The California Governor’s Office of Business and Economic Development (GO-Biz) announced that it is once again giving a handful of grants to various health departments and non-profit organizations on May 25. The agency is utilizing cannabis excise and cultivation taxes to fund $50 million in fiscal year 2022-2023 and awarded funds through the California Community Reinvestment Grants Program. Recipients are permitted to use the funds to help people find jobs, treat mental health or substance abuse, and provide legal services.
In order to qualify, organizations must meet various requirements, such as being in good standing for at least six months prior to grant solicitation, have tax-exempt status from the IRS and California Franchise Tax Board, and be labeled as “current” or “exempt” in the California Attorney General’s Registry of Charitable Trusts, among others.
This fiscal year’s grant recipients include 31 organizations that specifically aim to support communities affected by the War on Drugs. The highest grants awarded were $3 million for Centers for Equity and Success, Inc., Shields for Families, the Los Angeles Department of Public Health, UnCommon Law, and the Monterey County Health Department. Other grants include First Place for Youth, Goodwill of the San Francisco Bay, United Friends of the Children, and more.
According to a GO-Biz press release, the agency plans to open up the next wave of grants for application later this summer in August 2023.
The California Department of Cannabis Control (DCC) initially announced the launch of the program with $30 million in first grant recipients for fiscal year 2019-2020 in April 2020. In 2021, the California Community Reinvestment Grants Program granted $15 million to various organizations. Most recently last year in June, GO-Biz announced the distribution of cannabis tax funds in the amount of $35.5 million between 58 grants recipients.
In February, the DCC announced that it was offering $20 million in grant programs for the purpose of supporting and expanding the state cannabis industry. “Expanding access to California’s retail cannabis market is an important step towards protecting consumer safety and supporting a balanced market,” said DCC director Nicole Elliott. “The retail access grant program ultimately seeks to encourage legal retail operations in areas where existing consumers do not have convenient access to regulated cannabis.” Six study initiatives were approved at the University of California, Los Angeles, three at University of California, Berkeley, and single grants for colleges such as University of California, Davis, Cal Poly San Luis Obispo, and Cal Poly Humboldt.
Also in February, the DCC announced that it would be allocating $20 million to the Local Jurisdiction Retail Access Grant, which helps local governments enact their respective cannabis licensing programs. It also announced an additional $15 million that would be granted to support equity in the cannabis industry.
California continues to fund cannabis research efforts as well. In April, 16 colleges were granted nearly $20 million for the purposes of studying cannabis. These initiatives ranged in topics from studying legacy genetics, potency, and more. “It is the Department’s aspiration that these studies will advance the body of scientific research, further our understanding of cannabis, and aid to the continued development and refinement of the legal framework,” said DCC chief deputy director Rasha Salama. “These studies will provide valuable insights on topics of interest to California’s consumers, businesses, and policy makers and the Department looks forward to sharing them once they are completed.”
Just a few weeks ago, a California task force issued a draft of its final report, which concluded that the state issue an apology to Black Americans for discrimination experienced as a result of the War on Drugs. Additionally, it called for the payment of funds to Black Americans for “each year of residency in California during the 49-year period between 1971 and 2020.” The final version of the report will be sent to congress on June 29.
Opponents of recreational cannabis legalization have argued that increased cannabis use could diminish motivation, impede cognitive function and harm health, ultimately affecting the economic wellbeing of adults. However, an analysis published by the National Bureau of Economic Research finds the opposite is true: Legalization of adult-use cannabis is actually associated with economic improvements and increased job opportunities.
Researchers at San Diego State University and Bentley University performed the study, which they said is the first to explore the impacts of recreational cannabis laws on employment, wages and labor market outcomes of working-age individuals. They used data from the 2002-2020 Current Population Survey Merged Outgoing Rotation Groups, along with various difference-in-difference approaches including TWFE and Callaway and Sant’Anna estimators.
Ultimately, the researchers said they found “little evidence that RMLs [recreational marijuana laws] adversely affect labor market outcomes among most working-age individuals.”
Rather, they found evidence of “modest increases” in employment and wages, especially among those over the age of 30 (often shorter-run gains), younger racial/ethnic minorities and those working within the agricultural sector.
“These results are consistent with the opening of a new licit industry for marijuana and (especially for older individuals) a substitution away from harder substances such as opioids,” researchers said.
The working paper’s introduction begins with two contrasting quotes from Elon Musk and Seth Rogan—Musk’s quote, “I’m not a regular smoker of weed … I don’t find that it is very good for productivity,” and Rogan’s, “I smoke a lot of weed when I write.”
The paper’s focus was not on cannabis and productivity among individuals, though a number of recent studies have explored that question with conflicting results. One 2022 study concluded cannabis use has no effect on motivation, though a 2016 study suggested improved performance and cognitive function for cannabis users. Others have concluded cannabis use could indeed lead to lower motivation.
Instead, this analysis explored broader economic trends following recreational cannabis legalization. Ultimately, the authors said that cannabis reform has introduced a new industry, which ultimately creates jobs and opportunities for the working class.
In addition to the bustling job opportunities, researchers said that legal cannabis access keeps more people away from other substances, like opioids or heavy alcohol use, that can lead to negative effects on productivity. They also note that, if cannabis is effective in improving physical or psychological health symptoms, these improvements could also work to generate “positive labor market spillovers.”
With legal cannabis, there is also reduced criminalization surrounding possession, once again allowing for better labor market outcomes, especially among young Black and Hispanic men, who have “disproportionately suffered diminished labor market opportunities due to having a criminal record,” researchers said.
Due to the relatively new market, researchers said the study was limited simply based on the limited period available to analyze.
“Longer-run labor market effects may differ as we learn about the effects of RMLs on cognitive development and human capital acquisition of those under age 21, which could take time to unfold and be reflected in market level effects on productivity, wages, and/or employment,” they concluded. “Moreover, the labor market effects of reductions in criminal records could also take time to unfold.”
Researchers also said that it’s difficult to confirm how the new legal industry will evolve over time, citing the initial COVID-19 period as a “dramatic increase” for cannabis sales and the period following it “one of dramatically declining sales.”
