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Cannabis in 2023: Here to Stay, but Major Challenges Remain

By Joshua Weiss, Osiris Morel
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2022 brought more change and visibility to the cannabis industry than nearly any year before. Two of five legalization ballot measures passed, bringing the total number of states with legal medical or medical and recreational laws to 39. President Biden issued an executive order pardoning nonviolent offenders and directing a review into rescheduling cannabis. The Medical Marijuana and Cannabidiol Research Expansion Act was enacted. Cannabis arose prominently in legislatures across the country, with over 50 federal bills and hundreds of state-level measures introduced.

We’ve yet to see the full impact from Biden’s October 6 announcement

But as 2022 came to a close, only a handful of actions are being carried into the new year, and the industry faces more hardship and turmoil than it has since the inception of legalization. Legal cannabis retailers and cultivators in markets across the country continue to struggle with onerous regulations and competition from the illicit market, and oversupply in these markets is driving down prices as West Coast growers and manufacturers anxiously await interstate commerce.

Looking ahead to the coming year, industry watchers can anticipate certain issues and legislation: further investigation into cannabis’ classification on the Controlled Substances Act (CSA) from federal agencies, federal cannabis pardons coming to fruition, a follow-up from the Department of Justice’s technical report, and the reintroduction of high-profile federal legislation, like the Cannabis Opportunity Act (CAOA), the States Reform Act, Marijuana Opportunity Reinvestment and Expungement (MORE) Act, Harnessing Opportunities by Pursuing Expungement (HOPE) Act and the Secure and Fair (SAFE) Banking Act.

Below, we recap some of the big moments of 2022 and what to expect in 2023.

A Presidential Pardon for Simple Possession

On Oct. 6, President Biden made a historic announcement to “grant a full, complete, and unconditional pardon to all current United States citizens and lawful permanent residents who committed the offense of simple possession of marijuana in violation of the Controlled Substances Act” and “all current United States citizens and lawful permanent residents who have been convicted of the offense of simple possession of marijuana in violation of the Controlled Substances Act.” His executive order also encouraged governors to follow suit for cases regarding state offenses and requested that the secretary of Health and Human Services and the attorney general “expeditiously” review how cannabis is scheduled under federal law.

Biden signing his executive order back in October of 2022

The president’s strategic plan attempts to at least partly address some of the adverse impacts of the United States’ war on drugs on certain populations like low-income and Black and Latinx Americans. While an admirable and important effort, certain portions of his executive order will take much longer than others to yield tangible impact. A federal pardoning can take anywhere between two to five years, and the laws and duration of state-level pardoning vary—depending on the state and its governing practices. Additionally, since governors are not required to pardon individuals following the president’s executive order, some convicted persons may never see or be able to seek justice. And the most uncertain timeline relates to the review of cannabis’ classification on the CSA. Rescheduling or descheduling a substance under the CSA can be tedious and grueling, and, as seen with other substances, the process can range from four to ten years. However, the exercise is ongoing, and although results may not be shared in time for the 118th Congress, it is to be expected that the issue will be discussed at length in 2023 and beyond.

Descheduling, Decriminalizing & Banking Legislative Efforts  

1. CAOA.

When it comes to legislation, there is no question that Majority Leader Chuck Schumer (D-NY) and Sens. Ron Wyden (D-OR) and Cory Booker (D-NJ) will reintroduce the CAOA in 2023. The comprehensive legislation aims to decriminalize cannabis by removing the drug from the CSA and tackles issues related to research, public safety, restorative justice and equity, taxation and regulation, public health and industry practices.

2. States Reform Act.

Sen. Schumer unveiling the Cannabis Administration and Opportunity Act

Another piece of legislation we anticipate seeing in the 118th Congress is Rep. Nancy Mace’s (R-SC) States Reform Act. Coming from a state without any cannabis laws, the freshman congresswoman introduced a measure that would federally decriminalize cannabis by fully deferring to state powers over prohibition and commercial regulation and regulate cannabis products like alcohol. In 2022, the bill received positive feedback from the industry and dominated the discussions during the Developments in State Cannabis Laws and Bipartisan Cannabis Reforms congressional hearing. With its bold cannabis sponsor, who will now serve as the House Oversight Subcommittee on Civil Rights and Civil Liberties chair, the States Reform Act will undoubtedly take center stage in 2023.

