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Is the Cannabis Gold Rush Headed for a Bust? 

Will big business devour small, independent pot purveyors? Photo courtesy of Marley Natural.

Will big business devour small, independent pot purveyors? Photo courtesy of Marley Natural.

There is no doubt that the legal cannabis business is booming. In August, the Oregon Department of Revenue announced that it had collected more than $25 million in taxes on cannabis sales in the first six months of 2016. The Oregon Liquor Control Commission (OLCC) had previously estimated only $18.4 million in taxes in the entire first two years of sales. That means so far this year Oregonians and our visitors have consumed more than five times the amount of legal cannabis than the state expected.

In Colorado, cannabis sales are expected to surpass $1 billion this year. Sales in Washington are exceeding estimates as well. And this fall's election will not be just about Trump and Clinton—it will also be the largest vote on cannabis in American history. Voters in Arizona, California, Maine, Massachusetts and Nevada will vote on legalizing recreational cannabis. And voters in Arkansas, Florida, Montana and North Dakota will vote on legalizing medical cannabis. Legalization in California would nearly triple the size of the recreational market, and current polls show the measure with a healthy lead.

Currently, cannabis is grown, processed, and sold exclusively through small, family-owned businesses. As those businesses have grown, thousands more entrepreneurs have sought to cash in on the industry by starting support businesses—providing services such as sales and product tracking software, product delivery and laboratory testing. Cannabis industry investors say they are flooded with pitches from startups who want to be the "X of pot." For example, Leafly has become the "Yelp of pot," providing store location and menu information, as well as product and service reviews.

But, as one recent study so succinctly put it, "(p)olicymakers and public health advocates must be aware that the tobacco industry or comparable multinational organizations (eg, food and beverage industries) are prepared to enter the marijuana market with the intention of increasing its already widespread use." And industry experts are seeing the potential for many cannabis startups to be devastated by competition from big companies looking to enter this new, lucrative business.

Cannabis will soon be legal for a majority of Americans even if the federal government continues its prohibition. What will happen to local companies like Oregrown if Philip Morris decides to branch out from tobacco and start offering cannabis cigarettes? Can Lunchbox Alchemy survive if Nestle starts putting cannabis in S'mores and Oreo cookies?

Already, the trend has begun. In June, Microsoft became the first major tech company to enter the cannabis industry by announcing that it would provide database services to cannabis companies. Previously, the market was shared by two startups. And last week in Portland, Bob Marley's children, in control of his sizeable estate, rolled out "Marley Natural," a line of high-end cannabis "lifestyle" products trading on Marley's name and status as a legendary stoner.

In northern California, so many growers are worried about competition from big corporations that many are actually opposing recreational legalization. Their concerns were heard by California's Blue Ribbon Commission on Marijuana Policy, which has recommended "a highly regulated market" to prevent "California's next Gold Rush."

The closest historical parallel is the alcohol market, which was dominated by small, local producers when prohibition ended in 1933. The newly-legal market was soon dominated by large corporations, and it was over 50 years before "craft" brewers and distillers re-emerged.

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