legal cannabis | Nesteggg Accounting

Marijuana Industry Recession Proof?

Could the marijuana industry be essential?

We all know grocery stores are open – because, well, everyone has to eat. And with the orders to social distance all over the country in place, states do have some leverage when considering what essential business looks like.

Even as grocery stores have stayed open to feed us, businesses like gas stations, convenience stores, and even home improvement stores remain open in some locations, though with now limited hours.

But what of marijuana dispensaries? California and Colorado as of this writing have deemed them essential, along with liquor stores. Some states, like Michigan, have allowed the continuation of medical sales only.

After the initial stay at home orders began coming down cannabis sales spiked. But with limited hours and more people unemployed sales began to dip a few days later.

But even with the downturn some analysts in the industry predict that marijuana, like alcohol, will remain somewhat recession-proof. With record high unemployment all industries will invariably see negative impacts. Whether benefit from the CARES Act recently passed that will infuse money into the economy will trickle down to the cannabis industry is to be seen.

Could Legalization Be That Easy?

Many presidential candidates have floated opinions about the legalization of cannabis. Many, like Independent candidate Lincoln Chafee, favor and end to the “war on drugs”, or like Democratic candidate Pete Buttigieg, tie legalization to criminal justice reform.

Could an executive order legalize cannabis?

Recently, Democratic candidate Bernie Sanders’ campaign floated several ideas for executive orders that might be undertaken on “Day One” of his presidency should he be elected. Among them is an order to direct the Justice Department to legalize marijuana.

The idea is deceptively simple, and probably a longer process than a stroke of a pen. What a President can do is instruct his Attorney General, by executive order, to begin the process of removing marijuana from Schedule 1. His Attorney General would then undertake the process of rescheduling cannabis which would, no doubt, include months of research, committees, and testimony by all sides of the issue.

Sanders, should he be elected, might take a course of action much like the Obama Administration’s stance. Rather than attempting to directly legalize, it effectively decriminalized marijuana use in states where it was legal by directing his Justice Department to de-prioritize pursuit of cannabis users. Since executive orders only direct the Federal government they are limited to effecting change in those government bodies. So, while a de-prioritization tack would affect the cannabis industry in states where it has been legalized, it couldn’t stop states and municipalities from enforcing their current laws.

California Overrides Controversial 280E

On January 1, 2020 AB37 went into effect in California. It allows legal cannabis companies to essentially be treated like other businesses – for tax purposes and only with the Franchise Tax Board. Since businesses will still have to file federal tax returns and pay taxes to the US Treasury, the law essentially requires two completely different tax filings. And the new rules are only in effect until 2025.

A small boost to California legal cannabis

Section 280E has largely been seen as punitive to the cannabis industry, putting it in the same category with mobsters and the illegal drug trade.

There have been challenges to 280E in US tax court but thus far none have been successful. The industry continues to fight the law and hopes for an eventual constitutional challenge.

Learn more in this article on the status of Section 280E and how California has passed Law AB37 to override the provision.

California Cannabis Industry May See New Regulations

Inside Governor Gavin Newsom’s budget proposal released January 10 are a few proposals that would affect the cannabis industry’s regulation and taxation structure.

With the aim of simplifying the regulatory burden those who enter the legal cannabis industry in California find themselves under, the Administration plans to consolidate the three licensing entities that are currently housed at — the Bureau of Cannabis Control, the Department of Food and Agriculture, and the Department of Public Health — into a single Department of Cannabis Control by July 2021. The hope is that a standalone department will help build a more successful legal cannabis market.

Proposed changes in Newsom’s budget intend to the move the responsibility for the cultivation excise tax from the final distributor to the first, and for the retail excise tax from the distributor to the retailer. Moving the incidence of this tax to the retailer will eliminate CDTFA’s requirement to estimate product mark-up and set wholesale tax rates. The proposed changes would simplify the tax collection burden. The Administration plans to release more detail later in the year.

