Deemed Essential: Cannabis CEOs Say Coronavirus Crisis Will Accelerate Legalization
After the Great Depression, the federal government focused on creating tax revenue by lifting the prohibition on alcohol, which created a much-needed infusion of for the federal and local governments.
Cannabis CEOs anticipate the same thing will happen with pot as the coronavirus devastates the economy. They expect cannabis to be legalized by the federal government as part of rebuilding the U.S. economy after the pandemic crisis.
CNBC interviewed cannabis investor Matt Hawkins and the heads of U.S. based cannabis producers Cresco Labs, Curaleaf, and Green Thumb Industries ahead of April 20, also known as “4/20”.
March was a record-breaking month for dispensaries in the 33 states around the U.S. where cannabis is legal for medical use. Eleven states and D.C. have legalized recreational marijuana.
Most U.S. states designated medical marijuana companies as “essential” during the coronavirus pandemic. Eight have allowed that designation for legal sale of recreational weed, according to a tally by Marijuana Business Daily.
About 90 percent of cannabis sales go untaxed in the illegal market, according to Cowen research. The U.S. cannabis market is worth an estimated $56 billion in 2020.
“When we all start to be able to lift our heads from this COVID experience, we are going to be faced with a scenario where a lot of jobs have gone away, a lot of economic development impact has disappeared,” said Charlie Bachtell, CEO of Cresco Labs in a CNBC interview. “How are we going to bring that back? I think cannabis has to be part of that discussion.”
Boris Jordan, the executive chairman of Curaleaf, talked about the history of prohibition and the Great Depression. “One of the programs by the federal government right after the Great Depression was to focus on tax revenue generation,” he said. “They lifted prohibition on alcohol and therefore started to tax it — and it became a major revenue generator for both the federal and the local governments around the country.”
Weekly sales in March 2020 exceeded $134 million in California, Washington, Nevada, and Colorado. That was 17 percent more than the weekly average in 2019. The average purchase also increased by 47 percent in the second half of March. The data makes the best case for legalization, said cannabis investor Matt Hawkins.
“We have been deemed essential, why are we not legal?” said Hawkins, managing partner of Entourage Capital, a private equity firm with $200 million invested in cannabis producers including Green Thumb Industries. “There is going to be a need for increased tax revenue and where else to look but at a legalized industry like cannabis, that is one of the few growth sectors in the world right now.”
In the U.S., where access to capital has been difficult due to the prohibited status under federal law, the CEOs agree that U.S. producers need to be able to access capital markets and list on U.S. exchanges. New legislation is needed to allow cannabis companies to open bank accounts and accept credit cards. The proposed SAFE Banking Act is in the works.
Listen to GHOGH with Jamarlin Martin | Episode 70: Jamarlin Martin Jamarlin goes solo to discuss the COVID-19 crisis. He talks about the failed leadership of Trump, Andrew Cuomo, CDC Director Robert Redfield, Surgeon General Jerome Adams, and New York Mayor de Blasio.
The market upheaval that has accompanied the COVID-19 pandemic makes a bad problem worse, Hawkins told Marketwatch. “For more than a year now, we’ve had a distressed marketplace, for no other reason than it’s capital-starved,” Hawkins said.
Green Thumb, Curaleaf and Cresco shares have all lost 60 percent of their value or more over the past year. However, the public is underestimating the impact a legal cannabis industry could have on other parts of a post-pandemic economy, said Ben Kovler, CEO of Green Thumb.
“To stand up a brand new consumer product business that big, people don’t understand that yet,” said Kovler. “Literally $300 to $500 million dollars in capital expenditure in Illinois alone to build the facilities — lots of labor, lots of steel and concrete, HVACs, jobs, massive real estate demand. It’s a big, big industry.”