For anybody who thought the cannabis industry was going to be getting less complicated as time went by, I have bad news for you.
Cannabis, already with a complicated mess of regulatory concerns and financial challenges, appears no closer to federal reform than we were 10 years ago — but now with the added complexity of hemp being federally legal and allowing a largely unregulated industry to thrive right alongside the medical and adult-use marijuana industry. Obviously, the explosion of hemp-derived products is nothing new, but I think many of us believed that by now there would be some sort of clarity from the federal government or some state regulatory actions that drew the battle lines in the sand.
Instead, we’re seeing the companies that invested so heavily in the marijuana space now rushing headlong into hemp, either because the opportunity is too big to ignore, because the lack of regulations is too enticing or because the fear of falling behind has spurred them into action. The idea of running a federally illegal business in a single highly regulated state no longer feels complicated. Running a federally illegal business in multiple states with substantially different regulations in each one, alongside a federally legal business that relies on e-commerce and mainstream retail relationships and competes with every gas station, bodega and smoke shop in the country — now that’s a complicated business.
Nobody should be listening to me for advice on how to run a successful cannabis business, but I’ve watched over the years as hundreds, if not thousands, of companies have failed in this industry. And my advice is mostly the same as I’ve been saying for years: Choose your partners wisely. And when I say partners, I mean the lawyers and accountants and various other professionals that are crucial to managing a growing business.
I recently interviewed two lawyers in very different realms of the legal cannabis industry. Craig Small, of Clark Hill, is one of the most experienced attorneys in the country when it comes to the business side of cannabis. His Colorado practice started shifting its focus toward the medical marijuana industry about 17 years ago.
Meanwhile, Conner Reeves, of McLaughlin, PC, is based in Mississippi and watching one of the country’s newest medical marijuana programs take shape, while also contending with the burgeoning market for hemp-derived products.
You can read my full interviews with these two lawyers online at MarijuanaVenture.com, but I wanted to share a few of their thoughts here.
Small says there are two main pieces of advice he delivers to every client. The first is to remember that this is still a high-risk industry.
“We’ve all gotten comfortable with the federal illegality of marijuana,” he says, “but just because you are comfortable with buying and selling marijuana on the state level, you cannot ignore the federal illegality of it.”
His second piece of advice is that the days of stupid money and astronomical growth are gone.
“This is no longer the green rush, where you’ll make so much money you can buy your way out of problems,” he says. “Those days have been over for many, many years. And now, the level of sophistication of business owners is so high that they’re doing what capitalism is designed to do: create a higher quality product for a lower cost. The margins are getting smaller and smaller. The industry is getting harder and harder.”
Although many people, even within the industry, don’t realize Mississippi legalized medical marijuana, the state is an interesting microcosm of the industry at large, with licensed medical marijuana companies following extensive rules and only selling to card-holding patients, while hemp-derived products are sold practically everywhere to everyone, without the same lab testing requirements or other regulations.
For the average consumer, “it’s confusing,” Reeves says. “Is this part of a medical program that we just passed or is it something else?”
Lawmakers have attempted to implement regulations on hemp-derived products, but so far have failed to pass any legislation.
“So we’re back to where we were, which is no regulation over hemp-derived cannabis products or THC beverages,” Reeves says. “It’s kind of the wild west in Mississippi right now.”
This might be great for consumers and certainly has some benefits of normalizing cannabis and improving access, but there’s no doubt it’s detrimental to the companies that “did it the right way” by getting a license and dealing with all the red tape. I can’t help but wonder what this means for the future of cannabis retail. Will the dispensary model ultimately survive or will products eventually be sold in grocery stores and convenience stores?
Reeves wonders the same thing.
“I think you’re going to start seeing a lot of major players wanting to participate in a national, adult-use program,” he says. “Not necessarily Amazon, but Walgreen, CVS and other major retailers could be interested in participating on the retail side, and then you’ve got businesses that can utilize their channels to make products at scale and distribute them like they do other products already. I think you’re going to see pressure because those national players are already in D.C.”
In other words, there’s not much relief in sight for cannabis being one of the most complicated businesses in the country.
Garrett Rudolph
Editor