Is the Cannabis Industry Sick? 5 Challenges Marijuana Businesses Face

During the shelter-at-home regulations to prevent the spread of the coronavirus, many reports came out about how local governments are addressing the needs of cannabis consumers by allowing medical cannabis dispensaries to remain open. Though many states and the federal government are still lukewarm to marijuana legalization, 29 states and the District of Columbia have acknowledged that cannabis businesses are “essential.” This alone was an achievement for those lobbying for adult-use recreational marijuana at the state level and legalized medical marijuana at the federal level.

But while this gave patients easy access to much-needed medical cannabis for pain relief, through home delivery and curbside pickup services, it begs further assessment of how cannabis businesses are really faring during the pandemic. They may look like they’re making a lot of revenue, and thus likely to be on an upward path, but cannabis businesses are facing the following realities that might affect their long-term operations.

Cannabis businesses can’t use traditional banks.

Companies associated with marijuana production, supply, and distribution are not allowed to use mainstream banking channels to transact. The federal government still see marijuana use as a criminal offense, and federally regulated banks can’t do business with industries viewed as “criminal.” Banks don’t transact even with state-licensed cannabis companies because of the risk of being charged with money laundering or assisting a federal crime. A bill was passed last year in California to allow private banks and credit unions to handle financial transactions with cannabis businesses, but it has not progressed into law yet.

Cannabis companies have to handle financial transactions in cash, except in some states.

Some medical marijuana dispensaries, like those in Arizona, have turned to fintech startups to allow digital payments for cannabis purchases. The state has a program that invites these companies to test their systems while waiting for a license. But that covers the payment part only. Cannabis businesses are still forced to transact in cash and use non-bank storage, which makes them a potential target of criminals. Without the benefit of banking paperwork, cannabis companies also have to watch and record their cash flow manually — a stressful task for a business owner.

Cannabis businesses are not eligible to receive federal stimulus funds.

Although cannabis companies are deemed essential and legal in many states, they were not included in the federal COVID-19 stimulus funds, like the CARES Act and the Paycheck Protection Program. Some legislators recognized this gray area in the state-licensed marijuana companies’ federal status and introduced a bill. The Emergency Cannabis Small Business Health and Safety Act will enable direct and indirect marijuana businesses to take out loans to sustain operations.

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Class suits against cannabis businesses are rising.

Due to the veiled nature of business operations, the commercial cannabis industry has had to deal with unusual transactions within its fold. A Marijuana Business Daily article reports that class action lawsuits are rising against marijuana businesses, and there are no signs that it will let up soon. A lot of the cases involved short-selling, in which the companies failed to disclose vital information about their business’s investment potential.

If they were to be involved in a lawsuit, hiring a commercial litigation legal counsel and court time could deplete marijuana businesses’ revenue faster than they could earn it. Industry experts and financial consultants recommend that cannabis businesses should be more upfront with their financial and investment status to avoid these cases. A ban on short-selling as an investment strategy has been in the works in many states, too.

Cannabis businesses are losing out to the black market.

This is actually old news. The black market has been leading the sales of marijuana products since last year. An article published in California Globe estimated marijuana sales in California, the first state to legalize medical cannabis, to reach $12 billion in 2019. But only $3 billion is expected to come from legal means. One of the reasons for this is the high marijuana tax. Without taxes to pay, black-market suppliers can afford to sell the stuff at lower than legal prices. With many of them growing the weed themselves, they also offer buyers more variety and stronger strains.

With all these problems and challenges, the cannabis industry in the U.S. is sick today. And that doesn’t even involve the coronavirus. Cannabis businesses have taken care of patients in need of weed during the lockdown; maybe it’s time the country takes care of them.

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