Side event: Mitigating the risks of corporate capture

Steve Rolles, Transform Drug Policy Foundation. The webinar will be recorded. I join with our fellow speakers in condemning the Russian invasion in Ukraine and stand in solidarity with our Ukrainian colleagues and friends. The key aims of cannabis policy should be to protect health and promote social justice and equity and reduce crime. Performance should be evaluated against those aims. And it should guard against corporate influence. The concept of corporate capture refers to the means through which corporations exert undue power and can weaken regulations. This can include over and behind the scenes lobbying, funding of politicians and political parties, influencing of expertise and research, and revolving doors movements during staff in corporations and government posts. The history of alcohol and tobacco regulation shows how hard it is to reduce the power of big corporations, but we can learn from it. Legal regulation in Canada has already led to the rise in corporations worth billions. The existence of multinational corporations means that they are ready to capture emerging markets in cannabis, both medical and non-medical. The first steps of legal regulation are to set parameters to prevent corporate capture and put forward social equity programmes. State monopoly remains an important option. Transform has recommended that state monopolies are considered while new norms are established. Jurisdictions with existing medicinal markets already have uneven playing fields with strong disadvantage for new players. Most US states have already got existing medicinal cannabis markers, for example, creating barriers to diverse participation of smaller businesses. There are preferential treatments for licensing existing companies already involved. The large markets such as those in California retain a grey market, which also come with their own issues. Experiences in the USA suggest the need for strong and effective licensing policies from the onset, to ensure social equity measures are well established. Any regime of related market has to be adequately designed to mitigate the power that large corporations are able to yield. Canada’s experience is also worth learning from: it has a large population compared to Uruguay. Canadian businesses dominate the international cannabis market. Regulation has not guarded against corporate capture. The emergence of the cannabis market in 2018 has contributed to investments pouring through the country. Despite micro-cultivation licences introduced, this hasn’t really worked, because of the high levels of early investment costs required. Initial restrictions contribute to an emerging market led by a small group of large corporations. In comparison, retail is managed by the provinces, with different rules. Some of the big corporations are restricted at that level, and it’s a vital way of managing the market. Canadian corporations have mostly focused on medical cannabis markets, but moving from medical to non-medical is relatively easy. There is already a presence of these corporations in many regions of the world, and they can take advantage of cannabis regulation. Market capture in South America by Canadian corporations is particularly prominent. The same could happen in Europe and Africa. New cannabis markets present opportunities for companies working on alcohol and tobacco to diversity in other spaces, and they have decades of experience in lobbying and PR they could use there. Cannabis investment has now become mainstream in banks from all around the world. We must act from the onset to reduce the risks of corporate capture, ensure a diversity of smaller actors onto the market. The benefit of starting from scratch should not be underestimated as retrofitting equity in existing systems is difficult. We need transparency and accountability, strict rules for lobbying, freedom of information rules, and restrictions on corporate funding. There has been increasing research on the risks of corporate capture, and we’ve clearly failed so far. We must ensure that doesn’t happen again with cannabis. 

Benoit Gomis, Research Fellow, Simon Fraser University. I will lay out what we can learn from the tobacco experience and the role of the tobacco industry in the illicit tobacco trade, the government response and the media. Many tobacco industries have been involved in smuggling their own products to increase their revenues and profits following reports on the health harms caused by the products, to enter new markets created in areas with strong restrictions (e.g. in Paraguay) and create a market that would then open up to become legal. As a result of smuggling, the big tobacco companies entered into formal and informal partnerships on how to tackle the same illicit trade they were responsible for creating in the first place. Big tobacco spent the next few years branding themselves as the solution to tackle the illicit trade, providing revenue, money and information to customs and police, on how to conduct law enforcement actions, etc. PMI won an award in 2020 on training programmes in the USA! These efforts have been largely ineffective in reducing the illicit trade. This is because the idea was to grow the companies’ profits and hide their complicity, as well as increasing their influence in health policy making. The lengths to which big companies are willing to go are high. Big tobacco companies have funded research projects and funded third parties to steer attention away from their own complicity in the illicit tobacco trade, and to show the issue as being related to taxes being too high. The cautionary tale here is that we need principles for the responsible regulation of cannabis based on social equity. Based on the profits made by corporations already, and given that many former tobacco industry leaders hold high positions in cannabis corporations, and the significant problems related to track and trace systems between production and consumption to prevent diversion in the illegal trade, there is much to be learned from the illegal tobacco trade. I am glad we are moving away from the binary debate between whether or not to regulate, but towards how to do so based on human rights and sustainable development. We now need to centre on the need to tackle corporate capture for cannabis policy reform. 