Newsom’s Administration, in consultation with the industry and stakeholders, says it will consider other changes to the existing cannabis tax structure, including the number of taxes and tax rates to simplify the system and to support a stronger, safer legal cannabis market.

Make Good

Back in August, online marijuana advertising giant Weedmaps pledged to stop advertising unlicensed cannabis shops and now apparently, as of the beginning of the year they have expunged some 2,700 unlicensed shops from their site. A boon to licensed operators who put in the time, effort, and capitol to become part of the legal market. Unlicensed shops do not pay for a license, or state and local excise tax, thus not passing those costs along to their customers. This pricing undercut has been a problem for licensed dispensaries state-wide.

Loopholes remain however in Weedmaps filtering system. Apparently, the company only requires a listing report the license number or the operator sign an agreement stating the shop sells only CBD products. Weedmaps currently does not have a mechanism to verify the validity of a license number or check a shops offerings.

Remaining on the site as of the beginning of January were nearly double the amount of listings as the number of licensed cannabis shops in California. Even still, some cannabis retailers say they have noticed an uptick in sales since the beginning of the year.

Illinois Cannabis Boom?

In it’s first full week of legalized cannabis sales several recreational cannabis dispensaries in Illinois were closed Monday. Some dispensary owners saying strong demand has caused a shortage in supplies and led to staff exhaustion. But other speculation was that there was a shortage of state-approved employees.

Illinois begins legal sale of cannabis Jan. 1, 2020

The legal sale of recreational cannabis began Jan. 1 in Illinois, with customers spending about $3.2 million on the first day and more than $10.8 million over five days. By comparison, Michigan, which made recreational marijuana legal on Dec. 1, generated $3.1 million in the first two weeks of sales.

Illinois had allowed medical sales of marijuana since 2014 and essentially decriminalized marijuana possession in 2016.

What states will legalize cannabis in 2020?

Illinois: Democratic Governor JB Pritzker granted more than 11,000 pardons for low-level marijuana convictions on Tuesday, ahead of the state’s official legalization — which the Legislature passed in June — effective on Wednesday.

Illinois is now the second state in the Midwest, following Michigan in 2018, to legalize recreational marijuana sales and use.

Florida: Make It Legal Florida, a political committee, is behind a proposal to legalize recreational marijuana in the state. According to polling, over 65 percent of Florida voters “want to have expanded access to cannabis for 21 and over.”

As of Tuesday, the state had verified 219,290 signed petitions from Make It Legal — just 28% of the total signatures needed by the February 1 deadline.

Minnesota: Democrats in the state are preparing marijuana legislation, the Minneapolis Star Tribune reports. House Majority leader Ryan Winkler (D) has been touring the state on the issue in an effort to ready a bill for the state’s session in February.

The Republican-controlled Senate, however, poses steep odds, as key conservative leaders remain opposed to legalization.

New York: Last year ‘s efforts to legalize cannabis failed. But Governor Cuomo is continuing on a pro-legalization path in 2020.

New Jersey: The state will vote on legalization of recreational marijuana in November, 2020. If the measure passes, New Jersey residents 21 and older will be allowed to use pot recreationally. All sales of cannabis products would be subject to a 6.625% sales tax.

Virginia: Attorney General Mark Herring has called for the “immediate decriminalization” of possession of small amounts of marijuana, and hosted a Cannabis Summit in December to educate state leaders on what steps need to be taken to accomplish that goal.

One piece of marijuana legislation that has been filed for the state’s 2020 session, SB 2, would decriminalize marijuana possession, and would raise the amount needed to be charged with distribution to one ounce versus half-an-ounce. The bill would also allow people to petition to expunge their convictions.

What about federalization?

It all comes down to the proposed banking bill. Lawmakers introduced the Secure and Fair Enforcement (SAFE) Banking Act, which would protect banks who partner with cannabis businesses. Once this business hurdle is jumped then the idea is that federal legalization is not far behind. But the Senate still has not, as of this writing, put the vote on the bill on their calendar.