The end of Cannabis prohibition represents a unique opportunity for entrepreneurs. It’s the biggest thing since the birth of dot com. The Cannabis industry already generates more than $50 Billion dollars annually in the U.S. if you include the illicit market. It’s no surprise that entrepreneurs and investors are rushing into this space with green on their minds.
Many compare the re-legalization of Cannabis to the end of alcohol prohibition. However, that comparison is not totally valid. Alcohol was legal just a few years prior to the failed prohibition experiment. Cannabis is different. It hasn’t been legal in almost a century. Besides, alcohol is truly a vice product. Cannabis is significantly more versatile. In fact, I believe that Cannabis medicine, “adult-use” or “recreational” Cannabis, and industrial Hemp represent completely different industries, and should be regulated separately.
If you’re thinking about entering the industry, be prepared, and understand that it’s unlike any other industry. Cannabis is unique:
A commodity with multi-billion dollar demand is considered federally illegal, yet is legal in half of the United States. Each state’s legal market has completely different regulations and rules. As of this writing there are 28 U.S. states in which Cannabis is legal. Each one has unique regulatory environments, market dynamics, and players.
There is direct and significant competition with the illicit market.
Consumers are vastly under-informed, overly forgiving and used to purchasing goods illegally.
Decades of anti-Cannabis propaganda must be undone. There is a very real stigma against Cannabis and those who use it. Imagine if you grew up being told the internet or smart phones were evil or dangerous. Or that coffee would ruin your life and you shouldn’t drink it.
5. Business owners and investors are not able to access banking resources. Millions of dollars in transactions —paying taxes, salaries, business expenses— happen in cash.
6. The majority of people who run this industry are Cannabis enthusiasts. While this is mostly fun, as several business meetings include, or rather necessitate, consumption, it also presents certain challenges. But mostly, it’s just fun.
7. B2B Technology and infrastructure that other industries have enjoyed over the past few decades are just now being developed and made available in Cannabis.
8. It is sometimes illegal and often unnecessarily difficult to advertise the product around which the industry revolves. Facebook, Google, TV, and many other marketing channels do not allow the advertisement of a federally illegal narcotic.
9. Industrial Hemp: with over 20,000 documented uses, the non psychoactive variety of Cannabis has the potential to significantly disrupt the food, energy, materials, and clothing industries.
10. Section 280E of the federal tax code severely limits the expenses businesses that produce, process, or sell Cannabis are able to write off. This creates an environment in which businesses pay an effective tax rate of 70% or higher. That rate is absolutely unheard of in other industries.
“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”
11. Speaking of laws, the laws and regulations are unpredictable and ever changing. Uncertainty is constant.
Anyone who says they have a lens into the future is more likely than not to be wrong. We’re still in the very early stages of a multi-billion dollar global industry being set up. This industry does not even have access to banking yet! Producers and processors in Colorado, Washington, Oregon, etc are paying their taxes in straight cash, homie.
Let’s be clear, Cannabis is not a new industry, but legal Cannabis is in its infancy. The illegal market for Cannabis is a multi billion dollar global industry. There are established players, values, “corporate” culture, relationship dynamics, history and more. There are people who have been risking their freedom for decades in Cannabis business. Brand new actors are entering this space every day.
Given the circumstances, it’s especially important in Cannabis to know who you’re dealing with. The reality of any rapidly growing industry is that it will attract opportunistic people who are interested in making money. You will encounter people who are willing to lie, cheat, and steal their way to wealth. Be extra careful about who you work with and make sure you have an experienced lawyer whom you trust. Partner with those whose values are aligned with yours and take a long term approach on how you want to impact this industry.
About the author:
Mike Z is a Leadership Coach and Entrepreneur. He’s the Founder of High NY, New York’s #1 Cannabis community. Mike is also the bestselling author of “The Entrepreneur’s Guide to Cannabis” His TED talk challenges those unfamiliar with the plant to “Think Differently about Cannabis.” Follow him on Twitter @HiMikeZ.