Marijuana Moment

Three Federal Reserve Bank presidents united in a call on April 3, 2019, for clarity on rules for providing financial services to the marijuana industry.

During a panel at the American Bankers Association Summit, the federal executives were asked about how financial institutions are expected to manage conflicting state and federal cannabis laws. All three stressed the need for a resolution to how the growing gap between state and federal marijuana laws has created difficulties for bankers and cannabis businesses alike.

Tom Barkin, CEO of the Federal Reserve Bank of Richmond

Esther George, who runs the Federal Reserve Bank of Kansas City

Raphael Bostic, CEO of the Federal Reserve Bank of Atlanta

“For better or for worse, we're responsible to follow federal law, and so we would very much like to have clarification on this,” said Tom Barkin, president of the Federal Reserve Bank of Richmond, Virginia. “Whatever legislative answer gets us to clarity would be our preferred outcome.”

Esther George, who runs the Federal Reserve Bank of Kansas City, Missouri, added that “the reality on the ground is there are businesses that are considered state-legal around this substance, and the money that is generated from that again, is a challenge for the banks.”

Choosing to service a marijuana business is “not an easy judgment for the banks to make,” she said. “They deem what's the level of risk — how do I apprise for that, how do I manage that? I think that it is particularly challenging for them, so I look forward to that resolution that provides more clarity to the bankers.”

What advice would George offer financial institutions interested in accepting cannabis business accounts?

“Do your homework,” she said. “This is a case where you have to know your customer and you have to weigh the risk of what you're worried about could happen around this.”We have to get reconciliation across federal and state law ultimately to make this work.

“We have to get reconciliation across federal and state law ultimately to make this work. In the meantime, you're going to have some of these challenging situations.”

An 'Impossible Situation'

Raphael Bostic, president of the Federal Reserve Bank of Atlanta, put the situation into starker terms. Existing federal cannabis laws put banks “in an impossible situation because we don't actually have a vote at either level but are asked to sort of navigate in this middle space,” he said.

“There's not really a clear thing for us to say — we can't give anyone 100 percent certainty in terms of how this is going to turn out,” Bostic said. “I do hope that we get some legislative clarity sooner rather than later. I would love some resolution, one way or the other, as soon as we possibly can because this is only becoming more prominent.”

Watch video of the Federal Reserve Bank officials discussing marijuana, around 49:00 in this video.

The branch presidents echoed what other top federal financial officials have said in recent months. Treasury Secretary Steven Mnuchin told senators that “this issue needs to be resolved one way or another because there are conflicts in so many regulations and rules and everything else” during a hearing in March 2019.

Another Treasury official similarly told lawmakers that “this is really something I think that Congress needs to look at because nothing that we do can or does change what is prohibited under federal law.”

A resolution might be on the horizon after the House Financial Services Committee approved legislation that would shield banks servicing cannabis businesses from being penalized by financial regulators. That bill is now awaiting scheduling for a full House floor vote.


One Wall Street firms thinks cannabis could leave the soda industry eating its dust.

Having long been considered a taboo industry, cannabis is no longer. Last year, Canada became the first industrialized country in the world to legalize recreational weed, and just weeks later a handful of U.S. states gave the green light to medical or adult-use pot during midterm elections. Today, two-thirds of U.S. states have approved marijuana in some capacity, with 66% of respondents polled in Gallup's October 2018 survey favoring the idea of legalizing marijuana.

As the cannabis industry sprouts, investors have taken notice. Last month, 15 pot stocks rallied by at least 50%, with many of the largest marijuana stocks up by a high-triple-digit or quadruple-digit percentage since 2016 began.

But with these monstrous gains, we have to ask: How big could the marijuana industry actually be?

A clear jar filled with trimmed cannabis buds, sitting atop a neatly fanned pile of twenty dollar bills.

Three lofty global sales estimates for the weed industry

Right now, there are three pretty lofty estimates from industry pundits and Wall Street analysts. The first comes courtesy of a co-authored report "2019 Update to the State of Legal Marijuana Markets," from Arcview Market Research and BDS Analytics. After delivering $6.9 billion in global sales in 2016, $9.5 billion in worldwide revenue in 2017, and an estimated $12.2 billion last year, global sales are expected to grow 38% in 2019 to $16.9 billion, and hit $31.3 billion by 2022. That's a compound annual growth rate of 26.7% between 2017 and 2022.

A second lofty estimate comes from Cowen Group sector analyst Vivien Azer. In September 2016, Azer and her team released a 110-page report, "The Cannabis Compendium: Cross-Sector Views on a Budding Industry," that outlined a trajectory to $50 billion in global sales by 2026. However, in April 2018, Azer updated Cowen's outlook for the cannabis industry by increasing its forecast to $75 billion in global sales by 2030. According to Cowen, the global pot industry is already worth $50 billion, inclusive of black market channels. Factoring in per-capita spending of $1,500 a year and 35 million annual pot users, $75 billion in global weed sales appears reasonable.

The third estimate, which came out this past week, is courtesy of Wall Street investment bank Jefferies and covering analyst Owen Bennett. Per Bennett, the global cannabis market, which includes sales estimates for 22 countries, should grow from $17 billion in 2019 to $50 billion by 2029, closely matching Cowen's initial estimate for 2026. Bennett's research note suggests that $19 billion of this will be derived from the medical marijuana market, with $31 billion in worldwide revenue coming from adult-use pot.

