Cannabis Musings - April 10, 2024
You gotta have faith.
Friends, U.S. cannabis is a faith-based industry. We have faith that the Department of Justice and Drug Enforcement Agency aren’t going to shut it all down tomorrow. We have faith that states are going to see the light and open up more cannabis markets. We have faith that consumers will eventually appreciate and choose the variety and safety offered by licensed, tested cannabis over the alternative. We have faith that we made the right choice.
And yet, that faith is challenged on a daily basis. Today’s test of our faith comes in the form of news that the U.S. Customs and Border Protection agency is reportedly stopping trucks in New Mexico at customs checkpoints within the State and seizing state-licensed cannabis. The report notes that these are not U.S.-Mexico border checkpoints, but instead are inland, within an area where CBP still has jurisdiction.
Notably, as the article relates, CBP is part of the Department of Homeland Security, separate from the Department of Justice. This matters for a few reasons. First, it means that the so-called Rohrbacher-Farr Amendment (it’s “so-called” because the introducing sponsors of the language have changed over the years, but the name stuck) that prohibits the use of federal funds to interfere with state cannabis laws only applies to the DOJ (although New Mexico has adult-use cannabis, so that protection is of limited use anyway in that State). So, CBP likely has every right to take these actions (though I haven’t researched this, and I wouldn’t give legal advice on it even if I did).
Second, it suggests that the CBP may just be “going rogue” here relative to the DOJ’s continued three wise monkeys approach to state-licensed cannabis. We have faith, and yet, we have doubt. Is this the signaling of a shift in federal policy towards state-licensed cannabis? Or is CBP a longer, reader. A rebel.
Perhaps our faith in the federal government has been too strong. Consider, say, SAFE® Banking, which may or may not someday become law (I wouldn’t bet on it. Oh, wait, I did!). Or how the FDA punted on regulating the use of hemp in consumables. Or how we still haven’t seen a DEA decision on rescheduling (although, relative to history, it hasn’t been that long yet), or a new Farm Bill, which was supposed to be renewed last year, that may or may not potchkeh intoxicating hemp.
Consider the halcyon days of 2017-2020. Money flowed into the industry like it was going out of style. Stock valuations soared (at least until mid-2019) fueled by that cash burn. Companies threw around stock (and plenty of cash) to fund acquisitions in order to establish footprint (geographical presence). Indeed, the modus operandi of too many multistate operators was to be the biggest, most delectable target for multinational CPG companies to acquire with their own cheap capital as soon as legalization hit, regardless of things like operational efficiencies, interstate integration, fiduciary duties, operating margins, profits, thoughtful use of capital, you get the point.
For a while, federal legalization seemed like an inevitability. Particularly when the Democrats took the Senate in the 2020 race, and the industry thought that, with the filibuster eliminated, legalizing cannabis was all but guaranteed. Well, az men maint, genart men zich (“to assume is to be deceived.”). Now, as MJBizDaily is reporting, MSOs are scaling back their footprints, selling off assets and pulling out of certain states.
This discipline is good for the industry, in my opinion, as is the dose of reality. I’m more pessimistic than Jared Polis, Governor of Colorado, who reportedly likened each step of progress to “dominoes” towards federal legalization. I suppose that’s true, and I’m certainly proud of the industry’s progress towards changing the narrative and the nation’s mindset towards cannabis. However, I’ve grown less optimistic over the years that any fundamental change on the federal level will happen any time soon (rescheduling being the exception, because that process is driven by the Executive Branch).
And yet, despite our doubt, our faith persists. We get knocked down, and then we get up again.
Be seeing you!
© 2024 Marc Hauser and Hauser Advisory. None of the foregoing is legal, investment, or any other sort of advice, and it may not be relied upon in any manner, shape, or form.