The response from the governor’s office came fast. By Tuesday, Oct. 22, Maine Gov. Janet Mills had sent a letter to U.S. Agriculture Secretary Sonny Perdue, urging his department to get moving on banking reforms for the newly legal U.S. hemp industry.
This followed the bad news at Sheepscot General Farm, in rural Whitefield, Maine, the previous week: The hemp business’s bank was shutting them out. And their insurance provider was declining to renew coverage on the farm.
The Portland Press-Herald first reported the story, detailing the sudden plight of co-owners Taryn and Ben Marcus, who found out on Friday, Oct. 18, that their bank, Camden National, “called to say it was closing the farm’s bank account and calling the $12,000 equipment loan it had just issued for a produce cooler the couple had ordered but have yet to receive.”
This is a familiar narrative for cannabis businesses who’ve found their financial institutions backing away quickly from the federally illegal industry. But for hemp businesses, now protected under the provisions of the 2018 Farm Bill and already struggling with razor-thin profit margins this year, it seems like banking woes should be a thing of the past.
“We thought it was just a mistake, that it would all be fine once we explained we were growing hemp, not marijuana,” Taryn Marcus told the newspaper. “But they understood that. They knew hemp was legal, but said without federal guidelines on how to handle hemp, they had no choice but to cut us loose.”
With all due haste, Mills’ office responded with an urgent letter to Perdue.
“Most recently, it has come to our attention that growers in Maine are receiving notices of bank account closures and insurance policies not being renewed because of uncertainty around federal hemp regulations,” she wrote. “These are troubling developments that stifle the growth and aspirations of hardworking farm businesses.
“Given the growth and rate at which hemp production has accelerated in Maine and across the country and continued confusion around federal laws, we urge you to work swiftly with the Office of Management and Budget to finalize USDA’s guidance for state implementation plans. This federal guidance will not only help provide long-needed clarification to the states but will be valuable to the broader lending and insurance industries.”
The issue has two fronts: the USDA’s long-delayed hemp regulations and the slow crawl of the SAFE Banking Act through Congress.
The USDA’s hemp regulations are due out in November, though they’ve been subject the same fits and starts that much agriculture policy must endure in a busy, distractible Washington. Once those rules are in place—and the department has said the plan is to ensure they’re in place for the 2020 growing season—the thinking is that banks and insurance providers will feel more comfortable in working with hemp businesses. There will be a federal framework supporting the industry.
As to the banking bill, the U.S. House passed the measure 321-103 in September. Now, the bill awaits attention in the U.S. Senate—a much more onerous hurdle for cannabis reform policies than the Democrat-controlled House. The SAFE Banking Act would protect banks from any federal prosecution when working with cannabis business clients.
Taryn told local news station WMTW that her business had planned to switch banks to stay afloat during this time—a process that nonetheless added costs and great deal of paperwork during this busy time of the year.
Other businesses have faced this issue in Maine, where 163 licensed hemp growers are feeling their way through this new industry. Local and regional credit unions are often the main sources for banking relationships with small cannabis businesses and hemp farms. But even in Sheepscot’s case, Camden National is a Maine-based financial institution. In the absence of formal small business loans as in Sheepscot’s case, other businesses have focused on private financing or not outside dollars at all. None of the available options are ideal for upstart farmers hoping to add hemp to their work in this post-Farm Bill landscape.
digidreamgraphix | Adobe Stock
Michigan Will Start Accepting Adult-Use Cannabis License Applications Nov. 1
Regulators are expected to grant the first adult-use licenses in the coming weeks.
Michigan will start accepting adult-use cannabis business license applications Nov. 1 and will award the first licenses in the coming weeks, according to a Michigan Radio report.
Michigan’s Marijuana Regulatory Agency (MRA) released instructions on how to apply for adult-use cannabis business licenses earlier this month. License types include cultivators, retailers, “consumption establishments,” “marijuana event organizers” and “temporary marijuana events.”
