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The next frontier taking shape in legal markets

Cannabis lounge openings in Michigan and Nevada

Good morning.

Some good news and some bad news to start you day.

The good? Consumptions lounges opening in Michigan and Nevada.

The bad? The tax man is coming to collect from the Canadian cannabis industry.

Plus, join Cultivated Live on LinkedIn and YouTube at 10 am Eastern for our daily livestream.

A 7-minute read from JB and JR

💡What’s the big deal?

The next frontier taking shape in legal markets

Driving the news: The third licensed cannabis lounge opened this week in Michigan. Only Alien Cannabis in Kalamazoo offers those 21 and over a place to consume cannabis — much like a bar or pub.

Smoke and Mirrors, Las Vegas’ first cannabis lounge, opened this past week as well. 

Why it matters: As cannabis markets develop and mature, consumers and businesses seek to add social consumption spaces to the full complement of licenses available. 

While regulations for cannabis consumption lounges often butt up against anti-smoking laws, this year alone has seen two markets making moves: Michigan and Nevada.

What they’re saying: Only Alien Cannabis General Manager Marty Webber reflected on the lounge’s opening: “It’s pretty surreal to see people smoking cannabis in here and enjoying themselves without fear of prosecution…” Amen to that, Marty.

What’s next: Emerging markets like New York also intend to add cannabis lounges into the mix. Hopefully the Michigan and Nevada experiments will provide great examples to follow.

🎤 Quotable

In an op-ed written for Marijuana Moment, Ananda Strategy’s Hirsh Jain dives into recently-released data from California’s California Department of Cannabis Control — and the state’s cannabis industry is under-performing, to say the least: 

“The state has, by far, the lowest per capita sales of any mature cannabis market. If California’s legal market was simply performing on par with Michigan’s or Montana’s, it would be generating a staggering $13 billion in annual sales.”

It’s less than a $5 billion dollar market today, Jain writes.

Canadian tax collectors to garnish payments to cannabis companies

What’s happening: Canada’s version of the IRS, the Canada Revenue Agency (CRA), is about to take a drastic step to collect unpaid excise taxes from cannabis companies: Have wholesalers garnish payments to cannabis companies. 

Some background: In Canada, cannabis companies are regulated federally by Health Canada. Provinces serve as wholesalers to those cannabis companies and oversee and regulate cannabis retail. 

So, collecting taxes owed to the CRA is achievable by having the provinces garnish payments from the wholesaler (i.e. the provinces) to cannabis companies. And that’s what’s about to happen.

How much? The amount of unpaid federal excise tax owed by Canada’s cash-strapped cannabis companies is nearly $200 million CAD (about $155 million) as of March of last year, reports industry publication MJ Biz Daily.

That’s nearly a threefold increase over the previous year. 

What’s next? It won’t be pretty. 

Canadian cannabis companies aren’t paying their tax bills because they’re especially greedy. They aren’t paying their tax bills because the margins on cannabis are razor thin, if there’s a margin at all. 

We expect the fall-out of this effort by the CRA to be significant for many cannabis companies who are struggling to stay alive.

Changes afoot? Yesterday, Omar Khan of cannabis retailer High Tide tweeted that changes may be coming from Canada’s Parliament:

👊 Quick hits

A proposal to cap THC in would-be cannabis products in a yet-to-happen legal market in Florida has likely died in the State legislature. Hear more about all things Florida cannabis from yesterday’s Cultivated Live with Sally Peebles from Vicente LLP.

A bill that would prevent Virginia public sector workers from being fired for cannabis use is heading to the governor’s desk.

🎒 What we’re reading

We always recommend Marc Hauser’s newsletter, Cannabis Musings. Read the latest here, and be sure to catch his panel next week hosted by UNLV’s Cannabis Policy Institute.

🤝 Deals, launches, partnerships

Nabis announced the acquisition of Blackbird, a Nevada cannabis distribution company. Per the release announcing the deal, Nabis will now offer the technology, infrastructure, and brands to Blackbird’s network of Nevada operators and retailers. The Cultivated team connected with Nabis’ CEO Vince Ning in Las Vegas late last year.

📊 Earnings

Heritage Cannabis reports a near-$20 million CAD net loss for 2023.

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