufficient supply is also an inverse equation as we’ve seen in CA, OR, MI, and CO, where many local governments limit or prohibit dispensaries – thereby forcing consumers to find illicit cannabis due to inconvenience or unavailability.
Anywhere there are people, there are people in demand for cannabis – as such, markets must also have sufficient dispensary and hospitality locations, to ensure convenience and market forces to outcompete existing illicit supply channels. However, too many retail points can also be problematic and cause a certain cannibalism of the same demand source, which also causes a depression in price and a race to the bottom effect.
Generally, consumers will pay slightly more than the illicit market for convenience, consistency, selection, availability, and safety. Allowing that access is paramount to competing against the illicit market share. For this component, I suggest tying retail licenses to a number per population across any market – another variable that can be adjusted as population grows, allowing for more licenses as markets demand them. Anywhere from one dispensary per 10,000 to 25,000 people in any given population is a good measure by which to determine this.
With manufacturing, it’s a question of licensing based on a ratio of cultivation capacity to a sufficient amount of retail shelf space. That determines the variety and types of products available to consumers throughout the downstream of the supply chain. Special consideration has to be given to flammable material extraction and specific types of products in consumer safety packaging and labeling and testing considerations. But all in all, this is planned last, as is the method of distribution between various licensed entities.
Always recommend delivery direct to consumers, though companies should be allowed to deliver with a percentage of the sale in compensation, and distribution can help facilitate the supply chain, but shouldn’t be a requisite for doing business between licensed entities. These licenses tend to regulate their own number as they are limited by the number of direct supply chain producers and retailers.
Government’s Responsibility
The government stands to make millions of dollars from licensing, tax revenues, and is tasked with licensing, enforcement, and, arguably, the responsibility of the viability of the industry. Additionally, the government has also been responsible for the harms caused by the war against cannabis for decades – especially against communities of color through disproportionate enforcement.
As such, there is a responsibility to use the opportunity of legal cannabis to help heal the harms of the past and to pave a pathway forward that ensures long-term viability and opportunities for cannabis businesses. This requires a level of budgeting to start the industry off on the right foot, to create specific program components that will help avoid liability, protect public safety, and ensure longevity for the program. A few policies should also be considered to speed up the timeline between publishing regulations, licensing, and conducting cannabis business at scale.
Expungement of those with past cannabis convictions should be swift and automatic, regardless of social equity policy, as a bare minimum no-brainer by governments once cannabis is legalized in the State.
While terms like DEI and social equity have taken on negative connotations at some State levels, alternative language and policies can still accomplish meeting this responsibility to those most impacted with more fiscally conservative approaches that simply make good business sense. These policies can be enacted in addition to or absence of any social equity program.
In Puerto Rico, for example, we did not limit new cannabis inventory upon licensing cultivations (the classic chicken or egg question) to be strictly from seed or clone. Rather, we allowed for existing legacy inventory to be converted as of licensing into the State Seed to Sale Tracking system. This allowed for fully flowered plants to be converted and to speed up the supply chain by 9 months. It also had the effect of converting the islands’ 4 largest underground cultivators to exit and become legitimate business owners with actual assets brought to the license in exchange for equity.
Rather than denying the existence of the illicit market, it is important to acknowledge that prohibition has created it nonetheless.
With further restrictions by the DEA vanishing in respect to non-flowering plants, clones, and seeds that do not contain any levels of THC, this acceleration of inventory allowed to be declared and made legitimate is an easy policy that helps convert and eliminate illicit competition while allowing a pathway to legitimacy for legacy operators.
Another consideration in this vein is the need for technical and financial assistance for newly minted licensees. In cannabis, the limits on banking and lending in doing business with legal and licensed businesses is all too real. Additionally, SBA and other federal agencies cannot assist cannabis businesses due to the conflict with Federal law. The need to avoid wasteful business mistakes while creating an additional revenue stream in addition to the taxation and licensing fees creates a unique opportunity for the Government to issue small lending programs, grants, and other forms of financial assistance to meet this gap.
For those more budget-conscious states, a lending program is ideal. It can allow for a “dollar for dollar” match requirement (or some percentage thereof), personal guarantees, or collateral such as the license itself and/or business assets sold at auction to protect against risk while creating a low-interest revenue stream that grows over time. Cannabis Creates Opportunities and the Government would do well to ensure those opportunities do not go to waste while they are most unproven and newly launched. Delays in litigation, licensing, supply chain development, and overall industry maturation are a death sentence to a new and fledgling industry.
