Michael Jordan, Albert Einstein, Marc Andreessen all in a game of weed Whac-A-Mole
Capitalists, activists and enthusiasts invested in the $30 billion U.S. cannabis industry feel tears in their eyes burn while waiting in vain for the love of lawmakers.
A pilot light of hope for federal banking reform was flicked on for the eighth time last month when the 2023 Secure and Fair Enforcement Banking Act (SAFE) was introduced in the U.S. Senate. The Bill ostensibly gives the green light to federally regulated financial institutions eager to serve licensed operators across 40 states who grow, manufacture and sell a plant that remains a Schedule 1 Controlled Substance.
Once the big banks are authorized to open accounts, provide credit and raise money for cannabis companies, the theory goes, other financial, media and mainstream businesses with deep pockets will freely invest in the burgeoning bud industry. This would be both a financial boon and lifeline to countless operators large and small across the country struggling to fund current operations (much less business expansion) with scant access to capital and limited interactions with mainstream commercial channels and service providers.
While the industry is hopeful Senate Majority Leader Chuck Schumer (D-NY) can find the right coalition of legislators from left, right and center in his chamber to pass SAFE for the first time in the coming months, the bill’s passage through a now Republican-controlled House of Representatives is far from a slam dunk.
It’s a game of weed Whac-A-Mole!
Optimistic industry advocates say it’s possible SAFE can make it through both chambers of congress and be signed into law by the president in the back half of 2023. Skeptics citing a more macro view of federal executive and legislative branch priorities believe this timetable is insane in the membrane.
Albert Einstein reportedly said “insanity is doing the same thing over and over and expecting different results.” Yet it doesn’t require the skills of a quantum physicist to look at balance sheets of most cannabis corporations to understand that lack of reform in SAFE Banking along with IRS Tax Code 280e (which prohibits cannabis operators from writing off most of their business expenses) poses existential risks to their solvency much less ability to serve a growing consumer market.
According to Michael Jordan’s math, “you miss 100 percent of shots you don’t take.” While playing from behind, cannabis corporations and the ancillary businesses increasingly invested in the industry have no choice but to keep on shooting the ball in the air until something drops.
Meanwhile in Illinois – where four of the state’s seven fastest growing companies are Chicago-based operators and U.S. industry leaders Cresco LABS, Verano Holdings, Green Thumb Industries and PharmaCann and where less than 10 percent of “social equity” licensed retailers, manufacturers and cultivators are up and running four years after the state’s Cannabis Regulation and Tax Act was written – lawmakers in Springfield this week wrap up their legislative session with a sprawling new cannabis “omnibus” bill for consideration.
While anything in the bill could be written and rewritten between now and the end of session, scheduled to conclude on May 19, here are the key issues that remain in play.
- Extensions for dispensary license holders to stand up their businesses. As of now, only 18 of the 195 newly licensed dispensaries are open. With an existing deadline of July, and an inability for most licensees to raise sufficient capital to open and operate a business, it doesn’t seem to be a matter of if an extension is coming but for how long. Observers and interested parties from all sides of the debate close to the situation cite a range of between 6 and 18 months.
- Canopy space for craft growers. There seems to be momentum in the Illinois House to extend the amount of canopy space for craft growers from 5,000 square feet to 14,000 square feet. It is unclear where the Illinois Senate stands and if this will ultimately make it into any final bill.
- Income tax deductions to offset 280e. A bill sponsored by House Representative La Shawn Ford would create tax deductions “in an amount equal to any federal deduction disallowed pursuant to Section 280E of the Internal Revenue Code.” Neighboring state Missouri, which expanded from medical-only to adult-use sales earlier this year, has similar relief.
Notably not included in the omnibus bill is whether Illinois cannabis oversight would be administered by an Agency within the executive branch, or via a Commission with public oversight and inputs from the private sector.
The Pritzker administration, various social equity groups and industry organizations including the Illinois Craft Grow Association favor a consolidated Agency, where cannabis-specific issues currently overseen by Illinois Departments of Finance and Professional Regulation, Agriculture, Public Health and other agencies would roll up into one office. Larger industry operators including many represented by the Cannabis Business Association of Illinois favor the Commission structure where oversight is extended beyond the executive branch.
Status quo on this issue, as is the case with SAFE Banking in Washington, will be costly to the industry. While the legislation crafted by Illinois lawmakers and signed into law by Governor J.B. Pritzker four years ago was celebrated for incorporating social equity interests into adult-use sales expansion, the law to date has not been implemented with any degree of fidelity.
The health of the Illinois cannabis program, a model for many other developing markets primarily east of the Mississippi River, depends on focused capacity and accountability that either any Agency or Commission structure could provide. More broadly, a state, city (Chicago, where new Mayor Brandon Johnson was sworn in this week), industry and community that proclaims to be a commercial capital of the ascending cannabis industry better address its adolescent issues sooner rather than later.
The last time Illinois had a chance to mold an ascending industry of this scale was the Internet 30 years ago, when University of Illinois student Marc Andreessen and some colleagues created one of the first Internet browsers. Unable to find commercial footing in Illinois, Andreessen and Co (Netscape) took their talents to Silicon Valley.
The rest, including the flourishing of a multi-trillion dollar industry outside of the state, is history. It would be truly insane for history to repeat itself with cannabis in Illinois and Chicago, where economic development stakeholders from the state, city, higher education and corporate constituencies keep on doing the same things while expecting a different result.