Leading By Example in the Cannabis Industry – Limiting the Risks and Reaping the Rewards
Last week, I participated on a panel at the Cannabis World Congress and Business Expo (CWCBE) called “Finding Rewards in a Risky Environment,” with KCSA clients Derek Peterson, Chairman, Chief Executive Officer, and President of Terra Tech Corp (OTCQX: TRTC); Nick Kovacevich, CEO of Kush Bottles, Inc. (OTCQB: KSHB); as well as Marc J. Ross, founding partner of Sichenzia Ross Ference Kesner LLP. On the panel we discussed the risks and rewards in the burgeoning cannabis industry.
There was certainly much to talk about given the ongoing rhetoric coming from the current administration. Many of the leading operators in the industry believe President Trump’s natural inclination to support states’ rights to self-determination will win out over any push for a Federal crack-down on the cannabis sector. But everyone agreed on one thing: we just don’t know what this administration will do regarding regulation of the cannabis sector.
Leaving it up to the states would be a smart move considering the tax revenue alone. The amount of money that is coming out of the legalized cannabis industry is not something that can be ignored. In 2016, the tax revenue generated from Colorado, Oregon and Washington combined was more than $500 million, and that’s not even including California, where annual tax revenues could be more than $1 billion in the Golden State. That’s money that goes towards the construction of schools, law enforcement, educational programs as well as health plans and services. How can you argue to take those tax dollars away from those states?
Despite this, investor sentiment has proved to be somewhat nervous, with public cannabis stocks experiencing a general sell-off since Trump came to power, driven by fears that Attorney General Jeff Sessions will remove federal protections for states that allow medical and/or adult use of cannabis.
There are currently eight states where cannabis is legal for adult use. Four states are currently up and running with four more that just passed ballot initiatives in the November 2016 election, including California which is expected to triple the size of the legal cannabis market in 2018. Analysts in the industry are also predicting consumer spending on adult use and medical cannabis hitting $50 billion by 2026. That’s $50 BILLION in 9 years.
As the current administration has not stated a definitive position on cannabis regulation either way, Attorney General Sessions, as well as Press Secretary Sean Spicer’s, shoot-from-the hip comments, have left the cannabis industry scrambling. Sessions’ recent comments about state-level cannabis legalization and potential repercussions from the federal government have certainly opened up the eyes of purveyors in the cannabis industry as well as those of investors. Where does that leave those who are active in the industry creating jobs and generating tax revenue for states? Where does that leave those who are investing billions into an industry that is currently at the top of the first inning of a double header? Where do we go from here?
Given the schedule 1 classification for cannabis, the industry itself still has a ways to go as it navigates into the mainstream, even though a recent Quinnipiac poll found 93 percent of Americans are in favor of medical cannabis while 71 percent would oppose a federal crackdown on legal cannabis. Likewise, more and more institutional investors are keenly monitoring the industry and will jump at the chance to invest in credible companies when the regulatory environment becomes more clear. For companies currently operating in this industry they need to remember one thing: ACT LIKE THE COMPANY YOU WANT TO BECOME. Establishing credibility is definitely something the companies in the cannabis industry need to focus on given the certain levels of distrust in this market. In order to be taken seriously, this is something that needs to happen out of the gate as investors (and the government) are trying to figure out who is real and who is not in this industry.