Marijuana Related Business (MRB) means any business that grows, produces, processes, distributes, transports, imports or sells marijuana or marijuana products. Many states in the US have classified marijuana businesses as an essential service under COVID-19 either for medical or recreational purposes. Marijuana related business have increased from May 2016 to February 2020 by 367% as 33 states have legalized the use of cannabis.
There are about 16,979 entities in 36 states with 31,357 licenses in the United States. The licenses are classified into dispensary, producer, wholesaler, retail and service provider. Majority of licenses are issued and located mainly in five states including:
- California: 39% of licenses and 27% of entities
- Oklahoma: 15% of licenses and 23% of entities
- Oregon: 10% of licenses and 14% of entities
- Washington: 10% of licenses and 12% of entities
- Colorado: 17% of licenses and 11% of entities
(Note: Sales data for Sunday, April 12, 2020 (Easter Sunday) and Saturday, April 18, 2020 (4/20 holiday in 2019) were omitted. Easter Sunday and 4/20 each fall on a different date in 2019, meaning any comparison of daily sales between dates would be unsound. Source: Headset)
Adult-use cannabis sales in California, Colorado, Nevada and Washington State are affected by economic fallout due to the coronavirus pandemic.
According to data from Headset, Adult-use cannabis sales from April 15 to April 17, 2020 were down as compared to the same days in 2019 in Washington State and California. Sales for April 19, 2020 increased by 87% in Washington State and 59% in California against the same day in 2019.
Adult-use cannabis sales from April 15 to April 17, 2020 were down as compared to the same days in 2019 in Nevada and Colorado also. Sales for April 19, 2020 increased against the same day in 2019 in Nevada and Colorado.
Overview of Marijuana Law in the US
Marijuana is federally illegal, however legal for medical use in 33 states and for recreational use in 11 states. California considers cannabis retail outlets as essential and Massachusetts & New York consider medical marijuana as essential. Illinois considers cannabis dispensaries and cultivation facilities as essential. At the federal level, marijuana is a schedule I controlled substance and can be punished for engaging in activity related to marijuana. Ancillary businesses can be accountable for assisting in money laundering. There is restriction on use of allotted funds in that fiscal year to litigate against state compliant medical businesses. Department of Justice (DOJ) has not litigated against state compliant marijuana business.
Marijuana Related Business Eligible for “The Coronavirus Aid, Relief, and Economic Security (CARES) Act”
The Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2.2 trillion stimulus package restricts businesses involved in cannabis-related activity from getting any small business loans. Small Business Administration (SBA) states that marijuana related business are not qualified for paycheck protection program loan as it is illegal according to federal law. Marijuana related business is not qualified for Small Business Administration financial assistance.
Let us discuss types of marijuana business
- Direct Marijuana Business: grows, produces, processes, distributes or sells marijuana or marijuana products.
- Indirect Marijuana Business: derives revenue for the previous year from sales to direct marijuana businesses, which supports the development and improvement of marijuana.
“The Coronavirus Aid, Relief, and Economic Security (CARES) Act”
Members of Congress are making efforts to include marijuana industry in coronavirus relief. A letter was signed by 34 members of Congress seeking inclusion of marijuana industry in federal relief packages. The Marijuana industry has 240,000 workers and created about $2 billion in tax revenue in 2019. The Marijuana industry has been considered as essential during COVID -19 in many states in the United States.
State Reform Efforts Delayed
COVID- 19 has postponed Cannabis legalization in many states in the United States. The State Reform Efforts have been delayed due to shut down and social distancing. States including Arizona, Montana, Missouri and Nebraska have suspended efforts to gather signatures to legalize marijuana. COVID-19 has delayed New York’s efforts to legalize cannabis through the legislature. The reform advocates are making efforts to get legal consent for e-signatures campaigns.
Let us look at the future of marijuana
- COVID-19 is a short term hindrance to the state and federal reform efforts.
- Alcohol prohibition lifted in 1933 to generate revenue during the depression. There is economic pressure due to COVID-19 to look for new sources of revenue. Marijuana is a major contributor to the US Economy.
- Discussion regarding Marijuana eligibility for The Coronavirus Aid, Relief, and Economic Security (CARES) Act and if considered as “essential business”.
Financial institutions approaching Marijuana Related Businesses (MRB):
The Survey received responses from 60 US based compliance professionals from different levels of seniority from National Banks (26%), Regional Banks (28%), International Banks (18%) and other financial institutions (28%). Survey included questions regarding: Views on the regulatory environment, procedures of the institutions and screening methods. 63% responded to the survey that they do not facilitate transactions that include proceeds from US marijuana sales and 5% responded that they do so without any constraint. 26% responded that implemented FinCEN’s guidance and 23% responded that they have no policies at all. 53% responded that they have internal mechanisms for screening and 27% responded that they do not have an effective tool for screening.
The Cannabis industry is expanding at a fast pace and has generated billions of dollars of revenues in the United States. The US Cannabis industry is valued at about $56 billion in 2020. The prospects of Cannabis industry are bright as more states are legalizing cannabis. It is generating economic and employment opportunities. The Cannabis sales have increased recently, mainly due to increasing consumer demand.
There are certain risks involved including cannabis is federally illegal, inspection by federal regulators, subject to enforcement & fines by federal authorities, seizure of assets, taxes and managing supply chain.
Author: Rabia J. – Sr. Analyst