My Valentine’s Wish for the Cannabis Industry
By Greg Gamet
It’s Valentine’s Season… the time of year when people run out to buy chocolates or roses on their way home from work, and maybe grab a Hallmark card that says what they cannot adequately express, but nonetheless lives deep inside of their heart. Full disclosure: My wife and I actually do not celebrate this holiday because our anniversary is just three days later!
Being a sentimental guy, (I cry at commercials with puppies, veterans returning home, and anything to do with my children growing up too fast), I have a Valentine’s wish for the cannabis industry. A love letter, if you will, to the industry that has been so good to me, but has also caused so much stress through the years.
Dear Cannabis Industry (Old and New),
I know there are a lot of you out there. I saw about 40,000 of you at the last trade show in Las Vegas. You come from all different backgrounds: from old school growers in the hills of Humboldt and Colorado, to Wall Street financiers and Canadian investors… you are all now in this crazy, fast-moving, ever changing frenzy, together.
Remember when we first started dating – legally. We were so young back in 2009. We lived with few rules and never worried about how much money we had in our bank account. We were always just one harvest away from getting enough cash to do whatever we wanted.
As our relationship progressed, we became closer. We went to the city and applied for a license so we could be together forever. It was challenging because we had to live under the weight of new rules and regulations, but you and I still made it work, and we flourished. We worked hard, we followed the rules, and we kept moving forward.
Fast forward to today, and while my love for you is still strong, I am starting to have some serious concerns. Everywhere we turn, there are serious issues that impact our relationship.
So, like it or not, there are some things that we need to accomplish, together, and soon.
In California, the illicit market is still trying to extinguish legal, complaint companies. There are many factors that contribute to this mess, but ultimately, it is up to us to say no to illicit operators and simply refuse to do business with them.
To give you an idea of the scope of the problem, the illicit market in California has been estimated to run as high as $8.7 billion — which dwarfs the size of the legal market.
Before adult-use passed in California, there were about 1,800 dispensaries in the state. Now there are only about 600. By comparison, Colorado — with some 15% of California’s population — has more than 1,000 cannabis shops.
Clearly, there is a bottleneck at the retailing level, which contributes to the rise in the illicit market.
Taxes are also a big issue in the Golden State. Californian consumers can expect already high state and local sales taxes, plus a 15% excise tax, and a wholesale tax that can be imposed on their purchase. These taxes can add 50% or more to the cost to the final price of the product.
Were this not enough, the California Department of Tax and Fee Administration announced that they did some recalculations and decided to raises taxes even more last January. This places an even greater burden on consumers and makes it virtually impossible for legal retailers to compete with the black market.
Outdated tax policies also unfairly penalize licensed businesses by imposing effective tax rates that are double or triple the rates of other comparable small businesses. Section 280E of the Internal Revenue Code prohibits businesses involved with Schedule I or II drugs from deducting normal business expenses from their gross income. This outdated policy needs to change. And certainly, it’s way past time for cannabis to be rescheduled. Everyone knows it does not belong in the same category as heroin.
Our neighbors to the North in Canada don’t have it much better. Analysts at Scotiabank estimated that the black market could be responsible for as much as 71% of total cannabis sales in Canada.
Again, there are many factors that contribute to this situation, including managing supply and demand, licensing enough (but not too many) growers, the number of retail locations, and so on.
There may also be what some are calling “Blockbuster Failures” that are going to occur this year. Without diving too deep into any particular company’s misfortunes, I think it is safe to say that normal economic rules that apply to mainstream businesses, also apply to the cannabis industry. Accordingly, executives can’t take enormous piles of cash out of a company for their personal gain, and run up copious amounts of debt, and never turn a profit. While a few people will make massive amounts of money (if they can stay out of prison), these blockbuster failures will leave thousands of others holding the bag, losing their investment, or unemployed, Plus, it leaves a stain on the entire industry.
We also need to revise our federal banking regulations. Many legal, compliant cannabis businesses are forced to operate on an all-cash basis, causing a public safety risk for the hundreds of thousands of cannabis industry workers across the country. it’s clear that nobody benefits when much of our nation’s existing $20+ billion legal cannabis industry is forced to operate outside the banking system.
Lastly, we need to establish better social justice programs. How many people had their lives ruined by being imprisoned for cannabis possession? Today, African-Americans use cannabis at about the same rate as white-Americans, but are nearly four times more likely to be arrested for possession. This is has led to a decimation of urban areas and mass incarceration, which leads to further breakdowns in family, community, and culture.
Moreover, we still need to do a lot in terms of creating a more diverse, equitable and inclusive industry.
So, what is my Valentine’s wish for the cannabis industry? It is simply, “Let’s do what is right.”
There are many challenges and obstacles to creating a perfect industry… but we, the people on the ground floor of this rapidly evolving sector, have the power to shape it.
Let’s do it right.