3. MORE Act.

Sponsored by Rep. Jerry Nadler (D-NY), the MORE Act will also be reintroduced in 2023; however, it remains to be seen how much attention the bill will receive. The MORE Act aims to decriminalize cannabis by removing the drug from the CSA and eliminating criminal penalties for anyone who manufactures, distributes or possesses cannabis. In the 117th Congress, Rep. Nadler served as the chair to the House Judiciary Committee and was able to advance his measure through the chamber with ease. But since the House majority has flipped, and Rep. Jim Jordan (R-OH) is likely to serve as the chair, getting the MORE Act to the floor for a vote may be challenging—especially given Rep. Jordan’s opposition to the cannabis sector.

The House passing the MORE Act back in 2020

4. HOPE Act.

The HOPE Act often flies under the radar, but this Republican-sponsored bill made headlines during the 117th Congress. Sponsored by Co-Chair of the Congressional Cannabis Caucus (CCC), Rep. Dave Joyce (OH), the bipartisan legislation aims to help states with expunging cannabis offenses by reducing the financial and administrative burden of such efforts through federal grants. Although it was not considered in the House, the language of the bill was heavily debated by the Senate, particularly toward the end of the year when the chamber was negotiating the final text for end-of-year must-pass packages, like the National Defense Authorization Act (NDAA), the Omnibus and the Continuing Resolution (CR). Alongside the SAFE Banking Act, the HOPE Act was one of the only cannabis bills that had a realistic chance of advancing as part of a larger legislative vehicle, so there is no question that the congressman will reintroduce the measure in the upcoming congressional session.

5. SAFE Banking Act.

And last, but certainly not least, is the most discussed cannabis bill this year: the SAFE Banking Act. The legislation aims to create a safe harbor for financial institutions to provide traditional banking services to cannabis businesses in states that have legalized the drug. It also allows cannabis businesses to access lines of credit, loans and wealth management. It has now passed in the House seven times, with bipartisan support. And although the SAFE Banking Act was debated by the House several times throughout the year, the Senate did not tackle the bill until November. By the time discussions for the bill’s language had taken off, Sen. Booker remained firm that he would only support a cannabis bill if it included criminal justice and social equity reform language. In an attempt to satisfy the senator’s demands, Majority Leader Schumer considered marrying the SAFE Banking Act and the HOPE Act as part of a larger package.

However, and much to the cannabis industry’s detriment, not only was the timeline for those bills a little too late, but Democrats were, unfortunately, unable to fix the money laundering and cash legacy concerns of Sen. Chuck Grassley (R-IA) and other Republicans.

Sen. Cory Booker (D-NJ)
Photo: Nick Fisher, Flickr

After attempting to attach the SAFE Banking Act to multiple vehicles, retiring Congressman Ed Perlmutter (D-CO), sponsor of the legislation, and Sen. Schumer were unsuccessful in getting the bill over the finish line. In a final Hail Mary, Sen. Schumer attempted to include the language to the Omnibus, but compounded with the technical assistance report from the Department of Justice (DOJ) and ongoing media flurry, he and the Democratic party yet again came up empty-handed.

The question now is: who will carry the SAFE Banking Act and Rep. Perlmutter’s legacy in 2023? Many will look toward cannabis industry champions like Reps. Joyce, Mace, Earl Blumenauer (D-OR) and Brian Mast (R-FL). However, it would be worth considering other members of the CCC and some of the incoming freshmen, particularly those from a state with legal cannabis laws. It is also entirely possible that Sen. Jeff Merkley (D-OR) finds his own sponsor to carry his companion bill in the House since he has already announced that he looks forward to working on the legislation in the upcoming year. Regardless, it is highly likely that the SAFE Banking Act will be reintroduced in 2023 and considered throughout the year.

