Industry & Investment

What the 2016 Elections May Mean for Commercial Cannabis – 1000 Watts Magazine

February 1, 2017 / By 3C Team

Regardless of what party affiliation you claim, the 2016 Presidential and state-level elections have been a roller coaster ride that still hasn’t ended. The results have huge implications for the marijuana industry that will continue to develop for some time to come. It is an exciting time for the cannabis industry: As the original legal and medical markets show signs of maturity, new programs passed in the last year are set to come online and a whole wave of new programs will begin to take shape throughout the coming year. The only thing we can say with complete certainty is that the commercial cannabis landscape is changing very, very rapidly. These changes present multiple opportunities and challenges for the industry.

Key Election Outcomes

Four new  states voted to legalize recreational marijuana, and four others voted to allow for medical marijuana. This is remarkable because most of the new medical marijuana states tend to be very politically conservative.  Just over 20% of Americans are now living in areas where recreational marijuana is legal for adults to purchase, consume, and in most cases cultivate. Insofar as Federal and state laws differing so drastically regarding the legal status of marijuana, we’re experiencing  a watershed event. Even President Obama seems to think so:

“The good news is that after this referenda, to some degree it’s going to call the question. Because if in fact it passed in all these states, you’ll now have a fifth of the country that’s operating under one set of laws and four-fifths in another. The Justice Department, DEA, FBI, for them to try to straddle and figure out how they’re supposed to enforce laws in some places and not in others, they’re going to guard against transporting these drugs across state lines… You’ve got the entire Pacific corridor where this is legal. That is not going to be tenable.”

On a state level, eight US states will now be enacting new laws related to the cultivation, distribution and regulation of both medical and recreational marijuana. In Nevada, new ‘adult use’ cannabis laws will allow anyone 21 years of age or older to legally possess marijuana in small amounts (up to one ounce of flower or one-eighth of an ounce of concentrate). Newcomer states like Florida and Arkansas are entering the fold by allowing medical marijuana. This is all the more remarkable in that  prior to the elections, possession of any amount of marijuana was a chargeable, criminal offense.

California legalizing adult use cannabis is by far the most significant development to come out of the 2016 election. California, through both legal medical production and their infamous black market, has continuously influenced and shaped the cultural and economic impact of cannabis nationwide. With the pending implementation of MMRSA (Medical Marijuana Regulation and Safety Act) to rein in medical production in the state and now the oncoming adult use program that will serve a population base larger than every other currently active adult use state combined, California has the opportunity and  obligation to establish a robust set of regulations. Everyone inside and outside the industry will be closely watching and taking cues from it. It should be made very clear that the development of California’s marijuana programs over the next few years will shape the future of legal marijuana forever.

Probably the most surprising but least-impactful development during the elections was the news that North Dakota would be initiating Statutory Measure No. 5: The North Dakota Compassionate Care Act. This act will allow for the possession of up to 3 ounces of marijuana for qualifying conditions such as AIDS, cancer, epilepsy and glaucoma. The measure passed by a massive margin, with “Yes” voters accounting for 63.7% of the overall vote. Because of historically conservative North Dakota laws related to the prosecution of persons in possession of controlled substances, even the backers of the Measure expressed surprise that it had passed. For industry veterans who are running or funding businesses in more mature marijuana markets like Colorado, these election results may not come as too much of a surprise. After all, with the phenomenal success that states have seen in increasing tax revenues, it’s not a leap of faith to see so many other states trying to get in on the green action.

Anyone who has spent time working with state budgets knows that once recurring tax revenue has been introduced to the balance sheet of a state, it’s very hard to take it away. It’s a kind of an addictive drug for state Treasurers, like an opiate fix that the state comes to rely on. This should add a sense of security for investors who are looking to enter these new markets. Nonetheless, investors should proceed with caution.Federal laws lending and banking institutions still forbid loans or lines of credit to businesses that cultivate or distribute marijuana, but this will soon  change and evolve with the enormous market share and revenue opportunities that will be coming online.

Is National Sentiment Changing on Marijuana?

In recent polls, 60% of all Americans say they are now in favor of legalizing marijuana. This means that there is cross-party overlap of support for pro-marijuana legislation, as only 43% of polled Americans voiced their support for Democratic Presidential candidate Hillary Clinton, and 34% sided with republican Donald Trump. This 60% figure eclipses even the President’s favorability rating, which sits at 56% as of the writing of this article. If we compare marijuana-related polling data from 1999, we find a doubling in support, as only 30% of Americans voiced support for marijuana legalization in that year.

