In legal cannabis, vertical integration means one company owns and operates multiple (or all) supply-chain steps—cultivation, manufacturing, distribution/transport, and retail—under a single organizational umbrella. In contrast, third-party distribution separates roles: cultivators and manufacturers sell to (or through) licensed distributors, who then move compliant product to retailers and, depending on the state, may also handle specific regulatory handoffs.

The biggest practical difference is where control lives. In a vertically integrated model, the operator can standardize cultivation inputs, production schedules, inventory strategy, and merchandising across the entire chain. That can reduce handoff friction and make it easier to align supply with real-time store demand. States can also mandate integration to simplify oversight. Florida’s medical program is a well-known example: state law requires a licensed medical marijuana treatment center to cultivate, process, transport, and dispense and generally restricts contracting out core functions.

Third-party distribution models, common in many adult-use states, create a specialized logistics and compliance layer between production and retail. California, for example, requires a distribution license to transport cannabis goods and allows distributors to move products for other businesses rather than only their own. California’s tax and regulatory framework also outlines distributor responsibilities tied to track-and-trace systems and wholesale transfers, positioning distributors as a compliance checkpoint in the regulated flow of goods.

Which is “better” and why?

A neutral operational assessment usually lands on: neither model is universally better; the “best” choice depends on the market and the operator’s constraints.

Vertical integration tends to be better when:

• Regulation effectively requires it or strongly rewards it, making end-to-end ownership the simplest path to licensure and compliance.
• The operator has the capital and expertise to run multiple business types well, spanning agriculture, manufacturing, logistics, and retail.
• The strategy emphasizes brand consistency and predictable supply, where controlling inputs and outputs reduces variability.

Third-party distribution tends to be better when:

• The market supports specialization, allowing producers to focus on cultivation or manufacturing excellence while distributors focus on compliant movement, documentation, and routing.
• The operator values flexibility, including access to multi-brand assortments, faster vendor changes, and broader geographic reach.
• The goal is to lower fixed costs by avoiding the need to build and staff every link of the supply chain.

Industry analysis often highlights these tradeoffs. Vertical integration can deliver economies of scale and tighter coordination, but it can also be capital-intensive and may limit market entry when mandated, since fewer operators can afford to finance cultivation, processing, and retail simultaneously.

The most defensible conclusion is that the better model is the one aligned with the regulatory environment and the operator’s operational strengths. Vertical integration prioritizes control, consistency, and internal efficiency, while third-party distribution prioritizes specialization, shared compliance infrastructure, and market adaptability.