Cannabis Products - Explosion - or - Damp Squib?

Marijuana is the Mexican word for Cannabis.

Many people are wondering where the legal cannabis products are that were predicted to flood the market following Canada’s legalisation of recreational cannabis in September 2018.

The hold up is caused by unclear regulations and high taxation.

To say legal cannabis sales in California have been disappointing is an understatement. The first full year of recreational legalization brought in a little over $350 million in taxes, well short of the projected $643 million.

The black market is still flourishing in the Golden State, and legal cannabis entrepreneurs are having a hard time getting their businesses up and running.

In the U.K., medicinal cannabis was legalised from September 2018 for certain medical conditions like epilepsy to be prescribed only by authorised medical specialists. But few are prescribing. As the cannabis medication is free through the NHS, price to the user in this instance is not a factor.

That's the bad news.

The good news is that there is time to right the situation, and we are starting to see that in California.

Lawmakers in other states can look to the troubles in California and learn what not to do

If Governors Andrew Cuomo (New York) and Phil Murphy (New Jersey) can get this right, these could be two huge cannabis markets.

The winning playbook is out there for cannabis regulations, and politicians and lawmakers just need to be able to execute on it.

Here’s what went wrong in California, and here’s how lawmakers in other states can get it right…

One of the problems in California is dual licenses – the requirement of having permission from the state and the city to operate.

“I think we all wish we could license more businesses, but our system is based on dual licensing and local control,” said Alex Traverso, a spokesman for the state Bureau of Cannabis Control.

With such restrictions, only 547 temporary and annual licenses were given to California dispensaries and cannabis retail stores. State officials estimated there would be 6,000 licensed shops in just a few years, so they have a long way to go.

And for cannabis growers, it’s been no picnic working with California regulators. In the first year of legalization, a little over 2,000 growers were registered with the state. That’s far below the estimate of the 5,000 commercial growers that were expected.

As well as too much red tape, taxes & fees on cannabis are out of control. The criminal gangs will be rubbing their hands with glee. A lucrative market they thought they were going to lose, will still be open for their exploitation with lower prices through corner cutting on production standards, regulation laws, and tax avoidance.

Javier Montes, the owner of Delta-9 THC in Wilmington, California, told the Los Angeles Times that he must pay a 15% excise tax, a 10% recreational marijuana tax to the city of Los Angeles, and a 9.5% tax in sales to the county and the state.

The excessive taxes and fees could drive up the cost of legal cannabis in some parts of California to as much as 45%, according to credit ratings firm Fitch Ratings. In Oregon, for example, state and local taxes are capped at 20%.

With taxes so high, that means cannabis users stick to the black markets. Not only does that hurt sales for legal cannabis operators, but local and state police must focus on stopping illegal marijuana transactions.

In the end, with a complicated framework and too many taxes, no one wins. The consumer turns to the black market, dispensaries go out of business, and the promises politicians made with what they would do with the tax revenue from legal cannabis go unfulfilled.

Learning from California’s Mistakes

Let’s hope New York and New Jersey can learn from these lessons, and I still believe California will get its act together.

Remember – an effective cannabis regulatory framework allows for more legitimate companies to enter new markets. Dispensaries can expand from just a handful of locations to dozens or even hundreds when a state knows what it is doing.

If investing in cannabis companies is anything to go by then the volumes of cash flooding into stocks and shares in the cannabis sector indicates huge expectation, and will bring pressure to overcome the regulatory and taxation hold up and ensure these problems will be overcome.

As former Speaker John Boehner said, HUGE institutional investors are set to push billions of dollars into the legal marijuana market.And money talks.