Congressional Committee to Vote on Cannabis Legalization Soon - Cannabis Prices Will Crash, Dispensaries are Toast

Congressional Committee to Vote on Cannabis Legalization Soon

cannabis vote

In a stunning turn of events, a congressional committee will vote on putting an end to the ban of cannabis at the Federal level next week. The vote will be on MORE, the Marijuana Opportunity Reinvestment and Expungement Act, sponsored by Jerrod Nadler (D-NY). The act would remove cannabis from the CSA, or Controlled Substance Act, and expunge the records of previous cannabis convicts, as well as set up resentencing for some previous drug offenders. The act would levy a 5% federal tax on marijuana sales with the money going to the communities hit hardest by the drug war in the form of job training, legal aid, and business loans.

The act is set to get a warm welcome in the Democratically controlled House of Representatives but faces some large hurdles in getting passed in the Republican controlled Senate. In the past 12 months we have seen the US slowly move toward cannabis legalization with the Farm Act of 2018 being signed into law by President Trump and the SAFE Banking Act making its way through Congress now. The Farm Act legalized hemp at the Federal level, as well as CBD from hemp plants. The Safe Banking Act is also a first step in opening banking and businesses services for state-licensed cannabis businesses.

The biggest news in the MORE Act is the descheduling of cannabis or removing it from the Controlled Substance Act. This is the best-case scenario for the cannabis industry and will be a massive game changer if the Act can be signed into law. We have covered this subject on a few posts at Cannabis.net but if the MORE Act is signed into law, here are 3 predictions you can bank on happening in the US cannabis market and then around the world.

First, the current price drop we are seeing now in cannabis would continue at a much faster pace. The floor would fall out of the legal cannabis market because the black market would have the large negative incentive of Federal prosecution and Federal felony crimes removed. If cannabis is removed from the CSA, it would then be allowed to cross a state line without a felony offense, it would then be able to be put in the mail or Fedex, since it is not longer a controlled substance. This would super-charge the black market and encourage every grower from Miami to Northern Alaska to put up a website and start selling. We are not saying that model would be legal according to state laws, but anytime you remove almost all negative incentive to doing something, you are in actually encouraging people to do it.

Look at California as an example. When California set up their cannabis laws they set it up so that the fine for getting caught for selling cannabis without a license was a $10 civil fine. The second offense of getting caught selling cannabis without a license was another $10 civil fine. California removed all the negative incentives associated with selling cannabis illegally and the black market flourished. It has gotten so bad and California has no real way to stop it that the California Cannabis Commission had to go after mapping service Weedmaps to stop showing unlicensed cannabis growers and sellers.

In reality, what was to stop a grower with a van from buying a $1,000 a month Weedmaps listing, selling cannabis by delivery and making $40,000 in a month. If the penalty for getting caught was $10, why wouldn’t everyone try it? If the penalty for getting caught a second time was $10, wouldn’t you trade say $120,000 for two $10 fines as your worst-case scenario?

If the threat of Federal prosecution is removed then the flood gates will open with cannabis being flown, driven, and mailed across state lines. The California example will be a national phenomenon. Where do you think the oversupplies in Oregon and Washington will go if there is minimal threat to buyer and seller of getting prosecuted for shipping cannabis?

Black market prices will tumult and legal prices will get decimated as demand dries up at higher price points.

The other aspect of the price collapse will be that when the US deschedules marijuana, the UN will be forced to adjust all their drug treaties to now allow cannabis growing. As the US goes, so does the world as they say, so all countries would legalize some form of cannabis growing and selling within 12 months. Countries with much cheaper labor forces, much cheaper electricity, and much better growing climates will start growing cannabis immediately and flooding the international black and grey markets. Just think of all of South and Central American countries, Mexico, South East Asia, Australia, and India growing cannabis. That cannabis has to be sold somewhere and US and European demand will be taking off with Federal threats removed.

2. Home growing will be common and abundant. This will also add to price pressure as home grows will be legal and abundant. The Thailand realized this and set up their marijuana grow policy this week where all residents can grow up to 6 plants and sell the product to the government. That model is a game changer for the industry. Now you don’t have to policy and fight the black market, you are basically buying it from the black market and reselling it to the white and medical markets. If more nations adopt similar policies the amount of legal cannabis floating around will grow exponentially over time as each home grower will expand their plant number for family members and also sell to their friends or on the street, whoever pays the higher price. Think of a household that has 7 family members living together, there will be over 6 plants growing.

