THE FUTURE OF THE CANNABIS INDUSTRY

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Cannabis is having a moment, particularly in the development of CBD products for a growing industry. As the CEO of the Movement Management firm, I’ve been tapped into the future of the marijuana industry, representing clients who grow and sell and are branding themselves at the forefront of a green revolution.

I’m uniquely positioned to recognize the trends of a growing industry (pun intended) and, possibly, what the future holds.

Marijuana is easily the most widely used and distributed illicit drug. It’s also currently a schedule 1 drug, which makes it illegal at a federal level. You can’t travel between states even where it’s legal, and you cannot travel internationally with legal weed (even if it’s legal in other countries, such as Canada).

But this hasn’t stopped 33 states from legalizing it for medical use and 10 for recreational.

Several more states are expected to legalize it soon, including New York, Connecticut, New Jersey, and Illinois.

Four things are predictive about the future of the cannabis industry. Based on my work over the past several years I think it’s important to evaluate a few considerations of how the industry may soon evolve. The good news is it’s going to do so pretty quickly. The bad news is, it’s going to be complicated.

Cannabis is likely to:

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1. Become legalized nationwide for recreational use

2. Create millions of jobs and transform multiple industries

3. Provide an international economic boom.

4. Potentially face backlash from communities and politicians hell-bent on outdated stereotypes and understanding of “reefer madness.”

 

Legal weed has the potential to positively transform our economy, our culture, and our world.

But it’s unfortunately not a clear path to achieving this change.

Public perception of the illicit drug is shifting faster now more than ever, especially as more is learned regarding medicinal applications.

Marijuana is headed into the mainstream, but exactly how? And when? And what does that look like for investors anxious to get in on the ground floor?

 

The Domino Effect of a Federal Legalization

 

Marijuana has been illegal since the passing of the 1937 Marihuana Tax Act, effectively creating prohibition for the drug. Unlike the alcohol prohibition which was costly and overturned rather quickly, marijuana’s prohibition period may finally come to an end, and with significant financial benefits.

As marijuana and cannabis continue to see legalization in more states, it’s unlikely that a national legalization won’t be long off. Investors will see benefits before a federal law is enacted. The industry saw a 10.4 billion dollar profits in 2018 and created over 250,000 jobs according to this article in New Frontier Data. But the future for the cannabis industry will rely on the adoption of and success of evolving laws. As the prohibition of the drug is systematically overturned at the state level, the cannabis industry will find it’s new look as a legit business. And will scale at impressive levels. With more and more states adopting legalization, it will be difficult for the U.S. politicians to ignore the potential economic benefits of legal weed. The industry is projected to be worth $57 billion worldwide and create a tax revenue of 17.5 Billion by 2030. As far as what the people want, Americans are primarily in support of marijuana legalization, with 62% in favor, according to Pew Research. This is twice what it was in 2000. In the 1960s, support for legalization was merely 12%.

 

In the Weeds

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Even though prohibition has kept marijuana relegated to secret dealings, it’s still very much a present part of American culture. Often associated with hippies of the ’60s and 70’s as the industry reinvents itself, it will be forced to adjust to new regulations. And with great regulations comes great opportunity for a rebranding. Soon marijuana’s look will be less about getting high, and more about medicinal benefits.

But we’re already seeing this growth as dispensaries are showing up in suburban malls across the countries where legal, medical weed is available. Cannabis companies are posting jobs on major online platforms, and advertising and marketing companies are including cannabis companies as part of their strategy. For this industry it always seems as if we’re two steps forward, and one step back. Unfortunately, some states are finding loopholes to ban dispensaries, for example, even when the weed is legal in the state. Proving that there will not be a clear path to follow. The growing pains for this industry steeped in controversy will be vast, but still, the industry is changing and will continue to evolve regardless of future pitfalls.

 

The Social Inequality of Illegal Weed

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With continued legalization, politicians will also be forced to recognize the social injustice sustained by the persecution of those who would imbibe in the illicit form of the drug. According to this article in Quartz, marijuana offenses have net 15 million arrests with a disproportionate amount being people of color.