As businesses launch and are successful, these loans can have priority payoff as part of tax collections and further reduce risk, especially if tied to pre-approval letters from the government, contingencies for funding tranches tied to technical assistance programming completion, or other conditions.
Pre-approval for funding alone, coupled with technical assistance, can help new entrepreneurs launch – avoiding costly delays that put many out of business, reassuring landlords, attracting investors/funding, reducing investment risk, and helping operators avoid predatory partnerships.
Public Safety and Education
In addition, the Government has a responsibility to educate the public and law enforcement about the new cannabis industry it is sanctioning. A portion of the budget should go toward protecting consumer and public safety by ensuring the following in its regulations and policies:
- Public consumption limitations, rights, restrictions, and responsibilities
- Pregnancy and breastfeeding warnings, labeling, and avoidance of medical advice
- DWI and driving with cannabis
- Responsible storage from pets and children
- Robust testing regulations, labeling requirements, and pesticide rules
- Employment concerns
- Underage restrictions
- Overconsumption considerations
While these may seem like logical and obvious educational needs after legalization, they also may require a considerable amount of time and resources to enact. Many solutions exist from LEO training, public education campaigns, and ads, to regulatory requirements, handouts, signage, and responsible vendor training programs for the industry.
If the legal industry is going to work, it has to win over the very people it claims to serve. Consumers aren’t just data points; they’re the engine that drives the entire model. And too often, their trust is either taken for granted or lost in translation between regulators, operators, and bureaucrats. In a perfect model, public education campaigns would go beyond “don’t drive high” PSAs. Instead, we need efforts that teach consumers how to identify legitimate businesses, read a test result label, understand why things cost what they do, and help them transition confidently out of the illicit market. Consumers will show up if we treat them with respect, arm them with information, and make the legal market easier and better than what they already know.
Pitfalls: Overtaxation and Local Control
Two of the most important areas of consideration for governments stem from the same reality: The illicit market is your biggest, existing competition to a successful licensed industry. It has been around for nearly 100 years, has deep roots, existing supply chains, existing customer bases, and by legalizing, you are directly competing with it.
As such, governments must keep in mind that they are not creating a new industry, rather converting an old one using powerful forces only available from legitimacy. Namely:
- Convenience
- Selection
- Quality
- Consistency
- Safety
These legitimate market forces will ALWAYS outcompete the illicit market. As such, great care must be taken to control production and, in doing so, control price – which is the only factor by which the illicit market can try to undercut the legal marketplace.
In too many States, such as California, local control allowed for 85% of municipal governments to prohibit cannabis altogether and, in doing so, allow the illicit market to remain in business. Prohibition does not end prohibition.
In States like New Mexico, however, at least one retail outlet is required, and bypassing this local control is actually in the best interest of those local jurisdictions, the public, and the cannabis customer and its industry.
States should not fall in the pitfall of “NIMBY” to all degrees possible by allowing prejudice of the local concern to override the legislature or voters of the State. The seed of fearing legal cannabis is much more damaging than the licensed cannabis business itself and will ensure pockets of illegal activity well into the future – such as “dry counties” still harbor moonshining and bootlegging in many parts of the country today.
Finally, while cannabis is a sustainable, locally cultivated, manufactured, and job-producing industry, it cannot be used as a cash cow by governments through over-taxation. As mentioned before, price is the determining factor for the competitiveness of legal market forces over illegal ones. If taxes are too high, it is guaranteed customers will avoid, rather than pay them.
This should be taken into consideration as taxation models are debated – including the number of taxation points in addition to the amount of each of those taxes. If businesses do not have legal customers shopping there, crops are wasted, time and resources are wasted, and consumers will avoid legitimate transactions.
California estimates 4 out 5 transactions for cannabis are untaxed and unregulated. Due to the lack of retail outlets available to consumers and to some of the highest taxes on those same customers.
Keeping the combined state and local tax rate between 10% to 25% on any given transaction is ideal to losing substantial customers instead. By ensuring a perfect cannabis model, States can ensure sufficient supply, an adequate number of operators and retail points for customers, and truly convert the majority of the illicit market demand to legitimate sources.
