Introducing "Marijuana Appellations: The Case for Cannabicultural Designations of Origin"

A hemp farm at the University of Kentucky was shown to the public in 2015.  Appellations for the cannabis industry may be effective in organizing agricultural regions according to plant type.  Photo: UK College of Agriculture.

A hemp farm at the University of Kentucky was shown to the public in 2015.  Appellations for the cannabis industry may be effective in organizing agricultural regions according to plant type.  Photo: UK College of Agriculture.

Back in April, I posted my second law review article on marijuana regulation, "Marijuana Agriculture Law," forthcoming in the Florida Law Review.  I also previewed a section of the article that addressed the novel concept of applying appellations (or designations or origin) to the marijuana industry.  The thoughtful editors at the Harvard Law and Policy Review enjoyed the article, and I agreed to expand my research on marijuana appellations into an article for their forthcoming issue on the war on drugs.  

The article, "Marijuana Appellations: The Case for Cannabicultural Designations of Origin," is now available for download.  The introduction is provided below:

When California Governor Jerry Brown signed the Medical Marijuana Regulation and Safety Act (MMRSA) into law in October of 2015, the bill was hailed as the first step towards putting into place a regulatory framework for marijuana agriculture.  Although the state had legalized medical marijuana in 1996, there had been little to no effort to regulate the industry in any way, particularly its many farmers.  The MMRSA was a step in the right direction in many ways, not least of which was to prepare for the prospect of full-blown recreational use legalization in 2016.  The MMRSA comprehensively tasked state agencies with creating regulatory frameworks for a number of key issues facing the marijuana industry, including licensing, product tracking, labeling, pesticide use, and environmental impacts.

Buried deep in the text of the MMRSA is a provision that would allow the newly-established Bureau of Medical Marijuana Regulation to profoundly shape the nature and direction of the marijuana industry: “the bureau may establish appellations of origin for marijuana grown in California.”  Even if the bureau does not establish marijuana appellations, the MMRSA prohibits the use of California county names in the marketing, labelling, or sale of marijuana products unless the marijuana was grown in that county.    

An appellation is a certified designation of origin that may also require that certain quality or stylistic standards be met.  Appellations are most commonly associated with the wine industry, but they can be applied to any agricultural product in which the geographic origin carries importance.  The MMRSA provision, although seemingly innocuous, may have far-ranging effects on the marijuana industry in the United States.  As the most populous state in the Union and most prolific marijuana producer, California’s approach to marijuana agriculture regulation is likely to dictate, or at least influence, how, where, and by whom marijuana is grown. Already there is evidence in California that grassroots efforts are underway to establish local designations of origin for marijuana agriculture.  

If the marijuana industry (or even California) were to adopt the appellation model, it would throw cold water on prevailing assumptions that marijuana will become an agricultural commodity in a post-prohibition world.  The demise of the small-scale marijuana farmer is a common narrative of marijuana legalization discourse.  States across the country are legalizing the medicinal or recreational use of marijuana, and with rapid legalization is sure to come an increase in demand.  According to this narrative, it is inevitable that the marijuana industry will consolidate into a handful of agricultural conglomerates producing vast quantities of indistinct marijuana.  As it becomes an agricultural commodity the market will be flooded with cheap marijuana, driving down prices and driving out small-scale farmers.

The narrative is compelling, but misguided.  This Article argues that commoditization and consolidation of the marijuana industry is not inevitable (or even likely), and that marijuana appellations, or American Cannabicultural Areas (ACAs), offer a more promising alternative.  The early history of marijuana legalization suggests that the potential for marijuana farming to remain a small-scale vocation is strong.  To begin with, the market is already dominated by small-scale farms – there are an estimated 50,000 marijuana farms in California alone.  While legalization will no doubt disrupt the industry and create new market participants, it is unlikely that these farms will submit to the ‘Big Marijuana’ narrative.  On the contrary, many of the earliest states to legalize marijuana cultivation have placed severe restrictions on cultivation areas.  In addition, the market for marijuana products is subdivided into an incredible number of marijuana strains, each of which produce their own effects and flavor profile.  As the industry continues to create unique and differentiated strains, it will be difficult to envision marijuana as an agricultural commodity.

Some regions are already experimenting with marijuana appellations, and while challenges to widespread adoption are significant, a marijuana appellation model has promise.  On the other hand, there may be a role for large-scale cultivation and distribution of hemp, a derivative of cannabis plants that is used for industrial products instead of direct human consumption.  Whether or not this duality becomes the norm, commoditization and consolidation is not inevitable.  Marijuana appellations have a bright future, and represent a more local and sustainable agricultural model for the marijuana industry.

