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Thinking Strategically About the Future of an Uncertain Cannabis Market

As the cannabis market matures, new markets and consumers are preparing to come online. We are seeing a proliferation of opportunities in the cannabis industry like never before. Not only are new cultivators, processors, and dispensaries applying for and obtaining licenses and permits, but these operators are bringing new technologies, business plans, and innovative models for succeeding in the legalized cannabis and hemp industries. Moreover, the ancillary market continues to explode with new delivery devices, softwares, infused products, and processes appearing daily. We are seeing a proliferation of interest in investing in the industry as the cannabis market expands.

Cannabis Market Welcomes the Green Rush

Often called the “green rush,” there are undoubtedly certain parallels between the burgeoning cannabis industry and the gold rush of the 1940s. Prospecting—and optimism—are high, but the prospect for easily striking success must be tempered just like the gold rush. In the case of cannabis, we face the economic realities of operating in a space with innumerable legal and regulatory nuances. As more people reach out seeking opportunities to invest in current or emerging cannabusinesses, the prospect of legal changes at the federal level is at the forefront of my mind these days. Any legislative changes and decisions may very well re-shape, if not completely vitiate, the current landscape.

I am not prepared to forecast when and what the Drug Enforcement Agency, Congress, or the Executive (current or future) will do when it comes to the regulation and enforcement of cannabis and the Controlled Substances Act. I will not pretend to know with any degree of certainty what the future holds for the industry that would or should make investors and operators confident about the path forward. What I do believe is that as a majority of states pass and implement cannabis laws and programs, the federal government is going to have a difficult time maintaining the status quo. Any change in that status quo will undoubtedly have effects (albeit of differing degrees) on the state of today’s cannabis market.

The Future of Our Industry

What this means for investors and operators is less clear because the manner in which the feds implement any change (if indeed change is coming) will have a profound effect on the future of our industry. For example, some (such as the Brookings Institution) predict that a change in the Controlled Substances Act (CSA) where cannabis is moved from Schedule I to Schedule II will have little impact on the existing industry, although it will potentially open banking and research opportunities. A move to Schedule III (or IV or V) would have the potential to bring other changes, as would a decision (though unlikely) to deschedule cannabis completely.

Although it is clear that the current CSA status of cannabis is not directly correlated with states deciding to create and/or implement cannabis programs, a schedule change may impact the federal government’s enforcement priorities. In other words, the federal government may be comfortable adhering to the Cole Memorandum when cannabis is absolutely illegal under federal law. A reschedule may be motivation for the federal government to re-think this policy, and perhaps even require DEA registration and licensure for cannabis cultivation as is required for hemp.

Expect the Unexpected

Since we cannot accurately predict the future, my advice is to expect the unexpected. I caution investors and operators in the cannabis industry to think long and hard about how potential changes implemented at the federal level would affect their businesses. Those looking to apply for permits or licenses to cultivate, process, or dispense cannabis should think seriously about how best to enter—and exit—the industry.

The same is true for investors in existing plant-touching and ancillary businesses. How easy will it be pivot to another segment of the industry given the improvement of existing and future infrastructures? How does one protect assets designed solely for use in the cannabis market, if the industry were to disappear tomorrow? These are important and difficult questions that serious operators and investors ignore at their peril. The green rush, like the gold rush, will eventually fade. That is not to say that the cannabis industry (like the gold industry before it) is going anywhere. History teaches that booms are regularly followed by busts, and strategic planning in this respect can mean the difference between a quick pivot to stay profitable or losing everything.

Darren WeissDarren Weiss

Darren Weiss

A frequent author and speaker on legal issues affecting the legalized cannabis industry, Darren H. Weiss is a cannabis industry thought leader and a seasoned business counselor. A passionate and experienced legal advocate, Mr. Weiss’s practice focuses primarily on cannabis and corporate law, including formation and organization of cannabis companies; corporate financing; drafting and negotiating investment documents, licensing agreements, and vendor contracts; and providing business advice and counsel on competitive licensing applications and cannabusiness design and strategy. Mr. Weiss has been counsel to both investors and cannabis businesses and has helped close multi-million dollar transactions and provided counsel in the creation of multi-state brands and products.

Mr. Weiss, a co-founder of his law firm’s Cannabis Practice Group, built his practice representing clients in the financial services, medical care, manufacturing, and professional services industries, and has spent years working with businesses to maintain, preserve, and protect their most valuable assets. Mr. Weiss received his Bachelor’s Degree magna cum laude from Washington University in St. Louis and his Juris Doctorate cum laude from George Mason University School of Law. During law school Mr. Weiss served as Executive Editor on the George Mason Law Review, participated in Moot Court and Trial Advocacy, and had the opportunity to intern on both trial and appellate courts. Prior to law school, Mr. Weiss worked at a business intelligence software company where he consulted on enterprise wide performance management initiatives for public- and private-sector clients and taught workshops on software and business integration.

This Post Has One Comment
  1. Ahh, the gold rush of 1840s, the rush in 1940 was gearing up for a world war. Cannabis legalization is worth a war effort. We have been lied to since the 1930’s and we all must do what we can to fight the war.
    Contribute to the states legalization efforts. Become a member of NCIA.
    NCIA has boots on the ground in DC, and does a great job. If you want to join, tell them Iam Duppy told you to.

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