However -- and this is a pretty big "however" -- Bennett believes the global cannabis industry has the potential to grow to $130 billion in annual sales. That would mean the weed industry could practically double up the soda industry in about a decade, and may give the alcohol industry a run for its money, depending on whether consumers trade off alcohol consumption in favor of cannabis use.

A street sign that reads, risk ahead.

What could go wrong?

While there's certainly a path to rapid sales growth, not even the marijuana industry is impervious to "hiccups" and speed bumps. Here a few things that could go wrong and keep the industry from reaching these lofty estimates.

1. Cannabis taxes could drive consumers back to illicit channels

The first concern is the taxation of recreational marijuana sales which, as noted, should represent a clear majority of global revenue in the decade to come. California, the fifth largest economy in the world by gross domestic product, has imposed a 15% excise tax, a cultivation tax on growers of $9.25 per ounce of cannabis flower, or $2.75 per ounce of cannabis leaves, and state and local taxes. Add this up, and some locales could be paying as much as 45% in aggregate tax on adult-use cannabis, which could wind up sending legal consumers back to illicit channels.

Remember, black market marijuana growers don't have to wait for cultivation and processing licenses or sales permits. They also won't be paying state income tax, federal income tax, or the cultivation and excise taxes imposed in the state. Illicit weed will easily undercut the Golden State's legal pot industry on price, and first-year tax revenue collection figures show this to be true. Having originally expected $643 million in full-year 2018 sales following the sale of adult-use weed in dispensaries, actual collection totaled just $345.2 million last year. If U.S. states or foreign markets fail to tax cannabis appropriately, it could seriously reduce the industry's potential.

California's problems are of particular concern to Origin House (NASDAQOTH:ORHOF), which has bet big on being a distribution kingpin in the state. Origin House has been gobbling up some of the smaller pot distributors in California, thereby nabbing the few distribution licenses outstanding. But if consumers aren't actively staying within legal channels, then rampant oversupply and reduced demand could sap Origin House's potential, at least over the next couple of years.

A black silhouette of the United States, partially filled in with baggies containing dried cannabis flower, rolled joints, and a scale.

2. Legalization in key markets are no guarantee

Second, these sales expectations assume that numerous countries will legalize weed in the intermediate future. However, this isn't a guarantee. Even with two-thirds of the U.S. population in favor of legalization, there are countless obstacles that'll prevent marijuana from getting the green light in the U.S. in the near term. For instance, Republicans have a generally poor view of marijuana, and since they control the Senate and presidency, no legalization appears likely before at least 2021.

Building on this point, legalizing marijuana in the U.S. would create revenue issues for the federal government. Currently subjected to Section 280E of the U.S. tax code, pot-based businesses are disallowed from taking normal corporate income tax deductions, save for cost of goods sold. This leads to high effective tax rates and much needed revenue for the federal government. Legalizing weed would no longer mean subjecting the industry to 280E, which would cost the federal government an estimated $5 billion in revenue over a 10-year period.

3. Regulatory red tape can cause problems

Even regulatory red tape in a legal environment could lead to problems. In Canada, regulatory agency Health Canada is contending with a monstrous backlog of cultivation licenses and sales permits. These sales permits were taking the agency an average of almost one year to approve, as of May 2018. Even when demand exists, regulatory red tape could keep the cannabis supply chain from realizing its full potential.

We've also witnessed this in action, with sales projections for Canopy Growth (NYSE:CGC), the largest pot stock in the world, falling dramatically. Although Wall Street sales estimates are pretty few and far between in the early going, Canopy's top-line consensus before its third quarter report were slashed by roughly 40% in lieu of cannabis shortages and regulatory issues in Canada. Mind you, this doesn't Canopy Growth won't be successful going forward. However, it does suggest that sales growth expectations may not be achievable in the near term.

Make no mistake about it: The marijuana industry will be huge, and it's here to stay. But also understand that it won't be a risk-free ride to riches.

It would also expunge criminal records related to weed.

Take Two

For the second time, Senator Cory Booker announced a bill to make recreational marijuana use legal across the entire U.S.

The Marijuana Justice Act, which Booker and Representatives Barbara Lee and Ro Khanna announced on Thursday, would not only legalize marijuana but also retroactively erase marijuana possession charges from Americans’ criminal records, according to Rolling Stone — a monumental shift in U.S. drug policy.

Party Lines

Cory Booker, a 2020 Democratic hopeful, first introduced a similar bill in 2017 that didn’t make it out of the Senate. Still, Booker has made it clear that a major component of his presidential bid will center around ending the War on Drugs, which has led to the over-policing and incarceration of racial minorities for nonviolent crimes.

“The failed War on Drugs has really been a war on people — disproportionately criminalizing poor people, people of color & people with mental illness,” Booker tweeted Thursday morning. “I’m reintroducing the [Marijuana Justice] Act to begin reversing our failed federal drug policies.”

So far, other Democratic candidates Elizabeth Warren, Bernie Sanders, and Kamala Harris have all co-sponsored Booker’s new bill, according to NPR. Meanwhile, Senator Ron Wyden introduced a similar bill earlier this month.

Righting Wrongs

A major component of the Marijuana Justice Act is its retroactive effect on people who were previously charged for marijuana possession and either served time in prison or are still incarcerated.

The American Civil Liberties Union (ACLU) reports that black people are four times as likely to be arrested for marijuana possession than white people, despite similar rates of drug use.

