The State of the Cannabis Industry
Is Federal Legalization on the Horizon? Will Small Businesses Survive in a Legal World? Cannabis Attorney, Meital & I Share Our Predictions & Observations
I recently sat down with attorney Meital of Manzuri Law. They provide legal counsel to cannabis businesses here in California.
Here’s part 1 of our interview!
Do you have any tips for starting a cannabis business?
Meital: My first tip is probably don't start one. I always ask people, are you sure that this is what you want to do? Because it's really difficult.
Tammy: For sure. A lot of people want to get into cannabis, not realizing that the reason why it was so lucrative was because it was illegal. You didn't have insurance, security, overhead, all the expenses that come with running a legal business.
So factor all of that in, and you don't get those tax deductions that you would normally get, because it's a Schedule 1 product. There's just not a lot of money in cannabis, unfortunately.
Meital: Yeah, the profit margins are very slim, the competition is very high. Right now, in California, at least we're dealing with a problem of over supply. So maybe with federal legalization, that'll let up a bit. But it's just really about branding, and marketing, and shelf space.
There are people that are succeeding in it, but I don't know how, because it's very hard. You know, you have to pay lawyers, you have to pay taxes, regulatory concerns, compliance inspections, I mean, everything.
Tammy: Yeah. So fun fact, running a cannabis business is really expensive. And you need millions of dollars in the California industry.
Can you talk to us about Oklahoma's industry? Because I hear that's where the “Green Rush” is.
Meital: Yeah, I think that window is closing too. But that’s because it was like a free for all, no cap, no oversight, no regulation, no taxes. A lot of consumers were coming in from the surrounding states. I don't know how much longer that's going to last.
I think really where we're headed is, unfortunately, big conglomerates dominating the market, like True Leaf and Curaleaf. Those companies are really, really taking a stronghold.
I think those big companies have stayed out of California, just because it's too messy. And they can go into another market and use their influence to establish a large market share. So that's why they're not coming into California, where it's a vast state.
It's one of the biggest states, they have to compete with all of these other operators that have been here for 20 years already in the unlicensed market. And so I think that's why they're staying out. For right now.
Tammy: California is hard to compete in, and consumers don't really care about celebrity or big corporate names. They're more concerned about quality. Californians love quality flower.
Meital: Yeah, I think so too. I remember I lived in Amsterdam, and the one coffee shop that we all went to was LA Confidential. And the cannabis was imported from LA to Amsterdam. It's the best cannabis in the world. So, it's really hard to compete.
Meital: Yeah, I think so too. I remember I lived in Amsterdam, and the one coffee shop that we all went to was LA Confidential. And the cannabis was imported from LA to Amsterdam. It's the best cannabis in the world. So, it's really hard to compete.
But I know that wasn't your original question. Your original question was: how do you start a cannabis business?
Do your research, do your homework. Be very intentional about location, and what kind of business you want to be in. Do you want to be in cultivation? Do you want to be in distribution? Or do you want to do all of the above and be vertically integrated? Some say that's the best business model.
And then obviously, adhering to the regulations and getting licensed is super complicated.
You have to get a local license first, then a state license. So the locals have a lot of control, and a lot of localities don't even license, or allow it, or they’ve capped out.
So then you have to make the decision to possibly buy an existing business, but that's millions of dollars minimum, typically. Make sure you have the capital from the beginning, though for sure.
Tammy: What are your thoughts on federal legalization? Do you think it's going to happen?
Meital: Yes, it will happen. I don't know when. I think having seen California go through the legalization process was very eye opening as to how complicated it is just in one state.
So federally, to come up with a regulatory state scheme would be incredibly complicated unless they just punt it to the locals.
But they're going to want to have some oversight.
I think federal legalization would be the death of small businesses.
Because they're not going to be able to compete. Everyone talks about federal legalization as if it's this great thing.
And having been a part of the California legalization movement, and being a proponent of it, and seeing all the drawbacks, and who's adversely impacted when we go federal, that's just going to be times 10.
So for folks that are in the industry now, they're all just trying to set themselves up for an exit when federal legalization happens.
So I think it will happen, but I don't know when, and I don't know what will be the catalyst. I think there has to be some sort of tipping point.