“Nonetheless, our findings answer some important early questions about the economic consequences of recreational marijuana legalization,” authors said.
Previous studies have confirmed an association between recreational cannabis laws and increased employment levels among older adults. Data compiled last year by Leafly and Whitley Economics also shows the cannabis industry added more than 100,000 new jobs in 2021 and employed more than 428,000 full-time workers at the time of its release.
The New York Office of Cannabis Management recently published guidance for licensed recreational marijuana retailers that wish to make home deliveries of cannabis products. The New York cannabis delivery rules for adult-use were released only weeks before the anticipated launch of the state’s regulated market for marijuana, which was legalized by New York lawmakers with a groundbreaking bill passed last year.
The New York cannabis delivery rules apply to the state’s Conditional Adult-Use Retail Dispensary (CAURD) licensees, who will be awarded the first 175 permits to make retail sales of recreational marijuana in the state. The initial 36 CAURD licenses, which are reserved for individuals with past marijuana-related convictions and nonprofit groups serving those harmed by prohibition, were announced by the OCM last month.
“CAURD Licensees will be able to receive approval from the Office of Cannabis Management to begin delivery to customers, jumpstarting sales of New York cannabis products with a model that will help them compete while providing options to licensee-entrepreneurs as they build new adult-use cannabis businesses,” the OCM wrote in a statement about the new delivery guidelines.
Under the cannabis delivery guidance published online on December 9, adult-use cannabis retail license holders are allowed to secure a commercial warehouse from which to fill cannabis delivery orders for up to one year. The warehouse locations will give licensees a temporary site to launch their businesses while building permanent dispensary locations, the OCM noted.
The retailers are limited to making deliveries of cannabis products to adults 21 and older, who are required to provide valid identification at the time of sale and delivery. Customers are only permitted to place orders for delivery online or by phone. In-person sales or pickups at the retailer’s warehouse location are not allowed. Customers must also pay for their order online prior to delivery. The guidelines do not permit cash payments from the customer to the delivery employee.
Cannabis retailers are permitted to make deliveries of cannabis products to customers via motor vehicles, bicycles, scooters or other similar modes of transportation. Each cannabis retail business is allowed up to 25 delivery personnel, per requirements of the Marihuana Regulation and Taxation Act (MRTA), the law legalizing recreational cannabis in New York that was signed into law by former governor Andrew Cuomo on March 31, 2021.
The new delivery guidance also notes that cannabis delivery warehouse locations and delivery storefronts may not be located in cities and towns that voted to opt out of hosting recreational marijuana retail businesses within their jurisdictions. The rules clarified that deliveries of cannabis products may be made to customers in such communities, however.
Rules Governing Dispensary Locations Eased
The OCM also announced last week that dispensary owners would be given new leeway to choose a location for their businesses. Under the previous rules, CAURD licensees were required to accept a turnkey site from the Dormitory Authority of the State of New York (DASNY) for their retail operations. Damian Fagon, the OCM’s chief equity officer, said that the agency made the change after conferring with the first business owners awarded licenses, many of whom expressed a desire to choose the site for their shops. The decision also alleviates pressure on DASNY to expedite the leasing process.
“It’s just about adapting to changing circumstances, and making this thing work for New York,” Fagon said in a statement to The New York Times, adding: “People are ready to make some money, and we’re ready to make that as easy as possible for them.”
While the change allows cannabis retail business owners to choose their own dispensary storefront location, they’re not required to do so. DASNY noted that the agency will continue to secure suitable retail locations, which will be matched with waiting licensees as they become available.
DASNY also revealed that it has secured its first business location for a CAURD licensee. At a meeting of the DASNY board held last week, president and CEO Reuben R. McDaniel III announced the agency had signed its first lease for a retail cannabis dispensary site for a property in Harlem, only steps away from the famed Apollo Theater.
“I’m pleased to announce that last night we signed our first lease,” he told the DASNY board. “For those of you familiar with Harlem, you can stand at the Apollo and throw a baseball right across the street.”
McDaniel added that the design team has finished initial plans for the 2,800-square-foot site and noted that construction would begin once DASNY approves the final design He didn’t reveal which licensee would be awarded the business location but noted that the agency hopes to sign more leases by the end of the year.
Most American consumers are familiar with carbon dioxide, the ubiquitous gas that tickles the nose as a glass of freshly poured cola is enjoyed on a hot summer day. Beyond fizzy beverages, carbon dioxide (CO₂) is also used for a variety of applications across a gamut of industries. But a national industrial carbon dioxide shortage is threatening business operations and public services across the United States. NPR recently reported that the CO₂ shortage is causing prices to skyrocket, with some brewers reporting the rising costs of the colorless, odorless gas could cause beer prices to spike in turn. And late last month, officials in San Diego, California announced that four city pools would close because of the shortage of carbon dioxide, which is used to balance and maintain pH levels in pool water.
The shortfall in carbon dioxide is the result of market factors that have combined into what one industrial gas insider characterized as a “little bit of the perfect storm.” Two of the largest industrial gas companies in the US declined to comment on the carbon dioxide shortage. But Paul Pflieger, director of marketing and communications for the Compressed Gas Association, a trade association representing CO₂ suppliers including multinational corporations and family-owned businesses, agreed to field questions regarding the situation. He explains that the vast majority of industrial carbon dioxide is created as a byproduct of the production of ammonia for agricultural fertilizers and ethanol, which is added to gasoline. But market conditions caused by the pandemic have disrupted that supply chain.
“During Covid, people were obviously driving a lot less, so a lot of ethanol facilities actually shut down and haven’t come back online, which has reduced the amount of available CO₂,” Pflieger said in a telephone interview. “And then paired with that, during Covid, a lot of the ammonia plants in the US didn’t shut down as they were supposed to for normal maintenance, and then they scheduled their maintenance for this summer, and they have been shutting down for 30 to 60 days.”