6. Other Measures

Other measures that are likely to reappear in 2023 are the Capital Lending and Investment for Marijuana Businesses (CLIMB) Act, Veterans Equal Access Act, the GRAM Act, Common Sense Cannabis Reform for Veterans, Small Businesses and Medical Professionals Act, VA Medicinal Cannabis Research Act and the Homegrown Act. Additionally, the passage of the Medical Marijuana and Cannabidiol Research Expansion Act and the advancement of many of these federal bills have opened the gates for new legislation related to medical and recreational cannabis, research, veterans’ access, financial services, criminal justice reform and social equity, and public health and safety to emerge.

For states with legal cannabis laws, bills related to enhancing the state’s medical or medical and recreational programs, preventing industry oversaturation and price gouging, expanding licensing opportunities, criminal justice reform, youth and advertising protections and impaired driving are likely to be introduced. States where cannabis ballot measures failed will likely see those measures resurface.

The continued growth of legalization across the country is all but inevitable. In the nearer term, the industry will focus on how to remain viable in the face of high taxes and oversupply in 2023. New Congressional leadership could lead to bipartisan cannabis legalization if enough members are willing to rally behind their colleagues who are pushing for cannabis legislation. While the road is long before we will see the full impact from President Biden’s Oct. 6 announcement, the action proves those in power cannot ignore the ever-growing numbers of Americans across party lines and demographics who agree that cannabis use should be legal and regulated.

cannabis close up

The Future of Cannabis: Perspectives from Industry Leaders

By Aaron Green
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cannabis close up

With 2022 comes a new year for cannabis. Mid-term elections, political forces shifting and several cannabis-related bills in the legislature make federal legalization seem like a reality closer than ever before. On the cannabis market’s side of things, disruptions are always occurring. Consumer spending on different product categories, new technologies for extraction processes, new cannabinoid and medical research and entirely new types of products including things like nanoemulsion tech have all been playing a role in market trends.

As our readers have probably noticed, we’ve been publishing conversations with industry leaders from every corner of the market. For this piece, we wanted to do something different. Instead of showing you a conversation with one individual, we asked the same question to seven different leaders in the cannabis space during interviews. The idea here is to see what interests people most in the cannabis industry. Are they excited about new research? Or new product development trends? Or do they believe a certain market is headed in a new direction?

So, what trends are you following in the industry? Below you’ll find seven responses to that question from various leaders in the cannabis space. We also want to hear from you though. What trends are you following? Leave a comment at the bottom of the article and let us know!

What trends are you following in the cannabis industry?

Brooke Butler, VP of Partnerships at Simplifya

Butler: I am obsessed at this point with the new states that have legalized, especially on the East Coast, like New Jersey and New York. I’m interested in the local jurisdictions and what’s going on with people opting out or opting in and how that’s playing out. The interesting thing about the pandemic is we had so much more cannabis reform than anybody expected. We went fast because suddenly, jurisdictions now need more money. They have budget shortfalls that they’ve got to account for, and I think they’re starting to realize that cannabis is a great way to do that. If I’m in New York, and I don’t have an adult use store, but New Jersey is about to open all their adult use stores, everybody’s going to be driving across state lines and giving that tax revenue to New Jersey. So why not regulate it and make it safe for your constituents, and get tax revenue for your jurisdiction that you can then put to use for education, or community centers and things like that? So, we’re really seeing the evolution of that change and California is a great example of that. We’ve seen a lot of jurisdictions where when the state first legalized back in 2018, they were like, “there’s no way we’ll ever do it,” and they’ve started coming around. That for me is really exciting. I love watching people’s minds shift and trying to figure out what’s really driving that.

Arthur Jaffee, Founder & CEO of ECS Brands

Jaffee: I’m following the regulatory landscape closely. There’s a lot of confusion and complexity around that topic. There are different cannabinoid conversion procedures for delta eight now and all these other derivatives to THC have made things much more complicated from a regulatory standpoint. There’s also been an increase in production of cannabinoids from non-cannabis sources where there’s no evidence at all yet in terms of proving safety. At least with cannabis, we have decades of public use, safety and consumption data that really supports a generally safe product profile. With some of these synthetically derived cannabinoids, people just assume that “bio-identical” guarantees being safe, but there’s no evidence and therefore should absolutely not be assumed. Synthetic cannabinoids require extensive research because the slightest modification in molecular composition can be very dangerous. Evidence is key, and it just doesn’t exist yet. We know that cannabinoids that are naturally existing and derived from the plant are safe, and ultimately designed for the body. when you start manipulating the molecular composition it may be hurtful.

