Rescheduling cannabis without banking reform risks 'supercharging' the biggest companies

Happy Sunday everyone,

Part of my mission with Cultivated is to provide a forum for respectful debate about what the future of cannabis policy looks like.

Part of what makes the issue so interesting is that it’s so alive. These debates are happening in real-time, across statehouses, Congress, and countries around the world.

Cannabis, as an emerging industry, is heavily affected by regulation. There’s a fascinating and robust debate about the correct way forward.

So, what should these regulations look like? Who should benefit from the economic opportunities of legalization? Who gets to decide?

How can we, as a society, promote the sometimes conflicting aims of public health and economic growth at the same time?

That’s why I’m so excited to present this quick, digestible op-ed from Shaleen Title and Bruce Barcott.

Shaleen is a former top regulator for Massachusetts’ cannabis program, and now runs the nonprofit Parabola Center which “which pushes for cannabis policies to protect people rather than corporate profits.”

Bruce is the former top editor of Leafly, an industry publication, and wrote one of the seminal books on legalization: Weed the People.

In a recent paper, they argued for policies that place small business at the forefront of the cannabis industry — and why passing the SAFE(R) Banking Act is crucial.

I hope you enjoy the piece and take time to read the full accompanying paper. And if you want to argue the other side of anything presented below, pitch me an op-ed!

-Jeremy

📚 Opinion

A paper recently published by the Drug Enforcement and Policy Center at The Ohio State University warns that moving cannabis from Schedule I to Schedule III without also passing a substantial banking reform bill could hasten the rise of national cannabis corporations—and lead to the demise of thousands of small independent operators. 

The big picture: With Congressional support for a full federal legalization bill cooling, President Biden’s administrative rescheduling of marijuana could be the next step forward for cannabis reform. But moving from Schedule I to Schedule III, as HHS Secretary Xavier Becerra recommended in August, would not alleviate any of the cannabis industry’s banking woes. 

• In our analysis, we argue that the lack of access to traditional funding sources — such as small business loans backed by the federal government — put small businesses at a significant disadvantage. 

• Large multi-state operators (MSOs) can tap private equity sources unavailable to smaller companies, which fuels their growth while mom-and-pop companies starve for lack of expansion capital. 

• “If this trend continues,” we argue, “the American cannabis industry could soon resemble the American beer industry: A market dominated by a handful of large corporations, with small businesses competing for an ever- decreasing slice of the pie.”

Data confirms the consolidation trend: Fears of billion-dollar MSOs taking over the industry aren’t unfounded. Title and Barcott turned up these telling statistics: 

• In 2018, the seven largest MSOs accounted for just 3.2% of the industry’s annual sales. 

• By the end of 2022, the seven largest MSOs accounted for 17.6% of annual sales. 

A market as big as beer and wine: Predictions about the future size of the legal cannabis market are typically tossed around like weather forecasts. We narrowed the most likely predictive models down to a rough estimate of $75 billion by 2023 (U.S. market only, up from $26 billion in 2022). 

• That would put cannabis roughly equal to U.S. wine sales ($78 billion). 

• Beer sales still command the highest share of legal intoxicant sales, with $115 billion annually in the United States. 

Warning: Don’t become beer: America’s beer industry was once home to many independent breweries and brands. Then consolidation hit. 

• Today, four multinational firms account for 79% of retail beer sales in the U.S.

• The largest cannabis MSOs, with annual revenue of roughly $1 billion, are nowhere near the size of beer giants like AB InBev ($57 billion).

• Global corporations such as Altria and Amazon are expected to attempt to enter the legal cannabis industry as legal reform proceeds. 

The solution? Open access to banking and loans for small businesses 

Small cannabis companies currently operate without access to small business loans backed by the U.S. Small Business Administration.

These SBA-backed loans, issued by local banks and credit unions, function as the lifeblood for America’s small businesses. 

• The updated SAFE(R) Act would open banking services to state-legal cannabis companies, but it would not allow the federal Small Business Administration to approve SBA-backed small business loans in the cannabis sector. 

• Some advocates have been working to fold Sen. Jacky Rosen’s (D-NV) Fair Access For Cannabis Small Business Act, which directly addresses SBA loan access, into the larger SAFE(R) Act. That move has been blocked, so far, by a small number of legislators opposed to the idea. 

Read the full paper here.