Pflieger also noted that the shortage is exacerbated by the unplanned shutdown of carbon dioxide wells in Jackson Dome, Mississippi, a natural reservoir for the gas that was contaminated by impurities from an extinct volcano. The resulting shortage of both natural and produced carbon dioxide is causing problems across a wide range of industries that depend on CO₂ for their operations. Pflieger noted that the cannabis industry is a “relatively small percentage” of the total amount of industrial CO₂ used by American companies, with other sectors of the economy claiming the lion’s share of production.
“In the US. 77% of all CO₂ is used in food processing, dry ice and beverages. So that’s a huge amount of demand, especially in the summertime, when everyone is craving beverages—beer, soda, you name it—at a much higher rate, and dry ice is also being used more,” Pflieger says. “We’ve had a record hot summer. So, all of that goes into the demand being a lot higher. And with those shutdowns, the supply is a lot lower.”
Cannabis Companies Rely on Carbon Dioxide
Although cannabis companies only represent a small portion of the market for industrial carbon dioxide, the gas is crucial to the operations of many producers. Jigar Patel, the co-CEO of licensed cultivator NorCal Cannabis Company, notes that most indoor growers use supplemental carbon dioxide in their facilities to help maximize photosynthesis, which uses light energy to convert water and CO₂ into plant sugars that fuel growth. With plants growing at their full potential, the yield of cannabis flower is boosted at harvest time with supplemental carbon dioxide.
“In indoor cultivation, it’s pretty prevalent,” Patel explains in a phone interview. “Anybody that’s operating at the modern, controlled environment level is using CO₂ for plant growth. In a world where efficiency is king, especially given the current market conditions and pricing, CO₂ is vital to commercial growers and our ability to maximize our yield.”
The current shortage of carbon dioxide has left cannabis growers scrambling to maintain production. Patel notes that many cannabis cultivators have signed contracts with gas suppliers who provide the tanks and equipment needed to supply carbon dioxide to the plants. In return for making the supplier the grow’s sole supplier of carbon dioxide, the cultivator is spared the expense of installing the system.
“The Catch-22 there was most of these contracts don’t have an out clause for when they run out of CO₂,” Patel says. “So, your specific provider runs out of CO₂, you’re stuck between a rock and a hard place in terms of where you can turn.”
When shortages began to affect supplies of carbon dioxide, some suppliers allowed their customers to buy the gas from other companies. But before long, “even those vendors were having a shortfall,” causing growers to ration carbon dioxide and amend their standard operating procedures. With carbon dioxide in short supply, growers are often pumping fresh air into the growing space instead, which increases air conditioning expenses and other costs related to maintaining the proper growing environment. However, growers are unlikely to recoup their added expenses when they sell their crop, Patel says, noting that “we’re in the middle of a massive oversupply” that is depressing wholesale prices.
Some manufacturers of concentrates also use carbon dioxide in their production, using the gas instead of hydrocarbons or other powerful solvents to extract cannabinoids from plant matter. Dennis Hunter, co-founder of CannaCraft, says that the company, which uses carbon dioxide extraction to produce cannabis concentrates marketed by its AbsoluteXtracts brand, says that “we have had significant periods without CO₂ shipments and our CO₂ cost has risen significantly with the shortage,” adding the challenges have meant the company has had to alter its production plans.
“We have had to delay some operations for several weeks, refocusing our employee labor on production operations that do not require CO₂ as part of the process,” Hunter writes in an email to Cannabis Now.
Hunter agreed that it’s difficult to pass on the increased costs of carbon dioxide caused by the shortage to distributors and consumers, saying “the market is too competitive for the CO₂ shortage to result in an increase to our concentrates pricing. As the manufacturer, we will absorb the increased production costs so that they aren’t passed on to our retail partners and customers.”
Relief Is In Sight
The combined market forces of a shortage of carbon dioxide and the associated increased costs coupled with a glut of cannabis products depressing prices has the laws of economics squeezing cannabis operators from both ends of the supply chain. However, relief appears to be not far off.
“Luckily, a lot of the problems we’re seeing are going to fix themselves in the next 30 to 60 days,” Pflieger predicts. “A lot of the ammonia plants are coming back online. Hopefully, the temperature in the US is going to start to go down, and the natural wells are back online and they’re putting out clean CO₂. As an industry, we’re saying in the next 30 to 60 days, we expect things to start reaching a normal state.”
Patel acknowledges that the situation is beginning to improve.
“Our supplier this week was able to actually fill our tanks for the first time in four months, and appears to have more production online,” he reports. “I think as more and more Americans return to work, and the need for CO₂ across all industries begins to increase, we’ll see more and more producers and supply chains get back to their regular cadence.”
Hunter says CannaCraft isn’t expecting the supply of carbon dioxide to fully return to normal until the end of the third quarter, perhaps extending into the fourth quarter of 2022. Even so, he says the company is making costly investments to reduce its reliance on commercial supplies of the gas. With future shortages almost a certainty, it’s likely money well spent.
“This isn’t a new problem in the US. We’ve had CO₂ shortages for many, many summers,” Pflieger explains. “This one’s just exacerbated by other issues.”
Like California fire season, “Croptober”—the term for the annual flood of sungrown cannabis entering the market during the fall harvest and the subsequent price shock, as supply on hand far outstrips demand—is now a yearlong phenomenon.
But this year aims to be worse for everyone, as October is due to bring bad tidings for c-suite types and investors in Big Weed. With the third quarter closing Sept. 30 and the next earnings reports for publicly traded companies due beginning Oct. 15, “Croptober” is on track to be “Crashtober,” the autumn of major cannabis companies’ serious problems.
Anticipating this, the #MSOgang appears to be getting ahead of the trouble. Rather than blame consumers for not buying enough cannabis or themselves for growing too much, a parade of executives and investors recently told POLITICO that the real problem is Congress, and that the real reason they have been gushing cash for years now is lawmakers’ failure to pass any number of significant cannabis reform bills.
While federal tax law and federal prohibition no doubt play a significant role, these are also not new problems for cannabis businesses. But as several observers, entrepreneurs and other cannabis business types contacted for this article said, 2022 feels different.
Investors are tired of seeing companies burn their cash. And with more than a half-billion in losses through half of 2022, companies are running out of cash to burn.