Access the full article here.


Marijuana Appellations: the future of the marijuana industry?

Photo: Gavin White

Photo: Gavin White

For the past few months I've been working on another article about marijuana regulation.  This time I'm looking at the ways in which the marijuana industry will interact with state agricultural laws and policies.  One of the issues I address in the article is the perceived inevitability of the marijuana industry becoming consolidated into a small number of large-scale farms producing vast quantities of marijuana.  This would have the effect of turning marijuana into an agricultural commodity, indistinct, cheap, and widely available.  For understandable reasons many in the marijuana industry, as well as other stakeholders, bemoan this inevitable future.  

I don't believe that consolidation and commoditization is inevitable.  In fact, there are a number of ways in which the marijuana industry can evolve and continue providing a role for small-scale farmers producing unique products.  One approach is to follow the wine industry's lead and adopt appellations for marijuana.  As a preview of my article, I'm posting below my discussion of marijuana appellations and their viability going forward:

In response to fears that legalization will lead to commoditization of the marijuana industry and a consequent influx of generic marijuana that runs small-scale farmers out of business, some jurisdictions have proposed adopting appellations for marijuana cultivation.  An appellation is a certified designation of origin, that may also require certain quality or stylistic standards be met.  Appellations are most commonly associated with the wine industry, but they can be applied to any agricultural product in which the geographic origin carries importance.  The wine industry’s model rests on the assumption that environmental conditions (soil, aridity, temperature, etc., collectively known as the “terroir”) influence grape quality, and there is general agreement that assumption has merit.  Designation requirements that have quality standards also tend to increase the quality of grapes grown in the appellation, improving wine quality and the region’s reputation.

As the reputation of a region’s agricultural product grows, the appellation designation creates a unique market for the product, increasing prices while precluding other producers from associating their products with the region.  Appellations therefore create mandatory differentiation in the market, frustrating efforts to commoditize the industry.  Protectionism of local industries and their brands (e.g., Champagne, France) has a secondary benefit: by certifying that products with geographic indicators are accurately designated, consumers are assured of authenticity.  These twin goals of providing economic benefits and consumer protection underlie the basic motivations of most appellation systems.

There are several reasons the appellation model may be well-suited for the marijuana industry.  First, there is some merit to the claim that environmental conditions influence marijuana quality, and would therefore provide a basis for place of origin designations.  Marijuana farming has become so widespread in northern California in part because growing conditions there are ideal.  While California is known for being an infamously arid state, in reality the problem is distributional: while almost all of its population is located to the south, most of the state’s water resources were historically located north of Sacramento.  That is a problematic dynamic for population centers and the agricultural Central Valley, but it provides ample water resources for marijuana farming.  As a double bonus, California’s northern counties are dry during the summer growing season, when excess precipitation and humidity might dampen and spoil marijuana crops.  

In Jamaica, by contrast, marijuana farmers traditionally used genetic strains that were accustomed to tropical humidity and temperatures, cultivating marijuana with unique characteristics.  Seed companies regularly market their strains to match a diversity of outdoor conditions.   Instead of competing with each other to produce the most popular generic strains, appellations allow regions to embrace the strains that grow well in their environment.  For example, France’s Burgundy and Rhône regions are well-known for growing pinot noir and syrah grape varietals, respectively.  Neither region is threatened by outside producers or forced to adopt ill-suited varietals because they have created individual markets for their own well-respected grapes.  The same could be true of marijuana producing regions.

The economic incentive to provide monopolistic protections and marketing power to appellation regions is, without doubt, relevant to the marijuana industry.  Counties that have developed robust marijuana farming industries may feel that the influx of mass-produced generic marijuana that would come from national legalization may wipe out their existing small-scale farmers. Appellations can protect the brand-name associated with a region.  An appellation system could ensure that only marijuana grown in Humboldt County, California carries with it the Humboldt County designation.  In addition, marijuana appellations can adopt specific standards that collectively enhance the quality and reputation of their region.  In France, for example, wine appellations can require that vineyards only use certain varietals, limit irrigation practices that increase yields at the cost of grape quality, or attain a predetermined alcohol content.  While these requirements make production more challenging, they collectively increase the region’s overall product. Many of these practices could be applied to marijuana cultivation as well.