Additional Thoughts and Considerations
Workforce Development and Labor Standards
Any viable industry must also be built on the backs of the people who work in it. I’ve watched cannabis workers deal with high turnover, poor training, and little to no path for advancement. That’s a recipe for instability. A perfect model doesn’t just support licensees; it empowers the workforce with clear training standards, fair labor practices, and accessible career development pipelines. In Puerto Rico, we mandated industry training before badging workers.
This was a private industry solution and other States may fund state-level job training programs (often using State Universities to do so) mandating basic benefits for full-time employees, and elevating cannabis jobs to the same level of dignity as any other agricultural or retail profession.
In launching a new industry, there is tremendous potential in career development, job creation, and crossover from many other subsectors and industries that should not be squandered. When we invest in the people behind the counter and in their growth, we invest in the long-term strength of the entire supply chain.
Environmental Sustainability
One area I’ve seen sorely neglected in many markets is environmental stewardship. Cultivation, especially indoor, comes with significant energy and water usage. Waste management – from plastic packaging to extraction solvents – adds up fast. If we’re building a model from scratch, then why not build it responsibly?
States should create energy benchmarking tools for cultivation, incentivize water recirculation systems, and reduce single-use plastics in packaging. Composting programs, solventless extraction benefits, consumer packaging, and even tax breaks for regenerative practices could all go a long way. Sustainability should be an operating principle – not an afterthought once the profits roll in. As such, incentivizing good practices in tax breaks, reduced testing, or other regulatory incentives can go a long way to encouraging a more sustainable industry.
Data Collection and Market Intelligence
If you can’t measure it, you can’t manage it. That saying holds true here. One of the biggest failures I’ve witnessed is the lack of real-time market transparency. States must build systems that track cannabis supply and demand trends, monitor product velocity, pricing changes, and consumer behavior.
This kind of data can guide everything from licensing caps to targeted technical assistance and enforcement. The seed-to-sale systems we have now do part of the job, but they were never designed to function as economic tools. A perfect model would build data dashboards that regulators, licensees, and even consumers can access to track what’s really happening in the market. It’s the difference between flying blind and piloting a steady course.
Federal Alignment and International Readiness
The clock is ticking on federal reform, and while many states act like islands, the tides are changing. A perfect model must anticipate what federal de-scheduling, banking access, or even interstate commerce might mean. From my work with international models, I can say this: the states that build to international standards now (think EU-GMP for manufacturing, or GACP for cultivation) will be the ones best positioned for trade and federal harmonization later. There’s also a role for states to prepare businesses for those transitions with export-readiness programs, compliance modernization, and federal policy alignment. It’s coming. Smart programs will be ready.
Equity Beyond Licensing
Social equity isn’t a checkbox. It’s a lifelong commitment to correcting harm. And it doesn’t stop once someone gets a license. That’s where the hard part begins. In a perfect model, we need shared-use infrastructure (like commercial kitchens or packaging hubs), public-private partnerships to guarantee shelf space, and mentorship programs that link new entrepreneurs to industry veterans. We need procurement policies that favor equity-owned vendors and government-backed marketing support for minority-run brands. Without ongoing support, licenses become liabilities. With it, they become launchpads. Equity doesn’t just mean access – it means staying power.
Conclusion
There is no silver bullet when it comes to regulating cannabis, but there is wisdom in experience. After over a decade in the trenches — from shaping policy in Colorado to building markets from scratch in Puerto Rico — I’ve seen what works and what fails, not just in theory, but in practice.
The “perfect marijuana model” I propose is not utopian. It’s pragmatic, rooted in economic reality, social responsibility, and strategic foresight.
These thoughts aren’t about reinventing the wheel — it’s about acknowledging the potholes and detours that have derailed progress in other jurisdictions and offering a roadmap to avoid them. It’s about striking the balance between access and accountability, between profitability and public benefit. And above all, it’s about recognizing cannabis not as a product alone, but as a policy crossroads — one that asks governments, businesses, and communities whether we will repeat the mistakes of prohibition or choose a more equitable, viable, and thoughtful path forward.
If we want to build a model that lasts — one that truly serves its citizens, repairs the harms of the past, and ensures a sustainable future — then it must be built with intention, informed by history, and led by those who’ve lived it.
This is my contribution to that vision, and I hope, in some small way, it makes a difference in reforming existing systems that could work better and in helping to found new ones on which pillars of viability may be constructed with pragmatism, affordability, and effectiveness in mind.