Starting Nov. 1, applicants can apply online or submit paper applications, although the MRA recommends the online system for faster processing. The application process consists of two steps: prequalification and establishment licensing. The prequalification stage includes background checks and a $6,000 nonrefundable application fee, and once an applicant secures prequalification status, he or she will be vetted by the MRA and will be required to submit business specifications, proof of financial responsibility, information on local regulations and employee information, and each applicant must also undergo an inspection of the facility.
A supply shortage in the state’s medical market could cast a shadow on adult-use licensing and the rollout of retail sales, however, according to Michigan Radio.
Michigan Cannabis Industry Association Executive Director Robin Schneider told Michigan Radio that she is not expecting many applications to be submitted on the first day.
“I just don’t believe that we’re going to see a Green Rush of businesses running out to get those rec licenses on the first day because of the lack of supply,” she told the news outlet.
The launch of the adult-use market will likely make the supply shortage worse, Michigan Radio reported, and retailers may have to wait until March or April for their first supply of adult-use products to allow time for businesses to become operational and grow and test their cannabis.
W.Scott McGill | Adobe Stock
Utah Department of Health Accepting Medical Cannabis Pharmacy License Applications Ahead of Dec. 2 Deadline
The Utah Department of Health is accepting medical cannabis pharmacy license applications from those interested in operating the state’s first medical cannabis retail outlets.
Rich Oborn, director of the Utah Department of Health’s Center for Medical Cannabis, expects “dozens of interested applicants” to submit proposals to win one of the 14 licenses ahead of the Dec. 2 application deadline, according to a KSL.com report.
The first phase of pharmacies could open as early as March 1, the news outlet reported, when the state’s medical cannabis program is scheduled to become operational.
“This is another significant milestone for Utah’s medical cannabis program,” Oborn said in a public statement. “We have been working closely with potential applicants over the past several months to develop the framework of this RFP.”
Each applicant must pay a $2,500 application fee, KSL.com reported, and if approved, licensees must pay an annual fee between $50,000 and $60,000, depending on the license type and the pharmacy’s location. Licenses will be divided among four geographic regions to ensure adequate patient access throughout the state, according to the news outlet, and applicants can operate a maximum of two pharmacies each.
The licenses are expected to be awarded in late December, KSL.com reported.
Utah voters approved Proposition 2 to legalize medical cannabis in the November 2018 election, and last month, Gov. Gary Herbert signed the final version of the state’s revised medical cannabis law, which lawmakers approved Sept. 16 during a special session of the legislature. Amendments to the law eliminated Utah’s original plan for state-run dispensaries and allowed the licensing of private businesses for cannabis sales.
The state awarded eight cultivation licenses in July, although the process has raised concerns among industry stakeholders. Some have argued that the state’s decision to license a smaller number of cultivators (Utah could have awarded up to 10 cultivation licenses by law) could create a cannabis shortage for patients, while others claim the state granted licenses to unqualified growers and had inappropriate interactions with some of the applicants.
Opinion: Bridge the Small and Large, Legal and Illicit Cannabis Market Gaps
With ‘Legalization 4.20,’ cannabis businesses of different sizes and backgrounds can work together to make the cannabis industry and its products safe and affordable for all.
Let’s be honest. No longstanding cannabis advocate like myself, or even anyone who has been in the industry for more than five years, could have pictured cannabis legalization as it stands today.
It was impossible to imagine how fast state laws would change (only four states—Idaho, Kansas, Nebraska and South Dakota—have yet to enact any cannabis and/or CBD laws), how competitive the licensing would be, and how much money would be needed to survive. At Magnolia Wellness in Oakland, Calif., we’ve witnessed one small cannabis company after another die since adult-use sales kicked off in January 2018 and watched countless hopeful entrepreneurs try to make their way into the industry without success.