It’s estimated that black residents of New York are eight times more lightly to be arrested for marijuana sales or possession regardless of similar rates of usage among other races. Decriminalization and legalization will help communities beyond a bottom line. It’s highly likely that every 2020 presidential candidate will have something to say about this issue as the success of legalization in states, as well as Canada’s open market, show cracks in the backward thinking of a decades old law.

 

How Federal Legalization of Marijuana Will Impact The Industry

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Even with legalization for medicinal use in 33 states, banks are sketchy about wanting to loan to farmers, producers, and companies, forcing cannabis companies to do business in cash.

Big banks are nervous about an unclear threat of legal action if they choose to loan to cannabis companies. This also leads to all cannabis companies being forced to do business entirely in cash.

Banking reform is necessary for the industry to show any kind of legitimate growth. And that will come with legalization. There is good news though, as banks are eager to loan to the companies but only after legal clarity. In fact, the American Bankers’ Association has been lobbying for a clear definition between the state and federal law to remove any grey area. Until then, Big Banks are losing money, being unable to invest in a growing industry. It’s estimated that Marijuana companies raised four times as much as they did in 2017( $13.8 billion in funding in 2018). This trend is expected to continue. Additionally, The SAFE ( Secure and Fair Enforcement) Banking Act is a cannabis bill that should help bolster investor confidence when it passes.

The law effectively ensures that banks cannot discriminate against cannabis companies, encourages providing loans to cannabis companies, and recognizes that a bank cannot terminate a contract for the sole purpose of it being a cannabis company. It’s essentially a non-discrimination bill that would give banks the confidence to operate with cannabis companies as if it were business as usual, removing any stigma or legal red tape.

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The CBD Effect

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Cannabidiol or CBD is a natural compound found in cannabis plants that is non-psychoactive, which means that you can get the medicinal benefits of the marijuana without the high. Marijuana has been a known medicinal for centuries, and it’s this CBD that’s believed to possess the most medicinal benefits. Now with the growing acceptance and a continued push for legalization, there is hope for patients navigating chronic pain and seizures without dangerous side effects. CBD is showing the most potential for growth at the moment, as it can be produced in oils, creams, pills, tinctures, or edibles like chocolates or gummies. The compound has been shown to relieve symptoms of depression and anxiety as well as helping those coping with cancer symptoms to feel some relief. Big business recognizes the potential too. We’re now seeing companies such as Constellation Brands, (the owner of Corona), and the Marlboro cigarette company invest multi-billion dollar stakes in marijuana companies. The good news is this isn’t likely to be a temporary boom. The conservative analysts at The Brightfield Group, a company that specializes in Cannabis trends in the market, has predicted an increase to $22 billion by 2022.

 

The Softening of the FDA about CBD

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The Food and Drug Administration(FDA) has ruled that all drugs containing CBD, a Schedule I drug, require agency approval. But in 2018, the agency approved a CBD derived product to treat epilepsy. In this monumental decision, it placed G.W. Pharmaceuticals’ Epidiolex in the least restrictive Schedule V of the Controlled Substances Act. Schedule V drugs usually indicate a low likelihood of abuse.

Unfortunately, due to federal rules, it’s still illegal to market CBD food products or supplements. Still, the FDA seems lenient and shows potential to change this soon. This is good news for my clients in the cannabis industry who are waiting for the compound to be classified across all markets and states as a Schedule V. But they still need to wait. Unfortunately, due to limitations from international treaties, a blanket ruling on CBD will prove unlikely. It’s expected that only FDA-approved cannabis products with low levels of THC may join the ranks as a Schedule V drug. Nevertheless, since we’re inevitably heading to a marijuana boom, my team at the Movement Advisors and I are often looking to the future to plot strategy for potential investments. As with any disruptive commodity, there’s the potential of large companies flooding the market with a generic product sold at a low price. But based on what we’ve seen so far, two things could contribute to keeping companies from establishing a monopoly:

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1. The variety of strains available, which also speaks to a consumer trend of “locally-made” or “artisanal” products.

    2. States such as California have limited the size of marijuana farms, sending the message that if this is            going to be financially lucrative, let’s share the wealth with as many people as possible.

 

To the latter point, it’s logical that many other states would follow suit.

