5 Hurdles For Cannabis Businesses
Legal marijuana is the fastest growing industry in the United States and is a market already valued in the billions. Despite this incredible growth there are still a number of concerns for entrepreneurs and investors interested in entering the space. These are the five biggest issues facing businesses in the cannabis sector.
Federal Prohibition
Though twenty-three states have legalized medical cannabis, including four that have legalized regulated adult-use, marijuana is still federally illegal. It is listed in Schedule 1of the Controlled Substances Act which puts several limitations in place regarding research, interstate commerce, and of course federal criminal liability. The federal government, however, has taken steps in recent years to guide enforcement toward criminal elements and away from state-legal cannabis businesses. The Cole Memo and FINCEN guidelinesindicate that the Department of Justice is reflecting this focus, and the House of Representatives recently passed a spending billwhich prohibits the Drug Enforcement Agency from using funds to interfere with state marijuana programs.
Section 280e of the U.S. tax code, however, is still a large barrier and there are movements in place to except legal businesses.
Banking
Because of the federal prohibition the banking industry has been reluctant to enter the cannabis space, meaning that businesses that touch the cannabis plant are restricted to cash transactions. Though a few banks have tried working in the space, several have exited citing the high costs of compliance. This restriction results in businesses with no bank accounts keeping large amounts of cash on location, paying bills in cash, paying employees in cash, and paying taxes in cash.
It also means that young companies are often unable to receive business loans, though firms like Salveo Capital are stepping in to provide funding for businesses touching the cannabis plant.
Stigma
These two issues can change as public attitudes change. Marijuana legalization is supported by a majorityof Americans, with medical cannabis programs receiving a nearly 80% approval ratingin swing states. Despite this progress stereotypes and stigmas still exist, and are an impediment not only to legalization efforts but also to expanding the marijuana market to mainstream consumers.
Though there will always be a space for marijuana-forward brands, for the industry to attain legitimacy and expand beyond its countercultural niche it must rehabilitate its image.
Bad Actors Affect Entire Industry
This image problem is made worse since any bad actors reinforce stereotypes for everyone in the industry. When the biggest security concerns are a business’ own employeesit makes legislators skeptical of the seriousness of the industry, and makes investors hesitant to enter.
The long marijuana prohibition has resulted in a lot of people who are looking for reasons to reject legalization. Cannabis professionals have to be more responsible than counterparts in other industries, and must be hyper-compliant with existing laws. Additionally industry leaders must not only welcome regulation, but should take an active hand in crafting it.
Lack of Traditional Business Experience
Many in the first wave of legal marijuana entrepreneurs may have had experience in cannabis, but as the industry grows it's shown a need for more experience in business. Passion can successfully launch a store but a long-term, sustainable, growing business requires strategic planning and the kind of knowledge and savvy that only comes with years of experience. One of the biggest misconceptions about the cannabis industry is that it's an entirely new animal. It isn't. It's a new application of business models that have existed for decades and the companies most willing to leverage that experience and combine it with entrepreneurs with experience in cannabis will be the most successful going forward.
Overcoming these obstacles will not be simple. It will take hard work, planning, and dedication. It will involve fording a river of legal, social, and financial challenges. On the other side of the river, however, will be one of the most lucrative and transformative opportunities the country has ever seen.