When various states have legalized recreational marijuana, it largely benefited wealthy, white business owners who opened up distribution centers. Meanwhile, black people continued to be arrested at higher rates and the predominantly-black cohort currently in prison remained there, Vox reports.

Left Behind

If Booker’s bill makes it through the Senate this time, those people wouldn’t be left behind.

The new bill would allow people currently in prison for possession to appeal for re-sentencing. People who already served time would have their criminal records expunged, according to Rolling Stone.

“It’s not enough to simply decriminalize marijuana. We must also repair the damage caused by reinvesting in those communities that have been most harmed by the War on Drugs,” Booker said in a statement sent to Rolling Stone. “And we must expunge the records of those who have served their time. The end we seek is not just legalization, it’s justice.”

There is consensus in the Garden State that marijuana should not be a crime but no agreement on how to legalize and regulate an enormous new market.

New Jersey Inches Closer to Legalizing Marijuana Without Voter Referendum.

The deal isn’t quite done. The details still needed to be hammered out. But it looks like New Jersey, the 11th biggest state in the country, may be on the verge of legalizing marijuana.

The operative phrase in the above is “may be.”

While Gov. Philip Murphy, a proponent of legalized marijuana during his campaign for governor, and leading state legislators have come to an agreement on a way to regulate and tax marijuana, more debate is expected as the state Legislature takes up the issue. At stake is what is projected as a billion-dollar marijuana industry in the Garden State. There are other ramifications as well, such as the fact that legal weed in New Jersey may push New York lawmakers to make it legal in that state faster.

Where things stand

In New Jersey, the current issue is getting a bill through the state Legislature that would legalize recreational marijuana. Even if it moves through quickly, sales in New Jersey would likely not start until 2020.

But will it will move through quickly? Or at all?

Proponents think legalization could be approved as soon as March. “And so now we finally have an agreement in principle on tough issues like regulation and taxation. Then we must convince a majority to support it. So we’re closer than we’ve ever been,” Scott Rudder, president of the New Jersey Cannabusiness Association, told Leafly.

On the other hand, if there is a long delay with debate, more legislators may become acquainted with the arguments against legalized weed - or, at least, that is the hope of opponents such as this columnist with the Asbury Park Press.

Not a sure thing.

It has taken a year of negotiations about marijuana legalization in New Jersey because so many constituencies want different outcomes from what promises to be a huge industry. That includes issues involving taxation, regulation, the details of the licensing procedure, the rights of local jurisdictions, expungement of past pot criminal records and so on.

Democrats are not all united on this issue. According to the New York Times, Senator Ronald L. Rice, a former Newark police officer who has long represented New Jersey's largest city, leads a group of African-American lawmakers reluctant to support legalization because they worry it will harm the same low-income and minority neighborhoods ravaged by the War on Drugs.

Republicans, however, are united - in opposition. State Sen. Nicholas Scutari, who put together the bill to legalize marijuana, told the Times: “The most important aspect of it is we don’t necessarily have all the votes lined up yet.”

If legal recreational marijuana is approved by the legislature, New Jersey will become the 11th state with legal adult-use marijuana and the second to do so without a vote by the people (Vermont was the first).

Extending The SAFE Banking Act To US Exchanges Could Bring Tens Of Billions In US Cannabis Company Market Capitalization To The US

Guest post by David Wenger, General Partner at Purplerock Cannabis Partners

The most promising near-term federal cannabis legislation is the “Secure And Fair Enforcement Banking Act of 2019,” also known as the “SAFE Banking Act of 2019.” Passage of the SAFE Banking Act affording banks that service the cannabis industry protection from federal interference would be an unprecedented catalyst for the country’s fastest-growing industry; a watershed moment toward mainstreaming the industry.

But the SAFE Banking Act can be even more meaningful and impactful for the US cannabis industry, without legalizing cannabis federally.

In opening the full panoply of US banking to the cannabis industry, Congress should seize a golden opportunity to also bring more than $20 billion of US cannabis company market capitalization to the US capital markets by extending the same protections from federal interference to US stock exchanges to list US cannabis companies operating under state-legal regimes.

Federal banking guidance is urgently needed. In 2018, more than $10 billion of cannabis was legally sold in the US. Very little of those funds were deposited in a federally-chartered bank. A large portion of that money was not deposited in any bank. According to the Treasury Department, at the beginning of Q4 2018, only 375 regional banks and 111 credit unions provided some service to the entire US cannabis industry (numbers derived from some 67,000 federal Suspicious Activity Reports (SAR) banks are required to file in connection with cannabis-related activity). The actual number of banks providing full financial services to the industry is far fewer, estimated at only several dozen. Federally-chartered banks are reluctant to service cannabis companies over regulatory and legal concerns. The burdens of filing SARs can be prohibitive for smaller banks.

Without access to banking services, many cannabis companies operate on a cash basis, complicating their books, and creating a risk of robbery which has already led to several deaths. Even when banking access is provided, cannabis companies and their executives and ancillary businesses serving the industry are subject to suddenly-closed accounts, problems with banking transactions, and difficulty with international transfers.