When you’re blindsided and unprepared like this, the field is left wide open for competition. Canadian cannabis legalization was certainly a surprise, and companies based there took an early lead in the U.S. marketplace. This was amplified by the fact that they could trade on the Canadian and U.S. stock exchanges while owning U.S.-based cannabis companies and because federal legalization opened the potential for global exports. Investors were highly enthusiastic to jump on the cannabis bandwagon, and several companies hit unicorn status with billion-dollar market caps.
But the Canadian market is starting to calm down a bit, in part due to widespread net losses and corporate restructuring. Their valuations have changed based on year-one earnings and how far off most companies were from projections to reality. Valuations for the largest Canadian companies are much closer to actual sales than they were during the early years. Everyone aimed way too high on income and way too low on overhead, and now spending on overhead is taking most companies’ profits.
So investors are taking a closer look at U.S. market potential. It’s almost as if the Berlin Wall of cannabis, the oppressive barrier keeping cannabis innovators away from resources that could lead to progress, is about to fall here, and people are ready to move in and capitalize and invest, building business enterprises and a better way of living for people.
Savvy small-business people can find investments from vanguard funders, who are like-minded and willing to invest both in profit and in the ethos of what legalization has long been about for many of us: the right to be free. Industry data suggests that it’s California legacy brands that are still in the lead. Smart money is on the brands that support the old values with new infusions of talent to support them, working with legacy brands to make sure they last into the future with their consumer-facing values as a driver of income.
So, yes, we didn’t ask for Canadian legalization, but it did open the door for investments to head our way, and now is the time to grab the funding and start building companies that last into the future.
No longstanding cannabis advocate like myself, or even anyone who’s been in the industry for more than five years, could have pictured cannabis legalization as it stands today.
Let’s talk about the persistence of the underground market, too, because it’s a problem that exists for a reason. We should have seen this coming. Cannabis has been traded across borders and without regulations for around 10,000 years. No law, penalty or prison has been able to stop this in the past, and it likely never will.
Because of this, the legal cannabis market was built on the premise of “tax and regulate.” In other words, people sell cannabis regardless of the laws, so if licenses are available to do so, the taxes and fees can be used for the common good. In turn, growers and sellers get a break from the constant fear of arrest, and they can leave behind the stigma that comes with operating an illegal drug business.
It’s a solid idea—unless the only people getting licenses are large, multinational companies and not the mom-and-pop companies that built the industry. Because of this, California is crisscrossed with underground “seshes,” where patrons buy direct from unlicensed cultivators and product makers, whose livelihoods depend on cannabis sales, but they’ve been blocked from the legal market.
This means that two marketplaces exist now, even in states that have legalized cannabis. The “legal” market is licensed, tightly regulated and highly taxed. For example, at Oakland dispensaries, adult consumers pay three taxes on top of every transaction: 15% state excise tax, 10% municipal business tax and 9.25% sales tax. On the plus side, the selection of cannabis products is mind-blowing. Every item is tested for purity and potency, the retail stores are safe and staff is knowledgeable.
On the unlicensed side of the industry, contaminated products are a big concern. By now, surely everyone has seen the warnings about illicit and counterfeit vape pens (both cannabis and tobacco), which have sickened at least 805 people and killed 12 people as of Sept. 27, according to the Centers for Disease Control and Prevention. Prohibition-based policies, including restricted, overregulated markets, drive consumers to make risky purchases and encourage scurrilous profit-driven sellers to use standards akin to bathtub gin to make products. That’s not to say most underground sellers are unscrupulous; they’re not. Most I know would prefer to be taxed and regulated, too. They just can’t get into the market. But, mixed into this traditional market, you’ll also find bad operators and hustlers who make risky decisions to make a profit while they can. Buyer beware.
It’s not really “legalization” until this gap is closed, and it’s certainly not what anyone hoped would result from these laws. Even in places like California and Oregon, which have long had a medical cannabis industry, legacy companies struggle to get licenses. Regulators are going to have to loosen the reins by lowering the regulatory and compliance costs and state governments and individual voters are going to have to put pressure on municipalities to license more cannabis businesses before we can really claim cannabis has been legalized.
