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.