Ricardo Willis, CEO at Hanu Labs

Willis: Hotels and restaurants are a big thing for me. I talked to a few people last night who own a restaurant in Oklahoma, and they’ve gotten one of the first permits to be able to include cannabis offerings in their restaurant. Our products fit well in resort, hotel, or restaurant settings, especially when you want to offer customers a safer device to use. Having been a chef, I can just imagine all this food on the table and then having a vaporizer that is portable flip over on the table, ruining everything. So, I want something that’s stationary. It’s right there, as the centerpiece. Also, people are going to use cannabis in these places, like hotels no matter what. So, do I want somebody using a blowtorch to light their rig? Or do I want someone using a safe device that has automatic shut off and things of that nature. So that’s important.

Lastly, pricing is a trend that I’m following closely. We’ve seen a huge dip in the pricing in California flower. I want to see if that trend is going to matriculate over to the concentrates, which is one of my favorite spaces because I’m a dabber. I know that vape carts are losing some steam in the pricing categories. We saw one-gram carts that were $60, several months ago. Now companies are offering one-gram carts at $28. It’s going to affect the industry.

Marc Lakmaaker, SVP of Capital Markets at Audacious

Lakmaaker: I’m looking at how brands develop in markets and what kind of what products resonate. You’ve got the cannacurious coming in, you’ve got new demographics coming in. And then you’ve got the existing cannabis culture. For companies that are authentic, it’s very important to have that connection to the culture. It’s more than just about cannabis, it’s about lifestyle. But then on the other end, there’s a lot of people that are coming in for a variety of reasons, the medical, recreational, whatever. So, what I’m trying to look at is what is resonating with which target groups. What kind of products really hit this spot in terms of branding, but also the actual product offering and trying to see if we’re seeing a movement towards either form factors, or entourage effect kind of products, terpenes, etc. so you know, what do people want.

I’m seeing that increasingly, if they’re cannacurious that are coming in and get acquainted with cannabis over certain period of time, they’ll probably go for a lot of value options. But then same as with certain alcohol cool brands, or fashion or whatever, we are now seeing a movement where the people that have been in the market for six months to a year are I slowly move into the higher ends. I think that’s something that’s happening, where people who have been in cannabis for a while are now becoming more discerning in the products that they’re going for, and how do those mechanisms work.

Sam Andras, AIA, Principal of MJ12 Design Studio and Executive Vice President of Professional Services at urban-gro (Nasdaq: UGRO)

Andras: One of the most fascinating things to me about this industry is everyday there seem to be 10 new technologies.   Eventually, one of those technologies is likely to be successful. You’ve got things like grow pods, you got Agra fi, modular, rooms, modular driver, and semi. This industry is filled with trending technology. And I think one of the greatest challenges as an architect is to understand how to work with the client, to really understand their philosophy and what they’re trying to accomplish and working with their grower. It is important not to restrict a grower to one specific cultivation method, but to explore how you can design a facility that allows a client to modify a cultivation methodology down the road. Designing flexible facilities that can adapt and adopt the future technologies is critical.

Derek Smith, Executive Director of Resource Innovation Institute (RII)

Smith: So, I see the need for MSOs and certainly publicly listed companies, to report on ESG. We are essentially the “E” of the ESG. We have the environmental data on energy, emissions, water and waste, to support the MSOs with that data need. That to me is a perfect storm where there’s pressure to do the reporting and we have a tool and an infrastructure that’s broadly supported, recognized by governments, by utilities, by cultivation operations, supported by the supply chain. We’re here to help serve that need. We’re a non-profit. We’ll protect the data of the companies, and then they can get in the queue to be recognized as leaders for being part of this effort. That to me is an exciting trend right now. Everybody wants to make a commitment and show progress on sustainability and we’re going to help them be able to do that.

