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17 May 2016

Cannabis in the CV: If the U.S. Government Keeps Dragging Its Feet on Marijuana, Canada May Get a Leg Up on Investment, Science

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Cannabis legalization is sweeping the nation quickly by American standards, and industry growth has been rapid in states where cannabis has been legally accepted in one way or another.

The cannabis industry is projected to reach $44 billion per year in revenue by 2025. State budgets are being balanced in part due to tax revenues from the cannabis industry. Jobs are getting created locally, and potential marijuana businesses are looking with hope toward each state-legalization initiative on the horizon.

But even as states line up to reap the financial rewards of legalization, the continuing federal ban on marijuana may leave American startups scrambling to find the investment dollars needed once they get the green light on a state level.

One prime example of how federal foot-dragging on cannabis-law reform is inhibiting industry growth is Section 280E of the U.S. tax code. It prohibits the deduction of expenses related to controlled substances on federal tax returns. The means that cannabis businesses cannot deduct the basic business expenses allowed for any other retail, manufacturing or distribution business—even though the businesses are perfectly legal under state laws. One dispensary owner in Colorado estimates he pays the IRS an extra $600,000 a year because he is not allowed these deductions. That’s not a small chunk of change when you consider the exorbitant taxes already levied on cannabis businesses.

Issues like this, as well as the banking difficulties faced by the cannabis industry—federal law makes it very difficult for a marijuana business to even have a bank account—make the industry look like a less-than-safe investment. Rescheduling marijuana to anything but the Drug Enforcement Administration’s Schedule 1 would eliminate this hurdle, and would allow banking options and Federal Deposit Insurance Corporation coverage to the exploding industry.

Of course, there’s a hashtag for that: #Reschedule420, brought to you by DCMJ.org. That’s the organization that brought a 50-foot joint to the White House on April 2 of this year in protest of the president’s inaction on cannabis reform. (Get it? Reschedule 4/20?)

In a recent letter to Congress, the DEA hinted at rescheduling marijuana or (removing it from the schedules altogether) sometime this summer. We’ve heard that one before, but combine that with the administration’s recent approval of the first official testing for cannabis as a PTSD treatment, as well as massive shifts in public opinion, and there may be a ray of hope this time around. In addition to making cannabis research much more accessible to American companies, a change in DEA cannabis policy would remove most of the remaining hurdles to development of the cannabis industry nationwide: Section 280E would no longer apply to cannabis business, and banks would be able to fling their doors open to all those now-legit former narco dollars.

But in the meantime … here comes Canada.

Justin Trudeau, Canada’s liberal rock-star prime minister, has vowed to legalize recreational cannabis on a federal level in the Great White North—posthaste. This forward thinking provides an opportunity for more secure investment and less restrictive tax policy, and would allow banks to treat cannabis businesses as they do any other legitimate business. This offers cannabis investors another North American option in one of the fastest-growing industries in recent history.

In addition to the obvious business advantages Canada would enjoy over the United States, quick legalization would also put Canada years ahead of the U.S. in medical-cannabis research. This would allow Canadian companies to be first to market with breakthroughs in medical uses of a plant that seems to be effective in treating something new every week. While Canada has yet to legalize, it looks like it will do so on a federal level well before most U.S. states do. If or when that happens, American cannabis startups may find potential investors instead looking north for greener pastures.

One needs only to look at Desert Hot Springs to see how cannabis can help struggling local economies. What has historically been a city with perpetual economic struggles is now being praised as the future center of the cannabis industry in California; you probably saw the huge front-page article in the May 10 Los Angeles Times touting the city as Desert Pot Springs. So much pot will be produced in DHS that people are moving there from pot meccas like Amsterdam to supply those operations, as is the case with Grow Shop Hydroponics. GSH is located in North Palm Springs with easy access to what will be some of the largest commercial grows in the world. Real estate in DHS is now being snatched up for as much as twice the market value—and recreational use in California hasn’t even become law yet.

By dragging its feet, the DEA would send billions in investment dollars and revenue north of the border, and would further hinder the development of the cannabis industry here in the United States. It’s a fact: Legalization will happen in the United States. If we allow our government to delay the inevitable, that hesitation will cost us all dearly economically—and put us in a position of playing a desperate game of catch-up in medical cannabis research.

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