Of course, this model would require a broadly inclusive (i.e., transboundary) regulatory framework in order to be effective.  The United States wine industry’s appellations are regulated by the Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau (TTB), but for obvious reasons the TTB is unlikely to establish a national appellation system for marijuana if cultivation remains illegal under federal law.  States can develop their own appellation frameworks, however, and as long as states maintain import/export bans (likely in the short-term given federal interstate commerce enforcement concerns) those state regulations may prove effective.  State appellation regulations may even prove resilient if the federal prohibition is lifted and a federal agency regulates the industry.  

It would be difficult for individual counties or local government bodies to enforce their own appellation designations if other jurisdictions do not follow suit.   Enforcement of geographic indicators outside of the regulatory body’s jurisdiction is notoriously difficult.  In one infamous case, it took fourteen years and a trade mission for the Napa Valley Vintners Association to convince the Chinese government to grant protected status to the term “Napa.”   While the marijuana industry is increasingly mobilized and represented through interest groups, it will be difficult to force jurisdictions to recognize geographic indicators without the assistance of a broader regulatory framework.  Still, local attempts to create appellations can generate momentum and set precedent for other jurisdictions to replicate the model.  It is not a given that the TTB will establish marijuana appellation regulations upon legalization, but state and local governments can make that more likely by creating the foundations for regulation.

The second incentive to create appellations – providing consumer protection – is equally compelling in the marijuana industry.  Because marijuana has been (and in many jurisdictions continues to be) cultivated on the black market for so long, consumers have traditionally had little to no information regarding where or how their marijuana was grown.  It is notoriously difficult to determine the origin of marijuana even in the aggregate, but by one estimate two-thirds of marijuana consumed in the United States came from Mexico in 2008.  Given the well-publicized violence and corruption associated with Mexican drug cartels, it is not unreasonable to believe consumer behavior would reflect a preference for domestically grown marijuana if geographic designations were reliable.  Given marijuana’s illicit dimensions in many jurisdictions where it remains prohibited, marijuana appellations can provide some assurance of authenticity and ethical cultivation.  There is evidence that legal marijuana cultivation in the United States is driving “cartel grows” out of business; appellations can assist the market in providing consumers with choices that meet their standards in similar fashion.

Appellations can provide consumers with more information than place of origin as well.  The requirements common in French wine appellations mentioned above (e.g., restricting supply, eligible varietals, or alcohol content) are not only collectively beneficial to the region’s producers, they can provide more information to the consumer as well.  Considering how many strains of marijuana are in existence, there is value in a regulatory framework that easily and reliably communicates important characteristics to consumers, such as the strain and its THC or CBD levels.

There is reason to doubt that the marijuana industry can or should adopt appellations, however.  Perhaps the most significant obstacle is the fact that a significant percentage of marijuana is grown indoors.  Since outdoor cultivation was risky during prohibition, the marijuana industry has a long-track record of, and experience with, indoor cultivation.  Growing indoors now offers advantages beyond privacy, allowing farmers to manipulate growing conditions such as soil content, air temperature, and light energy to maximize yields.  As one might expect, however, growing indoors makes the “terroir,” or geographic elements, irrelevant. 

However, appellations can still be useful in creating unique localized markets if regions adopt certain growing standards.  The marijuana industry has come under intense scrutiny on account of the energy demands of indoor agriculture (see below), and appellations could require indoor operations to meet clean energy standards.  One county has already required indoor farms to use exclusively renewable energy sources.  Appellations could also provide incentives for the industry to transition to, and embrace, outdoor cultivation by providing the geographic indicator protection (and its economic benefits) solely to outdoor marijuana farms.

Of course, while appellations would frustrate efforts to commoditize marijuana, an appellation system would not preclude consolidation.  The U.S. wine industry has been experiencing rapid consolidation despite a robust origin-focused appellation system.  Nonetheless, the number ofsmall-scale vineyards has remained stable, indicating a strong market for unique wines.  And it may be that consolidation is facilitated by the fact that U.S. appellation designations are only concerned with geographic origin, and do not impose quality or cultivation standards on producers.  In any case, the benefits of a marijuana appellation system are sufficient to justify consideration.  Especially in regions concerned that mass-produced generic marijuana will have devastating economic consequences for small-scale farmers, finding ways to differentiate products and generate market value will be an important policymaking objective.  A marijuana appellation system may provide the regulatory framework needed to achieve it.