The SAFE Banking Act would solve critical problems for cannabis banking. The purpose of the Act is: “To create protections for depository institutions that provide financial services to cannabis-related legitimate businesses.” The Act provides a “Safe Harbor For Depository Institutions.” (§ 2). Under the Act, a federal banking regulator may not: (1) terminate or limit insurance to a bank that services a cannabis company; (2) prohibit, penalize, or otherwise discourage a bank from servicing a cannabis company, (3) recommend, incentivize, or encourage a bank not to service a cannabis company; or (4) take any adverse action on a loan to a cannabis company (§ 2). Proceeds from a transaction conducted by a cannabis company “shall not be considered proceeds from unlawful activities.” (§ 3). The Act also establishes that banks and their officers and directors “may not be held liable pursuant to any federal law or regulation” for providing financial services to a cannabis company; and protects banks from any associated risks of forfeiture. (§ 4).

Essentially, the SAFE Banking Act would open the full services of the US banking industry to cannabis companies, allaying fears of federal interference. The industry owes a debt of gratitude to its champions in Washington advancing this bill, Senator Jeff Merkley (D-OR) and Representatives Ed Perlmutter (D-CO) and Denny Heck (D-WA), along with all of the bill’s bipartisan co-sponsors.

But Congress should not limit the bill to protecting “depository institutions” providing financial services to US cannabis companies. The SAFE Banking Act as drafted does not mention US stock exchanges. A historic opportunity would be missed if the Act does not also extend protections from federal interference to US stock exchanges to list US cannabis companies. The Act should include a specific provision affording the same protections from federal interference to US exchanges as is being afforded to banks.

The top 10 US cannabis companies have a combined market capitalization exceeding $20 billion. They will only become more valuable as the US legal industry rapidly expands to capture more of the already $55 billion of black-market demand and with many new consumers the legal industry will attract.

Today, that $20 billion in US cannabis company market capitalization has been created in Canada. US exchanges have refused to list US cannabis companies, owing to federal illegality, while the Canadian Securities Exchange has welcomed them, creating enormous value in the Canadian capital markets.

Though US capital markets remain shuttered to US cannabis companies, US exchanges have welcomed Canadian cannabis companies with no US operations. Cronos was the first Canadian cannabis company to list on a US exchange (Nasdaq) in February 2018, followed by Canopy, Aurora, Aphria, Hydropothecary, and CannTrust on the NYSE, and Tilray on the Nasdaq. These seven companies have a combined market capitalization exceeding $40 billion. They benefit greatly from the unrivaled liquidity offered by the US exchanges.

The NYSE and Nasdaq do not have a problem with listing cannabis companies, only with listing US cannabis companies. A puzzling situation has emerged where Canadian cannabis companies with no US operations, paying no US taxes, and having few if any employees in the US benefit enormously from the US capital markets, but multibillion-dollar US cannabis companies like Acreage, Curaleaf, MedMen, Cresco Labs, and Green Thumb Industries, headquartered in the US, employing thousands in the US, and paying millions in federal taxes cannot benefit from our capital markets.

If the SAFE Banking Act will allow JPMorgan, Bank of America, and Citigroup to provide their full range of financial services to US cannabis companies, why should the NYSE and Nasdaq not be able to list those same companies and afford them access to the US capital markets?

Support for federal cannabis legalization is at 66 percent nationally, with more than majority support in every age group, political party, and demographic. The US cannabis industry is poised for exponential growth over the coming years.

Access to banking services and the US capital markets, simultaneously, would be monumentally transformative for the cannabis industry.

Now is the time for Congress to not only provide protections to banks that want to serve the industry, but also to provide protections to US stock exchanges that want to list US cannabis companies, ensuring that the tremendous growth in market capitalization of the US cannabis industry is realized in the US. Even in the absence of federal legality, US exchanges listing US cannabis companies would add enormous value.

Bringing $20 billion of US cannabis company market capitalization to the US to be followed by many more billions as the industry grows — Democrats and Republicans alike could support that. Including protections for US exchanges in the Safe Banking Act could ultimately help to ensure passage of this crucial bill.

For the second time so far this year, marijuana legislation in Congress has been officially designated with the bill number 420. It seems to be an obvious nod to the increasingly mainstream cannabis culture from lawmakers on Capitol Hill.

Sen. Ron Wyden's (D-OR) proposal, S.420, would de-schedule marijuana by removing it from the Controlled Substances Act (CSA), establish a federal excise tax on legal sales and create a system of permits for businesses to engage in cannabis commerce.

Marijuana enthusiasts, of course, celebrate their favorite plant on April 20, also known as 4/20.

“S. 420 may get some laughs, but what matters most is that it will get people talking about the serious need to end failed prohibition," Wyden said in an emailed statement.

The new Senate bill, filed on Thursday, is far from the first time that the number 420 has officially been attached to cannabis legislation.

Just last month, another federal lawmaker from Oregon, Rep. Earl Blumenauer (D-OR), filed a congressional bill to regulate marijuana like alcohol, numbered H.R. 420.

Also last month, Minnesota state lawmakers introduced a marijuana legalization bill designated as HF 420.

In California, the first move to establish statewide medical cannabis regulations was through 2003 legislation numbered SB 420.

In 2017, a Rhode Island senator introduced bill to legalize marijuana that was designated as S 420.

And back on Capitol Hill, the first House vote on an amendment to prevent the Department of Justice from interfering with state medical cannabis laws was via 2003's Roll Call 420.

“The federal prohibition of marijuana is wrong, plain and simple. Too many lives have been wasted, and too many economic opportunities have been missed,” Wyden said in a press release. “It’s time Congress make the changes Oregonians and Americans across the country are demanding.”

NORML Political Director Justin Strekal called the new bill "a thoughtful and thorough approach to how the federal government could ultimately end prohibition."

