Co-Opt or Co-Exist? a Study of Medical Cannabis Dispensaries' Identity-Based Responses to Recreational-Use Legalization in Colorado and Washington

In 1996, California became the first state to legalize cannabis use with the passage of Proposition 215, the Compassionate Use Act (Sacco and Finkle 2014). Drafted by a broad coalition of activist groups, Prop. 215 promoted the right of “seriously ill” patients to obtain and use cannabis for medical purposes based on the recommendation of a licensed physician (Heddleston 2013). In the years since its passage, influential social movement organizations such as The National Organization for the Reform of Marijuana Laws (NORML) and Americans for Safe Access (ASA) have continued to frame cannabis as medicine that relieves the pain of patients suffering from a variety of illnesses, from debilitating conditions such as cancer, multiple sclerosis, and AIDS, to milder health problems such as insomnia, anxiety, and migraines (Dioun 2014). This depiction of cannabis as therapeutic has been bolstered by a number of scientific studies indicating some benefit of cannabis for conditions such as chronic pain, spasticity, and nausea (for a review, see Whiting et al. 2015). The success of cannabis’s therapeutic framing can be seen through the spread of statewide ballots legalizing cannabis for medical purposes; 18 states had enacted pro-medical cannabis legislation by the end of 2011 (Pacula and Sevigny 2014).

In late 2012, this steady progression became unsettled when citizens in Colorado and Washington voted on ballot initiatives legalizing the sale of cannabis for adult recreational use. Rather than framing cannabis use as a medical issue, initiative proponents emphasized the economic, public health and safety, and social justice benefits of regulating the sale of a substance deemed less harmful than alcohol (Leon and Weitzer 2014). Both state-wide ballots passed with roughly 55% of the vote. This paved the way for the earliest entrants into a new market category in 2014: the recreational cannabis dispensary.

The core empirical question our study investigates is how medical cannabis dispensaries reacted to the entry of recreational dispensaries in markets where both co-exist. After decades of medical use dispensaries as the only legally sanctioned retail entities in this market, the regulatory creation of this new organizational form represented not only a threat to existing lines of resources but also a fundamental challenge to the “meanings and order” underlying the social identities medically focused dispensaries had cultivated over the years (Fligstein and McAdam 2011:5). Medical dispensaries could thus be expected to engage in strategic and identity-based actions to defend their interests and social positions (Fligstein, 2001; McDonnell and King 2013; King and Walker 2014). But how did medical marijuana dispensaries attempt to do so? Did they emphasize their distinct identity as medical-use providers, distancing themselves from recreational dispensaries and those consumers who consume cannabis for recreational purposes? Or did they downplay their medical orientation in order to compete directly for potential consumers?

Reframed in theoretical terms, did medical cannabis dispensaries advance identity-based claims that strengthened or weakened the boundary separating them from their recreational counterparts? There exist numerous studies in organizational theory, organizational and economic sociology, and strategy that illustrate processes underlying the strengthening and weakening of boundaries in the organizational world (e.g., Ruef, 2000; Lounsbury and Rao 2004; Weber, Heinze, and DeSoucey 2008; Sine and Lee 2009; Khaire and Wadhwani 2010; Negro, Hannan, and Rao 2011; Jones, Maoret, Massa, and Svejenova 2014). Some show that incumbent category members respond to new category emergence by directly competing for control of overlapping regions of resource space--for example, by adding new technologies, products, or services that incorporate salient features from the new category (Benner 2010; Rao, Monin, and Durand 2003, 2005). Others show that organizations shift location in resource space in order to reaffirm the distinctive nature of their existing social position and thereby increase differentiation in targeted positions vis-à-vis new category rivals (Negro et al. 2011). Currently, we lack a clear understanding of the social, economic, and institutional conditions that push organizational actors in one direction versus the other (King, Clemens, and Fry 2011).

A key focus of our study is on factors that constrain incumbent category members’ identity-based responses to the threat presented by new category emergence. Constraint plays a foundational role in the creation of new categories (Pontikes 2012). Presumably, new category members are able to enter and thrive when incumbents are unable to effectively respond to changes in their resource and market conditions. Considerable literature highlights internal sources of constraints, such as an organization’s age, size and prior history of changes (Hannan and Freeman 1977; Freeman and Hannan 1983; Delacroix and Swaminathan 1991; Haveman 1993; Amburgey, Kelly, and Barnett 1993; Dobrev, Kim, and Carroll 2003). We complement this rich literature by focusing on external constraints—pressures emanating from external stakeholders such as regulatory agencies, local voting populations, and clientele—that shape the actions incumbent category members take in response to an emerging category. Integrating insights from several subfields within organizational and economic sociology, we develop theory regarding the factors that shape the way incumbent category members respond to and manage their identities vis-à-vis new category competitors.

We begin by briefly outlining the evolution of the cannabis industry in the U.S., with a particular focus on the two states that passed recreational cannabis-use ballots—Colorado and Washington. We then develop hypotheses of how varying resource-based and sociopolitical factors affected the way in which medical cannabis dispensaries reacted to the emergence of the competing recreational form where both co-exist. We focus on medical dispensaries’ strategic reactions during the early period of new category emergence—from July, 2014 to July, 2015. It is during this unsettled period, when there is considerable uncertainty regarding the “what the purpose of the field is, what positions the actors occupy, and how actors come to understand what others are doing” that we are particularly likely to capture concerted efforts by dispensaries to jockey for favorable market positions (Fligstein and McAdam 2011:5). We use a unique dataset gathered from a collection of online, government, industry, and academic-run resources to test our theory.