Continuing a trend seen all year long—and in defiance of otherwise across-the-board inflation— cannabis prices continue to decline almost everywhere the plant is legal for Americans to buy and consume, according to recent data compiled by Cowen, one of the leading analyst houses tracking the industry. About the only place prices are high(ish) and stable are in states with new adult-use markets with limited competition, such as New Jersey.
Though most every major cannabis company in the United States has a presence in New Jersey as well as New York, where the most recent news is that licensed and regulated retail sales won’t start until 2023, almost a full two years after legalization—and both states have enormous potential measured in the billions of dollars, according to market forecasts—mere promise doesn’t appear to be enough to satisfy the concerns of investors big and small.
Despite revenue from legal cannabis projected to hit $32 billion this year and $72 billion by the end of the decade, big marijuana companies are pleading poverty. So far, the country’s two dozen biggest publicly traded firms lost a combined $550 million on revenues of $4.5 billion, as per POLITICO.
Some observers have said that cannabis companies themselves are at least partly to blame—that, maybe, they invested too much in enormous grow facilities that don’t produce enough good cannabis, or at least produced enough mediocre cannabis to depress prices and encourage consumers to shop on the traditional market. But at least publicly, most investor types are blaming lawmakers.
“The idiots in Washington are causing the problem,” as Matt Hawkins, a private equity veteran and founder of Entourage Effect Capital, which sunk big money into MSOs including Green Thumb Industries, told POLITICO. “They need to understand that in order for this industry to grow and thrive that has to be passed.”
Even advocates of small weed agreed with the general analysis. Everybody is hurt hard by tax code Section 280, which forbids cannabis businesses from making the normal tax deductions—deductions that, for other firms, mean the difference between profit and a loss, or a tiny margin or a fatter one.
“Obviously every business’ situation is different, but I would concur that federal policy is about the most significant impediment to positive cash flow, particularly the impact of 280E,” said Aaron Smith, executive director of the National Cannabis Industry Association, which advocates for small businesses. “The situation is worse for smaller businesses which cannot withstand extended periods of losses.”
That said, Smith’s sympathy is limited for large firms who based revenue projections on assumptions that federal policy would change—and then “didn’t and don’t invest in the effort to change federal policies either,” he said.
Dealing With the Flow
Observers note that cannabis executives appear to be admitting there’s trouble in various ways, sometimes subtly, sometimes very obviously. Companies have already laid off hundreds of workers across the country, as MJBizDaily reported last month.
At the recent Benzinga Cannabis Capital Conference in Chicago, Curaleaf founder and chairman Boris Jordan turned heads with the prediction that 50% of cannabis sales “five to ten years out” will be infused beverages, with the other half (presumably) split between flower, edibles and vape cartridges currently dominating the market.
The prediction earned Jordan some headlines in the business press and some mockery on Twitter, but he may also have tipped his hand.
He made a similar prediction—that the SAFE Banking Act, federal legislation that would allow better access to banks and investors for state-legal cannabis businesses, would pass during the lame duck session between the midterm elections and the next session of Congress—back in May.
He may be legitimately hopeful, and he may be right, but by hedging his bets that federal help is coming—or even something better five years down the road—he may also be speaking to anxious and impatient investors, wondering when (if ever) their returns are coming. Something must change, but if it’s not federal policy, cannabis companies will need to make a major correction starting as soon as this fall—the fall of fail.
“Money has no nationality” (and variations thereof) is one of those clever-sounding aphorisms that, upon close examination, fall apart quickly. Just look at the cannabis investors in the industry. Who funds the company that sells you weed and therefore profits off of every transaction? The answer may surprise you.
A flood of money from newly legalized Canada created the first (legitimate) unicorns in the industry, before that country’s bubble burst and capital markets dried up. Now, with US investor confidence currently hurt and confused by President Joe Biden’s unwillingness to create a constitutional crisis on behalf of their stonks, money is coming into cannabis from all over the world—wherever it can be secured, really.
This is true for any publicly traded company in any industry, but not every industry was made possible because of legalized adult-use marijuana. Legalization came packaged to voters and the public with social justice promises. And cannabis companies market themselves today as socially conscious and responsible companies.
Fighting the War on Drugs, Again
This all begs a question: Can capitalists right the wrongs of the War on Drugs—and can they do so if their venture capital was earned in, say, Russia—where Brittney Griner was just sentenced to nine years in prison for scraps of cannabis oil?
One state lawmaker doesn’t think so.
In May, Pennsylvania State Rep. Danilo Burgos, a Philadelphia Democrat, introduced a bill urging the state Department of Health to “investigate each entity… with a permit to open and operate a medical cannabis business” and to “take steps to revoke the permit” if there’s a connection to Russia.
“It’s crucial that we work as a body to ensure no Pennsylvania government programs are utilized to benefit those who are complicit in the Russian war effort,” Burgos said in a statement when his bill was introduced May 2. “We must take every effort to support Ukraine in their struggle against this unprovoked Russian invasion.”
In a later phone interview, Burgos said he introduced the bill to use the Ukraine war and increasing scrutiny on Russian oligarchs and US firms doing business in Vladimir Putin’s country to highlight an ongoing problem with cannabis legalization: The economic benefits are going to outside investors rather than Black and brown locals harmed by the War on Drugs, whom legalization backers promised would be uplifted.
“This will help bring more attention to the overall problem in the entire commonwealth,” he said. “That’s what I’m trying to do: Trying to use current events that are catching peoples’ attention to shed light on the larger problem.”
There are 165 permitted medical-cannabis dispensaries currently in Pennsylvania, according to the state health department. These include some of the biggest companies selling cannabis in the US. However, Burgos insists his legislation has nothing to do with any particular company.
“I did this to bring to light the lack of willingness, by government in general over the years but particularly here in Pennsylvania, where we seem to miss the target when it comes to helping communities of color,” he said.
“There’s very little push for communities of color to have access in the cannabis world,” he added. “It’s extremely prohibitive for people of color to invest in cannabis.”
In addition to a lack of access to cannabis investors, capital, onerous permit fees and limited licensing have been blamed for depressing BIPOC participating in legal marijuana.