But that doesn’t mean you won’t be able to buy your favorite brand when you’re traveling, or that product is limited to regions. Eaze is a popular cannabis delivery company, raised $37 million and is currently valued at over $300 million. They announced last year that they plan to create a system for delivering to 41 states.

They’re not alone as many other delivery services are following suit.

 

Taking A Cue from Tech Start-Ups

 

For the past two decades, I’ve helped startup tech companies, athletes, musicians, entertainers, high-net CEOs, and Fortune 500 companies strategize their holdings and investments. What I can see for the future of cannabis is clearly aligned with how things have gone for Tech startups. Once the political challenges are overcome, there will be other logistical challenges regarding access to capital. Cannabis companies are scaling at incredible rates. It’s like a gold rush for the industry where easy capital meets an unestablished foundation. As we’ve seen with many tech startups, a lack of foundation can make or break a company.

I believe that cannabis companies could learn a few things from the tech startup boom. The first of which is to niche down in the market. For new companies to develop products that are limited or not yet available. I see a need for beauty care, for example, that hasn’t been tapped. Secondly, finding a support staff that combines qualified expert salespeople and cannabis experts to navigate the growth without making things more challenging. And most importantly, just because there’s a demand for something doesn’t mean that customers want to buy it. Hiring quality marketing and creative branding is essential to grow and scale any company, and cannabis industries should be no exception.

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What We Can Learn from Canada

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Canada made recreational marijuana legal nationwide in 2018. In the past year, the industry has seen it’s expected fluctuation and growing pains. Faced with supply shortages and confusing language between provinces, as well as some areas that are still illegal (such as growing hemp at home), there’s still a significant learning curve for Canadian cannabis companies to overcome. But this hasn’t stopped them from raising massive capital on the stock exchange, which is going directly toward building the infrastructure product creation. Some Canadian cannabis companies have reported an equity stake of $3.8 billion. Meanwhile, American companies, such as Curaleave Holdings, produced a $4.5 Billion debut on the Canadian Stock Exchange. They can find capital on the Canadian Stock Exchange and are learning operations within a supply chain , different laws and capabilities. This education will likely garner a smoother transition for American cannabis companies when nationwide legalization becomes a reality.

Additionally, after the Farm Bill was passed in 2018, hemp suddenly became a known and desired commodity for U.S. farmers. Having been slammed with tariffs on staples such as soy, hemp’s legalization opens up financial means for farmers in a time and way that hasn’t been seen in decades.

Because of this gracious example, the U.S. marijuana industry will have a leg up on rebranding. But it likely won’t happen overnight and will still endure its own share of hiccups.

 

Changing the Perception of Weed

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Most young people consider marijuana safer than alcohol. When you look at the history of alcohol and marijuana prohibition, you’ll see that they both were prohibited around the same time.

Yet alcohol’s prohibition only lasted a few years, while marijuana has continued for over 80 years.

Marijuana prohibition costs $13.7 billion a year. By bringing cannabis and hemp into the mainstream, these high costs will effectively be eliminated. In fact, it’s estimated that the legalization of marijuana could save $7.7 billion in law enforcement costs and add at least $132 billion in tax revenue and more than a million new jobs across the U.S. in the next decade. Because of the demand for hemp products, mostly CBD oil, hemp farming is suddenly becoming a desirable industry. And because THC is limited in hemp (it has less than marijuana), it’s an ideal source for the popular oil. This awakening to the potential of CBD and what it can provide may be part of the final acceptance of cannabis into the mainstream. What’s more is that hemp can be made into food, clothing, plastic, and even some construction materials, as well as biofuels, which can be made with hemp.

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The Bottom Line of Getting High

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The future of the cannabis industry may depend on how it will overcome political roadblocks, and regulation challenges. Even in states where weed is legal, choosing to invest, or become involved in the cannabis industry is a complicated business. Still, the payoff will be huge if strategy, infrastructure, and implementation is done right. As cannabis becomes more mainstream and the stigma of marijuana shifts, there’s a huge potential for entrepreneurs to financially benefit at the ground floor. With the right application and research, the cannabis industry will continue to create jobs at a rapid pace.

 

Follow me on Linkedin:

https://www.linkedin.com/in/darien-dash

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