This Year May See The Tipping Point For Cannabis

Call it “The Green Wave.”  Eleven states have legalized cannabis for adult use, about twenty others allow medical marijuana, and some neighboring states are feeling a little left behind. Democrats, historically more open to laws allowing cannabis use, sales, and banking, control both the house and the senate. The customer base is growing and sales are climbing. Will 2021 be the year the rest of America lets cannabis in?

Neighbors

Jon Sandelman, CEO of Ayr Strategies which operates cannabis businesses in multiple states, predicts a “domino effect” of legalization in states adjacent to those making forward movement in cannabis legislation. Recent actions in New Jersey, Arizona, New York, Pennsylvania, Connecticut, Maryland and Virginia could influence local governments nearby he said. That’s because states that come late to the party give their quick-acting neighbors a head start on building a thriving regional market. There’s also the lure of new job creation.

Another important draw is tax revenue, especially in Covid-affected economies. Nevada for example, brought in about $684 million in cannabis taxes in 2020.  

Federal Moves

Democrats, with their party in control of congress, may encourage the federal government to support laws easing restrictions on cannabis sales and use nationwide. Possible legislation could be something like The SAFE Banking Act, an attempt to bring cannabis banking, which is currently not allowed at federally chartered banking institutions, into the legal fold. The act passed the US House of Representatives in September 2020, but was subsequently stalled by Republicans. Proponents say allowing cannabis banking brings the industry under regulator control. It also opens up investment dollars for entrepreneurs.

Federally sanctioned investing, banking, and loans will help the industry grow and mature said Sandelman, with well-run companies benefiting most from national legislation. “The best capitalized, best performing, and most efficiently run companies will receive the lion’s share of institutional investor attention,” he said.

Some states have been expunging low level cannabis convictions from their records. The federal government could do the same. It could also remove cannabis from the nation’s Schedule One drug list and re-classify it as a substance less harmful than heroin.

Winners and Losers

Optimism alone regarding possible new laws will inspire mergers and acquisitions in 2021 predicts Sandelman. Weaker companies will sell off assets, while those in the strongest financial shape “will be best positioned to take advantage of acquisition opportunities.” Multi-state operators will need to be disciplined and thoughtful, but also bold and strategic, he said. 

Growing Customer Base

Gen Z, the youngest age group of legal consumers, spent significantly more on cannabis products last year, growing from $376m in 2019 to $865m in 2020 according to the cannabis industry researcher HeadSet.  That may be due to a combination of increasing numbers of Gen Z’ers turning 21 and cannabis’ use as an alternative to consuming alcohol at bars during 2020’s lockdown. The substance is widely accepted by this growing consumer segment.

The growing confluence of consumer, state, and federal factors may make 2021 the year for a real Green New Deal.

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