“Hailing from the first state to decriminalize marijuana back in 1973, Senator Wyden has a unique and much-needed perspective that his colleagues in the nation’s upper chamber would be wise to follow,” he said.

Aside from S.420, which would also authorize regulations on packaging and labeling of cannabis products and apply alcohol advertising guidelines to the product, Wyden introduced two separate pieces of marijuana legislation in the Senate this week.

One of the bills, S.421, seeks to "reduce the gap between Federal and State marijuana policy." It proposes a number of changes such as exempting state-legal marijuana activity from the CSA, allowing banking access for cannabis companies, eliminating advertising prohibitions, expunging criminal records, shielding immigrants from deportation over marijuana and allowing Department of Veterans Affairs doctors to issue medical cannabis recommendations.

The other piece of legislation, S.422, would exempt state-legal cannabis businesses from the federal provision known as 280(E), which prevents them from taking normal business tax deductions that are available to operators in other industries.

This third bill is the only one of Wyden's new proposals that comes with initial cosponsors. Also signing on to the legislation are Sens. Rand Paul (R-KY), Michael Bennet (D-CO) and Patty Murray (D-WA).

Wyden filed previous versions of all three bills during the last Congress, but none were brought to a vote.

The new cannabis legislation comes at a time when legalization advocates are more hopeful than ever before about the prospects for federal marijuana reform.

Next week, the new House Democratic majority will hold a hearing on marijuana businesses' lack of access to banks, part of a plan Blumenauer proposed in a memo to party leaders that entails moving a number of incremental reform bills leading up to the eventual federal legalization of marijuana in 2019.

“Oregon has been and continues to be a leader in commonsense marijuana policies and the federal government must catch up,” Blumenauer in a press release. “The American people have elected the most pro-cannabis Congress in American history and significant pieces of legislation are being introduced. The House is doing its work and with the help of Senator Wyden’s leadership in the Senate, we will break through.”

On Friday, Blumenauer filed House companion versions to go along with Wyden's three new Senate bills.

A number of additional bills with differing approaches to end federal marijuana prohibition have been introduced in Congress in recent years, and it remains to be seen which formation House leaders will choose to advance, if any, and whether the Republican-controlled Senate would go along.

President Trump, for his part, has signaled support for moves to end federal marijuana prohibition.

In the meantime, activists are reacting to the increasing interest in marijuana reform on Capitol Hill and lawmakers' nods to cannabis culture with a mixture of lighthearted optimism.

“With 420 legislation pending in both chambers of Congress, the next logical step is for lawmakers to sit in a circle and finally hash out their differences,” NORML's Strekal joked.

This could turn out to be an extremely competitive market

By Alexandra Hicks

It appears Mexico is next country in line to legalize recreational cannabis at the national level.

President Andrés Manuel López Obrado’s leftist party, which currently has the congress majority, proposed a legislation that would legalize the cultivation, sale, and consumption of cannabis in Mexico. Interestingly, Mexican residents and politicians are equally divided on whether or not this will help to eliminate organized crime or create more drug users.

Mexico’s war on drugs has been deadly, with about 235,000 people killed and another 40,000 who have disappeared since 2006. “We don’t want any more deaths … no more mourning families, no more bloodshed,” said Sen. Olga Sánchez Cordero of the left-wing National Regeneration Movement (MORENA) party.

Cannabis legalization could be extremely beneficial for Mexico

Sánchez Cordero is the one who introduced this new legislation to the Senate last week. She told fellow lawmakers that “militarization and penalization” hasn’t worked thus far, so a new approach is in order. Although people are split on the decision, Sánchez Cordero’s MORENO party holds the majority in both houses of congress, so this new law is fully expected to pass.

The bill would include provisions for companies to grow and sell cannabis for medical, recreational, and commercial use. It would also allow individuals to register for permits to grow up to 20 plants each year for personal use. Smoking in public would also be legal, granted it’s not a tobacco-free zone.

Cannabis legalization could be tremendously beneficial for Mexico. Currently, illegal production has been steadily declining since many U.S. States have legalized it. However, that can change should Mexico decide to get into the legal market. Mexico has a lot of open farmland that’s optimal for growing cannabis. Plus, the United States, Canada, and Mexican consumers themselves would create an ideal market. A 2016 survey notes that more than 7 million Mexicans have used cannabis at least once in their lives.

According to MORENA party officials, the finalized bill should be on the president’s desk before the year’s end. Check back for more updates and make sure to subscribe to our Weekly Newsletter for all the latest news and information about the cannabis industry.

CBD, Commerce, general, Hemp, Industry Professionals, Products


I’ll set the stage. You are about to make a lot of money on a very large deal worth millions of dollars. Despite the large figures and the fact that you do not know most of the involved parties’ last names, it seems legitimate. You are friends with your primary contact and have personally spoken with several people who seem to know a lot about the deal. The buyers need the material and the sellers are ready to provide it. The deal is supposed to close tomorrow, but there are a few calls to be made and “proofing up” to do before it can happen. You’re nervous, excited, and a little confused. Most of the deal has progressed by text messages.

A beautiful white Unicorn rears up on the top of a cliff on a misty day.

Welcome to the world of hemp biomass and CBD brokering. This is only the very beginning. Most likely, you’ve just encountered a “Unicorn”, by which I mean a big money deal involving CBD or hemp biomass that seems legitimate but never closes for reasons you can’t quite discern. Most of these deals do not close. In this post, I aim to help increase your odds of success.