Tyler Williams, CTO and Founder at CSQ

Williams: I think the big one right now is the delta-8 THC, especially on the CSQ side. We’re watching that and looking at how we need to adjust our standard. On November 1, we have our next Technical Advisory Committee meeting, and we’re going to be talking about the next revisions to the standard. Delta-8 is going to be one of the things we’re going to be talking about and something that we’ve been watching and trying to educate ourselves on, because there’s not just going to be delta-8, there’s other ones that are coming on the market that are going to be, you know, essentially the same as delta-8, where they’re in this gray area. We don’t want just the government to say, “Nope, you can’t do this at all.” Hopefully we can help the industry a little bit by at least providing some standardization there. That’s probably the biggest trend that we’ve been watching.

2021 Trends: Nine Developments in California’s Cannabis Market

By Amy Steinfeld, Jack Ucciferri
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While we’re pleased to report that 2020 is almost over, 2021 will be a mixed bag. New jurisdictions will open their doors to cannabis and consumption will continue to rise, but competition from new operators and illicit supplies will increase. As California’s cannabis industry matures and turns the page on a bizarre year, market uncertainty will linger as the pandemic drags on and overtaxation and regulation strangle profits. But let’s remember, cannabis has been cultivated for over 6,000 years and has withstood far worse—this market isn’t going anywhere and will continue to grow and become more impactful.

Access to Traditional Finance Services

The U.S. Senate will likely pass legislation providing cannabis businesses access to traditional banking and financing services. This will be a game changer for the industry. Valuations will go up. Increased liquidity will smooth transactions. Companies will look to affordable debt to expand their footprints and capacity to compete on a new scale. Full federal legalization could be a game changer if 280E tax restrictions are lifted and interstate and international cannabis trade open up, but the timing of this is hard to predict.

Continued Quarantine-Induced Consumption

Cannabis consumption will continue to increase as Californians seek to ease pandemic-related stress, temper quarantine conditions, and sample an eye-popping array of new products. Sophisticated consumers will be open to spending more on unique and niche products. But hemp-derived cannabinoids may present a new source of competition, especially if CBD remains unregulated. By the end of 2021, cannabis beverages will begin to compete with mainstream alcohol categories. Pharmaceuticals will increasingly take notice of this industry and the increasing share of consumers turning to plant-based remedies.

Ever More Cultivation Opportunities 

In pursuit of revenue, agricultural counties will liberalize their policies on cannabis cultivation by permitting more acreage and streamlining permit processes. Neighborhood groups will push back, but policymaker concerns will be assuaged when they see cannabis farms operating innocuously (and sustainably) around the state. Advances in seed breeding, pest-and-disease control, outdoor growing techniques and odor abatement technology will help too.

New Retail

Cities and counties will revisit opening their borders to cannabis retail storefront and delivery as they attempt to fill budget gaps. Many cities will allow cannabis retail for the first time and/or expand the number of licenses available. These new dispensaries will provide a much-needed outlet for the influx of licensed flower and will continue to spur innovation and consumer education. But a “second wave” of retail speculators seems poised to let optimism override judgement, setting themselves up for failure or acquisition by incumbents.

Getting Social Equity Right

2021 will be a pivotal year for social equity, which will establish a foundation for a just cannabis economy. The industry will have to grapple with how to ensure that those most impacted by the criminalization of cannabis and most often excluded from traditional financing exposure are provided with equitable access to meaningful opportunities. As California’s regulated cannabis market grows, getting social equity right will be important if the industry is to firmly establish itself as an inclusive industry that addresses impacts on marginalized communities and responds to customer demands.

Formalizing Appellations  

California’s new CalCannabis Appellations Program will provide cultivators and brands a way to credibly market the value of their unique growing regions and cultivation methods. These distinctions only apply to cannabis planted in the ground, excluding greenhouse and warehouse grows. The expectation is that high-end consumers, trained to recognize place-based designations and quality certifications in other products, will reward products that boast these designations. How many consumers will be willing to pay the premium and how long full implementation of the program will take, remains to be seen.