Shaleen Title, Parabola Center, former Massachusetts State Cannabis Commissioner. I want to start by saying how much I appreciate the work done by organisations from this panel. It was so helpful for us to have reports by Transform and other groups that have watched other industries, especially tobacco, to not repeat mistakes. We’re trying to bring this forward to learn from lessons we’ve had so far for cannabis and other drugs. It’s also important to know that we’re not powerless. When you look at what’s happening in Canada and the USA, a lot of corporate capture has not been successful. And as a regulator I would say that there’s been good progress on reducing youth access and making sure that it doesn’t go up, that we have advertising that doesn’t target kids. We should not lose that progress. Steve covered corporate capture well but I want to emphasise a few things before going into my own research. I want to flag how important timing is. I didn’t know this before, we observed this. This is something we hadn’t noticed in other industries, because it was so unique because we had companies that were in the medical market. In many cases jurisdictions tried to become more equitable and social justice oriented as they transitioned to the adult youth market. And that was unique in the sense that the existing medical operators could successfully get an early start in the market: we need to keep the market small and controlled, let’s make sure we only have about 10 licenses in the state and make sure they go to us. And that had a lot of problems with industries got so big. And now you proceed to a situation where not only do you have a few licenses, you also have speed up the market. And if you don’t, you will have all kinds of problems, and so regulators have to do it now, now, now. And there are all kinds of reasons for why, coming from all different messengers. But a recent one is coming from law enforcement, for example because there were concerns about fentanylised cannabis. It’s important to understand and be vigilant. This doesn’t only come from big corporations.

So now let’s turn to solutions. There are many organisations working on effective regulation solutions that are not done via corporate influence. In my experience, working with organisations working on cannabis regulation, the vast majority of them does not want to see big corporations. We have a solution and we have a path that we want to go through. And that’s my experience with governments as well. We have 8 solutions laid out in our paper which is called Bigger is not Better: Preventing Monopolies in the National Markets. It’s available for free.

  1. Allow people to grow a reasonable number of plants for personal use, including social sharing with no payment involved. It’s important because it provides a check on what you see sold in stores, especially if it’s limited. If you were to see something similar to tobacco where the product is manipulated to become more limited, it provides a check and alternative on this and on high prices as well.
  2. Vertical integration: this is where one company is controlling the entire market. When I interviewed people who were corporate capture experts, this was a common sense solution that most gave first. It’s a lesson learned from alcohol.
  3. Do not cap the number of business licenses in total, but limit how much of a share of the market one company can control. The worst thing you could do is have a small number of licenses available and not cap how much one company can control because you are immediately creating the circumstances for corporate capture. Instead, if you don’t want the market to grow too quickly, you can start with making sure there is a limit. In Massachusetts, you can only own or control up to 3 types of licenses.
  4. Enforce ownership limits and review mergers based on existing evidence of predatory and anti-competitive practices. This is only going to be useful if it’s in practice and not only on paper. You need to investigate to ensure there are no loopholes. And ensure that the tactics evolve. You must be open to whistle blowers too. It’s just as important as public health.
  5. Disqualify corporations from the cannabis industry if they have caused significant public health damage. I spent 3 years telling people involved in marijuana dealers they couldn’t engage in the market, so why couldn’t we say the same thing for big companies that had caused major damage on public health? This is straightforward solution we can implement from the start.
  6. Create a multiagency task force for anti-monopoly limits.
  7. Authorise the state to ban or delay inter-state comers. This is specific to the USA, but the concept is that when you have smaller jurisdictions making decisions, there will always be some independence there. City officials should be educated, have the resources and time to make effective decisions on what businesses will be operating there. There will always be lobbyists so we need unbiased research and advice as well. Then we’ll have experiments that work and data as well. In NY and New Jerseys we will get data that supports what we can do to support historically excluded people in sustainable solutions. You can find those solutions if you keep effective records.

