The Buzz At CannaVest West – Cannabis & Hemp

Happy New Year and welcome back as The Blunt Truth begins its
seventh year of publication.

Last month I was on a panel at CannaVest West, the cannabis
business summit held in San Francisco.  This was held in the
days just before the Omicron variant dominated the news, so was
reasonably well attended by industry professionals.  I would
like to share with you some of the buzz from the conference.

Federal legislation 
legalizing or de-scheduling cannabis is not in the immediate
future.  For some time now, industry leaders have
been saying publicly that federal legislation is just around the
corner.  Well, it’s not, and those in the industry have
come to recognize this.  So, what does this mean?  It
means that cannabis business will still be conducted on a state by
state basis while some members of Congress continue to advocate for
federal legalization or decriminalization of cannabis.

The same is true for cannabis banking
legislation.  In September, the House passed a
version of the National Defense Authorization Act for Fiscal Year
2022 which included the SAFE Banking Act, which would have provided
safe harbors for certain types of cannabis banking services. 
The Senate, however, removed the SAFE Banking Act from the defense
bill shortly before passing it, marking the fifth failed attempt to
pass this legislation.  While over 650 financial institutions
provide some services to the cannabis industry, widespread national
banking for the industry is still on hold and not likely to pass in
2022.

Section 280E of the Internal Revenue Code will continue
as a very unpleasant fact of life.   Section
280E denies cannabis businesses deductions for ordinary, necessary
and reasonable business expenses, effectively turning what should
be a net income tax into a gross income tax.  Surprisingly,
many cannabis business owners are still unaware of, or otherwise
choose to ignore, the impact of section 280E and find themselves
with hundreds of thousands, or even millions of dollars in tax
liability, interest and penalties.

Multi-state operators (MSOs) will be very active in
M&A in the coming year.  Partially as a result of
no federal legalization of marijuana, and partially to satisfy
shareholder demands, MSOs will continue to grow in 2022, in most
cases through M&A activity.  The leading target? 
Single state operators.  MSOs will look to increase their
footprints as more states implement state legalization of cannabis
and/or open up licenses to out of state interests.  One
pitfall for single state operators and others looking to be
acquired–failure to comply with 280E.

The timeline from legalization to implementation is
misunderstood.  After a state legalizes marijuana,
businesses gear up, real estate brokers start identifying
properties, investors start looking for opportunities….and
then they wait, and wait, and wait.  What are they waiting
for?  They are waiting for state agencies to stop fighting
amongst themselves for the opportunity to regulate and tax
marijuana, lawsuits alleging unfair licensing criteria to resolve
themselves and finally, regulations to be written that contain the
details of how cannabis businesses will get licensed and
operate.  The waiting time?  A minimum of one year,
sometimes two or three.  Each state has its own laws, its own
way of operating and it takes time to work out the politics and the
regulatory issues and “improve” on what other states
have done.  The one state that’s the exception that
proves this rule?  Arizona – the adult-use ballot
initiative passed in November 2020, and sales began in January
2021.

Globalization of the Cannabis Industry. 
There has been and will continue to be a strong increase in the
globalization of the cannabis industry.  For the US, this
means both inbound and outbound transactions will increase. 
Ever since Canada legalized cannabis, US companies have gone public
on Canadian stock exchanges.  More recently, there have been
acquisitions involving several different countries including Israel
and Colombia.  Investors from Eastern Europe and Asia are
actively looking at acquisitions in the US cannabis industry, both
non-plant touching and plant touching companies.  A number of
US cannabis companies are looking at acquisition targets in
different countries to be able to take advantage of international
sales.   Mexico has been attempting to legalize adult use
cannabis and may do it in 2022.  Europe remains a big
question.  Will European countries (other than Luxembourg and
Malta) legalize adult use and open their cannabis industries to
international investment or will European countries adopt more of a
pharma approach with medical marijuana becoming available in
pharmacies as part of a national health system?

The Swag.  Exhibitors–you need to
step up your game!  We all have enough logo pens!

Once again, CannaVest West was a good opportunity for serious
industry professionals to exchange ideas and renew acquaintances in
person.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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