In order to do so, we’ll need to articulate the key components of the “deal” and address them directly. I’ve found that it’s best to think of a biomass or CBD deal as a “circuit” composed of “nodes”. The circuit itself can be thought of as representing the deal, with each of the nodes representing various players in the deal. At each end of the circuit are the “terminal nodes”, by which I mean the actual buyer and the actual seller. The terminal buyer is the person, entity, or collective that is actually paying money. It is one of the terminal nodes. On the other end of the circuit is the actual seller, which is the terminal node that is the person, entity, or collective that is actually in possession and control of the biomass or CBD that is being sold. In between are any number of non-terminal nodes, which we refer to as “brokers”.


In the hemp and CBD business, brokers have gotten a bad rap. They are often seen as leeches and hangers-on who insert themselves into deals and screw them up. In this view, brokers either kill deals or make too much money relative to their contributions. As with most stereotypes, this view of brokers is partially based in truth. There are a lot of amateur, greedy, and/or disreputable brokers in the hemp/CBD industry. However, the bad acts of a few (or even a lot) should not taint the entire pot. In fact, brokers have been around as long as business itself. They serve a valuable and necessary function.

According to Merriam-Webster, a broker is “one who acts as an intermediary”, “an agent who arranges marriages”, and “an agent who negotiates contracts of purchase and sale (as of real estate, commodities, or securities)”.

Brokers are often necessary to a successful deal. They act as intermediaries between the terminal buyer and seller, arrange a “marriage” between two businesses, and/or negotiate a purchase or sale of a valuable item, such as hemp or CBD. Without brokers, many sellers would be unable to connect with buyers and many buyers would be unable to connect with sellers. Most deals are created by, and rely on, brokers. They are key nodes in the circuit, notwithstanding that they are not terminal. This post is about how to be a successful broker.


First and foremost, you must obtain and transmit reliable information without being circumvented. The fear of circumvention kills many, if not most, deals. A broker for the seller, for instance, has a legitimate fear that if she gives away too much information the buyer will circumvent (ie, go around) her and deal directly with the terminal seller (or even a broker that is one or more nodes closer to the terminal seller). The primary way to resolve this issue is through the use of a well written non-disclosure/ non-circumvention agreement (NDNCA). This agreement should be signed by every person with whom the broker interacts in the deal before any substantive business is discussed.

A NDNCA will provide some protection to the broker that she will not be circumvented. This, in turn, will enable her (and the other broker nodes in the circuit) to seek and reveal sufficient information to keep the circuit open. This is important because information is to a hemp deal’s circuit what electricity is to an electronic circuit. Since no deal can close without sufficient information, the ability to obtain and reveal information increases the likelihood that a deal will close. I strongly recommend that you obtain a well written NDNCA and use it. [Note: Unfortunately, I will not be sharing any of my standard agreements on this post. I told my malpractice insurance carrier that I was writing a blog post on hemp deals and wanted to share my forms, such as the NCNCA and other contracts that I routinely use, on the post. I was strongly discouraged from doing so.]


Once the NDNCA is signed by all parties, they should put together a simple but meaningful letter of intention (LOI). An LOI is a document that outlines the basic terms of a deal. Mostly, it will include a list of the parties involved (the nodes), a description of the goods to be sold (ie, hemp biomass or CBD), their price, and the timing. In contrast to a memorandum of understanding (MOU), which serves a similar function, an LOI is non-binding. It is not a contract. An MOU is a binding contract and can be the basis for a lawsuit if its terms are breached. For this reason, be careful about what you propose, and what you sign, in an MOU.


After the parties sign the LOI, they will begin the “proofing up” dance. This is where the buyer proves to the seller that she has the funds to consummate the deal and the seller proves to the buyer that he has the goods to sell. The buyer provides “proof of funds”, which is a document of some sort evidencing the buyer’s financial position. This can be something as simple (and unreliable) as an American lawyer’s letter stating that she has seen a British barrister’s letter stating that the barrister is holding a certain amount of funds in escrow for the deal. It can be a screenshot of the buyer’s bank account. It can even be an affidavit by the buyer or someone else, such as a CFO or CPA, who has actual knowledge of the buyer’s accounts.

Meanwhile, the seller does the “proof of life” dance in which he demonstrates that he has the biomass or CBD to sell. This can be pictures, letters, or even videos. Occasionally, the terminal seller will allow the buyer (or the buyer’s agents and brokers) to visit the laboratory or farm where the product is being manufactured or stored.

The proofing dance is where most deals break down. Primarily, this has to do with the brokers’ lack of information. A broker without direct access to one of the terminal nodes has no real control over the proof to be provided. Too often, a broker is tossed around like a leaf in the wind, without any real control over the deal. In order to assert control a good broker will obtain the information and documentation- proof of life or proof of funds- before the deal gets too far down the road. After the NDNCA, obtaining proof is a broker’s most pressing order of business.

Regardless of whether you are a broker for the buyer or the seller, it is vital that you have reliable and credible evidence to support your position, whether it be that the goods you are brokering exist or that the money to purchase them is available and ready to be deployed. Failure to have accurate and sufficient information will not only decrease the likelihood that the deal will close, but will also reduce your credibility in future deals.


