Pay for Play Cannabis: Slotting in an emerging California Cannabis Industry

A new trend called “pay for play” otherwise known as “slotting fees” is growing in California, where cannabis retailers are charging cannabis brands for shelf space at their dispensaries. This growing practice threatens to box out smaller cannabis brands from getting exposure in the market. “Pay to play” started getting attention last year in 2018 when recreational cannabis was legalized. Between the hefty taxes and fees put on the sales, and the thriving illicit black market retailers became desperate to find another source of income to weather the storm.  In cities like San Diego and Los Angeles retailers are charging anywhere between $1,000 and $50,000 a month for brands to get premium placement in their shops.

The final charge depends on how many stores the brands want access too along with how much shelf space they will get while in the store. According to MJ Business daily “The most common fee request identified by sources was an average of $5,000-$10,000 a month for prime real estate inside shops, with the highest fees reserved for space in retail chains with multiple storefronts.” The fees are much more prominent in Southern California than Northern California. Smaller size craft brands are the ones who are taking the most hit, they do not have the same capital flow as some of these bigger cannabis brands and are directly impacted by this practice.  Some cannabis manufactures have argued that the practice could be illegal because it promotes unfair business practices.  

            However, retailers point out that “slotting” is typical for most mainstream grocery and department stores and that the practice is common. Although the practice is prohibited in the alcohol industry which is more comparable to the cannabis industry. This is a pivotal issue because it will determine if the cannabis industry is going to be regulated more like alcohol businesses or a grocery model of business. In the grocery business model, certain brands pay more to be have better placement on the shelves and also to be placed away from competitors. The idea is that in a saturated market, it pays to have better placement.

Hilary Bricken a marijuana attorney in Los Angeles wrote about the issue late last year. Bricken was negotiating a contract for shelve space for one of her clients. According to Bricken “licensees (Retailers) pretty much have free reign to contract for whatever they want for however long they want without fear of interference from state regulators (so long as such agreements basically don’t amount to anti-competitive behavior).” It seems to be that this trend is going to continue to grow unless lawmakers step in and say the practice promotes anti competitive behavior and make changes.