Is Big Cannabis the Only Way Forward With Trump’s Changes to Weed?
For many years, mom-and-pop businesses, together with small cannabis growers, independent dispensaries, and legacy operators pushed the cannabis movement to where it is today.
Of course, we recognize that there were many important big players too, but they certainly were responsible for helping build the industry from the ground up. After all, legalizing cannabis in North America was primarily about creating and spreading opportunity: we all wanted a fair, profitable marketplace where cultivators, entrepreneurs, and advocates could operate in the open - and legally!
However, it seems that the cannabis industry is headed in a different direction this year.
US President Donald Trump has made large waves over the past few months as he’s made moves that are benefiting marijuana reform, particularly around rescheduling the plant, which we have waited for, for a very long time. As of April 22, some types of cannabis have already been rescheduled from Schedule I to III, which means that we finally recognize it has medicinal uses. We must note that the order only applies to state-regulated medical marijuana products, including FDA-approved products though recreational cannabis isn’t included.
This makes us now ponder if the future of the marijuana industry will be handed over to Big Cannabis, as this move may capitalize on a huge financial shift (possibly the biggest one we’ve ever seen): quite possibly, it could signal the end of the 280E tax laws due to Schedule III reform.
Is Big Cannabis The Future?
Big Cannabis is in the future, that’s certain.
But let’s look back and remember that the cannabis industry has spent a very long time living in contradiction: it was legal in most states yet illegal in the eyes of the federal government. Thus, cannabis was forced to function according to the same tax rules that were created for illegal drug traffickers. According to section 280E in the federal tax code, legitimate cannabis businesses could not deduct ordinary business expenses, resulting in significant tax burdens that affected profitability.
For small weed businesses and operators, this was a death sentence.
Yet for the multi-state operators or MSOs, they had the resources to survive: investors, capital, scale, accounting and legal infrastructure which helped them weather several years of punishing taxes and legal fees. On the other hand, small businesses struggled to pay rent, payroll, and other compliance-related costs. Craft cultivators and independent dispensaries didn’t have the access to the same level of cash reserves, institutional capital, or private equity that MSOs had because even if your business was generating good revenue, 280E made it near impossible to even turn a profit.
Yet, MSO’s had the means to stay alive and endure financially. Even if MSOs weren’t exactly profitable, they had the means to survive long enough to wait for federal reform.
And with the possibility of weed already moving to Schedule III on a federal level, the landscape may very well change in the blink of an eye.
Small operators may find that Schedule III was too little, too late.
Many have already closed, while others were sold for a song to bigger companies. A large number of them stay stuck in survival mode and are unable to scale.
What Happens When 280E Disappears?
Once 280E is gone, MSOs may suddenly improve even more, thanks to significant margins, better access to investments, capital for expansion, and stronger stock valuations to name a few.
But even small operators can benefit from tax relief! Reduced taxes mean that independent operators can finally breathe a sigh of relief for the first time.
The question remains: whether they will be able to exist in large populations long enough to compete.
For that reason, many refer to 280E as a survival filter: those who survived it the longest, most of whom were the large MSOs, may actually come out to be the winners. They are “Big Cannabis” in the making, which makes it deeply uncomfortable for many in the cannabis industry.
Why?
That’s because the same tax policies that nearly killed small operators actually strengthened the biggest cannabis companies the most.
What Happens In June?
Should cannabis officially move to Schedule III at the federal level, June may be the month of the most historical breakthroughs in modern cannabis. It will fundamentally mark a major change in the economics of the cannabis industry.
It could mean that cannabis would quickly expand into a great big realm of possibilities we never thought possible, including pharmaceutical cannabis partnerships, federal medical marijuana infrastructure, investment markets, mainstream banking products, wellness integrations, and so much more!
It’s rather significant that big financial institutions will also feel safer working with cannabis for the first time in history. Even traditional private equity groups, investors, and pension funds may enter at a large scale.
CONCLUSION
Whether we like it or not, the legal cannabis industry may be headed towards a revolutionary moment of transformation instead of the simple legalization we hoped for.
The removal of 280E under Schedule III has the potential to unlock billions of dollars in the legal marijuana market in the blink of an eye, but the companies who are in the position to benefit aren’t the legacy growers, small, or independent operators: it’s the MSO’s who survived this long to capitalize on the changes.
If you think about it, that’s actually a major paradox.
For years, the industry fought hard for change and legitimacy yet when it came, we weren’t prepared to pay a price. The price was corporate dominance and institutional money.
Think about it in a way that cannabis may actually stop behaving like an emerging industry altogether.
TRUMP ON NEW CANNABIS RULES, READ ON...
