Massachusetts Tracker
Massachusetts had a record July with sales increasing $5 Million from the month prior. In addition, the state had its highest week of cannabis sales ever at $29 Million. MA has an annual run rate of $1.24 Billion which has been increasing as the growth continues. The Cannabis Control Commission will be holding a meeting today to discuss licensing for cannabis companies in the state. Additional information can be found on their website.
A summary of Cannabis Administration & Opportunity Act
Over the coming months, we will be digging into the Cannabis Administration and Opportunity Act (CAOA) with the help of various professionals across the spectrum of the Cannabis industry. The CAOA presents a framework for the regulation of cannabis at a federal level. The current draft covers various issues, including de-scheduling of cannabis, the designation of regulatory agencies to oversee, creating opportunity funds, and expungement of cannabis convictions. The bill does have strengths, but it also has several obvious shortcomings. Initially, we will go through each section individually and discuss the political implications the bill may have but will have more detail as we head into the fall. We found the CEO of Verano, George Archos, who gave Politico a summary of the current version to be an accurate depiction of where we currently stand: "It's another positive incremental step for cannabis. It's a piece of legislation that has been talked about very widely. Do I think it passes the way it sits? Most likely not. There are so many hurdles to overcome. But it's a bill that can be discussed. We need some negotiations around it. And I think some components of that bill can pass, which is a positive for the industry. As time goes on, we'll get a little bit more and a little bit more.
Taxation:
The legislation proposes a 5-year plan in which the first-year tax rate is 10%, and each year thereafter, it increases by 5% until it reaches a maximum of 25%. Operators with less than $20 Million in annual sales will be eligible for a 50% tax credit to assist small businesses. This taxation plan has received some criticism as it has been called overly complex, but it will allow the legal cannabis market to ramp up effectively. The industry is likely to oppose this part of the bill and fight for significant change.
Criminal Expungement:
The bill states that each district must expunge any arrests or convictions for nonviolent federal cannabis offenses within a year of its enactment. Anyone currently serving a cannabis-related sentence will be allowed to petition for a reduced sentence. This part of the bill is one that many republicans are not in favor of, but democrats will not entertain a bill without expungement.
Investment in Communities Impacted:
The bill provides a set of grants to support communities most impacted by the war on drugs. In addition, individuals from these communities will be waived from paying any application fee for a cannabis license and will not be negatively affected for licensure if they have past cannabis-related criminal records.
Regulation:
The bill transfers oversight from the DEA to the Bureau of Alcohol, Tobacco, Firearms and Explosives, the Department of Health and Human Services, and the Department of Treasury. The FDA will also be responsible for enforcing standards on cannabis products like regulating alcohol and tobacco. As a result, there needs to be increased clarity around the FDA's role in regulating cannabis.
Consumer Protections:
The bill also protects consumers because individuals cannot be denied federal public benefits based on cannabis usage. In addition to this, agencies cannot use past use to deny security clearances. According to New Fronteer, this bill is expected to bring in $19 Billion a year in federal tax revenue by year 5 based on the proposed 25% tax rate. In comparison, alcohol brings in approximately $9.5 Billion a year in tax revenue, and cigarettes bring in $12 Billion. This tremendous tax revenue can be seen as a win for many politicians and fund various government projects.
The bill did leave some things vague such as the online sales or delivery services. If left unaddressed, the vague provision would predictably impact delivery services, e-commerce, and online retailers. The legislation also offers little insight into vape products. For example, it does not specify if the same restrictions on flavors will apply to cannabis vapes that apply to nicotine vapes. Health Canada does not allow any flavors in vapes except for the natural flavor of cannabis. The US will likely adopt a similar policy but should be explicitly stated in the bill.
The bill provides insight into how moderate democrats are approaching legalization, but far-right or left positions have not been voiced. For example, many lawmakers on the right are strong proponents of no type of social reform and expungement, while members on the far left won’t even look at a bill without these components. In addition, some Republican lawmakers have introduced legislation to prohibit individuals receiving federal financial assistance from using those funds for cannabis-related purchases, likely in conflict with the consumer protections proposed in the bill.
Given the bill’s lack of popularity between the far right and far left indicates it will likely not get past the 60-vote requirement in the Senate. The bill is an excellent step towards legalization, but in its current state, it will face opposition. Therefore, we believe that SAFE Banking is a better alternative that has more support on both sides. The SAFE bill has 37 total sponsors, nine of which are republicans. Therefore, it is much more likely to get past the Senate filibuster to provide cannabis companies the banking support they desperately need as a much more supported bill.
More to come.