The Non-Response Response
In an e-mailed statement, a state Department of Health spokesperson said the agency “does not have a formal position” on Burgos’ bill. The spokesperson noted that under Pennsylvania law, applicants for medical marijuana permits must provide a criminal background check that the health department uses to “determine the… character, fitness and suitability” of the applicant. They must also provide documents identifying “each financial backer and principal.” However, there are no restrictions on sources of capital. Nor must an applicant declare where their money came from—after all, it’s green. It has no nationality! But it does have a source—and, maybe, the source matters.
Or maybe not.
Burgos admitted it’ll take an “uphill climb” for his bill to become law, and for there to be a first state to closely examine the source of money in its cannabis industry.
Current indications are that the bill will go nowhere. With their 23-seat majority, Republicans hold all the strings in Pennsylvania’s 203-seat House of Representatives, including when—or if—to call a bill for a hearing. Burgos’ bill is currently assigned to the Pennsylvania House Health Committee, chaired by Republican State Rep. Kathy L. Rapp. In a phone message last month, Rapp said Burgos’ bill isn’t a priority.
“As of now, I don’t have any plans to call a hearing,” said Rapp, who claimed “there’s not a lot of days in the Fall to do hearings. So I don’t think I’ll be doing a hearing on this resolution but thank you for reaching out to me.”
Despite support from Democratic Gov. Tom Wolf, Republicans have also successfully blocked proposals to legalize cannabis for all adults 21 and over in the state.
And there may be resistance within the cannabis industry to Burgos’ bill—if there’s any attention paid to it at all.
In an e-mail, Meredith Buettner, executive director of the Pennsylvania Cannabis Coalition, an advocacy organization whose members include some of the other biggest cannabis companies in the US, called the Burgos bill “a reaction to a reactionary sentiment that there were multistate operators that had Russian ties. I believe that sentiment has been widely dispelled at this point,” she said. In any event, “it’s not an issue I’ve heard any buzz about.”
There may be too many other issues competing with Americans’ attention. There may also be unclear answers to straightforward questions. And, for now, there won’t be any requirement for cannabis companies to tell the public exactly where their capital originates.
Americans confused and frustrated by the conflicting and contradictory mishmsash of state and federal cannabis law can take solace: US Supreme Court Justice Clarence Thomas doesn’t like it either. But for argumentative types and fans of litigation, good news is here. Thanks to a recent federal court decision, anyone dissatisfied with the status quo in certain states’ cannabis regulatory schemes has more cause to sue and overturn those laws. The era of the cannabis lawsuit has arrived.
The Aug. 17 First Circuit Court of Appeals decision that invalidated a residency requirement in Maine’s medical-marijuana law won’t allow for cross-border shipments of cannabis in between states anytime soon, despite some misleading (or confused) analyses. What it does do, legal experts and federal lobbyists told Cannabis Now, is make it easier for Big Weed to take over otherwise protected state markets—while also, in a twist, putting their current business models at risk.
The decision also set state and local regulators scrambling for their lawyers to see where they’re most exposed. Unfortunately for the social justice minded, well intentioned efforts to ensure minority participation in the cannabis industry’s so-called “equity” programs may be most at risk.
Interstate Commerce vs. Shipping Weed
First, the court case. Like several other states, Maine—which legalized adult-use cannabis in 2016—had on its books residency requirements for anyone seeking a cannabis permit. That’s problematic, as any law that favors locals over out-of-staters violates what’s called the “Dormant” Commerce Clause regulating “interstate commerce.”
As Scott Bloomberg, an associate professor of law at the University of Maine wrote, “Our nation’s current system of regulating marijuana would ordinarily be unconstitutional.”
Recognizing this flaw—one that legal experts have identified as vulnerable for years—an out-of-state Delaware company called High Street Capital that wished to buy out Northeast Patients Group, owner three of Maine’s seven medical dispensaries, sued the state to overturn the residency requirement.
Maine regulators dropped the residency requirement for recreational cannabis but tried to defend the residency requirement for medical cannabis—and lost, twice, first in federal district court and then again Aug. 17 on appeal.
The state could try to appeal to the Supreme Court; it’s unclear if they will. A spokesman for Maine’s Office of Cannabis Policy referred Cannabis Now to the state Attorney General’s Office. A spokesperson for the Attorney General declined to comment.
But in the short term, states with restrictions on “interstate commerce” can expect lawsuits to overturn those restrictions. “I worry,” Bloomberg tweeted, “that [the court] just opened the door to interstate trade via judicial decree.”
Other observers were more circumspect. They pointed out that the decision alone doesn’t mean that multi-state operators can start shipping bud across state lines, as the federal Controlled Substances Act is very much in play.
This may sound like mental gymnastics, but bear with us as we walk through the kind of situation that drives Clarence Thomas up a wall: Though cannabis is illegal, Congress has also tacitly acknowledged an interstate market in marijuana.
“They aren’t saying it’s legal,” said Shane Pennington, a New York-based attorney at Vicente Sederberg LLP, one of the nation’s foremost cannabis-focused law firms. “They’re just saying it exists.”
Congress still classifies cannabis as illegal, and anyone trafficking in an illegal substance across state lines still commits a federal crime.
Several states, including Oregon in 2019 and California this year, have passed laws in anticipation of federal legalization that would allow permit holders to ship cannabis across state lines, provided they hold permits in both states and federal law changes. But those provisions also require major, as-yet unseen changes in federal policy to take effect.
Some legal experts did suggest that someone could try to send a few packs across state lines and then use the First Circuit decision in a defense; other experts said that anyone trying this particular gambit ought to have a very good defense team ready.
What this means is that restrictions that favor in-state residents over out-of-staters are vulnerable to lawsuits—because “interstate commerce” means companies based in other states doing business in other states.
No More Locals Only (Or Locals First)
In this meaning, Facebook conducts interstate commerce. So do Cresco Labs, Trulieve and other cannabis companies with business in multiple states—like, as soon as their sale is approved, High Street Capital.
