The cannabis industry is sexy; it’s attractive to investors, entrepreneurs and job seekers. The industry is rapidly expanding and is exciting. Don’t be misled or blind to reality, this industry is hard with many obstacles. Here are 7 reasons why you should think twice about getting into the biz.

1.  Burdensome Regulation – Compliance Requirements

When working with cannabis, a federally illegal product, all states who want a state licensed industry are trying to operate within the guidelines of the federal government, which until recently meant operating under the guidance of the Cole Memo. The Cole Memo specifically refers to a robust tracking system which requires states to track every plant, gram, or product from inception to consumer delivery, or what is known as “from seed to sale.”

Extensive regulation can be burdensome; bureaucratic rules, while well intentioned, do little and require time and resources to track every product. For example, significant security measures are expensive. Video surveillance cameras have to be located everywhere and alarm systems are costly to install and monitor. Then, there is METRC (Marijuana Enforcement Tracking Reporting and Compliance) software, commonly referred to as Cannabis Tracking System (CTS). As a Cannabis producer, you are required to track and report details of every plant – including stage of growth; location of the plant; harvested, wasted and dried weights – and even further as product moves to be processed or sold to a retailer. Once product is store ready, there are packaging requirements that dictate proper labeling before anything can be sold to a consumer. Transferring products from one license to another requires an approved delivery vehicle, permit holding employee and proper paperwork, which eliminates the use of commercial shipping companies or postal delivery. Furthermore, effective branding and marketing is an important tool in every business, but the regulatory limitations set very specific parameters on what is permitted. In the end, rules change all the time, so it is necessary for a company to stay informed on any changes to current regulatory operating requirements.

2.  Public Policy

Cannabis policy at the federal, state and local level vary and are often in conflict with each other. This makes navigating the industry difficult for any operator. As a cannabis operator, the fact that the federal government could seize your property and product as well as shut down your business is always a concern. At the federal level, the only protection a cannabis business has is through the Rohrabacher – Blumenheur Amendment but it does not specifically protect adult-use/recreational businesses as it was written to protect “medical marijuana” operators. Knowingly operating a business in violation of federal law is an unnerving feeling, even for the experienced, hardened, risk-taking ganjapreneur and in addition to that risk, state policies and laws are rigorous and subject to frequent changes. While navigating the complexity of state laws, local governments enact their own policies on taxes, zoning and operations and may even trump state laws and prohibit cannabis business outright. These opposing policies cause uncertainty for investors, create confusion for operators and obscure business strategic planning.

3.  Known or Unknown, Fierce Competition Exists

Upon initial survey, a typical market analysis yields little result of potential competitors because a market simply does not exist. Because of this seemingly absent market competition, there is much attraction and oversimplification of the work that goes into opening a canna-business. At current, the Oregon market is oversupplied due to an unlimited number of issued licenses that are now restricted to selling only within the state, while previously these farms supplied two-thirds of the nation’s black market demand. This places heavy pressure on all industry participants to build a reputable brand within that state. Brand differentiation is one essential element to creating a lasting company, however this is also difficult due to federal policy. As an example, the term “organic” is a certification at the federal level, because cannabis is not recognized as a federally legal product, this term cannot be used on any marketing, advertising, or branded material.  Cascade High represents the cleanest, organic cannabis products in the market, but these limitations make it difficult to accurately portray our brand in a market flooded with other farms claiming organic practices.

