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| 2 minutes read

Cannabis should think about how it's perceived

Friends, if you’re like me, you’re looking forward to the frenzy of next week that will be MJBizCon in Las Vegas. It’s always an opportunity to sit down with insiders and outsiders and take the temperature of the industry. Although, if it’s anything like the mood at the well-attended Hall of Flowers recently held in Santa Rosa, or reflective of recent headlines showing continued, significant M&A activity nationally (such as this, and link, also link), I’m guessing that temperature will be smoking hot.

For an industry that’s plagued by all of the burdens and consequences of federal illegality, it seems to me to be doing pretty well. Consumer demand continues to grow unabated throughout the US (Illinois and Nevada are but two examples). States continue to expand access to (state) legal cannabis (with Pennsylvania and Ohio announcing new proposals just this week). Capital is flowing better-ish (well, relative to 2019 and 2020). Banking is certainly not the problem that it was three years ago. Valuations are better than they were a year ago (although down from their early 2021 highs). Markets continue to open up as state residency requirements are being challenged successfully. (link)

So what’s holding the industry back (other than the Controlled Substances Act, that is)? I’d posit that it’s the concern that non-cannabis companies have in doing business with the industry. Their concern? The potential implications of doing business with an illegal business. What are those implications? Of course, this is not legal advice (it never is), but, generally, money laundering, aiding-and-abetting a federal crime, RICO, the Travel Act, mail fraud, and for businesses that are federally-regulated or rely on federal licensing, the risk of having their license revoked. Let alone some of the more practical implications of how lenders, auditors, and banks will view that line of business.

One can argue the extent and likelihood of these risks being enforced (and one does!), but these are all unknowns that any company considering transacting with the cannabis industry underwrites (a fancy word for “asks and thinks about”). We’ve certainly seen this develop over time as outside companies warm to the prospect and the risk (I’ve certainly written about it enough), and I see no reason for this trend to slow down (unless, of course, the federal government does something about it). And yet, based on conversations I have all the time, there’s still plenty of misconception about how the state-legal cannabis industry actually operates.

If the cannabis industry is going to be stuck in a quantum duality (link) for a while (for better and for worse, depending upon how you observe it (a second quantum physics joke!)), perhaps the industry better educate outside companies on what it means to do business with cannabis companies. I mused here a while back about how the cannabis industry might need to adapt if legalization doesn’t happen anytime soon (link; link) – perhaps that ought to include considering on how the industry is perceived.

Tags

cannabis, cannabis consumer demand, cannabis legalization, cannabis transactions

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