“What this case says, consistent with case law in alcohol… is that residency requirements passed for state protectionism aren’t allowed under the Commerce Clause,” said Randal Meyer, the executive director of the Global Alliance for Cannabis Commerce, a Washington, D.C.-based lobbying group.
As Meyer and legal observers have said, Maine did not even attempt to find a defense for its residency requirement other than state protectionism, which the Dormant Commerce Clause specifically forbids.
“The 50 states are a free-trade union,” Meyer added. “States simply aren’t allowed to discriminate against other states.”
There are various ways around this prohibition in the form of tax breaks and other favors a state can dole out to companies within its borders. Still, any major cannabis company with intrastate businesses in multiple states—which may want to preserve that status quo as a way of protecting its investments; there’s not much utility in having five massive weed grows in five states unless federal law means you have to—should be prepared for their current business model to be disrupted.
However, other laws, like state and local equity laws that use zip codes of residency or other techniques to reserve equity licenses for drug-war victims who may not be out-of-state residents, are absolutely in jeopardy as a result of this ruling, experts said.
Equity at Risk
There are yet other ways that licensing may be used (or abused) in ways that give preference to local residents. These include “scoring” systems that ultimately favor locals as well as the “arbitrary” choices that local planning, zoning, or even cannabis regulatory boards or commissions may make.
(Oh, the local good old boy who bankrolled the Chamber of Commerce’s pancake breakfast got his permit when the out-of-staters didn’t? It just came down to the merits.)
That’s a stickier situation than a state marijuana law with an explicit residency requirement or other form of protectionism—such as some equity laws. Social equity laws are intended to fulfill marijuana legalization’s unfulfilled promise of ensuring minority participation in the industry. Many of them use residency or an upbringing in local zip codes deemed to be hit hardest by the war on drugs.
“This isn’t necessarily because they’re trying to discriminate against out of state,” Pennington said. “They might be arguing they’re trying to help communities hurt by the War on Drugs… but a court might just say, you can’t do that anymore.”
All of these could remain if, while legalizing marijuana federally, Congress chose to suspend the dormant commerce clause, as Bloomberg wrote in a recent article, even for a short period of time while states experimented with the concept of a national weed market. Some states could opt out, others could opt in. But they can’t now under current federal law—and this spells turbulence ahead, for Big Weed as well as equity licensees.
It sure looks like cannabis lawsuits are in the industry’s immediate future.
CANNABIS STOCKS ARE FAST BECOMING A FIXTURE IN investor portfolios, but is now the right time to get involved as so much uncertainty swirls? The past two years have been volatile for every market sector, thanks to COVID-19 above all else. The emerging pot market has admirably contended with the circumstances, federal legalization and other factors unique to this industry. Despite the substantial hurdles, cannabis is thriving. In 2021, global sales topped $37.4 billion, according to Prohibition Partners.
The growing sector’s strong performances netted savvy early investors worthwhile returns. However, some sources caution that the climate of today’s market may not allow for such returns and that those investing today should be prepared for the long haul if they want to see a profit.
Publicly traded cannabis brands are growing in presence on various global exchanges. For multiple reasons, cannabis companies often list on international stock markets, such as the Canadian Securities Exchange. Another popular choice is over the counter (OTC) trading, which uses a broker network rather than a traditional central exchange.
Leading causes for shying away from the US giants—New York Stock Exchange and NASDAQ—often include worries over American federal cannabis regulations and mandatory share minimum criteria that companies may struggle to meet at this time. However, plant-touching and ancillary brands have found some success in this country.
The array of listing options leaves brands and investors with various options. Going off market cap, Green Chip Stocks founder Jeff Siegel said investors have eight billion-dollar-plus companies to choose from as of January 2022: Curaleaf, Green Thumb Industries, Trulieve, Canopy Growth, Tilray, Cronos Group, Sundial and Aurora.
Siegel said investors might want to look beyond the market cap when considering stocks. Sources listed dozens of smaller cap options that may prove beneficial to an investor’s portfolio, with share prices often in single-digit sums.
Jumping into cannabis with singular stocks may not be ideal for those just learning about the market or those who don’t have the time to keep up with the constant fluctuations of the market. Javier Hasse, the managing director for Benzinga Cannabis and co-founder of Spanish language cannabis site El Planteo, discussed how exchange-traded funds (ETFs) could be a viable investment that requires less sweat equity. When?
“Investing in stocks is already hard on its own,” Hasse said. “Investing in a market that’s still nascent and as volatile as cannabis is particularly hard.”
Poseidon Asset Management co-founder and managing director Morgan Paxhia also touched on ETFs, noting their often-correlated activity, allowing investors to choose depending on their underlying investment strategies and other holdings. Some current industry-leading ETFs include AdvisorShares Pure US Cannabis ETF (MSOS), The Cannabis ETF (THCX), AdvisorShares Pure Cannabis ETF (YOLO) and Amplify Seymour Cannabis ETF (CNBS).
“We do believe over time that performance among the ETFs could meaningfully separate as we believe that the cannabis rising tide will lift seaworthy boats,” Paxhia said.
In late 2021, Poseidon launched their ETF with AdvisorShares under the name AdvisorShares Poseidon Dynamic Cannabis ETF.
Cannabis saw a boom in 2019 and 2020 as much of the US market remained open after receiving essential status, leading to continued sales success. The spike helped the industry recover from a bear market that had dampened previous high expectations and canceled many previously announced mergers and acquisitions.
Some entities didn’t perform well, especially those based in tourist locations, or medical ventures that saw intake numbers shrivel. That said, most US-based companies did perform admirably against the circumstances.
The pandemic and the market’s ongoing maturity left Hasse torn on market movements. “It’s still pretty early to tell how cannabis stocks as a group move in relation to markets,” he said, adding that he hasn’t seen direct correlations to economic cycles.
Others were more certain about market movements. Debra Borchardt, co-founder and executive editor of online cannabis stock publication, Green Market Report, noted that cannabis stocks typically “tend to trade as a group despite some companies performing better than others.”
