This is Your Last Warning – The End is Near for the Current Cannabis Industry
Once Removed from the CSA People Will Lose Hundreds of Millions of Investment Dollars
I couldn’t be happier that Deb Borchardt at the Green Market report put out a piece this week that we have been preaching for a while now, the entire cannabis industry as you know it is about to get dropped on its head, flipped over, and will look totally different if the Marijuana Justice Act is passed. Deb focused on convient stores being able to sell cannabis like tobacco, but it all leads to the same point.
An act that was introduced in the House and Senate in February and now has more and more sponsors, an act that REMOVES CANNABIS FROM THE CONTROLLED SUBSTANCE ACT, OR CSA. See the NORML story on the Marijuana Justice Act here.
Think about that. Cannabis will no longer be on the Controlled Substance List at all.
Say it again, cannabis is no longer a Controlled Substance. What does that mean to your business?
If you want the cliff notes version, we published an article awhile back titled “How 3 Words Will Change All We Know About the Cannabis Industry”, which stated if the cannabis plant is no longer a schedule 1 drug, and removed completely from the list of controlled substances, then the archaic laws that allow dispensaries to even exist are going to disappear.
For example, if you remove cannabis from the CSA then the DEA will have no authority over the plant or it’s growth and transportation. The FDA will have no authority over it as it is no longer any type of controlled substance. The post office, a federal office, will have no authority over packages containing the plant and will have no legal ground to stop the packages. If you remove cannabis from the CSA, you just made it beef jerky or grandma’s cookies going through the mail.
One of the biggest issues will be that the negative deterrence around selling cannabis on the gray and black markets will be removed, i.e. federal jail time, for people selling the plant. A perfect storm is brewing that could destroy the current cannabis market as we know it. Supply of cannabis will be overwhelming. We have always argued here at Cannabis.net that cannabis will never be a supply problem once these archaic federal laws change. You can’t have a supply problem with a plant that grows in 12 weeks, 16 at the max. Most state laws allow for even 6 to 12 plants to be grown at home! There will be so much cannabis coming online around the world in the gray, white, and black market, that prices will get decimated and margins will get crushed. Those some margins used by cannabis companies in hundreds of financial spreadsheets in order to predict future profits and get funding for projects.
What does the removal of negative incentive look like in weed economics? Right now, the fine for getting caught selling marijuana in California without a license is a $ 10 civil fine. Second offense, another $ 10 civil fine. If you are running an unlicensed cannabis delivery in California with a listing on Weedmaps and making $ 50,000 a month by delivery weed by car, do you think you might take your chances with a few $ 10 fines, if they even can catch you or have the resources to go after every van delivering weed in California? Take away the negative repercussions, and people will extend risk, just economic law.
If cannabis is no longer on the CSA, how many growers in Oregon who have seen the price of cannabis drop to $ 200 a pound in-state while that same pound fetches $ 1,800 in New York City, would not be confident enough to start shipping cannabis around the country?
Who could stop it? DEA, nope. FDA, nope. Post Office, nope. State governments, it would take years to build out the laws and enforcement agencies, so good luck.
What does it mean for the future?
Margins are going to compress, and prices will drop across the board. Supply will be abundant, shippable, and ordered from hundreds of sites online. The good news is that margins are reflexive, so if you can’t raise the top line price of your product, you can figure out how to cut costs on the bottom line to keep your margins up.
What does that mean?
You have to be able to get an order or customer for $ 0.05 and not $ 38.00, which is around the currenct cost to get a new customer into a dispensary in Massachusetts when you factor in all the marketing and advertising costs. As we predict, supply side is done, demand side will be way more important. You will see a run on websites in the cannabis space that have traffic, traffic that can be converted into geo-fended orders. We have always set our site up for cannabis order lead generation and email list building, as we knew that whoever controls order flow will be the winner long term in this niche. For example, the email list segment we have for people would opt in to order a cannabis product is over 35,000 now. That is a ton of future orders and loyal customers for someone.
Has a pizza place every not been able to get tomato sauce or mozzarella cheese? No, there may be times when tomato prices go up or down, but ingredients are plentiful. Does a pizza shop worry everyday about how to get more pizza orders, you bet! In order to maintain your margins, you are either going to have to turn your cannabis flower into an ingredient and make it into a higher margin product like an edible or oil, or lower your costs to get an order.
Removal of cannabis from the CSA and as a scheduled drug is going to not only disrupt the cannabis industry but will fundamentally change it forever, make you bets accordingly.