Vertically Challenged

One consumer’s short complaint about vertical integration

This year for Christmas, my parents bought me a Target gift card so I could pick up a few new items of clothing. See, I have a 2-year-old and like most new parents, have trouble spending money if it’s not on him, so a gift card with the explicit instructions that I am to spend it on myself is a nicer gift than it may sound off the top.

So a few weeks after Christmas — on a trip to get diapers, obviously — I stuffed the card in my pocket and figured I’d swing through the menswear section to see what I could see.

But when I got to the store, I couldn’t help but notice that the vast majority of the men’s clothing came from a single brand: Goodfellow and Co.

Goodfellow is, of course, the Target house brand, and while the stuff is nice and generally fits my aesthetic, I found myself wanting more options. There were very few non-Goodfellow jeans available, for example. There was a small rack of Levi’s, but the display was dwarfed by a full wall of the Goodfellow brand in various fits and styles.

Honestly, as a consumer, I felt a little stifled and left the store that day with only the diapers. I was just disappointed in and put off by the lack of selection. I felt like I was being forced in a certain direction. I responded reflexively and walked away. I’m sure I’ll eventually go back and zero-out my gift card and all (like I said, it’s nice stuff and fits my aesthetic), but in that moment, it made me feel less like a shopper and more like a pawn.

Target dedicating most of its retail space to its own brands is an example of vertical integration, or a company owning multiple parts of the supply and distribution chain. In retail, this means a store stocking items from a company it also owns. In the cannabis industry, it means a dispensary or retail shop selling products they grow themselves.

It’s one of the big debates in the industry and among regulators, especially as new states come online and legislators create the markets, often from whole cloth. Some states allow it, but do not require it (Oregon, Colorado), some states require it (New York, Hawaii) and Washington, for example, specifically outlaws it.

Regulators and business owners are often big fans of vertical integration and it’s easy to see why. For regulators, it means fewer companies to license and supervise. For business owners that have the capital for additional investments, especially large operators that take advantage of economies of scale — like Target — it can mean cutting costs so more money stays in-house. In cannabis, it also means more control over supply and price as well as the ability to guarantee the product is grown and processed to the store owner’s standards.

But as a consumer and a shopper, I am not convinced the market is best served through a vertically integrated industry.

I’m a cannabis consumer who lives in Washington, for example, and I must say, the shopping experience here is better than in the other states I have visited, including Oregon and Colorado. There are more brands offering more products in Washington and they are all competing for shelf space and consumer attention.

It is most certainly a buyer’s market. Since the retailers do not have their own steady supply of bud they are trying to sell, stores stock the best products at the best prices and it leads to more choices, and I never feel as though I’m getting a hard sell on any specific brand.

A ban on vertical integration in Washington has created a consumer’s paradise with a huge selection of products to choose from at retail stores.

In the stores I have visited in Oregon and Colorado, there was a smaller selection, and if the store had its own grow, the company’s in-house brand was often the most heavily featured, much like the way Target reserves most of its floor space for Goodfellow products (and will continue to do so, given the news that the brand is expanding into men’s grooming products and will be given premium placement at stores, including endcaps). To most cannabis consumers, simply being able to walk into a store and buy a product is amazing, but as a Washingtonian, I will tell you that walking into a store and seeing a wall full of different brands grown different ways, cured different ways and packaged in different ways is even more so.

And it’s led to what I believe is the most normalized market in the country. Shopping for marijuana in Washington is like shopping for anything else: the best product and the best value win out. Those growers that do not provide a good product at a good price fail, or at least their brands do, and they are forced to sell to processors on the wholesale market. Poorly branded product usually disappears from shelves, as does sub-par product.

But in general, good products and good brands succeed or fail in Washington on their own merits. It’s a more free-market approach.

In the stores I have visited in Oregon and Colorado, the selection was always smaller. In both states, there were fewer brands on the shelves than I was used to. At one store, every product was the house brand.

Now don’t get me wrong, I love a brewpub and will often try the stuff made in the back. But at the same time, I hate opening a beer menu and finding only four or five options. I want selection if you expect me to come back to your bar. Pot shopping is the same way.

And I think a non-vertical market offers more opportunity for more people to be an entrepreneur in this industry. It’s almost impossible to compare numbers between states, since each state handles licensing and the limits on licensing in such very different ways, but my gut tells me there are more unique owners among the 1,426 producer/processor licenses in Washington than among the 1,712 total owners of licenses in Colorado (according to the state, there are 462 licensed medical and 680 licensed recreational cultivation facilities to serve 435 medical centers and 575 retail licenses, including overlap).

I’m also not opposed to allowing cultivators the ability to sell their product from their farms, similar to a winery or farm stand. Like I said, I like a brewpub.

I see the other side. For a retailer, verticality means not just higher profits but the ability to quickly respond to customer demand, as well as the ability to keep tighter control over just how low prices go. From a business side, I can certainly see where vertical integration makes sense.

But as a consumer, I’ll take more choices and more companies fighting for my dollar — or gift card — any day.

Comment

One response to “Vertically Challenged”

  1. Eric Dangler says:

    Hey Brother,
    Come to Oklahoma. No vertical integration requirement and over 6,000 growers!!!

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