The cannabis industry has waited with bated breath for Congressional leaders to follow through on their empty promises for federal cannabis reform and permissibility. To date, those promises remain unfulfilled. However, the bigger question is whether the politicians who voters elected to enact the will of the people even know how to steer the ship they’ve been tasked with navigating.
But wait, you ask, what about all of those back-slapping, fawning headlines about legislative minutiae around cannabis legalization, such as Schumer’s breathless announcement that he has yet again introduced cannabis legislation to the Senate that is absolutely in no uncertain terms doomed to fail. No one should be patting Schumer on the back for this performative action.
And a question, dear reader, do you know what happens next? How long does it take for said Senate bill to go to the floor where it is likely to fail in a vote? Three hours? Three days? Three weeks? Three months? If you do actually know the answer, you are in the minority.
Well, in a move reminiscent of school days of old, Congress is off on summer recess (love that term!), not to be heard from again until they return after Labor Day. Then, like kicking the proverbial can down the road, both sides of Congress will return for the homestretch of midterms. Begging, cajoling and oftentimes spinning the truth to get themselves back into their seats where some believe they do absolutely nothing except dodge constituent phone calls for a salary of $174,000 a year, paid by you, the taxpayer.
But back to Schumer’s bill. In an alternate reality where the Senate achieved one meaningful thing this year and passed the Cannabis Administration and Opportunity Act (CAOA), then what? Well, the House would still have to enter a similar bill that would be approved. Then both sides would call a joint committee to reconcile the bill. And then it goes to President Biden, who was really never pro-cannabis to begin with.
And all of this is expected to happen between September 6th and December 31st? I appreciate a good wager, and I’m betting against this one. I don’t see Biden’s White House and the Schumer/Pelosi Congress getting anything done for cannabis this year. And let me know if you want to wager against my bet this entire Presidential term will see no meaningful federal movement overall.
The excitement around the blue wave of 2020 that unleashed a tidal wave of capital for the cannabis industry has been effectively shut off. Until the federal government can provide safe banking and the same regulatory environment that so many other industries — from liquor to tobacco — enjoy functioning under, there’s little to no chance of pleasing the public markets, so there’s likely no reason to turn to the public markets for capital. In addition, this lack of federal permissibility has created untenable cultivation situations from state to state to state (39 states to date in fact). What was once a scandalous, high-margin, high-risk plant has been over-cultivated, over-saturated, and overstocked because the product cannot flow freely across state borders, like say, a can of beer or a pack of cigarettes.
This ain’t our first rodeo, cowboy. We have seen this all before with the tech bubble and the energy bust.
This is one of those pivotal moments in a fledging industry. The first real hint at a contraction or a reset.
As we stare down the ingredients for a recession that could reach across all sectors and approach yet another mind-numbing midterm election, some basic business principles remain in good times and in bad. First, smart companies don’t expand without clear strategies, guardrails, and guidelines on legislative conditions. This means cannabis companies need to consider a hard stop on spending and expansion that isn’t absolutely mission-critical until we get clear direction from leadership in Washington. Second, Wall Street does not reward companies that cannot deliver on their targets. This makes the public markets untenable for cannabis companies. And no cannabis company should play the public markets until Washington provides action and clear guidance on federal permissibility, legality, and banking.
Now is the time when all of the cannabis companies that have launched under the typical consumer packaged goods (CPG) playbook need to take another look at how they are utilizing their capital and deploying resources. Because the runways are burning. Many companies have attempted to pull from the CPG playbook of grasping for market share by offering unsustainable pricing and discounts. Bad business models will not be able to function in a true industry contraction event. Thanks to a lack of federal clarity, the typical MBA playbook has been rendered null and void.
However, now is the time to lean into innovation, quality, and awareness. Does your cannabis product lead the pack because it is consistent and dependable? Or because it was the cheapest option in a sea of me-toos?
As we are stuck in the doldrums of a political quagmire on a federal level, we will have to turn inward to our local communities to address the business opportunities we do have control over. We’ll continue to do this while waiting for something different to come out of Washington, D.C., that I believe remains similar to its operation mode from 1788 with a traditional voting bloc keeping the same people in power with a stranglehold that maintains the status quo for as long as voters allow.
So, are you registered to vote?