Once the parties are all satisfied that the product exists, the funds to purchase it are available, and the basic terms are agreeable, they should enter into a binding agreement. I have always thought it strange that something such as the purchase of a house, or even a car, requires a stack of documents and a formal closing process but people think it’s perfectly acceptable to enter into a multimillion dollar CBD deal through text messages and no formal contract. It’s ludicrous.

A good contract will cover the basic terms (volume and price) and also delve much deeper. A short, non-comprehensive, list of terms that should be negotiated and committed to a signed agreement include: form and timing of payment, delivery, risk of loss in transit, quality assurance, lien rights, dispute resolution, confidentiality, etc. A contract will ensure that the entire transaction is reliable. There is an old saying that “good fences make good neighbors.” In deals, particularly the large ones I’m seeing in the hemp industry, good contracts help everyone relax knowing that their respective rights and responsibilities are delineated and protected.


One of the most important components of a hemp or CBD deal is the escrow agent, sometimes called the “paymaster”. Strictly speaking, an escrow agent is not necessary. If the parties are all comfortable with each other, then the buyer can pay the seller directly.

However, this level of comfort is rare, particularly for an initial transaction between the parties. If the buyer pays prior to receipt of the product then she will worry about her money until the product arrives in the amount and quality for which she bargained. On the other hand, if the seller sends the goods expecting payment upon receipt, he will worry about how to recover his money (or goods) if the buyer takes off without paying. In the meantime, all of the brokers will worry about getting paid at all. An escrow agent can resolve this dilemma and alleviate these concerns.

An escrow agent is a neutral, trustworthy third party who holds the buyer’s funds until the goods arrive as promised. The buyer pays money to the escrow agent to hold. It cannot be refunded except under specific circumstances. This makes the seller feel comfortable sending the goods. And, since the escrow agent will not pay the seller until the goods arrive, the buyer is comfortable that she will not lose her money if the seller fails to deliver in volume or quality. The brokers are comfortable that they will be paid and not circumvented by the terminal nodes.

A key aspect of the escrow agent is that she has little to no discretion on how to disburse funds. A good escrow agreement will read almost like a computer program: if x, then y. If the goods are delivered on x date in y amount at z level of quality, then funds are disbursed to the seller. An escrow agent who holds authority and discretion over how the proceeds are to be disbursed can jeopardize an entire transaction. She can also open herself up to lawsuits based on a party claiming that she improperly disbursed funds.

A good escrow agent will not want that sort of responsibility or potential liability. She will want a contract that is as elegant and straightforward as an algorithm, one that tells her exactly how to disburse funds in any given scenario. A typical escrow agent’s fee is a percentage of the total amount of funds that she holds and disburses. Although an escrow agent has some work to do, the fee is primarily earned based on the risks assumed by the agent, including that she may be inadvertently laundering money, that the funds will get stolen or misappropriated, that she will be sued for improper disbursement, etc.


This is a simple overview of the hemp “circuit” deal. Hopefully, it provides some clarity to what is often a chaotic process. Unfortunately, most large hemp biomass and CBD deals fail. As the number of broker nodes in the circuit increases, the likelihood of success diminishes. Each node is a potential failure point and the more nodes in the circuit the less reliable the information that travels through it. A good broker will seek to get closer to the terminal nodes by the use of a good NDNCA, skillful questioning, deductive reasoning, leveraging relationships, and luck.

If you find yourself swept up in a hemp biomass or CBD deal about which you know little, with millions of dollars on the line, and most communications through text messages or short conversations with people whose last names you do not know, you’re probably trying to ride a unicorn. Odds are, the deal won’t go through. However, by using your wits and a simple strategy with proper documentation, you will increase your odds significantly.

Source: Cannabusiness law

Latin America is at the forefront of the global wave of cannabis reform, and a new report from a D.C.-based industry analyst sees a $9.8 billion market in the region, with big expansion potential.

By Bill Weinber

A new report from a cannabis industry analyst firm based in Washington, D.C., New Frontier Data, argues that Latin American cannabis is well-positioned to be a big player in the global cannabis industry — and that it is already on the way.

“Since Uruguay in 2014 became the first nation to legalize adult use cannabis, its neighbors throughout the Latin American region have begun in varying degrees to embrace possibilities and policies for reform,” writes Giadha Aguirre de Carcer, founder and CEO of New Frontier Data, in the introduction to its newly released “Latin America Regional Cannabis"

Report: 2019 Industry Outlook.

Aguirre continued: “As the international community increasingly addresses cannabis reform… myriad opportunities are manifesting themselves in places where not long ago such activity seemed unimaginable.”

The report states that 13 million of the 600 million people in Latin America use cannabis at least one a year. The report estimates the total market value of cannabis in Latin America, both legal and illicit, to be worth $9.8 billion.

The report was prepared in conjunction with Sao Paulo-based The Green Hub, which bills itself as “the first company focused on leveraging initiatives” in Latin America’s medicinal cannabis market.

It examines four major markets in the region, and one smaller one with potential to emerge in the coming years. It finds that “Latin America will play an increasingly important role in the evolving global cannabis marketplace, and the legal regulated industry will be a catalyst for economic development, job creation, and new opportunities in healthcare and wellness across the region.”

Uruguay Leads the Way

The report, not surprisingly, starts with Uruguay, the first country on Earth to establish a fully legal adult-use industry. Consumers can access legal cannabis in Uruguay through home cultivation, cannabis clubs or pharmacies. Legal users must register with the Institute for the Regulation and Control of Cannabis (IRCCA) and select one of the three sources as their sole means of access. The IRCCA is about to begin receiving applications for additional commercial producers to supply pharmacies.

