At yesterday’s press conference, Sean Spicer said “There’s still a federal law that we need to abide by when it comes to recreational marijuana and other drugs of that nature.” In essence, the new administration is saying that they will not take the same hands off approach to marijuana that Obama took. What will actually happen? There are 5 steps everyone in the industry should take today.
Marijuana is big business in Colorado generating millions in tax revenues, jobs, real estate investments etc… so any change in federal policy could be disastrous to the industry. This will not only affect Colorado but 8 other states with recreational marijuana.
Here are some various scenarios that could happen.
- Blowing Smoke: Like many of Trumps plans, he lobs ideas out and doesn’t actually act on them. In essence, he put everyone on notice but doesn’t take further action
- Cease and desist: He directs the attorney general to send cease and desist notices to states/marijuana growers and revoke the “holder memo” This could effectively shut down the industry with little effort
- Actual enforcement of federal law: I think this would be difficult since the cat is out of the bag. If this scenario were to happen there would be fierce resistance from the states.
The million dollar question is which of these scenarios will play out. I lean towards the blowing smoke for now since I’m not sure from a strategic perspective Trump would gain by stepping up enforcement. But with his erratic governing style there might not be a rational decision made. As a result I put together five steps that everyone in the industry should take now.
5steps to take today:
- General Purpose: Ensure whatever your property is that it is generic with alternative uses, if the industry gets clamped down you want to ensure that the real estate still has substantial value that can be leased or sold to other businesses.
- Minimize specific tenant improvements (electricity, hvac, etc…): Many of the tenant improvements put into buildings are useless to other tenants, what if an executive order came down tomorrow severely clamping down on the industry, what do you do with all the infrastructure?
- Look at lower cost production methods like greenhouses: The cheaper you can produce the better with the lowest amount of overhead.
- Banking will not change soon, make sure you are prepared, statements from the executive office further chilled the ability to solve the banking issue. Don’t look for any changes soon in the federal statutes to help the banking situation. The announcement today actually made things substantially worse.
- Make sure you have ample liquidity: Liquidity will be critical to ride through any crisis if cease and desist notices are given or there are other business disruptions. Liquidity should be increased for everyone related to the industry.
Marijuana is in the age of uncertainty with the recent statements from the executive branch. As more states were coming online this year I was optimistic that regulations would “catch up” with what is actually occurring in the markets
Sources:
- Bloomberg: https://www.bloomberg.com/politics/articles/2017-02-23/ban-on-recreational-marijuana-to-be-enforced-white-house-says
- The Denver Post: http://www.thecannabist.co/2017/02/23/sean-spicer-marijuana-medical-recreational-trump-administration/74255/
- Bloomberg: Marijuana industry angered by white house reversal: https://www.bloomberg.com/news/articles/2017-02-24/marijuana-industry-angered-by-white-house-reversal