By Rainer Poertner
Published February 20, 2024
Key Points
- Challenges
- Renewed Hope
- Access to Banking Services
- Accounting Challenges – Taxes
- Market Opportunities
- Reduction in Regulatory Burden
- Research and Development Opportunities
- Economic Growth
Rescheduling cannabis from Schedule 1 has been the topic of “Breaking News” consistently over the last few years, so it is nearly redundant to talk about it again. Changes in the political landscape, though, accelerated by the Biden administration taking office, have brought renewed hope and optimism to the cannabis industry. President Biden’s key promise is to reschedule cannabis at the federal level. This move could bring numerous benefits to cannabis operations, especially smaller ones. Rescheduling cannabis under the Biden administration can positively impact smaller businesses in the industry.
One of the significant challenges faced by smaller cannabis operations is the lack of access to traditional banking services. Due to the federal illegality of cannabis, many financial institutions have been hesitant to work with cannabis businesses, leaving them to operate mainly on a cash basis. This poses security risks, complicates routine business operations, and limits expansion potential.
In addition, cannabis operations are confronted with unique accounting challenges, such as not allowing cannabis businesses to deduct ordinary business expenses under Section 280E of the Internal Revenue Code, leading to higher tax bills and severely limiting their ability to grow and expand organically. However, with the rescheduling of cannabis, financial institutions are expected to be more willing to provide banking services to smaller cannabis businesses, and accounting rules will change, allowing them to operate more efficiently and securely.
| The rescheduling of cannabis will undoubtedly lead to expanding market opportunities for smaller operations, allowing them to better compete with the massive Multi-States Operators (MSOs). Currently, cannabis businesses are heavily restricted in terms of interstate commerce and distribution due to federal regulations. However, with federal rescheduling, smaller operations can tap into a larger market, potentially increasing their customer base and revenue. Moreover, the availability of federal funding and grants for research and development in the cannabis industry will further fuel innovation and growth for the entire industry, especially the smaller operations.
Smaller cannabis operations often struggle with the complex and highly burdensome regulatory and tax requirements imposed by different states. Especially in California, a large number of smaller operations in California were forced to close down, or could not renew their expensive permits. Even some large MSOs have left the state not willing to bear the extraordinarily high cost of operation.
Rescheduling cannabis at the federal level could potentially lead to a more harmonized regulatory framework, streamlining compliance processes for smaller businesses. This will reduce the administrative burden and level the playing field for smaller operations, enabling them to compete more effectively with more prominent players in the industry, i.e., the larger Canadian operators.
Benefitting from increased access to federal funding and collaboration opportunities will allow them to conduct studies on the medicinal properties of cannabis, explore new cultivation techniques, and develop innovative products, paving the way for the discovery of new cannabis-based therapies and treatments.
As smaller cannabis operations expand and new businesses emerge, employment opportunities will surge, benefiting local economies. Additionally, the tax revenue generated from the cannabis industry can be reinvested into community development and public services, supporting the fight against illegal operations and further increasing the acceptance of marijuana as a legitimate supplement and economic growth.
The rescheduling of cannabis under the Biden administration will be a significant step for the entire industry but will especially empower smaller businesses to thrive and compete in the evolving cannabis landscape. As the industry continues to evolve, smaller cannabis operations must seize the opportunities presented by the changing regulatory environment, further ensconce themselves with their local communities and customer base, and position themselves for long-term success.
Rainer Poertner, Editor
Dynamic Market Concepts
info@dynamicmarketconcepts.com
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