Jacqueline Bennett, managing partner at Highlands Venture Partners, offered a similar take. “Maybe during earnings there’ll be some type of reaction that’s aligned with the performance of the underlying operation, but most of the time you’re seeing the entire index moving in the same direction,” she said. Bennett noted that the movement is indicative of economic and other macro conditions affecting the cannabis market.
The circumstances can make share price valuations frustrating for investors. “The company may be reporting record sales numbers, but then experience a sell-off as other poorly performing companies bring the group down,” Borchardt said. She added that “stock jocks,” or investors that trade for profit rather than underlying company ownership, can also harm stocks.
Like the pandemic, US regulations loom overhead, stunting the market’s true potential for growth and return on investment. Under Presidents Trump and Biden, reform made little progress, save for the advancement of the MORE and SAFE Banking Acts in Congress. While their progress is symbolic of reform’s rise, it won’t do anything to improve banking or investment opportunities at this time. Analysts don’t expect reform to occur under the current Congress or President Biden.
“Despite this being a somewhat bipartisan effort and having constituent approval, Congress just hasn’t been able to make headway and possibly won’t in the near future, as other more pressing issues have had priority,” Borchardt said.
She said the ongoing regulations hurt businesses and companies struggle to find eCommerce vendors and secure banking accounts. “Plus, if cannabis companies had access to the big banks, they could also have access to the major US stock exchanges,” he said.
The issues extend to trading as well. In November 2021, JPMorgan restricted brokerage clients from buying certain cannabis stocks, noting potential bank losses from private fund collapses. Despite ongoing industry restrictions and federal regulations, optimism remains high for the long-term.
“While it’s difficult to quantify the momentum—or lack thereof—with any particular piece of legislation, we fundamentally believe that cannabis legalization efforts, license issuance and consumption itself will continue to increase and support the industry overall as cannabis markets grow and scale,” said Arden Lee, CFO of WM Technology, the operator of Weedmaps, a cannabis stock trading on the NASDAQ as a non-plant touching venture.
All things considered; Bennett may have summed up the growth sector best when she said cannabis stocks are “anything but stable” at this time.
Investments are all about timing. Some early investors have already seen returns. Siegel took pride in his clients scoring big on early investments in Canopy Growth, Organigram and Aphria. However, he said those days are now gone and that investors may have to hang around to see positive results.
“If you got in at the top, you’ll be licking your wounds for a while,” he said, adding that safer players such as Curaleaf may produce some gains in 2022 for investors.
Paxhia believes the market is facing a difficult period where capital isn’t flowing in like it was just a few years ago. The setback is coupled with substantial valuation compression. Today, cannabis companies compete for investor attention against other intriguing sectors ranging from tech to crypto and meta. Still, he notes that market prospects look bright.
“Long term, we still see a lot of opportunity, but this is coming from a firm that has been investing in the space for more than eight years,” Paxhia said.
WM Technology’s Lee offered a similar opinion on the market’s future, noting that few if any “truly high-functioning cannabis markets” exist in the US. “For example, there are more licensed cannabis businesses in Oklahoma than in California, yet California has four times the population and has legal cannabis,” Lee said. He also sees a bright future down the line. “This opportunity will be unlocked with continued license issuance and new market openings—which are questions of when, not if.”
With the market struggling, now may be a smart time to get in. For now, “The prices have fallen so low, this might be a good time to invest,” Borchardt said. She also noted ETFs as a potential pick.
Even with one’s financial ducks in a row, the ever-evolving cannabis market can still trip up investors while it evolves and solidifies into the giant market we know is coming.
“Be mindful of how much capital you feel comfortable putting at risk here, as it is risky and volatile,” Paxhia said.
This story was originally published in the print edition of Cannabis Now.
As cannabis policy reform measures taking hold across the country provide new economic opportunities, entrepreneurs from all walks of life are working to make a place for themselves in the regulated marijuana industry. But so far, the ownership of businesses in the cannabis industry has failed to reflect the communities in which they operate. Latinos are included in this group, as many Hispanic cannabis entrepreneurs working to find their niche within the legal industry.
The National Hispanic Cannabis Council, an industry group representing Latinos in the legal marijuana industry, revealed in a recent report that Hispanics make up only 5.7% of cannabis business owners. The US Census Bureau data shows the demographic group accounts for about 19% of the country’s population. Challenges business owners face include strict regulations and licensing requirements coupled with a shortage of investment funding for new cannabis ventures. But despite the obstacles, it is possible to launch a fledgling marijuana business in emerging markets.
In Albuquerque, where state lawmakers passed the Cannabis Regulation Act in 2021, a group of five middle school teachers celebrating happy hour decided late last year to leave their teaching positions and band together to form a cannabis dispensary. Of the five entrepreneurs—Mary Jean García, Mallory García, Jamie Munsey, Gina Mares and Laura Legarda—only one is still teaching. The five women say that they sold assets and withdrew cash from retirement funds to launch La Tiendita de Motita, a licensed cannabis dispensary that opened in July.
With the new shop, the five women behind La Tiendita hope to address the stigma still associated with cannabis, particularly in the Hispanic community. They also want to share the healing properties of the plant, especially with the older generation of potential cannabis consumers.
The new business owners are taking advantage of provisions of the state’s recreational marijuana legalization statute that assist Hispanic cannabis entrepreneurs with limited funding and resources to enter the regulated marijuana industry. Low-cost loans are available for micro producers, micro manufacturers and micro retailers in New Mexico, while license fees for micro cultivators growing up to 200 plants can be obtained for a flat fee of only $1,000. Other measures in the legislation permit retail cannabis business licensees to maintain other operations including cannabis production, manufacturing and courier services.
“That is a game changer,” Martínez said.
A Wealth of Opportunities for Hispanics and Cannabis
The challenges faced by the owners of La Tiendita aren’t unique. As previously mentioned above, a report from the National Hispanic Cannabis Council released late last year found that only 5.7% of regulated marijuana businesses have Hispanic ownership. The National Hispanic Cannabis Council notes that national data on the industry is not compiled by the federal government because of the continuing illegality of marijuana under federal law. The report also details “the range of barriers Hispanics face at every level of government, including high costs of entry and access to business licenses.”
