Cannabis: A Commodity

how to get into the cannabis industry

Analyzing the Commoditization of Cannabis Requires Context

What is a Commodity?

A commodity is anything that can be bought, sold, or traded on legal markets. Examples include; grains, metals, electricity, natural gas, foreign currencies, and financial instruments. Commodities can be bought and sold business-to-business and business-to-consumer. Additionally, the perceived value of the commodity – the price a business or consumer is willing to pay for a commodity or the value of a commodity producer or seller – can be traded on the stock exchange.

Cannabis: A Commodity

Cannabis by definition is a commodity. It’s a raw material (e.g. flower) that can be bought and sold, and processed into another product (e.g. concentrate, edible, etc.) that can be bought and sold by a cannabis entrepreneur.

Legalizing cannabis and creating commercially regulated businesses for harvesting, production, and sales treats cannabis as a commodity by state governments and the private sector have spawned cannabis start-ups. Cannabis has a legal market value (e.g. business-to-business and business-to-consumer sales), and there are secondary and tertiary markets to bet and trade the anticipated retail price of cannabis and cannabis companies.

Legalization has brought cannabis the commodity into the mainstream conversation and onto Wall Street trading floors. Our friends are talking about their pot stocks, and our family is asking us how to get into the cannabis industry and onto this green rush. A new merger or acquisition of a cannabis company is announced monthly. New cannabis companies are listed on a stock exchange weekly. We see headlines with the promise of billions in additional tax revenue and hundreds of thousands of new jobs.

Cannabis: Industry and Market Analysis

To say there is a flurry of activity and attention on cannabis is an understatement.

Analysts are poring over financial data and state regulations and making predictions about the future retail value of cannabis and cannabis companies. Publications like Forbes, Business Insider, and Wall Street Journal have dedicated writers predicting the future of cannabis for every type of investor. There is article after article on cannabis start-ups, products, prices, and investment opportunities, and insights on how to get into the cannabis industry.

As I drink from the fire hose of cannabis podcast and industry news, I’m always left with three questions. As you consume cannabis news, I encourage you to consider these questions too.

Cannabis: A Commodity in Context

Who is a cannabis consumer? Is he or she a patient purchasing cannabis for medical purposes? Or a consumer purchasing cannabis for recreational purposes?

Cannabis patients have different product preferences, consumption habits, and price sensitivities than recreational consumers. Furthermore, a recreational consumer could be sliced and diced a multitude of ways. For the sake of simplicity, let’s think of recreational consumers as falling into one of two categories; a regular, consistent consumer and a new irregular consumer. These recreational consumers also have different product preferences, consumption habits, and price sensitivities.

Knowing the consumer enables better market predictions, and lumping all consumers into one group is a mistake. At a minimum look for analysts who differentiate between medical patients and recreational consumers.

How is the plant harvested? What are the growing cycles? What are the expected yields? Are there any known or unknown events that could impact product yield?

Though not a complete one-to-one comparison, cannabis is like agricultural commodities in that seed source, harvesting cycles, and weather patterns can impact product yield and price. Let’s face it large-scale commercial cannabis cultivation is relatively new. When something is grown from seed to plant, there is quite a bit of trial and error that goes into figuring out what products and processes to use. Additionally, there are many unknowns about the cannabis plant itself including the full spectrum of cannabinoids, medical applications, and products that can be created from plant material.

Understanding the complexity of the cannabis plant and acknowledging the unknowns enables better market predictions by a cannabis entrepreneur. At a minimum look for analysts who acknowledge the challenges with harvesting quality at scale and leave room for new scientific or medical research to impact the industry.

Cannabis entrepreneur ideas and market dynamics

Can the above ground market realistically compete with the underground market? How do state criminal background check requirements impact who can own or work at a cannabis business? What are the retail options and prices for cannabis patients and consumers?

Cannabis, unlike almost any other legal commodity, has a strong, thriving underground market. Any legal market has stiff competition from day one. Not only does the underground market have loyal consumers but also deep historical knowledge of the cannabis plant itself. Most states have created commercially regulated markets that prevent underground market participants from transitioning into the above ground market. The bridge between the two markets is almost nonexistent, concentrating knowledge and consumer loyalty in the underground market, and power and money in the above ground market.

