Today is an important day for the global economy and hundreds of millions of voters are expected to cast their ballot to determine who will be the next President of the US. From social justice to legal cannabis, the election represents an inflection point for many industries.
For our purposes, we want to talk about the impact the election will have on the cannabis industry. Several states are voting on the legalization of some form of cannabis (only CBD, medical cannabis, and recreational cannabis) and a positive outcome on these bills are expected to be a catalyst for the sector.
Although we are highly focused on the outcome of the legislation that is being voted on by states, the outcome of the Presidential election will have the most significant impact on the cannabis industry over the long-term.
During President Trump’s first term as president, the US cannabis industry performed better than what most people expected. Many cannabis business owners were concerned when Trump hired Jeff Sessions as the US Attorney General (who was known to be notoriously against cannabis), but luckily states’ rights were considered to be more important that Sessions’ uneducated opinion on cannabis.
Under President Trump, the cannabis sector was not negatively impacted but remained illegal at the federal level. During this time, several additional medical and recreational cannabis markets opened in the US and cannabis retailers have been reporting record revenues.
In regard to the legalization or decriminalization of cannabis, we expect to see minimal action at the federal level if Trump is re-elected. Although we do not believe that he is against the legalization of cannabis, we believe that he considers other issues (i.e. tax reform and infrastructure reform) to be more significant.
While the status quo has not been terrible for the US cannabis industry, it has made operating a cannabis business more challenging than it needs to be. Cannabis being illegal at the federal level has made it is more difficult for companies to access capital, open a bank account, have insurance, and make acquisitions.
Although the previously highlighted challenges are significant, the hardest part of the US cannabis industry is something called 280-E. Due to the impact the tax code has on cannabis businesses, we like to compare it to the bubonic plague.
The tax code is outdated and was put in place in 1981 as part of former president Ronald Reagan’s war on drugs. 280e prevents businesses from deducting any expenses from their gross income when it involves trafficking schedule I and II controlled substances.
Under President Trump, 280e continued to hinder the growth of the cannabis industry. Until the tax code is changed, cannabis companies will remain shackled and it will be challenging for the business to be profitable.
When compared to the current administration, the democratic party is much more favorable on the legalization of cannabis. Although Joe Biden is not pro-cannabis, he has stated that he plans to decriminalize or de-schedule cannabis. Biden’s Vice President Kamala Harris is much more supportive of the legal cannabis industry and we expect a democratic victory to serve as a much larger catalyst for the entire industry.
If cannabis is decriminalized or de-scheduled, we would expect US multi-state-operators to record impressive improvements in profitability metrics and this is a trend that our readers need to be aware of.
On top of the presidential election, several states will be voting on some form of legal cannabis. The markets that we are the most excited about are New Jersey and Arizona which are both voting on the legalization of recreational cannabis.