No one would say Year Three was the charm for California’s legal cannabis businesses, as many in the industry spent 2020 struggling with a global pandemic, high tax rates and illegal competitors that the state just can’t stamp out.
But marijuana businesses are faring better this year than some other sectors thanks to their “essential” designation, which allows retailers and others in the supply chain to stay open during lockdowns. Some also believe the “essential” label is providing an image boost for an industry that’s long been stigmatized.
“I think it shows a real cultural shift in how cannabis is being viewed,” said Josh Drayton, spokesman for the Sacramento-based California Cannabis Industry Association trade group.
Solid sales throughout 2020 have the state’s marijuana industry on track for the first time to hit the $1 billion in annual tax revenue predicted before voters legalized cannabis in 2016. Multiple industry polls have indicated people who were already marijuana fans have been consuming even more products since the pandemic started to ease stress and to replace other social activities.
“None of my clients have experienced layoffs,” said Dana Cisneros a cannabis industry attorney in Anaheim. “They’ve largely been expanding during this time.”
More cities, counties and other states also agreed this year to welcome the industry. Criminal records were purged for tens of thousands of people. And while cannabis remains illegal under federal law, there were developments at the federal level that the cannabis industry sees as positive.
But, this year, the industry also was rocked by some high-profile bribery cases and a major lawsuit ended with a confusing whimper. Meanwhile, the industry’s legislative wish-list in Sacramento was delayed due to the virus.
With so many challenges still ahead, this year’s pandemic-fueled sales bump may have simply provided a “stay of execution” for some cannabis companies, according to John Schroyer, senior reporter for Marijuana Business Daily. If true, a significant number of companies might fail, merge or sell their brands in 2021.
Side effects of the virus
At the start of 2020, Jerred Kiloh, head of the Los Angeles-based United Cannabis Business Alliance, said cannabis companies across the board were seeing growth. He said they were particularly encouraged to see consumers over 40, who present a more stable base than younger customers, accounting for a bigger share of the market.
Still, the coronavirus outbreak — and subsequent shutdowns — threw just about every industry into chaos, and California’s marijuana companies were no exception.
When six Bay Area counties enforced stay-at-home rules on March 16, cannabis businesses initially were deemed non-essential. But a day later, following a surge of protests focused largely on access for medical marijuana, the counties gave the OK for cannabis shops to stay open. And that policy went statewide March 20, when Gov. Gavin Newsom said licensed recreational and medical cannabis shops, plus the industry’s entire supply chain, were “essential businesses.”
During the brief period when it was unclear if cannabis stores would be allowed to stay open, the industry saw a dramatic sales boom. Deliveries soared and in-person retailers scrambled to offer curbside delivery, sanitize their shops and make other accommodations.
When that initial round of panic buying ended, sales dipped. But another bump came when Californians received $1,200 stimulus checks. Cisneros said one of her retailers reported a three-fold bump in sales, post stimulus, and she suspects the extra $600 a week in unemployment benefits helped support sales and prices through the summer.
Sales dipped again in the fourth quarter as the pandemic dragged on and recently re-surged, Kiloh said. Another round of stimulus checks — something federal officials discussed Wednesday — could offer a final spike over the next few weeks.
Some businesses that overextended pre-pandemic were able to renegotiate or exit pricey leases and otherwise regroup, according to Ben Kovacs, director of Green Wave Holdings, a publicly held cannabis finance company in Menlo Park. That might have helped stave off layoffs and mergers that he and others forecast for 2021.
But even as stimulus checks propped up cannabis sales, cannabis companies weren’t eligible for federal coronavirus relief money. So, while other industries could use federal money to pay for protective gear, extra cleaning and staffing shortages, cannabis operators paid out of pocket.
Startups also continued to struggle for capital this year. And Cisneros said they’ve had trouble getting appointments with city planners and regulators so they could open their businesses.
A slate of cannabis-oriented legislation the industry hoped to see passed in 2020 — rules that would ease taxes and some regulations — were set aside as the pandemic took priority. Advocates hope those measures will be considered next year, but they fear the virus will still dominate talks at least for the first half of 2021.
Delivery lawsuit stirs confusion
Heading into 2020, cannabis industry supporters and opponents alike were keeping tabs on a major lawsuit over delivery services.
Santa Cruz County and 24 cities sued the California Bureau of Cannabis Control in April 2019 over a rule that permits marijuana deliveries throughout the state, even in communities where other cannabis businesses aren’t allowed. In late November a judge tossed the case, a decision that initially seemed good for the industry. But since the state had argued that delivery is allowed anywhere unless cities bans it, Cisneros said the judge’s ruling essentially gave jurisdictions the local control they wanted.
Delivery companies, which Kiloh said account for some 30% of all sales, are expected to suffer setbacks going forward if cities ban them from bringing cannabis to residents.
While a total ban on cannabis deliveries seems impractical — vehicles aren’t marked — Cisneros believes the ruling harms people who live in rural communities and need marijuana for medical reasons. Such patients, she argues, are in worse shape today than they were before recreational cannabis was legalized three years ago. But she’s also optimistic that a new legal challenge or legislative fix will re-open deliveries statewide.
One 2020 trend, welcomed by the industry, is that more California communities are moving to legalize cannabis. Some are turning to cannabis to help offset financial losses after other tax revenue streams collapsed during the pandemic.
Of the 37 California cities and counties with cannabis measures on November ballots, 31 passed, according to Schroyer.
Around 70% of California jurisdictions still block the industry, Killoh said, but that’s down from 80% shortly after the legal market launched in January 2018. The November election marked the first significant wave of new jurisdictions coming onboard.
But even as a growing number of cities welcome cannabis, some others have been rocked by allegations of cannabis-related bribery. In October, FBI agents raided the offices of Baldwin Park’s city attorney, a Compton council member and a San Bernardino County planning commissioner as part of a cannabis-related corruption probe.
“I think it’s a byproduct of having a limited license market,” Schroyer said. “Anytime you have something that is that hot of a commodity, you’re going to have someone who tries to game the system.”
Such headlines didn’t slow things down on a national level.
On Nov. 3, voters in Arizona, South Dakota, New Jersey and Montana all approved moves to legalize cannabis, making recreational marijuana legal in 15 states.
Advocates also are celebrating that the United Nations approved a World Health Organization recommendation to deschedule cannabis on an international level.
Cannabis remains illegal under U.S. law, and is classified with heroin as a schedule I narcotic. But this month the House approved the MORE Act, which would decriminalize cannabis and make it legal in states that approve regulations.
The bill isn’t expected to pass the GOP-controlled Senate unless Democrats are able to flip two seats in Georgia that are headed to a runoff next month. But Drayton said the House vote was historic and signals that federal legalization is likely coming soon.
“This is the first year that we’ve ever had these conversations at the federal level,” he said. “It’s a really good sign.”
Source: Orange County Register