The Highs and Lows of the Cannabis Industry: Should You Invest?
Is the Cannabis Industry Just Like Any Other Business?
Jana Weltzin gives insight into the controversial, yet ever prevalent topic: the legality of cannabis. With its neighbouring sister Canada legalising cannabis, Jana touches on the various states in the US to which cannabis is legal, and how the cannabis industry presents unique challenges to business owners in this field, and the advantages of investing in this sector.
“When Alaska legalized recreational cannabis in 2014, I felt the call to return home. I was actually born and raised in Fairbanks, Alaska, but I started my law practice in Phoenix, Arizona representing medical marijuana non-profit corporations and related marijuana businesses. I decided to leave my previous firm to venture out and start my own firm when my home state of Alaska legalized the recreational use and sale of marijuana and marijuana products. My firm, JDW Counsel, quickly grew and now represents over 100 marijuana businesses across the United States of America in one of the most uncharted and highly regulated industries we have seen in our lifetime.
“As soon as legalization was on the horizon in Alaska, I started to prepare myself to become my own business owner – I figured if I was going to help new start-ups in a highly regulated and highly controversial market, I was going to need to know how to navigate the start-up world first hand, to provide real value to my client base; I was honoured to be chosen by them to guide them to start up success.”
Using social media, like most businesses these days, to communicate with one’s customers, is a challenge in itself.
In what ways is the marijuana sector similar to any other business? Alternatively, in what ways is this industry different?
In Alaska, we only have recreational marijuana commercialized, not medical, unfortunately. Operating in the legalized marijuana sector has many similarities to running any other business; you have employees, HR issues, PR issues, marketing and market share challenges, competition challenges, and the list goes on.
But, operating in the marijuana sector is vastly more challenging and complex than most industries. The regulations that govern these businesses are ever evolving, placing one regulatory hurdle and challenge on these new business owners after another. Using social media, like most businesses these days, to communicate with one’s customers, is a challenge in itself. Balancing the shut down of marijuana companies’ social media accounts (resulting in starting from ground zero on followers) to ensuring you’re complying with advertising regulations that are vague and unevenly enforced is a constant battle. Coupled with the negative impact of 280E (an Internal Revenue Code provision that disallows regular business expenses, except for the costs of the goods sold from being deducted if you’re operating a marijuana business), lack of banking access, and the constant struggle with cash management, operating a marijuana business has an extraordinary level of added stress and expense that most starts-up are spared from. Despite the surmounting challenges (not to mention the looming fear of federal enforcement), marijuana start-ups are surprisingly resilient, surviving, and in many cases, actually thriving.
What are the important regulatory requirements needed for business people to establish their own recreational cannabis company?
That is a huge question that cannot be summed up in a few sentences, simply because there are so many regulatory requirements, and the requirements change state to state and even city/county to city/counties in the same state. If you’re seriously interested in getting in the business and doing it successfully, you need to hire a lawyer in your area that has been making it their business to follow and participate in the regulation drafting process, the zoning and local ordinances, and knows business law. Without a lawyer who has worked to obtain the knowledge above, you will be starting your new venture on very shaky grounds.
There are many regulatory barriers that you have to meet and exceed before the marijuana control board will allow you to be an owner of the marijuana business.
Once established, how can companies progress well in this industry?
Branding. You need to establish solid branding and start engaging in licensing agreements with other companies in other states. Once marijuana legalization goes federally legal, all of the micro marijuana businesses that have sprung up due to state by state legalization, are going to be in a precarious position: these micro business need to be either relevant enough to be bought out by the big dogs that will come into the marijuana sector once its federally legal, or strong enough to sustain its business viability in an interstate cannabis market.
Another important self-preservation step cannabis businesses should be taking, is making it clear to their local and federal lawmakers that when federal legalization occurs, there will be some protection for the existing cannabis businesses that have sprung up via the unique opportunity state by state legalization has provided for this sector.
If done correctly, what are the advantages of investing in the cannabis industry?
There are many pros and cons in investing in the marijuana industry; for a state program, like Alaska, there are many regulatory barriers that you have to meet and exceed before the marijuana control board will allow you to be an owner of the marijuana business.
A long story short: you need a lawyer who is competent in marijuana business law, it’s such a unique legal framework that it is so easy to mess up and cause massive unrepairable damage.
Currently, the marijuana market is largely undervalued, as the threat of federal criminal charges is a large discount factor on a marijuana businesses’ valuation: meaning that you can get in for less and get more bang for your buck. Other good (and safer) investments hinge on the “picks and shovels” of the industry, HVAC, engineering, lights, nutrients, etc. Recently, we have seen an uptick in Canadian based marijuana companies stock values, those businesses are new, and time will tell if they will succeed, but for an investor that is looking for a step away from the normal ebb and flow of typical stocks, these have been gaining momentum and venture capitalist interest. However, there is a ton of snake oil out there, many con artists and tons of folks that overstate the stage of their business, in hopes of gaining investors to move forward. A lot of folks have lost a lot of money by investing in companies that have not been fully vetted. Due diligence is essential to not losing all in this business.
Are there any legislations or regulations difficult for your clients to get around? How should they work around such hurdles?
Too many to count! A long story short: you need a lawyer who is competent in marijuana business law, it’s such a unique legal framework that it is so easy to mess up and cause massive unrepairable damage; an experienced lawyer is essential to guide you through this budding industry.
3003 Minnesota Drive, Suite 201
Anchorage, Alaska 99503
Though still a young firm, JDW Counsel has managed to be one of the top legal leaders in the marijuana industry nationwide – the firm assists companies in OR, AZ, AK, and WA. Jana Weltzin has been named one of the top 40 most influential people in the cannabis industry nationwide, in the leading publication Marijuana Venture in 2017.
She is also a founding board member of the Alaska Marijuana Industry Association, maintains an appointed seat on the local platting board and continues to expand the firm through strategic alliances and political relationships.