Introduction to Cannabis Industry

Views: 44 Comments: 0 3 Post Date: September 26, 2019

The Cannabis industry is increasing at a great pace in the United States and established favorable business circumstances in the 21st century. The Cannabis industry is flourishing for manufacturers, traders and producers.

This article provides information about the Cannabis industry including history, Cannabis regulation, Cannabis reforms, forecasts and challenges faced by the industry.

Cannabis is a plant, also known as marijuana, weed, herb, pot, grass, bud and Mary Jane. Cannabis generates trichomes which comprises cannabinoids including tetrahydrocannabinol (THC) and cannabidiol (CBD). THC utilized for recreational purpose and CBD for medical purpose.

Cannabis Industry

Types of Cannabis plants:

  • Sativa: develops lively and full of life experiences.
  • Indica:  creates calm and tranquilizing experiences.

Cannabis Industry

Various kind of products that fall into the classification of Cannabis include:  Flower, Concentrates, Edibles, Topical cannabis and Hemp.

History

Scientists evidenced marijuana plants to 12,000 years ago in Central Asia, mainly in the regions of Mongolia and Southern Siberia.

Marijuana mainly utilized for medical, religious and spiritual purposes throughout history. The development and usage of marijuana initiated in the 17th century with the production of hemp to create rope, sails and material for clothing. The first article on the medical benefits of marijuana was written by Shaughnessy in 1839 and Cannabis Indica became accessible in the US Pharmacies in 1850s.

American society considered cannabis as a “fashionable narcotic” at hashish parlors in the 1880s. Cannabis was also famous in Mexico. In the 1900s, issue on the usage of marijuana as a drug turned out to be more widespread as United States had immigration from Mexico.

Federal Cannabis Regulation

The first acknowledged US marijuana law was announced in 1619 in Jamestown Colony, Virginia. Connecticut and Massachusetts also announced related laws.

The first state law disallowing marijuana was passed by Utah in 1915. California and Texas also passed similar laws.

Federal Cannabis Regulation

Canada included cannabis to its list of banned drugs in the Opium and Narcotics Act in 1923. The International Narcotics Control Board acknowledged cannabis a narcotic in 1925.

According to the Marijuana Tax Act in 1937, the ownership and transfer of marijuana was illegal, under federal law excluding for medical and industrial usage, by charging an excise tax.

The Controlled Substances Act (CSA) and Control Act of 1970 abolished the Marijuana Tax Act and developed federal drug policy administrating the production, ownership and usage of controlled substances. Marijuana, heroin, cocaine was categorized as Schedule I substances. Until mid-2018, marijuana is illegal under federal law and categorized as a Schedule I drug according to CSA.

Recent Cannabis Reform Efforts

After Uruguay, in 2017 Canada is the second country to legalize marijuana.

California is the first state to legalize medical marijuana under the Compassionate Use Act of 1996. The physicians can advise marijuana for diseases such as cancer, HIV/AIDS, multiple sclerosis and nausea. In the period between 1998 and 2010, eleven states have legalized medical marijuana.

Colorado and Washington have legalized the recreational usage of marijuana at the state level in 2012. Alaska, California, Nevada, Oregon and Washington DC have also approved the recreational use of marijuana in 2017, proceeded by Maine and Massachusetts in 2018.

In the beginning of 2018, 29 states, District of Columbia, Puerto Rico and Guam approved the medical usage of marijuana. Nine of these states have approved the recreational usage of marijuana for 21 years and older. Ninety five percent of the United States population resides in states where marijuana can be approached, this includes the 17 states in which the cannabinoid (CBD) oil is legal.

Cannabis Industry

The attractiveness and public acceptance of the cannabis industry has placed the legalization of marijuana on ballots across the United States. The effect on state and local government is critical and municipalities are concentrating on matters including taxation, zoning, budgeting and arranging resources for law enforcement and administration.

The public opinion regarding cannabis has transformed from 12 percent of Americans favoring approval of cannabis in 1969 to 60 percent recently.

The requirement for medical and recreational marijuana has increased the popularity of the product, the additional services backing the industry, and the requirement for research and development.

Forecasts   

It is forecasted that US cannabis industry will devote approximately $70 billion annually to the US economy by 2021.

Market research firms are forecasting that medical marijuana market will attain a value of $55.8 billion by 2025.

It is predicted that adult use and medical marijuana markets will grow at a Compounded Annual Growth Rate of 31 percent. The Cannabis sales will attain a value of $57 billion by 2027.

Cannabis Industry

Challenges

The cannabis industry is developing and there are different rules at the federal, state, county and city levels. California has approximately 500 local jurisdictions with varying rules, tax rates and zoning laws pertaining to the cannabis industry. California Medical Marijuana Regulation and Safety Act was executed in 2015, necessitating people in the cannabis industry to get local operating permits and state licenses. In 2018 with the adult use market opening, local jurisdictions are making new rules and regulations and people in the cannabis industry are trying their efforts to stay up to date.

cannabis industry

Entity Structure

The IRC Section 280E and the Controlled Substances Act of 1970 are important for selecting an entity structure in the cannabis industry. The business can be a growing facility, producer or service giver, it is important to deal with how to legally structure a business. It effects how certain subjects are to be managed including compensation, income reporting, compliance and taxes. The separation of liability for federal, state and local regulatory and law enforcement agencies makes the choice of entity structure even more important.

The three structures are namely:

Sole proprietorships: single owner, business profits are recorded on the owners tax return, taxes are paid by the owner and not taxed at the entity level.

Partnerships: owned by partners, profits are recorded on the partners tax return and partners pay federal and state tax returns.

Corporations: owned by shareholders, pays taxes at the corporate level and shareholder level.

Conclusion

The Cannabis industry is evolving rapidly and mainly used for medical and recreational purposes. The Cannabis industry is attractive and public acceptance is increasing at a fast pace.

 

Stay tuned for the next blog on the cannabis industry regarding accounting & bookkeeping and taxation.

 

Author: Rabia J. –  Sr. Analyst

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