On October 16th, Burns & Levinson hosted its Seventh Annual State of the Cannabis Industry Conference, where our very own Scott Moskol sat down with the following top cannabis executives to introduce and discuss the shared dilemmas faced by cannabis companies and related insight. This blog summarizes the major topics discussed by the panelists.
Terry Fitch / Chief Executive Officer, Good Day Farm
Laurie Holcomb / Chief Executive Officer, Gold Flora
Jon Levine / Chief Executive Officer & President, MariMed, Inc.
Ed Schmults / Chief Executive Officer, StateHouse Holdings
Darren Weiss / President, Verano
Oppressive Obstacles
- Legacy / Black Market – The legal cannabis market competes with the “legacy market,” which predates the legalization of cannabis in any particular state. It is the job of every participant in the legal cannabis market, led primarily by the state’s regulatory body, to minimize, or more ideally eliminate, the impact the legacy market has on the profits and market share of legally operating cannabis businesses. Combating legacy markets starts with a regulatory body focused on aggressively enforcing its cannabis regulations against those operating illegally, but our panelists recognize their companies’ roles in eliminating the legacy market. First, legal businesses need to develop and strictly enforce operating procedures to reduce the diversion of their legal products into the legacy market. Another tool is education. Educating consumers on the ingredients and processes behind their products and contrasting them to the uncertainty of products in the legacy market and the dangers thereof helps to reduce the number of consumers in the legacy market and encourage those same consumers to purchase their cannabis products from legal businesses in their community.
- Delta 8 – Delta-8 THC is a phytocannabinoid produced by cannabis and hemp plants in small amounts. In light of the small yield, scientists have found a way to extract more of it from CBD through a process called isomerization. This has resulted in a flooding of the market with unregulated Delta-8 THC products. These products undercut the legal cannabis market and are neither subject to the rigorous quality control testing nor the same advertising restrictions as legal cannabis products. Similar to the issues with the legacy market, the less control a state has on the sale of Dela-8 products, the less stable and predictable the legal cannabis market is in relation. Some of our panelists referenced the ”if you can’t beat them, join them” strategy with respect to Delta-8 THC products, so we may start seeing our favorite legal cannabis companies manufacturing Delta-8 THC products in addition to Delta-9.
- Payment Systems – Prohibition on the use of credit cards to purchase cannabis products and the fees associated with using debit cards have caused pain for both cannabis businesses and consumers alike. Further frustrating the payment landscape is MasterCard barring the use of its debit cards to purchase cannabis products. Our panelists view restrictions on payment processes in cannabis as harmful to the consumer and inequitable when comparing cannabis businesses to other legally operating businesses. The decision by MasterCard to prohibit cannabis purchases with their debit cards is viewed as an illegal, political overreach that results in limiting where and how a MasterCard customer can spend their money. Luckily, a number of FinTech companies have come to the rescue and offer the cannabis consumer unique ways to conveniently purchase cannabis without the extra fees. Check out KindTap if this is an issue you need a solution to.
Management Must-Haves
- Traits – Our panelists’ success in their roles in the cannabis industry is not due to one character trait or skillset, but here are a few that have helped them navigate the equally frustrating and rewarding world of cannabis.
- Understanding of Entire Business – Members of management need to understand every facet of the operation. Needs to be able to wear all the hats but not micromanage the team put in place. Be able to oversee and advise in all areas of the business, but hire well and trust your team.
- Real Estate and Construction Experience – Especially for vertically integrated companies, experience with purchasing and financing real property is incredibly helpful. Even if the property is leased, it is likely a cannabis company will need to secure financing to build out the location to meet the business needs. Further, bank loans are almost entirely secured by mortgages on owned real estate, so experience with such loan transactions can help save on legal costs and time spent on negotiations.
- Appreciation and Respect for Cannabis Culture – The cannabis culture is powerful and deeply entrenched. A company’s management needs to understand this and be able to discuss it. The company must stand for something, and that something needs to resonate with the subscribers to cannabis culture (e.g., sustainability, natural ingredients, transparency).
- Brands – Everyone has got to have one (or more). Doesn’t matter if it is a local, regional, or national brand, but having a consistent, reliable brand that speaks to the needs of consumers can help put your company on the map. Selling your own brands in the dispensary greatly increases profit margins as well.
Policy Predictions
- SAFER Banking Act – Our panelists seemed uplifted by the momentum in cannabis policy change generated by the passage of the SAFER Banking Act. As a single event, it will not do much to change the way cannabis businesses operate; however, progress motivates further progress, and the permission to use credit cards for cannabis purchases will help consumers significantly.
- Rescheduling of Cannabis – The elimination of the 280E issue that would accompany the rescheduling of cannabis under the Controlled Substances Act would be a major boon for the cannabis industry. Rescheduling would also begin to reconcile the government’s long-lasting, prohibitionist view of cannabis with the public’s overwhelming support of legalization. Reduction in the stigma around cannabis by rescheduling would be good for the industry and an added comfort to those who have long considered consumption of cannabis for medical or recreational purposes.