“The report findings reveal a strong need to support Hispanics interested in the cannabis industry with financing (and the necessary financial education), networking, and coaching, to empower Hispanics and help them clear regulatory hurdles.” Antonio Valdez, the executive director of the National Hispanic Cannabis Council, said in a statement from the industry group. “The implication of the research validates our efforts to provide tools for Hispanics interested in the legal cannabis industry. We’re currently building out resources for these Hispanic entrepreneurs around financial preparedness and industry guidance.”
Despite the challenges, the report found a wealth of opportunities for Hispanic cannabis entrepreneurs interested in participating in the regulated industry. In addition to owning a business, the report notes that companies operating in the industry create jobs throughout the supply chain, from growers and manufacturers and retailers. A survey of a diverse sample of Hispanics active in the US cannabis industry commissioned by the National Hispanic Cannabis Council revealed that there are many ways to promote access to entrepreneurship and business opportunities for Hispanics in the industry.
“Opportunities abound in the adult-use and medical segments of the industry across the states, and Hispanic respondents interviewed remain optimistic about their ability to pursue them,” Valdez said. “In that regard, social equity programs are popular and are expected to have a positive impact for Hispanics, but they’re not perceived as the most important resource needed by Hispanics.”
The National Hispanic Council noted that the regulated cannabis market in the US is expected to reach $30 billion annually by 2024. The group was founded last year by a group of companies in the cannabis industry including Cresco Labs, Flora & Forge, Moxie, Trulieve, Vicente Sederberg LLP, Green Thumb Industries, Eaze, Curio Wellness, Pyramid and Saul Ewing Arnstein & Lehr LLP.
Since its founding in 1862, the town of Trinidad, CO has regularly cycled through identities, and economic raisonsd’etre. The discovery of rich coal deposits in the rugged mountains along the Santa Fe trail between Denver and New Mexico meant the frontier village started as a mining town (and the way mining conglomerates worked meant Trinidad was also a company town). After the mines slowed and closed, between the 1960s and 2010, a single surgeon’s successful (and controversial) practice earned Trinidad the unofficial title of “sex-change capital of the US.” In the cannabis legalization era, another boom-and-bust cycle has come and gone in Trinidad: a cannabis “border town” that is no longer.
Home to about 8300 people, Trinidad saw dozens of cannabis shops open for business after adult-use cannabis sales began in Colorado in 2014. Along with businesses on the town’s main street, an entrepreneur from Denver sold local authorities on permitting the world’s first “marijuana mini mall.” There was so much weed for sale in Trinidad that the community boasted “one pot shop for every 300 people,” according to Amanda Korth, the board president of the Trinidad-Las Animas County Chamber of Commerce.
This had nothing to do with Trinidad itself—they don’t smoke more weed there than they do in Pueblo—but everything to do with geography. About three hours’ drive from Santa Fe, Trinidad is the closest city in Colorado to New Mexico along Interstate-25. That meant Trinidad was an obvious destination for anyone in New Mexico wanting to buy legal weed—and anyone heading south wanting to make a final pit stop before entering dry country.
In Trinidad, the cannabis border-town boom lasted more than eight years. On April 1, legal cannabis sales began in New Mexico, with the full backing of Gov. Michelle Lujan Grisham, who encouraged New Mexico cannabis entrepreneurs to “knock the socks off of this industry” and—somehow—sell more cannabis per year than even Colorado, a more populous state. Cannabis isn’t as heavily taxed in New Mexico as it is in Colorado, and customers can purchase up to two ounces per day—twice Colorado’s one-ounce limit. And unlike California and Colorado, localities can’t opt-out of sales.
As NPR reported, from the beginning, cannabis dispensaries sprung up throughout the southern and eastern parts of the state, in small towns such as Clovis, in classic truck-stop cities such as Las Cruces—anywhere within driving distance of Texas, where cannabis is still illegal.
The Las Cruces location of R. Greenleaf, a dispensary chain owned by Colorado-based Schwazze, is now the company’s “highest grossing store,” with visitors from Texas comprising about half of the customer base, said Justin Dye, Schwazze’s CEO, in a recent telephone interview.
“You wouldn’t want to buy a store in Trinidad right now,” Dye said. “You wouldn’t want to be an operator there. It’s contracted substantially.” For now, Schwazze and Dye don’t have to worry: Most of their Colorado dispensaries are located in the Denver metro area. Sales are slowing there, too, but at least there’s no concern about out-of-state competition—or a tectonic shift in geography that, such as a factory closing or oil-well going dry, threatens a settlements’ economic vitality.
This isn’t to say that there’s now nothing doing well in Trinidad—just that the “marijuana mini-mall” and the concentration of dispensaries may have outlived their moment.
Life in the New American West
For Korth, the Trinidad Chamber of Commerce president, this is just another cycle, along with mining, sex changes, and now cannabis.
“Those industries left, and so it was boom or bust, feast or famine,” she said. “When the marijuana shops came in, it was a great big boom.” But, she added, offering a counterpoint to the boosterism from New Mexico’s Gov. Lujan Grisham, “they said a lot about the taxes and what the taxes would do for schools and roads, etc. And I haven’t really seen a lot of that.”
As for how long the border bet will last elsewhere, it’s a matter of time and politics—and the bizarre situation of rooting against the march of legalization in red states including Texas and Utah, the latter of which is within a short drive from Dinosaur, CO, on that state’s western edge. There are 183 people in Dinosaur, according to Census figures—and there are three dispensaries, an even higher ratio than Trinidad’s.
Dye thinks Texas will remain dry for a while. “I don’t see Texas having a major program for some time,” he said, a situation owing to the Lone Star State’s deep-red conservatism. “I think this is going to be something for a long time around border towns.”
But there are rumblings to the contrary. Sid Miller, Texas’s ten-gallon-hat-wearing, Trump-supporting agriculture commissioner, recently became the state’s highest-ranking Republican to call for medical-cannabis legalization. If Texas moves even half as quickly as New Mexico, border towns in that state could find their time in the sun shorter even than Trinidad’s — but still part of the same predictable rhythm in the new American west.