Cannabis Industry on Track to Fly High, Even During COVID-19
As we see with Colorado’s record-breaking sales this summer, not even a pandemic can stop the cannabis wave. Adult medical and recreational use of cannabis is poised to become a $15 billion industry in 2020 and recent projections suggest it will eclipse $30 billion by 2024. How do investors and business owners decipher conflicting and confusing regulatory frameworks to make big bucks?
The industry, whose retail sales have increased 40% in 2020 over 2019, has grown despite metaphorically hopping on one foot with its hands tied behind its back. With the entire process heavily scrutinized and politicized, any misstep could have significant ramifications. That’s why regulatory compliance is so mission critical. Mistakes could prove very costly and potentially criminal.
In a perfect world, we would see a comprehensive federal framework or, at the very least, consistent state-level regulatory guidelines for cannabis-related businesses. Instead, every jurisdiction believes they know the secret sauce for how the industry should operate.
I dig into all this on a recent episode of Tech on Reg, Out of the Weeds: How to Get Smart About Cannabis, with Amanda Ostrowitz, Chief Strategy Officer at Fyllo and founder of RegTech, CannaRegs. A former banking regulator with a law degree, Amanda founded CannaRegs when she saw technology could track and make sense of the industry’s complex web of rules and regulations.
Cannabis businesses face a number of unique challenges. Payment processing and banking can be a nightmare, with no end in sight as the SAFE Banking Act has been stuck in the Senate since September of 2019. Businesses can’t even deduct ordinary and necessary business expenses outside the cost of goods under IRS rules.
Further complicating the industry is an incongruous and patchwork regulatory framework for cannabis companies. Cannabis is still of course, illegal at the federal level, which leaves legislation and regulation up to each individual state. State programs, with different license categories and qualifications, look nothing alike. There are also 900 or so cannabis-related bills sitting on the floors of various state legislatures as well as Congress.
This means that even legal and regulatory experts often find themselves scratching their heads as they search for answers. If the lawyers are confused, so are business owners and investors. All consumers want is some inexpensive pineapple kush. But increased compliance costs have a way of trickling down to sale prices.
The industry stumbled into a surprising bit of luck when the pandemic hit. As lockdowns began in March, state governments deemed dispensaries as essential in most states where cannabis was legal. Despite cannabis companies not receiving PPP money under the CARES Act, adult medical and recreational cannabis is still experiencing healthy growth year after year.
What does the future hold?
For those hoping that a shift in Congress or the Executive branch to blue might nudge the government to decriminalize cannabis and voila, compliance problems solved, that may not be the case, according to Amanda.
While the decriminalization of cannabis may allow for easier banking and payment processes, state frameworks are likely to stay. States have invested time, money and resources into their secret sauce, and gosh darnit, they are going to use it. (My words, not Amanda’s.) However, a change in leadership could certainly give the industry some much needed breathing room in order to grow and scale like other industries.
In the meantime, it’s RegTech to the rescue. Companies leveraging the right technology to navigate the compliance maze will cash in on an industry that’s set to fly high, even with all the obstacles in its way.
Listen to the recent Out of the Weeds: How to Get Smart About Cannabis.
Subscribe to Tech On Reg for the latest at the intersection of law, technology and highly regulated industry.
Gain Access to Expert View — Subscribe to DDI Intel