4.  Banking Prohibition and 280E Tax Law

The average person, politician and executive/entrepreneur doesn’t realize legal cannabis businesses don’t have access to banking. All past prior business experience doesn’t prepare the average entrepreneur for the reality of conducting business without a bank account. Again, because of federal policy around an illegal drug, any FDIC insured institution (basically all banks) can’t or won’t offer cannabis businesses a simple checking account for fear of prosecution under racketeering and money laundering laws forcing canna-businesses to operate in all cash. A cash only industry creates more opportunity for illegal activity and poses a public safety risk. Additionally, paying bills, making payroll or transacting business with partners in cash is resource intensive and time consuming. Federal Cannabis banking policy essentially forces operators to choose to conduct business in cash, or commit bank fraud by using a personal account for canna-business related transactions. This dilemma is a constant stressor for canna-business operators.  There are a handful of financial institutions, credit unions, or state banks that do offer “Enhanced Monitoring Accounts” for cannabis companies. These institutions and accounts are rare and not without significant costs. The average cannabis bank account is likely to run $1000.00 a month, just to have access to banking services, not including additional fees. This $12,000 a year budget line item, while not only expensive, is not a tax write-off per 280E tax code. State regulated Cannabis businesses are taxed in accordance to section 280E of the IRC, an antiquated tax code created in the 80’s with the intention to prevent cocaine and other drug dealers from deducting ordinary business expenses. Nearly four decades later, legal Cannabis businesses are penalized by limiting allowable tax deductions only to Cost of Goods Sold. Those high banking fees – in addition to administrative costs, marketing and advertising, etc. do not decrease your taxable income. While companies in all other industries take advantage of otherwise ordinary expense deductions to reinvest in their company, Cannabis businesses are forced to accept these losses.

5.  Human Resources

While HR issues are not exclusive to Cannabis, they are magnified by our world of information sharing, social media distraction and the type of people attracted to the industry. Millennial stereotypes coupled with stoner attitudes create a real challenge to finding hardworking, responsible, professional workers. Stereotypes are not always true and there are exceptions but finding workers who break the stereotype is rare. “Stoner attitude” is a reflection of what business was like when Cannabis was black market. “Experience” is often described as casual transactions between a small underground network of people, and knowledge of the product is often mistaken for employable skills or experience. People with previous “weed experience” begin their cannabis career with that as their reference point, have no idea that farming or running any business in a highly regulated industry is hard work. This point combined with the assumption that it is acceptable practice to be outside taking breaks – getting “lit” –  is a common misconception among applicants. For these reasons and others, HR headaches alone can be enough to doom any canna-business.

6.  Public Perception

From the old days of “Reefer Madness”, current fears of “Mexican Marijuana Cartels,” the fallacy of Cannabis being a “gateway” drug, and the falsehood of addiction, negative public perception is real and affects your business. Some parents criticize or demonize the use of “drugs” with kids –  lumping cannabis, heroin and methamphetamine’s in the same category. According to studies, cannabis is a safe substance. Associating a cannabis user with a heroin addict does an immense disservice to the legal cannabis industry who are normalizing a product that is safer than alcohol or tobacco. Even among active cannabis users in legal states, there are still hypocritical attitudes when it comes to the consumption of Cannabis versus alcohol. Most users are happy to have their children present as they consume alcohol to intoxication but they wouldn’t be caught dead smoking a joint in that same environment. This mentality must and will change with time but until it does, alcohol will continue to be a more widely accepted form of recreation than cannabis. This does affect our bottom line. As a father, a nurse, and a cannabis cultivator, I encourage everyone to take these steps to fight these misconceptions and the propaganda of weed:

1. Call it Cannabis, not Marijuana
2. Educate yourself on the proven medical benefits of cannabis and recognize that the government already holds a patent on some well-known cannabinoid compounds
3. Talk to your kids about safe usage, moderation, and use critical thinking when accepting claims the media makes.

7.  Market Dynamics

This is the last point we will discuss but there are other reasons to reconsider starting a Cannabis company. Because of federal prohibition, interstate commerce remains an illegal activity which eliminates the applicability of supply and demand economic theory. Each state deals with its own issues related to supply and demand. States like California, Nevada and New York have high demand on supply which drives artificial price inflation, whereas in Oregon, there is massive oversupply which puts downward pressure on the price of cannabis. If interstate commerce were possible normal economic principles would apply. In addition to challenges created by federal prohibition and the illegality of interstate commerce, the economic influences of the large, well-established black market create significant complex challenges for legal market demand – an issue more convoluted than the scope of this article.

-James Schwartz, RN, BSN, LNC

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