The Tale of Two States: Utah vs. Oklahoma

by MEGAN NEFF

Two states, two radical approaches, and medical cannabis profits skyrocket in one southern state. 

The production of medical cannabis is challenged by Utah’s oligopoly structure of selecting a handful of companies to run the industry. This is vastly different from the successful free market structure that Oklahoma has benefited heavily from since 2018. A more comprehensive array of smaller businesses are allowed to participate openly. 

According to a hearing held on June 19, 2019, before the Small Business Committee on the potential market growth the cannabis industry can offer, NYU Professor Mark Kielman stated, “A “state store” system would also allow the states to control the pot supply chain. By contracting with many small growers, rather than a few giant ones, states could check the industry’s political power,” the document stated, “…and maintain consumer choice by avoiding a beer-like oligopoly offering virtually interchangeable products.”

Oklahoma legalized its medical cannabis program in the summer of 2018, whereas March marks Utah’s 1st anniversary of the state’s medical cannabis program.

While this is a victory for the state and the medical cannabis movement in general, there are still plenty of problems nationwide, especially in Utah.

The comparison between Oklahoma’s free-market structure and Utah’s oligopoly structure is hard to ignore in the two state’s licensing.

Oligopoly ideologies dictate Utah’s medical cannabis program, but what exactly is an oligopoly? 

In the framework of economics, an oligopoly is limited competition.  Further meaning that markets can be dominated by small or large groups of sellers and has the primary purpose of reducing competition. This usually encompasses lower wages for employees and higher prices on goods and services.

There are oligopolies in nearly every sector from automotive, to tech, and even recorded music. Every year, companies worldwide merge or are absorbed due to globalization and international customer bases to keep up with demand and strengthen supply lines. This unity of having a small pool or handful of companies can have advantages that can set standards for a sector.

Some activists on using medical cannabis would describe Utah’s operation as a cartel due to the limited license model that is practiced.

What is Oklahoma’s Free Market structure?

A free market is an economic system that allows buyers and sellers to self-regulate prices on goods and services in an open market.  This allows the state of Oklahoma to give its medical cannabis participants the freedom to become a merit-based system rather than a controlled oligopoly design. 

Now, let’s take a look at each state.

The vast difference between the data taken for licensing in 2020 between Utah and Oklahoma is a prime example of how the two structures impact patients, distributors, and growers.

“Compared to markets in larger states and those where recreational cannabis is legal, Oklahoma’s medical cannabis market is somewhat of an anomaly. It has generated a lot of pride on the ground among local advocates,” writes journalist, Angela Bacca, in a June 2019 article for Project CBD, “Not only have they achieved what was once considered unachievable in Oklahoma, they have staunchly defended the right to local ownership and opportunity, while out-of-state vulture capitalists invade larger markets.”

The Utah Department of Health reported 13,681 active patient cardholders in its 2020 annual report. 

In an annual licensing report, Oklahoma reported having 368,330 active patient cardholders. The two numbers are a stark resemblance of the difference in the accessibility to medical cannabis.

Within the same report, Utah only holds 14 licenses for medical cannabis pharmacies, but only eight are active throughout the whole state.  This is comparable to Oklahoma’s 10,587 active business licenses. 

The reported data between the two states gives an inside view of how an oligopoly works. Utah chooses how and who can distribute, grow and sell medical marijuana. Sounding and functioning more like a drug cartel than a state promoting free-market values. 

Licensing for Medical Cannabis Pharmacies and Growers 

Oligopolies place restrictive hindrances on goods and services, causing markets to become classist and racially biased by leaving out underrepresented communities.

Former Commissioner Kerry Gibson of the Utah Department of Agriculture and Food was given the task to create a new program for medical cannabis licenses. But an audit conducted by the state uncovered that Gibson had not only mishandled agency perks and travel expenses but committed time fraud along with other colleagues.

The audit surfaced shady dealings Gibson had in place when it came to selecting who and who wouldn’t receive retail, tasked with creating medical cannabis licenses.  Gibson appointed six committee individuals to handpick their selections of growers, and in findings by auditors, two panelists (Callahan and Pehrson) had concerning numbers when picking growers out of 80 applicants. 

“In fact, Callahan and Pehrson ranked the same seven applicants in a similar order among their top picks, the audit states. The likelihood of that happening by chance is less than 5%, suggesting the possibility of collaboration between Gibson’s senior staff, according to the audit.” Wrote Bethany Rodgers in A Salt Lake Tribune article on the issue.

Utah has had issues with retail licenses to local dispensaries making the process to receive a license somewhat tenuous; the recent law prohibiting the out-of-state purchase of medical cannabis has made it that much more problematic.

Another notable comparison is the licensing process for the two states.

The state of Utah’s path to applying and receiving a license can be found here. When applying, there are two tiers that a potential owner can pick from when applying for a dispensary license. If awarded with a license, depending on the tier picked, application fees range from $35,000 to $100,000.

According to Oklahoma Medical Marijuana Authority, the license application fee is only $2,500 for growers, processors, and dispensaries, and there are no licensing caps in place.  

Oklahoma saw a decline in retail licenses but still had more retail licenses distributed than any other state in 2020. Because of their free-market run state, their government didn’t pick their growers, which led to more growers and pharmacies being positively impacted.

Even with the frequent rise in dispensaries and the need for product throughout Oklahoma, patients always have access to medical cannabis. In comparison, Utah has seen an issue of lack of consistency in stocked shelves. 

Medical Cannabis Sales Revenue

Utah medical cannabis sales, according to the report by the UDOH for 2020, reached over 14 million between the dates of March 2ndto October 31st last year.

Oklahoma’s sales revenue for medical cannabis reached $300 million in just the first half of 2020 alone, according to the Oklahoma state tax commission and Medical Marijuana Authority.  

From the start of their cannabis program, Oklahoma reached $275 million in revenue to date, which was also stated from the state’s tax commission,  

A free-market approach to Utah’s medical cannabis program would be an aid for patients and grow Utah’s economy and give the ability to fuel a thriving industry.