What Is The Economic and Social Impact of the Federal Ban on Cannabis? Congressional Democrats Release Short Report Describing the Barriers and Opportunities


This week, the Democrat staff of the Congressional Joint Economic Committee issued a short report highlighting the economic benefits of the national cannabis economy.

The report highlights what many in the industry and public already know – support for the legalization of adult-use is at an all-time high across the country. While over 30 states have moved towards some form of legal use, the federal ban continues to present significant barriers to the industry’s growth. Some interesting points made in the report include:

  • 66% of Americans support legalization of adult-use, up from just 12% in 1969.
  • Industry sales totaled  more than $8 billion in 2017
  • Sales industry wide are estimated to reach $11 billion in 2019, and $23 billion by 2022
  • There were over 9,000 active cannabis business licenses in 2017, with the industry employing more than 120,000 people

With the positive economic and job growth created by the industry, significant barriers created by the federal ban exist. I would add here that in California, the ability of local jurisdictions to prohibit cannabis business activity is an additional barrier. Among the many challenges created by the federal ban, the report highlights the following:

  • A lack of basic financial services available to cannabis business creates security issues, as well as general barriers to paying for basic business expenses, i.e. employee salaries, rent, etc
  • The federal ban has created an unfair advantage for non-cannabis/illicit businesses over legal ones. Section 280E prohibits cannabis business from deducting ordinary business expenses, creating an estimated tax rate of 40% – 70%; more than twice the average non-cannabis business tax
  • The ban also creates a barrier to acquiring financial capital to start or grow a cannabis-based business
  • Finally, the ban continues to restrict patient access to medicine that has proven to effective in treating a variety of ailments and illnesses

The report goes on to discuss the social impacts of cannabis that is well worth reading, and ends on this note:

“The growth of the cannabis economy presents opportunities for greater job creation, more tax revenue, and better patient care. But current conflicts between state and federal law threaten to impede social and economic growth. Going forward, lawmakers and regulators should prioritize solutions that promote greater research into the health effects of cannabis and reduce regulations that restrict the industry’s ability to conduct business.”

What are your thoughts on the report?

Do you have questions related to economic impact of the cannabis industry? Do you want to know how to share this information in an effective way before legislators and decision-makers? Contact Ashley at ashley@ampublicaffairs.com to discuss.

How Has California’s Legal Cannabis Market Performed in the First Quarter of 2018?

Photo by Carlos Muza

On Tuesday, the Sacramento Bee reported that in the first few months of legalized adult-use, gross retail sales of cannabis is about 13% or $44 million lower than original state estimates. While this may seem disconcerting to some, there are several key caveats to the data.

First, licensing agencies are currently in the process of reviewing and approving temporary and annual licenses for businesses across the supply chain. In the 2017-18 California State Budget, the Legislature approved several million dollars and hundreds of positions to staff the three main licensing agencies and various support departments. Despite this influx of resources, the state is currently in the process of hiring the necessary staff to process the thousands of applications received since January 1. As the state hires additional staff, the industry can expect to see more licenses approved and a potential increase in overall amount of retail sales.

Second, many in the industry cite the high regulatory fees and tax rates as a serious impediment for businesses that seek to enter into the legal market. As we covered here, several California legislators have called for an immediate and temporary reduction in the cultivation and excise tax rate with the intent of leveling the playing field for business in the legal market. The California Growers Association estimates that with tax rates averaging between 40% – 60%, legal retailers find it extremely difficult to compete with the illicit market. AB 3157, which attempts to provide some relief by suspending the cultivation tax and lowering the excise tax from 15% to 11% for three years, is up for its first committee hearing April 23, in the Assembly Revenue and Taxation Committee.

Finally, the refusal of local governments in many parts of the state to allow cannabis businesses to operate has created what some have called a “pot desert.” On Tuesday, the OC Register unveiled a database that showed that nearly one in seven California cities had approved the retail sale of cannabis within their boundaries. The data also showed that in certain parts of the state, consumers are required to travel fifty miles or more to purchase from a licensed or recreational retailer. This inability for consumers to purchase cannabis products from licensed retailers close to home frustrates efforts to create a truly statewide legal adult-use system.

Despite the seemingly lower than expected economic activity in the newly legal cannabis market, there is reason to be optimistic for the foreseeable future. Stayed tuned for future updates on the status of the California’s cannabis industry.

Questions about any of the topics covered in this post? Contact us here or at info@thecannabisfile.com.