Case Analysis – Pot of Gold Mihir Parmar Department of EMBA - IT, Ottawa University BUS-8500 Bus Policies and Strategies Micheal Deardorff Summer 1 2023 Term August 27, 2023 Introduction Marijuana—also called weed, herb, pot, grass, bud, ganja, Mary Jane, and a vast number of other slang terms—is a greenish-gray mixture of the dried flowers of Cannabis sativa (NIDA, 2023). Marijuana is increasingly popular among those who use it for both recreational and medical purposes. Although it is legalized in many states, it is consumed illegally in many states by people mostly aged 18 to 34. Considering it a ‘new gold rush’, private equity and venture capital funds invested in the marijuana business (Robert, 2021). However, the marijuana industry is still questioned on its potential to generate profits. This case analysis focuses on the marijuana industry’s growth, the legal and regulatory challenges faced by the industry, and how to overcome the realization of potential profit. Moreover, the paper focuses on using Michel Porter’s five forces of competition framework for analyzing competition within industries. Porter's Five Analysis of the Marijuana Industry 1. The Power of Buyers According to Robert (2021), marijuana has been legalized in at least 30 states and there are many small suppliers available in each state. This means that the buyers are not bound to any of the suppliers, and they can switch without any cost. Like any other product, there is a quality difference between each supplier based on the type of plant harvested. As a result, buyers have the power of choice to buy different quality marijuana based on their convenience. According to one study, California has one of the best quality marijuana products, whereas Colorado has low quality compared to other locations. Moreover, Colorado has a few cities where customers can legally buy marijuana. Due to that, the customers in Colorado have a lower ability to buy marijuana legally. Thus, regardless of legalized marijuana, buyers substitute marijuana-processed products illegally more than legally. This could be the same scenario in many other states. 2. The Power of Suppliers The marijuana industry is very new compared to other industries such as alcohol and tobacco industries. There are many large and small enterprises playing an important role. The suppliers have low supplies to provide. Thus, the suppliers can make more money by deciding their price without any comptonization. Many suppliers provide good-quality marijuana products. This gives the suppliers an upper hand on the price-deciding factor. As a result, the suppliers have more control over the price of the marijuana products. 3. Threat of Entry According to the given strict criteria for marijuana licenses in the case analysis, the licenses must be obtained from local governance, and getting a license to sell marijuana is not easy. However, no barrier restricts someone from entering the business. The marijuana business is mostly focused on local areas and a few cities only. This makes it easy for new entrants to quickly establish their business. One of the few possible barriers that could be faced by new entrants is the residents if they oppose such business taking place in their neighborhood. It might be difficult for new entrants to get multiple licenses as there are different licenses required for different marijuana products. 4. Industry Rivalry Whenever establishing a new business, new entrants need to keep the competition in mind as they try to cut down on a new entrant’s business and make it difficult for new entrants to make their position in the market. However, due to the regulatory and license requirements, there is the least amount of competition seen in the marijuana business. The marijuana business requires a lot of attention like the alcohol business as the products cannot be sold to minors. There are only a few companies currently investing in the marijuana business considering its risk factors. Also, it is not legalized in all states yet. These factors open a big opportunity for investors in the marijuana business. Moreover, marijuana products are addictive which creates a demand and makes users buy marijuana products for even higher prices. 5. Substitute Competition The marijuana business has a huge demand in states where it is legalized. This is one of the reasons marijuana products also have a huge illegal market. In addition, Colorado allows home cultivation of up to 6 plants maximum. The Colorado government does not have strict regulations against the illegal marijuana market. As a result, the legal marijuana market has decreased the price of products to compete with the illegal marijuana market. The government must act and have strict regulations for such illegal marijuana markets. Apart from these, there are other illegal drug products such as cocaine, ecstasy, etc. which threaten the legal marihuana business to establish as customers can easily switch to other illegal drugs. Conclusion In conclusion, the marijuana business has its risks and benefits as discussed earlier. In this paper, we discussed Porter’s five forces in detail related to the marijuana business. According to the analysis, marijuana has less competition than the other well-established markets. Since marijuana is not legalized in all states yet and considering risk factors, many companies are staying away from this business. Due to the increasing demand, the marijuana business has lots of opportunities for investors. The customers don’t hesitate to pay extra for better quality. Thus, the market has a great future for investors with higher return possibilities. References 1. Cannabis (Marijuana) Research Report What is marijuana? (n.d.). NIDA. 2023, April 17. What is marijuana? Retrieved from https://nida.nih.gov/publications/researchreports/marijuana/what-marijuana on 2023, August 27 2. Grant, R. M. Contemporary Strategy Analysis (10th ed.). Wiley.
