Global weed

While the overwhelming majority of the world’s legal marijuana is consumed in North America, countries in Europe and Oceania are moving to legalize medical, from which recreational inevitably follows.

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Those striking it rich in the “green rush” aren’t selling pot

During a gold rush, it’s sometimes said, the people making money weren’t the ones panning for gold, but the ones supplying the picks and shovels. This is probably true of the cannabis industry as well. Cannabis businesses are divided into two broad categories. “Plant-touching” businesses include the supply chain: growers, processors and manufacturers (i.e. edibles and vape pen makers), and retailers. Ancillary businesses include companies that make paraphernalia such as bongs, pipes, and rolling papers, but also those that sell lighting and climate control equipment for indoor grows and the consultancies, accounting firms, and law firms specializing in the space. Many of these companies are best positioned to profit because they skim from the cash pouring through the industry but are not subject to the stringent regulations, 280E and the other aspects of the industry which make it so difficult to earn a profit.


$10 billion: The amount of sales expected from marijuana businesses in the US this year, more than McDonald’s sales nationwide.

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Legalization could help compensate for the war on drugs

The US cannabis industry is arising from a widely discredited but still ongoing “war on drugs,” the burdens of which, in the form of mass incarceration and other criminal penalties have fallen disproportionately on black and Latino Americans. With legalization, several states and cities have pursued so-called “equity programs,” which aim to ensure the communities most victimized by the war on drugs, including individuals with past convictions for marijuana offenses, can benefit from the wealth created by legalization.

It’s a hard problem. Minority entrepreneurs face disadvantages in normal industries, and cannabis’s unique complications amplify them. Some jurisdictions have created or want to create equity licenses, reserved for groups deemed to have been victimized by the war on drugs and sometimes coupled with financial support.

The programs have struggled so far. An Ohio judge recently overruled a carve-out for minority businesses, arguing it placed too much of a burden on non-equity businesses.

City and state governments lack the resources or expertise to offer anything more than very limited support, relative, to say a company like the tobacco company Altria, which has deep expertise navigating regulated markets, bottomless pockets and experience marketing and distributing products all over the world.

The equity business programs have yet to prove themselves. But numerous cities and states are trying to undo some of the effects of the war on drugs by clearing—or allowing people to apply to clear—their criminal records of past low-level cannabis offenses.  Those charges can still make it difficult for people when they apply for jobs, student loans, and public housing.

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Marijuana: the most interesting case in states rights since the Civil Rights Act

When California legalized medical marijuana two decades ago, it did not create a regulatory framework akin to those for alcohol and pharmaceuticals. What arose in the absence of these regulations was a messy gray market where, according to a later law, some non-profit “collectives” could grow or distribute cannabis, but the laws they had to follow were not necessarily clear. Meanwhile, local jurisdictions often had their own laws and levels of tolerance for pot shops. Local, state and federal prosecutions often followed. Many heroes of the movement operated during this time; some of them are now feted on the conference circuit and others are in prison. In some cases, whether someone ended up in one group or the other can be attributed to little more than luck.

For cannabis consumers, there was a lot to like. High-quality weed was abundant. In Los Angeles, Oakland, and other cities, dispensaries operated openly—even as their operators risked arrest and prosecution. Companies began experimenting with manufactured products like edibles. And while California was technically a medical-only state until November 2016, medical cards were available for the asking. Once diagnosis-via-video chat was available, you could get a medical card from your couch after a very brief consultation with a doctor.

Today every US state is at a slightly different stage in the legalization process, between vaguely considering legalization and having an operational $1 billion market, even though the federal government considers marijuana illegal.

In some ways it makes sense to leave marijuana laws to the states, as liquor laws largely are. Utah was able to determine what its cannabis industry should look like: Under the conservative state’s new medical law, it will be far more difficult to obtain a medical card than it ever was in California, and the vast state will be limited to seven dispensaries, which it is calling “pharmacies,” selling a meager product range. 

In other ways, the state-by-state approach looks ridiculous, if not dangerous. States are not as well-prepared as the Environmental Protection Agency (EPA) to determine which pesticides can be safely used on cannabis, but they have been forced to figure it out, because the EPA, like much of the rest of the federal government, has largely kept its distance from the legalization process.

Similarly, it doesn’t make sense for each state to determine which conditions medical marijuana does and does not effectively treat, but that’s the current situation. Some states recognize marijuana as a treatment for PTSD, for example, and others don’t. Meanwhile, marijuana’s ongoing Schedule 1 status makes it difficult for scientists and doctors to study whether medical marijuana actually benefits patients with PTSD or make progress on safe and effective dosages, consumption methods, and all the other questions one would have about a new medicine. To add yet another dimension to the PTSD confusion, the Veterans Affairs Department, which provides veterans with healthcare, does not offer medical marijuana recommendations to patients even in legal states, because it is against federal law.

Until recently, a 2013 document known as the Cole Memo (for its author, then-deputy US attorney general James M. Cole) guided the states on what the federal government would tolerate. The document essentially allowed states to establish their own marijuana laws as long as they respected eight federal priorities like no tolerance for sales to minors, cannabis-impaired driving or product “leakage” onto the illegal market.

While it wasn’t necessarily the intention, the Cole Memo catalyzed the green rush because entrepreneurs no longer feared feared that starting a cannabis company could lead to federal prosecution. While estimates vary widely, the industry now employs more than 100,000 people and that number is widely expected to climb. In January 2018, Attorney General Jeff Sessions rescinded the Cole Memo, but without new rules to follow, its guidelines effectively remain in place.

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What’s next?

Nobody knows when full legalization will happen, but there are signs that the most egregious quirks could be ironed out soon.

Legalization is popular enough that there are hardly any national politicians anymore who vocally oppose it. Nobody except lawbreakers benefits from zombie tax rule 280E or the US industry’s inability to access banking services, and it’s likely changes to both could pass both the Senate and the House. In recent years, House Rules Committee Chair Pete Sessions (R-TX, no relation to former Attorney General Jeff Sessions, who also hates marijuana) has blocked cannabis-related reforms. But Sessions lost his bid for re-election and the newly Democratic-controlled House will have more debate about legalization.

If there was a vote today on 280E and banking access, chances are that both would pass with bipartisan support and be signed by President Trump, who has been relatively consistent in his support for medical marijuana. While Trump famously said he could shoot someone on Fifth Avenue and not lose any supporters, he likely grasps that the same can’t be said if he took away the people’s weed.

When legalization does happen, most, if not all, of the factors that make it so hard to profit from cannabis will go away, and the great American marketing machine will rev up. Many of the larger existing companies will be acquired—by alcohol and tobacco companies, but also possibly by Big Food, Big Agriculture or Big Pharma. There will be a great deal of money spent in the race to create market leaders. The industry could grow to resemble wine, where there aren’t dominant brands, or beer, where even though mega brands like Budweiser and Miller own the market, craft or micro brands have also found profitable niches. In either case, like it or not, marijuana is the next great American industry.

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