Respecting the strength of the underground market enables better market predictions. The underground market won’t disappear with a commercial above ground market or targeted law enforcement. At a minimum look for analysts that understand how state regulations and cannabis businesses’ inclusion or rejection of the underground market impacts patient and consumer behavior.

TL;DR Cannabis market and industry analysis often miss crucial context and nuance.

Legal Cannabis in Michigan and Municipality Zoning

legalizations of cannabis

Municipalities Reluctant to Take Action Without State Regulations

In November 2018 Michigan residents voted to make cannabis legal for recreational purposes. Michigan’s Marijuana Regulatory Agency (MRA) released draft regulations for recreational cannabis businesses on July 3. These regulations are critical to bolstering Michigan’s legal cannabis market and developing cannabis entrepreneur ideas.

Cannabis Businesses in Michigan Communities

In the absence of state regulations, many Michigan municipalities opted out of allowing any recreational cannabis entrepreneur in their communities. While over 100 municipalities are allowing medical cannabis businesses, over 300 municipalities have already opted out of recreational cannabis businesses.

State Regulations Are Released, Now What?

Some municipality board’s stated they will reconsider after state regulations are released. So now, municipality action will be telling –

  • Municipalities choosing to wait for state government regulations before defining local laws and zoning ordinances is good policy making.
  • Municipalities not using Proposal 1 voting results in their jurisdiction to define recreational cannabis laws and zoning ordinances is bad policy making.
  • Where residents have voted in favor of Proposal 1, municipality board’s voting to opt out of allowing recreational cannabis businesses in their jurisdiction are voting to opt into allowing the underground market

A thriving legal cannabis market and cannabis start-ups hinge on municipalities allowing these businesses in their communities. Otherwise, it significantly limits potential locations and inventory for cannabis businesses.

The Power of Zoning and Cannabis Business Inventory

If municipalities vote to allow cannabis businesses then they develop the zoning ordinance. Zoning ordinances delineate acceptable areas for residential, commercial, industrial, and agricultural setup. Additionally, zoning ordinances define things like signage, sidewalks, street lights, and distance between other businesses.

Michigan Can Learn From California

As a result of California’s strong underground market, legislators are considering a bill to force municipalities to allow cannabis businesses in their jurisdiction if their citizens voted in favor of legalization. California could be setting a precedent for other states regarding how to get into the cannabis industry legally and set up cannabis start-ups.

TL;DR With state regulations available municipalities should revisit allowing cannabis businesses in their communities based on Proposal 1 voting results.

Carl Sagan on Cannabis

embracing cannabis

America’s Beloved Scientist on Embracing Cannabis

“Cannabis brings us an awareness that we spend a lifetime being trained to overlook and forget and put out of our minds.” – Mr. X

Who Is Carl Sagan?

Carl Sagan (November 9, 1934 – December 20, 1996) was an American astronomer, cosmologist, astrophysicist, astrobiologist, and author. He wrote many popular science books, such as The Dragons of Eden, Broca’s Brain, and Pale Blue Dot, and narrated and co-wrote the award-winning 1980 television series Cosmos: A Personal Voyage. The most widely watched series in the history of American public television, Cosmos has been seen by at least 500 million people across 60 different countries.

Carl Sagan’s Hot Take on Cannabis

Mr. Sagan wrote an essay in 1969, using the pseudonym “Mr. X,” where he outlined the personal benefits of smoking marijuana, which eventually appeared in the 1971 book Reconsidering Marijuana. He also shared his views on legalizing cannabis. Legalization would help any cannabis entrepreneur to trade in stock exchanges and move the trade onto the above ground market.

The complete essay can be found at The Library. It’s a longer read approximately 15 minutes but it’s absolutely worth it if you’re a Carl Sagan fan, cannabis fan, or both.