3. If the More Act gains steam Trump will legalize cannabis first by making a phone call to deschedule the plant (yes, that is all it would take according to Steve DeAngelo!) as a way to take away one of the Democrat’s major voting points. Cannabis legalization is immensely popular right now among voters running as high as 62% amount all voters and over 80% with Democratic voters. (Why did Joe Biden say he wanted to keep it illegal again? Gateway drug, Joe? Is it 1981?) Trump can score a big victory with voters and take away a strong initiative from the Democrats by legalizing cannabis or removing it from the CSA before the Democrats can do it. We have now moved to point where everyone wants to take credit for legalizing pot, how times have changed. Will Luzier, head of the Massachusetts Vote Yes committee, went on “In the Weeds” this week and thought Trump would legalize cannabis before the election for just the reasons mentioned above.

4. There will be massive investment in US cannabis companies. The Canadian bull market for cannabis stocks may be over, but the US bull run hasn’t even started. Federal legalization will open up Wall Street and VC money to cannabis companies as well as Silicon Valley technology in a grand scale. This will cause many more hemp and cannabis companies to seek public listings in order to raise capital quickly to take advantage of the new cannabis window.

5. Margins will compress as mentioned before and cannabis sites with traffic will become the most valuable assets in the market. With prices crashing, the only way companies can protect any form of margins will by getting an order for $0.02 instead of $17. Any of the sites on our list of the 10 biggest cannabis sites will be future goldmines for large MSO’s or cannabis growers. With large cannabis sites controlling traffic, and with cannabis being able to cross a state line, these eyeballs on cannabis sites can be turning into marijuana orders by email optins and sales funnels. If you can create hundreds of cannabis orders that can be shipped across state lines per day from organic traffic, you can boost your margins for years to come. One of the biggest mistakes menu management sites that have gone pubic like KERN (MJ FREEWAY) is to not buy up cannabis sites that host menus and have traffic. In the end menu management is just creating software but having traffic to those menus and controlling orders from around the whole country is the holy grail. Whatever company gobbles up high traffic cannabis sites and sets up sales funnels will be setting themselves up for years to come with $0.02 per order acquisition costs. Who survives the price war may be determined on who buys the right cannabis sites and turns that traffic into leads the most efficient way? A race to the bottom is going to happen on prices on the top line, so you better protect your margins on the bottom line.

6. The dispensary model is toast. What Amazon did to retail brick and mortar stores, removing cannabis from the CSA will do the same to the dispensary model. The dispensary model only exists due to old and antiquated laws that are about to change. What happens when you can get cannabis delivered to you within hours or two days at a better price than the white market can sell it. Already losing market share to the black market, the legal market will have the burden of an additional 5% Federal tax on cannabis, in addition to the astronomical state taxes put on the legal cannabis market. In some areas of California legal cannabis prices run 40% higher than black market prices due to taxes. Consumer will pay a small premium for lab tested products, but 40% is way to high, especially when you know the growers you are dealing with and know they are not using chemicals and pesticides. Add in all the home grows your family and friends have their will be little demand for expensive dispensary weed. The dispensary model will go the way of the Mom and Pop liquor store, sure their will be a few around, but once super markets, Costco, and major liquor stores opened, they were toast. Stopping a physical dispensary is inconvenient, just like stopping at any brick and mortar store when you don’t have too. Look at the rise of supermarket delivery with Amazon and Whole Foods. Look at the rise of supermarket curb side pickup and online ordering. Sorry, if we don’t have time to grocery shop anymore, where are we going to get time to part and walk around a dispensary? The trend is that we don’t spend anytime physically shopping anymore, it is all done on an app or website and either delivered to us or we slow down to pick it up. Have you seen more and more cannabis drive-thru’s opening in legal states? Ever wonder why?

If cannabis descheduling happens, how long until CVS, Walgreens, and Rite Aid have a cannabis section? Why would you throw in an extra stop in your day when you can get all your items now at CVS?

The future is bright for the cannabis industry if you read the tea leaves correctly and understand human nature. What the law says and doesn’t say is one thing, how humans respond to risk and negative and positive incentives is another thing.

As they say, watch what I do, not what I say. Words and letters are cheap, watch what people do in response to stimuli and incentive, then place your cannabis bets!