Many a tea leaf will be read regarding the presidential election of Donald Trump with respect to cannabis. The executive branch possesses broad authority over cannabis, including the ability to liberalize it through descheduling, or to guide DEA enforcement in a harsher direction. The president has pledged to remain unpredictable, and taking him at his word, I will not attempt to prognosticate on the policy of the new administration or Senator Jeff Sessions, Trump’s choice to lead the Department of Justice.
What I will argue is that the new president’s outlook on cannabis can no longer be informed exclusively by oppositional propaganda, discussions about the safety of children (and the public in general) or state’s rights issues. Now there’s something much more serious on the line: his friends’ money (the author is aware this statement assumes the president has friends). Or to be more specific, Wall Street’s money.
On Dec. 1, 2016, Innovative Industrial Properties went public. The company’s initial public offering (IPO) is noteworthy because it is the first publicly traded non-pharma company tied to cannabis, which is to say that the Federal Securities and Exchange Commission is aware of and at least tacitly approved its application to list on a registered stock exchange.
The company’s IPO was neither wildly successful nor a total failure. Its average performance is likely due to its business model, which essentially revolves around real estate investment for cannabis companies. However, the offering’s significance should not be overlooked.
Many in the cannabis industry — particularly those concerned with activism — spurn the hypothetical advances of big business into Washington state’s cannabis market. The state Liquor and Cannabis Board set up a system that renders public trading on the floor of the New York Stock Exchange a functional impossibility for cannabis businesses. Plus, successful business owners attain a higher profile and find themselves subject to greater scrutiny from both regulators and consumers alike. In short, Washington’s cannabis market isn’t exactly what one might call a pro-business environment.
Yet, to predict the future, our newly elected president looks to have a much more pro-business streak than his campaign might otherwise suggest. One might reasonably expect that a real estate developer from New York might have some fairly favorable leanings toward Wall Street, and his cabinet picks would seem to undermine much of the protectionist rhetoric preceding the election.
IPOs, usually a strong driver of market growth, have not been as profitable in recent years. According to the Wall Street Journal, IPOs were at their lowest level since 2009. Ultimately, fewer public offerings mean fewer profitable opportunities for those on Wall Street. IPOs — and a lack thereof — have a direct impact on those who make their living on Wall Street.
At the same time, cannabis is a growing industry. According to one market research firm, North Americans spent more than $53 billion on cannabis in 2016. The firm estimates a staggering 87% of this figure represents illegal income. The men and women on Wall Street are paid to find opportunities to exploit, and if they aren’t racking their brains on a way to move some of that $53 billion into the market through an IPO, then they aren’t doing their jobs.
So, to recap: one of the main sources of profit for Wall Street is at its lowest level since the Great Recession; there is probably more than $50 billion in demand for a federally illegal product on the cusp of legitimacy, the profits from which are not merely untaxed, but also inaccessible through the public market; and America may have just elected the most pro-Wall Street president since Herbert Hoover in 1929.
It may be the case that the president sees political opportunity in a regime of strict enforcement against cannabis. It may be that the DEA has already launched a puritanical crusade by the time this article reaches publication. The Supreme Court could strike down our law on an action brought by the Sessions Justice Department before the year is out.
However, to the extent that several state experiments are allowed to continue unmolested, the legalization movement may well have Wall Street to thank. Forget Bootleggers and Baptists; Innovative Industrial Properties may have unintentionally coupled two of the strangest bedfellows yet in the cannabis experiment — legalization advocates and hedge fund managers. Now we’ll see how well they work together.
Sean Badgley is the founder and managing partner of C3 Law Group PLLC, which specializes in representing clients in cannabis compliance matters. C3 Law Group focuses on corporate compliance, transactional assistance and both civil and administrative litigation in the cannabis area. In addition to his work as an attorney, Sean is an advocate for cannabis legalization and is a paid speaker for pro-legalization causes. He can be reached at firstname.lastname@example.org.[contextly_auto_sidebar]