DENVER (CN) – U.S. Attorney General Jeff Sessions’ recent decision to rescind Obama-era memos guiding federal attorneys in prosecuting marijuana cases left the nation’s cannabis businesses in a hazy place between federal prohibition and state legalization, unable to bank and sustained by inconsistent investment. In other words, it’s business as usual.
“The Cole memo of 2013 didn’t change anything back then and rescinding it doesn’t change anything today,” said Rick Scarpello, CEO and founder of Incredibles, one of a few cannabis companies with a national presence. “It was not binding policy; it was guidance to prosecutors in respect to prosecutorial prioritization. It never altered the Justice Department’s authority to enforce federal law.”
But the deputy director of the marijuana lobbyist firm NORML, Paul Armentano, is anything but optimistic.
Armentano asks himself whether federal prosecutors would “target the bad actors to send the message that they want to clean up this industry, or do they target both good actors and bad actors to try and send the chilling effect that says nobody is safe, even if you play by the rules?”
He continued: “Even if the Justice Department were to succeed in their quest, all they would be doing is removing the controls that now exist on the commercial market, controls that virtually everyone acknowledges are preferable to having this activity once again be regulated to a black market that has no accountability.”
Among the documents rescinded are guidelines for the Department of Treasury’s Financial Crimes Enforcement Network, which gave banks the discretion of deciding whether or not to give accounts to cannabis businesses.
Without this guidance, says Andrew Livingston, director of economics and research for marijuana law firm Vicente Sederberg, “the actors that we are likely to see that decide to no longer participate in the cannabis industry are the most conservative and the least risk taking: first among those are banks.”
Marijuana is the only tax-abiding billion-dollar industry in the United States operating almost exclusively on cash. To date, 29 states have approved some kind of medical marijuana program and eight have legalized the substance for recreational use. Still the plant’s federal status as a Schedule I drug means cannabusinesses are largely prohibited from making bank transactions.
This means the industry operates without payroll, direct deposits and credit card transactions. Additionally, they are uniquely required to hand-deliver their taxes to the Internal Revenue Service.
“Removing this guidance has the potential to increase public safety problems, because of the way the Cole Memo provided a foundation for how to operate legally while banking cannabis businesses,” Livingston said.
Along with spooking banks, market uncertainty has some investors thinking twice about going green. The Marijuana Index, which tracks 15 publicly traded companies, showed stocks plunge after Session's memo was released. This past weekend, prices slowly began to rise but remain more than 10 percent below their Jan. 3 value.
“With the lack of investment here, you’ll see less cannabis businesses spring up or get bought out, so it could slow job growth here,” said Kevin Gallagher, executive director for the Cannabis Business Alliance.
In Colorado alone, cannabis employs some 23,000 full-time employees. Nationwide, Leafly estimates that from the botanists and oil extractor technicians, to budtenders, software developers, and lawyers, the legal cannabis industry has created nearly 150,000 jobs.
“If a marijuana grower decides to say ‘This is too risky,’ those employees will all lose their jobs and some of these businesses are relatively large and employ hundreds of people,” Livingston said. “In the cannabis industry, wage rates are typically higher than they are for many other sectors, particularly if you’re talking about retail store employees, so these are strong, well-paying jobs.”
If outside investment is backing off, Livingston hopes the fear doesn’t spread within the industry.
“Cannabis business owners are typically much younger than the average CEO, they’re excited, they’re hardworking, and they’re looking to expand,” he said. “And that entrepreneurial spark and that entrepreneurial drive is what keeps the cannabis industry moving and is what’s caused our expansion. I really hope that the rescinding of the Obama-era memos does not dampen or put out that spark.”
Looking at data from 2015, Marijuana Policy Group estimated that in Colorado alone, cannabis consumers spent $996 million on marijuana, generating $2.39 billion in economic impact. Because marijuana activities are contained within the state, the group says "spending on marijuana creates more output and employment per dollar spent than 90 percent of Colorado industries.”
Since voters legalized recreational marijuana in 2016 and retail sales began Jan. 1, California is expected to have the nation's largest industries. New Frontier Data predicts Golden State consumers will generate $1.1 billion in recreational sales and $2.8 billion in medical sales this year.
While all cannabis consumed in-state must be grown in that state, a handful of brands have been growing a national presence.
“If these companies are looking to compete on price and operate at large economies of scale in the next 10 years, they're going to want to invest heavily in their ability to produce, distribute, retail and brand their products,” said Steven Davenport, an assistant policy researcher at the RAND Corporation. “And so there is a lot of money coming into the industry right now in the form of investment and they do so under the impression that the criminal risk and the risk of having the businesses shut down and losing their investment is relatively low.”
The congressional Rohrabacher-Farr amendment protecting medical marijuana growers and consumers remains untouched, Davenport pointed out.
“The recreational cannabis industry actors generally are at risk of prosecution,” Davenport said. “However, it would be a difficult political battle. If you look at approval for recreational cannabis, the most recent Gallup poll registered 64 percent of the nation in support for recreational cannabis.”
Marijuana legalization is one of few issues with bipartisan support, about 72 percent of Democrats and 51 percent of Republicans.
“Sessions wants to take us backward, but the people have spoken,” Scarpello, the Incredibles CEO, said.
“I have production in five states, that’s not going to change,” he added.
When asked if Session’s actions are impacting these investments, he said, “That’s wrong. I’m talking to people in other states and other countries. People are investing in my company today.”
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