TL;DR Carl Sagan loved cannabis and you should too

States Need to Address Effects of Cannabis Prohibition

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Legalizing Cannabis is More Than Regulation and Taxation

As of publication medical cannabis is legal in 33 states, and recreational in 11 states with limited to no policy measures addressing affects of cannabis prohibition.

Lawmakers Have a Duty to Address Affects of Cannabis Prohibition

Many states are slow or reluctant to address cannabis related arrest and conviction records. States where cannabis is legal have hundreds of thousands of citizens with cannabis records. Plus thousands of citizens currently serving time for cannabis. Lawmakers need to act beyond defining and regulating the legal market. As public servants they have a duty to address the affects of cannabis prohibition in their state.

Cannabis Prohibition Disproportionately Impacts People of Color

Data show whites and blacks use cannabis at the same rate but blacks are at least four times as likely to be arrested and convicted of a cannabis related offense. As a result, the majority of people with a cannabis record are people of color.

Serving any amount of time can create lifelong psychological changes. The transition from jail to home is challenging, if not impossible. Furthermore, the impacts of having a criminal record – misdemeanor or felony – are far reaching. Criminal records affect one’s ability to obtain employment, professional licenses, housing, and college loans. Ironically, having a cannabis record can also limit business ownership and employment opportunities in the cannabis industry. 

Legal Recreational Cannabis Isn’t New

Recreational cannabis has been legal in some states since 2012, Colorado and Washington, and 2016, California, Maine, Massachusetts, and Nevada. Most of these states are just now considering bills to address cannabis records. The pace at which states are moving is frustrating at best. What’s more frustrating is the bills states are considering show a reluctance to expunge records and a greater appetite to seal or reclassify records.

How States Handle Cannabis Records Matters

The difference between these relief actions is subtle but important – (1) expungement erases any arrest or criminal record; (2) sealing a record means it is not available in public searches but still exists in government databases; (3) pardoning forgives the criminal offense but the record still exists; or (4) resentencing or reclassification means the record or sentence may be changed at the discretion of judge.

Compounding the issue is a growing trend of states considering bills that would require people to apply for any type of relief action. This assumes two critical and problematic things; awareness of the process and access to resources to assist with the application process.

Legalizing Cannabis Is About More Than Money

States legalizing cannabis often site increasing access for medical patients, instituting safety and quality controls, bringing in tax revenue, and creating job opportunities as motivations for legalizing cannabis. For any one of these motivations to be realized, it starts with comprehensively and effectively addressing cannabis prohibition.

States Can Address Affects of Prohibition with Policy

  • Automatically expunge all misdemeanor cannabis records and provide a path to apply for reclassification or expungement of felony cannabis records BEFORE issuing business licenses. The burden is on the state to identify and expunge all misdemeanor cannabis records. States should also proactively identify and address any felony cannabis records by creating a simple, free process to apply for expungement or reclassification.
  • Institute a Prohibition Payment using cannabis tax revenue of at least $500 per month for at least 50% of time served. Anyone that has served time as a result of a cannabis arrest and conviction should be benefiting from cannabis tax revenue. A Prohibition Payment would provide necessary assistance for housing, education, and basic financial needs. This payment also enables a more equitable distribution of the money generated by legal cannabis.
  • Provide housing and job support services. Identify both state-run and private-sector housing and job resources including cannabis staffing firms to connect people with as their records are cleared.
  • Align cannabis business license and employee background check requirements with the industry. Revisit background check requirements for the cannabis industry to better align with the potential labor force. Set aside of subset of cannabis licensees for individuals with prior cannabis records. Incentivize licensees to employ individuals with prior cannabis records including people recently released from jail.

Equal Access Must Be Created and Measured

Equal access and opportunity does not exist in the cannabis industry (or any industry) without targeted policy measures. States have a duty to create an industry reflective of the historical arc of cannabis from legalization to prohibition and back to legalization. The brutal truth is cannabis legalization is happening on the backs of people currently precluded from participating in the legal market.

Cannabis legalization is an opportunity to do better – to make a wrong, right.

TL;DR States reluctance to address affects of prohibition is creating white-washed legal cannabis markets built on the suffering of communities of color.