Prices May Begin to Drop

2020 was a great year for the few fully licensed cultivators in California permitted to sell to the regulated market. 2021 may be different. Numerous licensed cultivation projects will complete the permitting processes and come online next year. While growing demand may outpace supply at first, by Q3 supplies could swamp the market. Premium flower is perhaps an exception. Adding to the pricing pain, as always, is California’s illicit market, which will continue to undercut prices, as legal growers toil to comply with a labyrinth of state and local regulations. Nonetheless, cannabis will remain the most profitable crop on a per acre basis for some time.

Business Turmoil

The drop in prices coupled with continued high taxes and regulatory burdens will result in turnover of assets and businesses. Less efficient and inexperienced cultivators will struggle, many unable to ultimately withstand pricing pressure. Others will be hit by enforcement actions for failing to comply with California’s myriad regulations. Retailers, already burdened by punitive tax structures, real estate finance commitments and onerous local regulations, will need to be disciplined and have a clear strategy to address new competition.

Consolidation

Driven by business failures and renewed investor interest, California’s regulated cannabis industry may consolidate rapidly in the second half of 2021. Institutional finance will enter the space with a much more disciplined approach than prior capital sources. Traditional agricultural interests will invest in cannabis cultivation projects. Well-run retail chains will begin to outcompete, and then acquire, mom-and-pop competitors. Big brands will continue to expand their shelf space, relegating smaller competitors to niche and novelty status.

In short, the cannabis industry will continue to be highly dynamic, exciting, enticing and risky.

Congress Passes Budget With Protections for Medical Cannabis

By Aaron G. Biros
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On May 1st, Congress reached a bipartisan deal to keep the government open and funded through September 30th, 2017. Congress approved the appropriations bill that sets the government’s spending with an important section in it relating to cannabis. Section 537 on page 230 states that the Department of Justice cannot use funds to interfere with states’ legal medical cannabis programs.

The bill uses similar language to The Rohrabacher–Farr amendment, a bill that was originally introduced in 2013 to prevent the Department of Justice from spending money on enforcing the Controlled Substances Act in states with legal medical cannabis programs. This new appropriations bill, with the language in section 537, effectively achieves the same thing. “None of the funds made available in this Act to the Department of Justice may be used, with respect to any of the States of… to prevent any of them from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana,” reads the bill. The language includes a mention of the 40 or so states and territories with some form of medical cannabis program, legislation or bill.

The language of section 537 (second half)

This means that Attorney General Jeff Sessions is relatively powerless to go on a sort of ‘crackdown’ on medical cannabis programs. Given Sessions’ previous comments and general views on cannabis, this should put cannabis industry stakeholders at ease for the time being. Of course, this budget is only for the 2017 fiscal year, so come September, the same or similar language needs to be included in the next appropriations bill. With Jeff Sessions’ task force still investigating federal cannabis policy, it is still very possible we could get a clear policy decision in the near future.

“We are encouraged that the Federal Government and NIDA are recognizing the true and powerful medical benefits that cannabis provides, especially in the war against devastating opiate-based drug addiction, abuse and death,” says Sally Vander Veer, President of Medicine Man Denver. “We have seen anecdotal evidence of this as reported by our patients/customers (and the beneficial effects of cannabis in numerous other conditions) since we opened our doors in 2010. Our hope is that this acknowledgment will open the door to additional research, eventually leading to legal and safe access to cannabis medicine for all Americans.”

The following section also includes a protection of industrial hemp research, as defined in the Agricultural Act of 2014, which basically means universities and institutions can research it. SEC. 538. “None of the funds made available by this Act may be used in contravention of section 7606 (‘‘Legitimacy of Industrial Hemp Research’’) of the Agricultural Act of 2014 (Public Law 113–79) by the Department of Justice or the Drug Enforcement Administration.” With all of the uncertainty and inconsistent comments coming out of the Trump administration, at least we have a sense of security in the medical cannabis community through the summer.