What is that tipping point? Social justice and criminal justice reform has been one big part of it. And that's one of the most important parts of it.
But then the business side of it is really what's probably got the lobbying dollars to push it over. What we saw with CBD was, Big Pharma had this product that they wanted to push, and that's when hemp got descheduled. So there's gonna have to be some really big interest. That's the tipping point there, I think.
Tammy: My thought on federal legalization is that I don't think it's happening anytime soon.
I look at the history…
…And side note, if you're in cannabis, you should definitely read The New Jim Crow and familiarize yourself with the history.
But if you look at the history, we went from chattel slavery to convict leasing camps, which was worse, because prior to that, you would want to keep your enslaved people alive because you needed them for free labor.
But with convict leasing camps, it's a lease, so you could work them to death.
Then we moved to Jim Crow, which moved to mass incarceration. So this country, which was built on free labor, still, to this day receives free labor through the 13th Amendment.
So I don't think that they're going to be willing to legalize cannabis on a federal level, because you're taking away a large portion of that free labor.
Which also then affects the people that are employed by prisons. The prison guard population is a really big lobbying group of almost a million people. Plus the suppliers and manufacturers of things in prisons, including the weapons that the guards carry, their uniforms, the list goes on.
You also have to factor in that these prisons are in small towns. When these small towns receive these inmates, it boosts their population count, which affects the census, which affects funding and seats in the house in Congress.
There are too many interests that need this to be illegal so that we can continue the for-profit private industry which capitalizes on our mistakes and criminalizes people for non-crimes that have no victims.
Meital: I think that you could even see a world where there is federal legalization, and you still have criminalization, where the big business interests are able to push their agenda and make it profitable for themselves.
Tammy: Well, my dream with legalization is before we get to legalization, we finally accept that this is a plant that grows like any other plant, and we treat it as such.
I couldn't imagine my strawberries being taxed and treated a certain way based upon how much red the strawberry contains or how large it is. Could you imagine having to spend that much on any other produce?
So I'm really hoping it's like the Dot Com Boom, where it just busts, and we realize that we can't continue on like this. So I'm hoping we get to that point where it's treated like any other herb or vegetable.
Meital: Well, if you look at the MORE Act, and some of the federal bills that are being proposed, there is a potency tax. I think there's already a potency tax in New York. There's one in Illinois, for sure.
And in California, the new bill for CBD, the regulations are determined by whether or not it’s intoxicating. And if it's not intoxicating, it's really not regulated.
And it's really interesting, because all of these lawmakers just have no idea what they're doing. It’s a big undertaking, and kudos, at least they're doing something, I guess. But it's a big mess. And it's gonna stay a big mess for a long time.
Tammy: Yeah. You know, what makes cannabis so expensive is prohibition because you don't know how much product is on the market, you don't know how much anything costs to produce. So the control is pretty much the black market, they set the prices.
With legality, your vegetables shouldn't be that expensive. Hopefully, then people realize we don't need these big corporations to make or to grow our cannabis.
Which is why we really have to protect homegrown cannabis, so that we can source it for ourselves. But a lot of these big companies are lobbying to eliminate homegrowing, so that they don't have their profit margins cut into. It’s not for the love of the plant, it’s for the love of business.
Meital: So the one good thing, I would say, about big corporate coming into cannabis is that it will become just a commodity. They have the lobbying dollars and power to bring the taxes down and to bring the prices down with large scale production.
Take cigarettes, for example, cigarettes have a really high tax, but we know cigarettes kill us and are highly addictive. None of that is true of cannabis. But we're still treating it that way.
So a pack of cigarettes in California is like $10 which is way more than it was a decade ago, but a pack of joints is $50!! Plus tax, 27% tax here in Los Angeles. When you look at it, side by side, that's kind of crazy.
Tammy: Yeah, very much. One is helping your body, the other one is shortening your days.
But when you think about it, to stay healthy in this country, to eat organically, to eat fresh and clean, it's much more expensive.
So it makes sense, somewhat, that our cannabis is going to be more expensive because it's healing us, but the thing that will kill you is 4x less expensive!?! It's unfair.
Tune in for Part 2 where we’ll dive deep into your rights as a cannabis consumer & how to safely assert them!
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