Something significant happened on Election Day 2020.
No, not that. We’re referring to the five states whose citizens voted to legalize cannabis — for all adult uses in New Jersey, Arizona, South Dakota and Montana, and for medicinal use in Mississippi. It’s the latest step in a steady march to legalization in every American state. Last November’s results mean that cannabis is now legal in all but six of them.
It’s certainly what Americans want — 91 percent of them now approve of cannabis being legalized in some form. And entrepreneurs are trying to take advantage of this new market opportunity, despite the piecemeal legality of it. By all accounts, they’ve succeeded so far, helping to build a roughly $20 billion industry that’s created over 240,000 jobs. (This represents rapid growth — when we last wrote about the cannabis industry in 2019, it was valued at just $12.2 billion.)
The pandemic hasn’t slowed things down, either. In fact, when the coronavirus crisis began, dispensaries in states where cannabis is legal were deemed essential businesses. “That meant that many plant-facing businesses were able to continue to operate — which was a huge step in the right direction for the industry. It was a surprise … but great news,” says Gia Moron, president of Women Grow LLC, a networking organization for women in cannabis. Worldwide, sales actually increased by 38 percent.
But despite all of that, one fact still hamstrings this budding industry in America: cannabis, on a federal level, is still illegal. And though President Joe Biden embraces decriminalizing marijuana for those possessing smaller amounts and expunging past marijuana arrests from criminal records, he has not voiced support for nationwide legalization.
That significantly limits industry growth. One especially big obstacle for cannabis startups is the inability to easily open bank accounts or secure bank loans — namely because risk-averse banks are wary of accepting deposits from businesses that engage in activities prohibited at the federal level. And during the pandemic, Moron notes, that meant most cannabis businesses were denied Paycheck Protection Program loans.
There are other complications, too, for cannabis entrepreneurs trying to launch or scale. Each state has its own set of compliance laws — and because of that, each state has its own individual cultivation, testing, distribution and selling procedures, according to Liesl Bernard, founder of executive staffing firm CannabizTeam. As one can imagine, “that makes it a very challenging climate to do business in,” she says.
And for a booming industry that might seem outwardly progressive, there’s a disturbing imbalance when it comes to leadership. Women hold about 37 percent of senior-level positions in cannabis, a 2019 study by trade publication Marijuana Business Daily found. And a 2017 study from the same publication found that 81 percent of cannabis business owners are white.
The latter point is especially disconcerting, and a growing number of industry insiders, activists and celebrities are speaking up — because the reality of cannabis is that people of color continue to be arrested at higher rates than white people for marijuana possession, while at the same time being excluded from the highest-earning tiers of an ever-growing, increasingly legal industry. “We were the ones most negatively affected by the war on drugs, and America has turned around and created a business from it that’s worth billions,” rapper Jay-Z recently told the Wall Street Journal.
So, What’s Going to Happen Now?
For starters, the forward motion of state-by-state legality is expected to continue, with experts highly anticipating turns in New York, Pennsylvania, Connecticut, Maryland and New Mexico — largely because they now border on states where cannabis use was made legal last fall.
It’s a “domino effect,” says Pamela Moore, vice president of publishing for Marijuana Business Daily. Lots of the states on that watch list — New York in particular — “have huge markets … that don’t want to see potential tax revenue go” to their neighbors, especially not in the present economic climate. And the desire to get in on cannabis revenue — be it by growing or selling the plant, making edibles and beverages, producing wellness products containing CBD, or offering public relations, app development and other professional services to such businesses — will only grow as the industry does, especially since it’s projected to be worth a whopping $73.6 billion by 2027.
But even as opportunities to get into cannabis expand into new states, what do business owners do with all of that money — literally? Presently, many of them deal in cash, which creates something of a logistics nightmare when handling everything from payroll to taxes. Those that do find banks who will take on the risk — often smaller credit unions — will often get slammed with fees other businesses don’t have to worry about. Some will try to fudge the truth of their business to work with bigger banks, but are often found out.