The program has not gotten off to entirely smooth start. Uruguay’s market faced significant supply shortages after its launch in 2017. Initial delays were caused by the IRCCA’s failure to adequately coordinate distribution. Then, the first batch of cannabis produced by local firm Symbiosis did not pass IRCCA testing (for genetics, mold, bacteria, pesticides and other contaminants).

Despite the fact that sales are restricted to Uruguayan citizens and permanent residents, the New Frontier report sees “cannatourism” nonetheless emerging in the country. “A common way of providing cannabis to non-residents is through illegal but not strictly monitored ‘cannabis tours,’ where customers ostensibly pay for cultural or social tours during which they receive cannabis.

Colombia Eyes Export Market

The report sees Colombia “positioning itself to be a global exporter of medical cannabis derivatives.” The country is said to boast “inexpensive cultivation costs, ideal growing conditions and experienced cultivators.”

Colombia is expected to produce cannabis at a fraction of the cost of exporters like Canada, and its geographically central location is advantageous for global business: “It sits at the center of the Americas, with access to both the Pacific and Atlantic oceans.”

A legal medical cannabis industry began in Colombia in 2015, although then-President Juan Manuel Santos insisted it would not be a step toward full legalization. “Social stigma still surrounds cannabis users in a country with a long history of drug conflict.”

Open-air greenhouses are the preferred method for cannabis cultivation in Colombia, exploiting the country’s 12-hour light cycle. This “results in lower energy costs relative to indoor cultivation techniques and can apply to any of Colombia’s regions.”

As of this year, 68 of 73 manufacturing licensees are authorized to manufacture for export. But despite its advantages, Colombia faces a challenge in catching up to the countries already established in the cannabis export market. The International Narcotics Control Board reports that over the past five years, the U.K. and the Netherlands were consistently the top two exporters of legal cannabis.

Brazil: Biggest Market Potential

Brazil, with the region’s largest population, is also home to its greatest number of cannabis users — an estimated 4.2 million. The report states: “Medical cannabis is legal in Brazil, and possession and cultivation of personal amounts are decriminalized.” These are somewhat misleading statements, however, as the medical program is CBD-only, and mandatory treatment programs are sometimes imposed even for possession of small quantities.

Brazil’s medical cannabis program is the fruit of activism and litigation. In April 2014, a judge permitted the importation of CBD-based products for a mother to treat her five-year old epileptic daughter. Since then, patients have been able to obtain special authorization from the National Health Surveillance Agency (ANVISA) to import CBD treatments. Over 79,000 units of such products been imported into Brazil since ANVISA authorized CBD use in 2015

Mexico’s Pot Populism?

Mexico may be poised for progress unprecedented in the region. Following a ruling by its highest court in late 2018 that prohibition is unconstitutional, Mexico is expected to fully legalize cannabis for adult use. And while its medical program is, for now, CBD-only and reliant on imports, this may also be changing soon.

Many view legal cannabis as a means to address Mexico’s daunting social and economic challenges.

“The main social concerns about violence, corruption, and economic issues are mirrored by the political objectives of incoming President [Andrés Manuel López] Obrador,” the report states. “He and other senior politicians in Mexico are looking to build on the legal medical cannabis program and expand it to fully legal federal regulatory structures… There is an economic case to be made how cannabis can help support the goals of the incoming administration for improving education and economic development in southern Mexico and reducing dependency on U.S. food imports while increasing exports.”

Panama Next in Line?

Finally, the report turns to Panama, which is said to be “at a crossroads.”

Cannabis remains illegal in Panama, for now. The government has only recently started permitting exceptional cases of medical CBD use with a special “sanitary permit” from the Ministry of Health.

Yet, “the path for cannabis reform has been laid,” as the National Assembly is currently reviewing a bill to establish a wider medical program, including domestic cultivation.
No Discussion of Equity

While the report does touch on the need to establish standards for Good Manufacturing Practices (GMP), it sidesteps some of the deeper implications of its own analysis. When the authors write that Colombia is known for its “low production costs,” they note that this is already “seen in its major exports of coffee and cut flowers.” This raises the question of whether the cannabis industry will exploit economic desperation as these other sectors have, and whether it will similarly be complicit in repression of labor organizing, or in the usurpation of traditional peasant lands.

The report states, meaning to sound optimistic: “Cannabis producers and processors in Latin America will have a natural cost-based advantage relative to producers in Europe and Latin America, based on regional differences in labor costs alone.” It then cautions: “[W]hile producers in Latin America have an advantage toward low-cost production, it is important to prepare for the coming international competition from producers in Africa and Asia, with countries from Zimbabwe and Lesotho to South Africa and Thailand all preparing to build cannabis export businesses. Consequently, cost containment should remain a strategic priority for all producers in the region.”

This smacks a little of what anti-globalization activists have called the “race to the bottom.”

Last year, California passed a law that will create an “equity” program for the state’s legalized industry, aimed at justice and inclusion for those communities hardest hit by cannabis prohibition. The Latin American nations may also have to grapple with this idea if the emerging cannabis industry is to avoid the social injustices that have characterized the region’s other agro-export sectors. Only the report’s section on Mexico even remotely broaches this discussion.

And like many such papers by the new industry’s market analysts, the report eschews the word “marijuana,” presumably because it is associated with the stigma, and avoids using it almost entirely.

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