Cannabis Past, Present, and Future – Jan 2019

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2018 was a big year for the cannabis community, both locally and worldwide. By the end of the year, marijuana was either legalized in some form or decriminalized in a majority of U.S. states, and the growing legality of marijuana has had ripple effects on healthcare, the economy, big business, and individual quality of life.

Despite the incredible progress that has been made in bringing legal, high-quality cannabis products to consumers, our industry still faces big challenges ahead as we step into 2019.

Looking Back at 2018

Widespread Legalization

In 2018, legislation legalizing marijuana in the United States passed in record numbers. As of this writing, recreational marijuana is legal in 10 states, and medical marijuana is legal in 33 more. Even traditionally red states like conservative Arizona, Montana, and Oklahoma are loosening restrictions on cannabis and welcoming medical marijuana. Never in our lifetimes have so many Americans had legal and safe access to medical cannabis and recreational weed.

The Farm Bill, signed into law in late December 2018, will also allow American farmers to grow and harvest hemp. Although it does not have marijuana’s psychoactive properties, hemp had previously been regulated just like cannabis. This new law will allow farmers, even in states that have not legalized marijuana in any form, to grow hemp. Some experts predict that this bill could lead to a nationwide boom in CBD, which can be derived from hemp or marijuana.

Impact on Healthcare

The cannabis industry is having big effects on the healthcare world, as more patients than ever have access to marijuana to treat a variety of symptoms, from chronic pain to nausea and lack of appetite. In November 2018, the FDA approved Epidiolex, the first marijuana based prescription drug to hit the market. Epidiolex will treat two types of epilepsy that tend to occur in the first five years of a patient’s life, a time when patients have historically not responded well to the other epilepsy drugs already on the market.

Studies have shown some evidence that medical marijuana may be a better option for pain relief than opiods, and much safer for patients too. One study has found that in areas where medical marijuana is legal, opioid use decreases, and other researchers have found fewer overdoses occur in these areas.

Socioeconomic Effects

What about the economic and social effects of legalizing cannabis? Colorado, one of the first states to legalize both medical and recreational use, makes a great case study for how legal dispensaries can stimulate the economy. In 2018, researchers in Pueblo County found that taxed and regulated cannabis added about $58 million to their economy. This same county has also made headlines for their innovative initiative turning tax dollars on cannabis into generous scholarships for students.

In California, social effects of legalized marijuana are also evident. California Attorney General Xavier Bacerra reported that marijuana-related arrests have already fallen by 56%. This dramatic drop indicates that a great amount of police resources have been freed up to focus on more serious crimes.

Big Business Enters the Field

2018 also saw big corporations making their first entrances into the cannabis industry. Early in the year, Constellation Brands, the makers of Corona beer and Svedka vodka, bought a 38% stake in Canadian cannabis company Canopy. Altria, the parent company of Marlboro and Philip Morris cigarettes, purchased 45% of another Canadian cannabis company, Cronos. Finally, Tilroy announced a partnership with Novartis pharmaceuticals.

These new partnerships show that the marijuana business is booming, and big business is taking note. They also open up new possibilities for the mass production and sale of cannabis based products, from beverages and cigarettes to medications, and this is just the beginning.

Challenges Still Ahead in 2019

Banking

Even as states made great strides to legalize medical and recreational cannabis, marijuana remains illegal on the federal level which carries a host of challenges cannabis companies in the U.S. must overcome. For many businesses, one of the biggest concerns is the prohibition on marijuana businesses storing their profits in a bank account. This restriction forces dispensaries and manufacturers to run on a cash-only basis. Unable to benefit from the security and FDIC insurance benefits of putting their money in the bank, these businesses have been targets for crime.

A bill was blocked in the Senate in 2018 that would have allowed marijuana businesses who comply with local state laws to open bank accounts. Senators ultimately objected to the bill’s attachment to other, more controversial measures and its failure to incorporate the Justice Department in its provisions.

Credit Processing

Similarly, because marijuana remains federally illegal, credit card companies, Square, PayPal, and Venmo all prohibit their use for cannabis-related transactions. Some businesses attempt to work around the prohibitions, registering their products as non-marijuana related, or opening accounts under innocuous “green” business names. However, when such companies are caught violating the terms of use of the creditor, accounts are frozen and it can take months for them to regain access to their funds.

Tax Issues

In addition to prohibitions on banking and credit card processing, cannabis business face a unique tax situation. These businesses are highly regulated, and due to Tax Section 280e they are unable to write-off business expenses in the way that companies in other industries can.

Illegal Market Problems

Unfortunately, some consumers are turned off by the high tax they must pay on legal marijuana purchases, so they turn to the black market. According to one survey, 1 in 5 Californians who use marijuana have made a black market purchase in the last three months. 84% of those who bought on the black market said they would do it again. This creates a problem for legitimate businesses who are undercut by folks selling unregulated and untested cannabis products. However, the same survey found that a tax reduction as low as 5% could drive over 20% of black market consumers back to the legal market.

Slow Moving Government

Ultimately, many of these challenges are rooted in slow change at a federal government level. Although federal legalization of marijuana may still be far off, hopefully provisions that will allow banking, credit card processing, and better tax laws are just around the corner. Keep an eye out for more big news in cannabis in 2019, and keep an eye on your local politics. Although the federal government is vast and slow moving, you can effect real change at a local level by staying informed.

 

 

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