ACT Resources Cannabis News – July 2019
In this month’s cannabis industry news update, there’s a lot to celebrate. The cannabis industry is the fastest growing in the country and, despite the regulatory obstacles posed by the ongoing federal prohibition, there’s a great deal of activity to prove it. From the FDA’s evolving approach to regulating the Cannabidiol (CBD) industry to Congressional moves to protect state-legal cannabis businesses, the industry continues its fight to gain acceptance from the federal government. In the meantime, cannabis business deals continue to pick up pace, creating new jobs and attracting investment. Here’s a look at what’s going on in the cannabis industry today and what to look forward to in the second half of 2019.
House votes to block federal enforcement actions against state-legal cannabis businesses
On June 20, the House of Representatives approved an amendment to the annual appropriations bill that would prevent the Department of Justice from enforcing the federal prohibition on cannabis against businesses that are compliant with state law. The amendment expands the existing Rohrabacher-Blumenauer rule that prevents federal enforcement actions against state-legal medical cannabis businesses to include state-legal adult use cannabis as well.
The amendment, put forth by Reps. Earl Blumenauer (D-OR), Eleanor Holmes Norton (D-DC), and Tom McClintock (R-CA), defunds any attempts by the Department of Justice to target legally-operating cannabis businesses. It passed easily on the floor of the House with a vote of 267 to 165. Many advocates are pointing to the success of the amendment as a bellwether for changing attitudes toward cannabis on Capitol Hill, and many hope it could be a sign of good things to come in terms of changes to federal policy governing the industry.
This is great news for adult-use cannabis businesses which, until now, have been dependent on the continued hands-off approach taken by the federal government. The amendment supports that hands-off culture by linking it to Congress’s power of the purse; even if the Department of Justice were to change its attitude toward state-legal cannabis businesses overnight, the money to pursue enforcement actions against them is simply no longer available to do so.
Cannabis industry sets half-year investment record of $1.3 billion
Thus far, 2019 has been yet another record-breaking year for the cannabis industry in terms of capital investment. This milestone signals the fourth straight year in which cannabis investment activity has increased, growing from just $175 million in all of 2016 to an estimated $1.3 billion in the first half of 2019. Last year, cannabis businesses courted just more than $1 billion in capital from private investors, a major milestone in itself. The new numbers suggest the industry is on pace to double that haul if investment activity continues unabated.
It’s not just the value of the deals that are increasing, but the number of deals themselves. In 2019, there have been more individual investment deals per quarter than any year before. In the first two quarters of this year, there were 60 deals on average each. That’s up from about 40 deals per quarter in 2018. The influx of institutional money, even in the uncertain federal climate, is a major sign that the cannabis industry is healthy and growing.
As the FDA decides on CBD regulations, the House urges the agency to move forward
Last month, the FDA concluded public hearings on the CBD industry and how it should be regulated in the wake of the 2018 Farm Bill. At the same time, the House of Representatives was busy discussing federal cannabis policy and approved an amendment insisting the agency prioritize the adoption of regulations for adding CBD to foods, beverages, and dietary supplements.
The amendment, which was introduced by Rep. Jerry McNerney (D-CA), instructs the FDA to “undertake a process to make lawful a safe level for conventional foods and dietary supplements containing [CBD].” The topic is currently hotly debated amongst the FDA and advocates because CBD’s status as a primary ingredient in the anti-convulsant pharmaceutical Epidolex has created issues surrounding its use in publicly available foodstuffs.
The amendment from the House is a significant step forward because it signals the chamber’s desire to see reasonable regulations adopted that allow CBD to be used in edible products. While the FDA still has to deliberate about the precise regulatory framework it wishes to adopt, lawmakers expressing support for a CBD industry that includes foods, beverages, and dietary supplements appears to be an encouraging move for CBD brands everywhere.
Recently, the FDA signaled that it received the House’s message loud and clear. The agency said it is speeding up the review process to determine the regulatory framework that will be used for the CBD industry. In a series of tweets, FDA Acting Chief Information Officer Amy Abernethy called CBD regulations “an important national issue with public health impact” and “an important topic for American hemp farmers and many other stakeholders.” The agency could have a progress report ready as soon as early fall.
Illinois legalizes adult-use cannabis
On June 25, Illinois became the 11th state to legalize adult-use cannabis and the first to legalize both cannabis and the sale of cannabis-derived products through its legislature. With the signature of Gov. J. B. Pritzker, sales of cannabis products are expected to go on sale as soon as Jan. 1, 2020. The law allows adults aged 21 and over to purchase and possess up to 30 grams of cannabis. Non-residents will also be permitted to buy cannabis under the state’s law, although only in amounts up to 15 grams.
In addition to the legalization measures, Illinois’s law includes an automatic expungement provision that will help take non-violent possession convictions off the books. An ABC News estimate suggests automatic expungement could impact about 770,000 state residents. Moreover, the law includes measures that would direct public investment from cannabis-derived revenue to communities disproportionately targeted by the War on Drugs. After the costs of expungement have been covered, 35 percent of the funds would go to the state’s general fund, while 25 percent are directed into a community reinvestment grant program. An additional 20 percent would be earmarked for mental health and substance abuse services as well.
Illinois’s legalization of cannabis is yet another in a long line of legalization efforts aimed at normalizing cannabis businesses and spurring on state economies. With federal policy moves now bolstering these state legalization efforts, the industry appears more capable than ever to capitalize on the momentum.
The cannabis industry continues driving job growth
As the cannabis industry grows, so too does the number of jobs it has created. Through 2018, cannabis jobs nationwide grew by 44 percent, reaching roughly 300,000 jobs in total. Not only is the industry creating jobs, but good jobs; cannabis-related positions pay 10 percent higher than the median salary across all other industries. This trend is only expected to continue as more states legalize cannabis, creating new markets and spurring on startup development.
One of the most common entry-level positions in the cannabis industry is that of “Budtender,” the staff that work directly with consumers at cannabis dispensaries. Depending on the region, these employees earn between $12 and $16 per hour. The most well-paid positions in the cannabis industry can bring home well into six figures, however, and include cultivation facility managers and extraction directors. Among the job count for the cannabis industry are also positions that were indirectly created and don’t involve touching the plant at all. These include professional service employees, such as marketers, attorneys, and accountants.
As the cannabis industry continues to grow and attract outside investment, the amount and quality of the jobs it can offer continue to expand as well. The ongoing trend of state-by-state legalization only compounds this job growth and, with federal lawmakers warming up to the idea of a nationwide legal cannabis industry, explosive growth could be on the horizon. As you continue to do your part building the legal cannabis industry, you need an experienced and knowledgeable partner who can help guide you through the nuances of finances and accounting. ACT Resources has been intimately familiar with the cannabis industry and stands on the frontlines of growing the space. If you’re in need of accounting assistance, don’t wait – ACT today!