That’s why experts are keeping their eyes on the proposed Secure and Fair Enforcement Banking Act, or the SAFE Banking Act. If passed, it would allow for businesses operating in states where cannabis is legal to access banking services — and many in the industry think that 2021 could provide the moment for this piece of legislation. “I think there is a relatively high likelihood for banking reform,” Moore says, which matters both in regards to accessing capital and streamlining the day-to-day operations of the business. That would provide “a level of certainty for the entire industry to move forward.”
Moron of Women Grow agrees. “What legal business can operate without a bank? It’s essential to our industry — especially to women-owned or minority-owned businesses” to have that security and functionality, she says. Without access to banks, she worries that smaller businesses may get edged out by larger, more protected, better-funded competitors like multi-state cannabis seller Curaleaf Holdings and international seller Cronos Group, most of which are led by white men.
And if federal legalization occurs, major players from other industries — think pharmaceuticals or food and beverage, both of which have diversity problems in leadership as well — will make their way into the space, too. CannabizTeam’s Bernard sees at least some of this movement as inevitable. “With [state-by-state] legalization happening, and federal descheduling happening, we’re going to see a consolidation of the industry.”
What Does All of That Mean For Women and Minorities?
“The two groups most impacted by [these shifts] are women- and minority-owned businesses,” Moron says. “Right now, small businesses are operating in an industry where they don’t have a place to go for loans or capital, unless they’re going to private investors or family and friends” — resources white- and male-led multi-state operators can access with relative ease. Women, meanwhile, received the lowest amount of VC funding in 3 years during 2020’s third quarter. And the average wealth of Black families is 6.7 times lesser than the average wealth of white families, making it tougher for Black founders to raise capital from family and friends.
And when it costs, on average, at least $150,000 to start a cannabis venture, that lack of access to capital becomes an even taller hurdle to jump.
Ensuring equity is a big deal for many in the growing cannabis industry, Moore says — especially in the context of a country with a racist criminal justice system. “The difference between arrests and punishment of African-Americans for marijuana possession — it’s not equitable. It’s a racially charged issue.” That’s why, she adds, part of the push to legalize cannabis has to involve the erasure of criminal records for people who were arrested for it in the past. It’s not just unjust — it’s also something that can negatively impact a person’s application to sell cannabis legally.
“There are still elements that, in terms of legalization, many states have to go back and readdress — social equity, social justice and decriminalization,” Moron adds. “And [they must address] how funds can be properly allocated to communities most impacted by the war on drugs.”
Some of the big names who have witnessed this inequity are taking action. Jay-Z, for instance, recently launched a $10 million fund for minority cannabis entrepreneurs. The musical artist told the Journal that one of the co-founders of his record label spent 5 years in jail because of marijuana-related crimes. “I wanted to do something in a real, concrete way, where I do my part,” he said.
So until broader change happens, what should women and minorities do if they want to start up in cannabis — or want to keep their small cannabis firms afloat? “Like most markets … there will always be room for smaller, niche brands,” Moore says. And she thinks women- and minority-owned businesses should broadcast their identity as part of their branding and marketing efforts. “There’s room for them … alongside more corporatized brands.”
Another thought is to sell your expertise to the cannabis industry, rather than trying to sell cannabis yourself, Moron points out. Before coming to Women Grow, she launched a communications business in 2012. In 2015, she saw the beginnings of what the cannabis industry would become — and wanted in. Rather than trying to sell products, she sold her marketing and brand strategy advice to other businesses in the space. “My advice to people looking to enter is, use your current skill set … and apply it to the cannabis and hemp industries.”
It’s a place to start, anyway. But she knows change needs to happen higher up — in the C-suites of cannabis — to help non-white, non-male industry newcomers or veterans. “When you look at leadership amongst larger businesses, there’s still a lack of diversity, whether you’re talking about gender or minorities,” Moron says. “What we learned from 2020 is that businesses across the board, even in cannabis, are recognizing that we need to start paying attention to diversity and inclusion — not just efforts, but intention.”
At CannabizTeam, Bernard says her executive staffing firm has launched a division focused solely on “increasing diversity and effective leadership in the cannabis industry” as clients look to diversify their board rooms. “Men, right now, hold over 80 percent of board-of-director positions [at the 50 largest public cannabis companies, according to an internal review]. Our mission is to help change that,” Bernard says.
And, she adds hopefully, “It’s very refreshing to see how many companies really want to make the effort.”