Are We At The Doorstep of Federal Marijuana Legalization?

January 3, 2020 Cannabis Business, Legalization

It is now almost one month since a major step was taken in the federal legalization of marijuana.

The House Judiciary Committee approved a bill that would remove cannabis from Schedule 1 of the Controlled Substances Act, effectively legalizing it at the federal level. 

While this bill still has a way to go before it’s passed, the announcement of this decision was met with a spike in the stock market prices in the cannabis sector just the day after

It’s also important to note that this shows America’s change of heart (albeit slow) on the matter of legalizing cannabis, and that’s exciting. The reality is that the way that cannabis businesses are handled in the legal space has an impact on the ethos of your city, your state, and ultimately the country towards cannabis products and businesses. That has, in turn, an impact on the priorities of the American public, and how they will vote this coming election.

What The Upcoming Election Means for Cannabis Legalization

That brings us to the next point: the election. The more that this becomes a talking-point for the public, the more it will become a serious matter on the agenda of any candidate. Given that we have a year of elections to go, it’s likely that the bill will take its time in going through (fingers crossed). 

While approval was won in the House Judiciary Committee, it will have to move on to the Democrat-controlled House of Representatives, then ultimately to the Republican-controlled Senate. 

The bill will have to ultimately win bi-partisan approval, it goes without saying. And given the unexpected trend that state-level pot legalization has followed, a strong case is being made for this being a non-partisan issue. So while the federal legalization of marijuana is far from being a done deal, there’s certainly reason to hope and celebrate any wins along the way.

So what does that mean for you, the cannabis cultivator, producer, marijuana dispensary, or distributor?

Just this minute, it doesn’t have any drastic impact on the day-to-day running of your business. You’ll still be subjected to the regulations, quotas, and any other laws that your state has passed concerning cannabis businesses. 

In the meantime, here are a few ways that you will start feeling a change in the financial realm of your cannabis business as the legalization process of marijuana moves forward:

1. Cannabis Tax Law Repeal Attempts

Currently, any business that directly handles cannabis products is subject to the 280E tax code, along with all other businesses selling products that fall under the category of Schedule I Controlled Substances Act.

Taking a step back, 280E states that you cannot declare the expenses of your cannabis business for tax deductibles. While there are ways of minimizing the effects of 280E on your cannabis business in a way that’s fully-compliant, there’s no getting around it when it comes to expenses directly having to do with cannabis. If you’re not sure how to wade through IRC 280E, find a financial advisor that specializes in cannabis laws to help you through it.  

Recently, a well-known case was brought to the US Tax Court challenging section 280E. Admittedly, this did not go as well as we had hoped. But while the unfortunate ruling was to maintain the status quo, change may still come.

True, some expert CPAs strongly advise contesting 280E in the Tax Court again, it is a hope that the law will be changed in alignment with greater policy changes regarding the cannabis industry. From the inside out, so to speak. 

2. Increased Stock Market Value and Cash Flow for Cannabis Businesses

Whether you are a large corporation with shares in the stock market, or you are a small, local shop, the value of cannabis stock prices affect your business.

Consider the issue of cash flow that’s so prevalent in cannabis industry. Part of that is the difficulty in finding investors to give you the cash to start out with. Frankly, many VC firms and angel investment groups stay away from the cannabis industry, no matter how good the product or pristine the business plan

However, as the stock market value of cannabis businesses experiences a general upswing, serious investors will be more likely to welcome cannabis businesses into their portfolio. This comes back to the ethos of the public when it comes to its view of the cannabis industry. Is it just a risky, regulation-riddled industry that will never make it out of the harbor, or is it an exciting space, filled with knowledgeable innovators who are looking to make a lasting change in the medical, pharmaceutical, and recreational markets?

3. Increased Cannabis Sales

Going back to the question of the public opinion of marijuana having an effect on the national discourse, the more that marijuana products are legitimized in the eyes of the public, the more they’ll want to try them. The more that people try, say, cannabis oil, aka, CBD oil, and find an upgrade in their lifestyles, the more they will become regular customers.

It’s no news to you that cannabis products are important—both in the medical and recreational sense. You know what they say about medical cannabis and CBD oil benefits. It’s also no news to you that cannabis has a stigma attached to it, which, frankly, may never change for some. That’s fine. But for those who have enjoyed the positive effects of CBD-derived products, those consumers are likely to become devoted customers once the legal and communal attitude towards the industry changes.

Not only that, but other neighborhood businesses will be more likely to engage with your business, as well—be it in the realm of a joint venture or any other mutually-beneficial partnerships.

This can begin to affect municipal and state legislations on cannabis, as well. 

Becoming a mainstay in the local economic pool means that local officials will see the legitimate need of changing the way they look at cannabis startups. That could result in the easing up of regulations like cannabis retailer quotas. That would change the market markedly, allowing it to become more competitive than ever before. 

We may not be at the doorstep. But at least we’re at the gate.

With all of the ups and downs that the cannabis industry has experienced, a lot is at stake with regard to this legalization bill. The good news is that a lot can change by the time that big day comes round. That change starts with your own neighborhood. Be proud of your business, lead it in a way that’s compliant and ethical. Get on good terms with your banks, neighboring businesses and municipal and state officials. The change the industry needs can actually start with you. 

Keep it up!

Struggling to keep up with all the regulations and cash flow challenges? Call us for a free consultation+1.424.274.3188