Legalization 4.20
In Aesop’s Fables, a tortoise lays around musing about learning to fly. It accepts help from an eagle, who says it will carry the tortoise into the clouds, but, once there, drops it onto a mountain and cracks its shell instead. In another of Aesop’s Fables, an old man wishes for death after carrying heavy wood, only for Death to show up, willing to take the offer. The old man instead asks for help lifting his pile of sticks onto his back. Both stories apply to cannabis legalization: We all wanted this, but we just weren’t expecting to be bashed on the rocks by it nor have Death answer our pleas for help. We can either act like the tortoise and let ourselves die, or we can act like the old man and rethink our desires and be much clearer with our goals.
Let’s call it Legalization 4.20, and this is where we all can make our dreams come true. Of course, it will take a lot effort from everyone, both the legacy cannabis business operators and people newly joining the cannabis world from outside industries. But, the fact is we need each other.
Legacy cannabis operators are a scrappy bunch. We cut our teeth two ways: through doing advocacy work and by being outlaw cannabis providers. The competencies for this included evading arrest, confronting politicians and organizing mass protests. We produced, sold, and consumed a lot of cannabis along the way, as did our friends and associates, and we became experts on consumer preferences and in understanding and articulating the complicated effects of the products themselves.
Meanwhile, our non-cannabis peers learned business management, marketing, operations, and finances. And, not having to worry about issues like arrest and forfeiture, they flourished in above-ground industries. But, in doing so, they were drug tested, required to wear suits and kept far away from cannabis consumers and the scene surrounding the legalization movement. In short, while they have the skills and abilities needed for the cannabis industry, they don’t have enough knowledge to succeed. Similarly, while longtime cannabis experts have the knowledge and experience, we can all learn sales and marketing strategies from retail industries that have had the ability to operate without as much scrutiny or as many regulations.
Hence, Legalization 4.20, where we form companies together based on shared values and goals. This is where we all win. For example, longtime dispensers can mentor CEOs and COOs on what cannabis consumers want, and their CFOs and CMOs can show legacy cannabis retailers how to work smarter, making sure that each dollar spent is returned with profit. Yes, we may not have gone to business school or even to college, but our skills have value. And yes, they went to business school, but cannabis consumers can read insincerity a mile away. Legalization 4.20 brings all our skills together, and each side gains value that will carry us forward into the future. Together, we all succeed.
lefluis | Adobe Stock
Massachusetts Governor Pursues Emergency Regulation for Temporary Vape Ban
The Public Health Council approved Gov. Charlie Baker’s emergency regulation after a state judge ruled that the state must treat the ban like an emergency rule for public health reasons.
Gov. Charlie Baker’s administration has received approval from the Public Health Council on an emergency regulation that would maintain its temporary ban on all vaping products in Massachusetts.
The Public Health Council unanimously approved the emergency regulation at an Oct. 25 meeting, and the regulation will be formally filed Oct. 28 with Secretary of State William Galvin’s office, according to a WBUR report.
On Oct. 23, a judge rejected Baker’s appeal of an earlier ruling that would halt his administration’s four-month ban on vape sales, which was originally set in motion Sept. 24 in response to the nationwide outbreak of vape-related lung illness. Suffolk Superior Court Judge Douglas Wilkins gave Baker’s office until Oct. 28 to appeal the ruling or go through the process of treating the ban like an emergency rule for public health reasons, the latter of which Baker has now pursued.
The Baker administration said the emergency rule is in compliance with Wilkins’ order, and should be sufficient to prevent the ban from lifting, WBUR reported. In pursuing the emergency regulation, Baker’s office must now to hold a public hearing by Dec. 24 to allow businesses and other stakeholders to offer feedback and perspectives on the policy. And while Baker’s initial ban spanned four months, the regulatory process will shorten the ban to three months, according to WBUR.
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