Lisa Sanchez, Chief Executive of México Unido Contra Delincuencia. It’s exciting to talk about the Mexican experience, but even more exciting to learn from my other colleagues. Drug policy reform in Mexico is not a new topic. There have been legislative and political debates at least since 2007. The negative consequences of prohibition have outweighed its benefits and so leaders, NGOs and others have advocated for reform, starting with cannabis. One can see than from 2006 to 2012, 4 bills were tabled to legalise cannabis. But from 2012-2018, we reached 32 bills! Since 2013, Mexico has benefited from a strategic vision effect with five rulings of the Supreme Court on the right to develop one’s responsibility regarding the use of cannabis. This jurisprudence has led to the declaration of inconstitutionality by the court of the prohibition of cannabis use. This is a process by which the court can mandate Congress to change the law to allow for the regulation of the entire market of cannabis. It is in this context that two advances took place: first the approval of a legal reform for the medicinal use of cannabis, and second the discussion of a bill that would regulate the entire cannabis market for all use. However, this entire process of having legislations has not been free from corporate interference and I’ll discuss this now. Let me start with the medicinal cannabis process which was approved in 2017 by Congress and resulted from long-time work of NGOs and strategic litigation creating exemptions for patients needing medicinal cannabis. The law passed that year but did not ensure access to medicinal cannabis for patients, and this was mainly because of the industry’s interference with the process, and interference of conservatives that lobbied for extreme regulations that prevented the creation of any industry for medicinal cannabis in Mexico or for patients to be able to use non-pharmaceutical preparations. The reform was also hampered by the collusion between certain businesses and corrupt authorities who took advantage of the situation and started issuing licences under illegal guidelines. Thanks to them, companies have passed illegal products such as cosmetics, food supplements or even sweets as medicinal products. Luckily we had a new government in 2018 which recognised that the guidelines were illegal. We could think it was the end of the story, but the issuance of new guidelines didn’t come until 2021, delaying more the right for patients to access the plant, and for irregulated products to remain on the market. When the government finally issued the new guidelines, the regulations didn’t correct the wrongs caused by the industry and the result was a medicinal cannabis market that limits the participation of private and social actors to large companies, forces the importing of seeds but also of final products, and imposes heavy restrictions to patients. That’s the sad story of medicinal cannabis. Then on the regulation of other uses: this process started with the Supreme Court declaring unconstitutional the prohibition of cannabis in 2018. Right after that, we started seeing the first initiative that failed to be adopted. Another one was then discussed and modified a thousand times before it was approved in the senate in 2020. After that, the bill was sent to the lower house, it was approved with many modifications which made it impossible for the law to be enacted as the senate refused to enact it. As a result, adult cannabis use continues to remain illegal, and paradoxically, we owe much of this paralysis to corporate interests. Again, since the beginning of the legislative discussion they started interfering with the process, by drafting the law themselves, by influencing the regulations in the different versions of the bill, and by opposing measures to include vertical intervention, the inclusion of small producers, disregarding other social justice interventions for indigenous people and growers who were meant to have access to 40% of the cannabis market to grow the cannabis as was the case in the original proposal. They also didn’t like junk food or the tobacco companies to participate in the new cannabis market, or the prohibition to advertise cannabis infused products to children. On the final draft of the bill they included restrictions to cannabis social clubs, for the inclusion of small-scale growers and indigenous communities, and to impose disproportionate economic sanctions for those in breach of the new regulatory requirements. As you can see the battle is not over and this has to be conquered from a social perspective. It’s our job to make it work for the people, not for the industry, and I hope that this example can help to make you think about how to establish an adequate cannabis regulation legislation in your own country or other parts of the world. 

Steve, Transform. It’s really great to see how the debate is moving in Mexico and how corporations have tried to derail what MUCD has tried to push forward. I will go through the Q&A here and go slightly over time. I want to ask a couple of questions to Shaleen. In terms of your experience in the USA, which is a few years ahead from Mexico, you’ve heard the challenges they are facing against these corporations. How can CSOs compete against that sort of lobbying might? How has this played out in US legislature?

Shaleen. The biggest thing is to unite, and let me tell you what it looks like. When you have lots of small groups with their own incentives, you can forget how similar those incentives are. Here, small businesses, local farmers, people harmed by the war on drugs, women, all have the same goals: making sure the industry is not dominated by corporations. They have used the resources provided by your organisation and others to have an impact, and always watched what other jurisdictions have been doing.

Steve, Transform. Another question I wanted to ask you was about this: is there a risk that some federal reforms could undermine or derail the developments happening at state level? The US federal/state division is different in other countries but many will face some state/national level dynamics too.

Shaleen. It’s counter intuitive. Here, the fact that cannabis is federally illegal, stigma and obstacles have limited entry into the market by big corporations and has allowed states the opportunity to try progressive sustainable solutions in a way where you’re not challenged by big corporations. It’s a unique circumstance. Once federal legalisation happens, we don’t understand how the dominos will fall. You’re watching what will change as separate jurisdictions have regulated the market at different levels.

Steve. To conclude, corporate capture is a legitimate concern, we’ve seen them distort policy making processes. But we do have the opportunity with cannabis to design markets in a way that responds to our concerns for sustainable development, social justice. But we have to grasp that window of opportunity now as it is growing smaller each day. It’s harder to impose these controls on an established market. The opportunity is now, our power as civil society organisations speaking to and engaging with member states and multilateral forums is when we stand together united, as Shaleen has made it clear. I will post a thread on Transform’s Twitter feed with all the reports mentioned here. I wish you farewell and hope to see you all again soon.

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