Would Federal Legalization Favor Big Cannabis
Big Business is hemmed in by federal scheduling of cannabis. Is it a threat to grass roots cannabis biz?
This past year has seen some new players jump into the cannabis game. Big players, at that. Big business players, in fact.
Constellation Brands, the maker of Corona beer and Svedka vodka, poured $4 billion into Canopy Growth, Canada’s largest cannabis cultivator. Molson Coors, another booze outfit, partnered with The Hydropothecary Corporation to make a cannabis-infused beverage.
A few months later, pharmaceutical giant Novartis announced it would team up with Tilray to distribute medical cannabis internationally. Then Altria, the company behind Marlboro cigarettes, bought half of the cannabis investment firm Cronos for nearly $2 billion.
More will soon join the fold. Coca-Cola is investigating ways to incorporate CBD into their soft drinks. Estée Lauder now makes cosmetics with cannabis seed oil. And the CEO of Whole Foods recently said it was just a matter of time before his grocery stores started selling weed, too.
Right now, the licensed cannabis industry’s estimated worth hovers around $10 billion a year. By 2023, it could be worth $40 billion. Compare that to the “health and fitness” industry – things like gyms, yoga studios, and personal trainers – currently worth $30 billion.
Eventually, Big Business will mainstream cannabis. The plant cannot escape economics – or financial systems. But is a Big Business takeover a good or a bad thing for legalization? Will mom-and-pop cannabis operations survive federal regulation?
Perspective: America’s Largest Cannabis Trade Association
The National Cannabis Industry Association (NCIA) represents over 2,000 cannabis companies in the US. A non-profit trade group, NCIA has worked for nearly a decade to reform cannabis laws at the state and federal levels.
Morgan Fox, a NCIA spokesperson, said big business interests in cannabis were inevitable, and it’s up to lobbyists to ensure the new players respect the ethos of the cannabis reform movement. According to Fox, that means lowering barriers of entry into the industry as well as giving those most harmed by the war on drugs – former convicts, often of marginalized communities – opportunities to work or own companies in the cannabis space. It also means guaranteeing access for patients of all ages and adults over the age of 21.
“I think things will shake out very much the way the beer industry has, where you have several large producers, but you also have a significant market for craft producers,” Fox said. “As long as the burdens for entrance are cut low, there will be opportunities for small businesses to get into the industry and maintain serious revenue streams.”
The burdens for entry into the cannabis industry can be incredibly high in some states. For example, licensing fees, consulting fees, leases, and other financial costs for starting a licensed cannabis business in places such as Colorado, Washington, and California can easily hit the $1 million mark.
Another burden is “arbitrary” license caps on how many businesses may possess a license in any given state. Some states, such as Colorado and Oregon, don’t have these. But others states, like Maine, do. Fox said the license caps mean state regulators “usually favor groups that have a lot of money.”
Will Big Business Ruin This New Industry?
One of the great fears among cannabis activists is that Big Business may squash smaller, independent operations while aggregating cultivation, manufacturing, and distribution networks into virtual monopolies.
However, according to Fox, mainstream American corporations wanting to cash in on cannabis operate at a disadvantage. Because cannabis is federally criminalized, licensed cannabis operations can only function at the state level. This means Big Business’s influence is at a minimum. For now.
But in the meantime, Fox explained, “It doesn’t make sense for them to start operating on a state-by-state basis; it’s very difficult for them to do that.”
Distribution centers, central manufacturing plants, and shipping routes for national and international corporations depend on unfettered transport across state and national boundaries. Under federal law, neither businesses nor individuals can transport goods containing THC across state lines. That would be an incredibly inefficient way to conduct a large-scale, national business.
Even larger cannabis companies that operate in multiple US states are “basically individual companies,” Fox added. For instance, if Cannabis Company X is based in California, and its owners want to set up shop in Michigan, they must open new facilities in Michigan. Those facilities must follow Michigan’s packaging and labeling laws for cannabis products, and any cannabis products manufactured in Michigan must stay in Michigan. Additionally, cannabis companies cannot advertise outside of their respective legal states, further complicating business practices at a national level.
Canada Will Be a Sign of the Future of Big Cannabis
Federal guidelines are why the big mergers mentioned above – Constellation, Novartis, and Molson Coors – all happened in Canada with Canadian cannabis companies. Because cannabis is federally legal in the Great White North, large corporations there have no worries about partnering with pot farms.
And not only can cannabis products move across provincial lines in Canada, they can also be exported out of the country – something that can only happen in the US with DEA approval. (To date, the DEA has only approved one such request, ironically, from Canada’s Tilray into US territory.)
Canada’s recreational cannabis industry is still less than a year old. The Big Business mergers are relatively new, so the far-reaching effects of billion-dollar investments into weed haven’t evolved. But they will. And Canada may be the first country to show how Big Business will shape the future of cannabis.
What Happens Next?
In the US, cannabis lingers in a legal limbo. Late last year, President Trump signed the federal farm bill that removed hemp – a non-intoxicating form of cannabis – from the Controlled Substances Act, the federal law that bans “marijuana” (legally defined as cannabis with significant amounts of THC).
CBD, a compound in cannabis with medicinal properties, is often extracted from hemp, not marijuana. The DEA and the FDA consider CBD a Schedule I drug – alongside marijuana and heroin – unless it’s made by a pharmaceutical company with less than 0.1 percent THC, in which case it magically becomes a Schedule V drug.
Any American corporation that partners with licensed cannabis companies becomes subject to two looming problems: tax deductions and access to banking networks. Normally, businesses can make tax deductions for daily expenditures like labor costs, maintenance and upkeep, and licensing fees. However, the IRS, which governs US taxes, does not allow deductions for any business operation handling the cannabis plant.
Cannabis companies cannot deposit revenue generated from selling or cultivating cannabis into banks. When we’re talking about millions of dollars, that’s too much cold, hard cash to store in the mattress stash.
So, while American Big Businesses may be cautious about entering the cannabis industry at the moment, if cannabis becomes federally legal, that hesitation will likely vanish overnight.
Will companies like Coca-Cola and Whole Foods respect our movement’s ethos? Will they reinvest their earnings into cannabis micro-business ventures and community projects?
Probably not. That’s not the nature of the beast: Increase profits, not help people. Which is why federal legalization is not the end of our struggle. It marks the beginning.