In another poll, support for legalization of medical marijuana came in at a staggering 89%. These are incredibly empowering statistics for marijuana business developers who might have been standing on the sidelines waiting for a more stable investing environment before jumping in with any serious capital. This data should also be encouraging for patients who are struggling with cancer, chronic pain, glaucoma or any of the other numerous health conditions for which cannabis treatment shows promise. If we’re being optimistic, we’re looking at a near-term future for marijuana businesses that spells serious profit potential, but this will only happen if strict adherence to regulatory laws and business accountability is implemented and maintained. This is why it’s critical for ‘ganjapreneurs’ or neophyte cannabis investors to seek out the advice of a tenured expert or advisory firms that can help make sense of this new legal marijuana paradigm.

The Trump Effect

With all of the good news coming from the eight states that are enacting new marijuana laws, it would seem like the future for marijuana businesses in the US is, well, very green indeed. But this all comes with a large measure of concern…Donald Trump and his cabinet. Trump, along with Vice President-Elect Mike Pence, have present a potential challenge to  cannabis commerce in the United States. Trump has stated publicly while on the campaign trail that marijuana cultivation and distribution should be regulated and monitored on the state level, essentially indemnifying and exempting the Federal Government from involvement in the US marijuana trade as a whole. Though his inconsistent stance on many issues along with the advisors with whom he has surrounded himself should be the main cause for concern.  For states that have already seen success with the taxed sale of marijuana, this is relatively good news, because it presumes that a Trump Presidency will not actively seek to further expand on existing federal laws that consider cannabis to be a Schedule I illegal drug. Though ultimately the future of the cannabis industry rests upon the participants and stakeholders who are actively forming and defining this nascent industry. The Federal Government is much less likely to involve itself in programs that are succeeding economically without imposing any kind of public health or safety risk. Therefore it is up to everyone involved with industrial cannabis to set forth a good example but holding compliance and transparency as a top priority. For many interested investors, it’s wise to seek guidance before making huge investment moves in the marijuana industry while some of the more important chips fall in the area of federal decision-making.

One of Donald Trump’s appointees, Jeff Sessions, will be tasked with heading up the Justice Department. That’s no small task for someone who is on record saying:

“We need grown-ups in charge in Washington to say marijuana is not the kind of thing that ought to be legalized.”

That’s straight talk from a politician who calls Alabama home, an overwhelmingly Republican state. Further, as Attorney General, Mr. Sessions would have the ability to rescind two Justice Department directives: the Cole Memo and the Ogden Memo. These memos call for less-stringent federal pursuit of marijuana-related prosecutions. Sessions could also leverage federal resources to sue state regulators in an effort to to block state systems. That’s a legitimate cause for concern.

Regardless of how President-Elect Trump may feel about marijuana legalization, there are existing US institutions like the DEA who have their own opinion on the matter. The DEA wants to keep marijuana illegal on a federal level, with no set intention to change existing laws. The most recent spending bill signed by President Obama contained wording that prevented federal authorities from going after any state-sanctioned marijuana activity. It remains to be seen if this provision persists in future budget bills, and if it does not it will then be up to  federal agencies to make the decision.

It is important to understand that the marijuana industry is not going away. Realistically, it would take millions, if not billions, of taxpayer dollars to enforce federal drug policy and dismantle all state-run programs. With a national debt to be overcome and general sentiment being in support of restricting regulatory oversight (conservatives now controlling all three  branches of the Federal Government), and in support of state’s rights, it is clear the marijuana industry is here to stay. The further development of services which provide support or will need to be accessible to the marijuana industry such as banking, environmental regulation, and taxation policy will be eventually be revealed as our new Executive, Congressional and Judicial branches start implementing policy.

To quote Bob Dylan, “The times they are a’changin’.” Even though recent election results point to a more relaxed environment in which cannabis companies can operate, there is no crystal ball. The Presidential election itself was a massive upset, so we shouldn’t be letting our guard down about other future upsets that may come down the pike. For now, it’s probably best to stay the course of conservative investment practices steeped in granular, die-hard market research and expert advice from trusted sources.

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