Are you ready to grapple with the complex realities of business leadership during crises and the shocking truth of war as an economic boon for certain sectors? That's just the tip of the iceberg in this episode. Delve deeper with us as we explore the emotional aspect of leadership, offering empathy and support to teams, colleagues, and peers navigating these challenging times. It's not all doom and gloom, though. We dare to hope and pray for peace, shedding light on the harsh realities of conflict while pondering the disturbing concept of war as a potential economic catalyst.
Switching gears, we sort through the following current events in cannabis:
We dissect the implications of Assembly Bill 1207 and Assembly Bill 374, among others, considering their effects on the packaging, marketing, and expansion of cannabis cafes in the State of CA.
We also touch on the steady growth of the Connecticut cannabis market, detailing their unique approach to licensing.
We journey to the booming hemp market, a sector surpassing legal cannabis in size, and discuss what that means for the broader hemp and cannabis conversation, as well as lobbying power of the two sides.
Finally, based on the inaugural report from the US Census Bureau, we delve into the state-level taxes collected from legal cannabis businesses, revealing fascinating insights. Our exploration raises questions on the US government's perception and management of emerging markets, the 280E penalty, and the influence of taxes on economic activity.
As we wrap up, we encourage you to engage with us. Who knows? Your thoughts could spark our next enlightening conversation. So, don't forget to like, subscribe, and share our podcast!
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Your hosts are Ben Larson and AnnaRae Grabstein.
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Hey everybody, welcome to High Spirits Live. I'm Ben Larson and, as always, I'm joined today by the Smarter Half, Anne Rae Grabstein. It's Thursday, October 12th 2023, and we have another juicy cannabis business news roundup for you today, Including Governor Newsom has been busy here in the great state of California. Connecticut is experiencing steady growth, with monthly purchasing exceeding 25 million. For the first time, the hemp market size has surpassed legal cannabis. Uh-oh and yeah, the US Census Bureau released a inaugural report on state-level taxes levied from legal cannabis businesses, and the numbers are a bit shocking. We're going to go into all this and more in a little bit, but first I'm going to bring on my better half. So here's Anne Rae. Anne Rae, how are you doing this week?Speaker 2:
I'm doing good overall. I'm working hard to stay balanced in the midst of what's been a lot of complicated geopolitical news.Speaker 1:
Oh, yeah, yeah.Speaker 2:
How are you handling it all? How are you doing?Speaker 1:
Yeah, it's been a Maybe it's in my voice, I don't know. It's been a little bit of an emotional week, kind of just having that mental load of navigating those conversations unexpectedly throughout the workday and having it be pretty emotional. And yeah, it's just like the what's happening in Israel and Palestine and in that region is just it's touching home. It's like you know, we have a lot of Israeli colleagues in the cannabis space. There's been a lot of great research and technology and companies that have emerged out of Israel and because of just the Jewish faith and how deep-rooted and far-reaching that is, it just feels like whether it's our own team companies that we work with. It's been just very present and so it's been a little bit of a roller coaster of a week. So, yeah, I guess spirits aren't as high as they normally are and, like I said, it's maybe showing up in my voice a little bit.Speaker 2:
Yeah, I want to just acknowledge how painful it is for people all around the world that are being touched by this and how much, basically, everybody has some type of connection to this crisis, and yesterday I was on a Zoom call with a company that I advise and one of their senior leaders, who lives in Israel, had to drop call because of sirens and go to a shelter, and it was heart-wrenching and it caught me off guard and I didn't quite know what to do in that situation, and it caused me to do some real deep diving about what it means to be a business leader during times of war and crisis and how we're supposed to show up for our people and to navigate these really challenging issues when there's conflicting opinions inside of work. And ultimately, what I came away with is that the most important thing is to say something, and that silence can be interpreted as indifference in a way that can really leave team members and colleagues out to dry, and so it behooves all of us to be empathetic, to stand for peace and to acknowledge how horrible terrorism is, because it just is and it's touching all of us right now and it's going to get in the way of business more if we don't acknowledge the pain and heartache that people are feeling as they're trying to focus on their jobs.Speaker 1:
Yeah, I was meeting with some of my team members on Saturday and Sunday morning and I was just kind of catching up through them. And there was a moment Sunday morning where I hung up from a call and I just spent the next couple hours really trying to dig into the details and just see what was happening. And I did make a post on LinkedIn largely in support of my Israeli colleagues and really what I had seen were the terrorist attacks and this was before Israel retaliated. And yeah, it's just such a challenging conversation because there is so much emotion and so much history and I guess my big takeaway from just kind of navigating that on Sunday and fielding some kind of emotional responses in my feed was that you can have empathy for both sides and your personal experience might tell you from one to the other and just because you stand in support against a terrorist attack doesn't mean you're accepting all the retaliation as kind of you know, part and parcel with that, that support. I'm kind of stumbling on my words here, but it it's just been a really challenging conversation throughout the week and I what I do feel is an immense amount of pain on on both sides, but regardless it's it's really challenging.Speaker 2:
I. I have been a person, and as a parent even more. That has been pretty Anti-violence, no matter what and that's the way that I have raised my son. I was Pretty Obsessed with making sure that there weren't toys that were guns in our house. I just didn't want it, and I've always tried to instill the idea of conflict resolution and peace as a parent and and so war in general is something that I'm I tend to just be repulsed by, but at the same time, I realized within the context of this conflict, that there is layers upon layers and thousands of years of conflict that is way too nuanced for me to truly understand, and my hopes and and my prayers are just Our four piece for all the people, for the people of Israel, for the people of Palestine, and that this the terrorist attacks need to stop. It all needs to stop, and I I hope that people that are listening to this Are inspired to talk to their teams and check in with people and just create safe spaces in their workplaces. Something that I dove into yesterday and some research was just reading reports about what happens during war to the economy, and one of the things that Was shocking to me and made me really sad was to hear that that war is looked at as as a positive economic indicator. It's something that often drives up profits for certain sectors of the economy and is a net. Is a net net positive overall financially for business?Speaker 1:
and, hmm, what an abhorrent not just for, not just for Halliburton.Speaker 2:
Not for Halliburton, but for companies like Halliburton, and certainly Not all areas of the economy benefit for more, but the ones that do benefit overcome the ones that don't.Speaker 1:
And I Will say I've been consuming more cannabis this week. So there's that I.Speaker 2:
I? It did make me think, especially as someone that spends my time mostly thinking about cannabis companies. Well, what is war? Due to cannabis, and I Not sure that I figured that out yet. Maybe people will consume more cannabis to deal. I don't know, I'm not sure that there's a direct line To consumer behavior yet that we can draw to for our industry.Speaker 1:
I I was having conversation with a couple of my team members earlier this week and it was kind of reminding me back at the beginning of the pandemic right, where you never know how someone else is processing it and how they're reacting in that moment in that day, and that you have to kind of navigate Each day, each conversation, with that kind of Level of sensitivity and just understanding it's like everyone's living their own kind of experience right now and Dealing it with a different way, and just to kind of be aware and to kind of as you, as you pointed out create that safe space. You know, a virtuoso we we always do like our all hands meeting every Friday, it's a time for us to kind of gather as a team and just talk about the week, talk about our wins, but yeah, I well, I guess I have a little bit of control over this, but Tomorrow, you know well, it definitely takes some time to just kind of recognize and point it out and Hopefully not take the whole meeting talking about it, but yeah, recognizing that if people do need to talk about it, that you know we have an open door to do so.Speaker 2:
Yeah, I appreciate what you said about this being similar to the beginning of the pandemic, in so much as it's something you can't predict. You don't know how long this is gonna last. You don't know how it's gonna touch people's lives and how they're gonna react. Think similarly when it comes to workplace of a parallel that was drawn for me from some trusted advisors that I turned to yesterday was about the, the terrible murder of George Floyd and the, the pain and suffering that people were feeling after seeing that and all the reharming from all of the media around the murder and the videos that were all over the internet and that people were really looking to their workplaces to to acknowledge and Stand up for their black employees and their black team members and the black community at large, and that when there was silence in the workplace, that many people became disillusioned in their jobs. And so we got to learn from this. We have to, we need to learn from our history and we need to be better as leaders, and I have always Appreciated that cannabis, as an emerging space, gets to choose how we want to lead, and, and I hope that all cannabis leaders out there Can find some inspiration and some courage to have some hard conversations this week.Speaker 1:
I Think that's a a good place to wrap, because I don't know how we segue this into the cannabis business news. But yeah, I appreciate that. That last statement, you know, just a call to action to all the business leaders and in the community, and just know that it's our job to to make people feel safe. Yeah, so With that let's go, let's go in a little bit of cannabis business. You know An array and I are sitting in California, california. We also get to remind ourselves that it is still the largest market in campus, so it's worthy of conversation, not just because we live here, but the governor has has been very Busy lately. There's been a lot of bills hitting his desk and the one that really stood out to me and I was making several posts about it was was AB 1207, which was which was in regards to packaging and marketing and advertising of cannabis products, and Thank goodness he decided to veto it because in and I there's this. Basically, what it was trying to do was Make a more robust definition of what is attractive to children. We don't want cannabis products to be attractive and advertised to children, and I think we're all on board with that and I'm just gonna read it. It said so, attractive to children means any of the following Use of images that are attractive to children, including, but not limited to, images of any of the following, except as part of required health warnings. A lot of extra words here Cartoons, toys or robots. Okay, any real or fictional humans, and Mind you, again, this is like with advertising and marketing. So like, no humans, any fictional animals or creatures. I know plenty of logos of what there's an animal depicted, fruits or vegetables, except when used to accurately describe ingredients or flavors contained in a product, and so like all of these things. Like Essentially, they're just saying we don't want branding for cannabis products, they just want text and colors. It sounds like the last one is what really got me. It's not the last one, it's further down. This is like bullet seven, that was. Those were all subsets of bullet one. So this was there's a long definition of this but this last one, anything else that the department determines in regulation to be attractive to children. So it's like you, unilateral control and like, like, so. So boo to Assembly member Irwin and the co-authors Lowenthal and McCarty.Speaker 2:
Like this is the constant onslaught of like, even in a challenged cannabis market, like the regulators know where we're struggling and let's back up here in order for the governor to have something on his desk to sign, it means that has passed through both the Assembly and the Senate by a majority of the members. So just to get to this point, that means that AV to 1207 passed the majority of the Senate and the majority of the Assembly in California. And when I try to wrap my head around that, what is going on and why? Why are people people in Positions of policymaking want to reinforce public safety when it comes to cannabis. Okay, sure, check, I get that. But what is so prop 64 does does that Absolutely. And and what is so blind in this effort is that this is just massively like underscoring the need to actually bring all of the cannabis market into the legal supply chain and that if we make it so that the Legal products are completely unattractive in any way and have no branding, and products that are in the unlicensed, illicit space Can continue to do whatever they want, it becomes even harder to compete, and cannabis companies have plenty of regulation. What we need now is to be able to slow down the regulation. So, luckily, what happened is that the industry really stepped up. I think that there was a Cognitive dissonance throughout the process of passing through the house, the different areas of the legislature, people did not think this was going to pass and then, when it did, it was like an oh shit moment and. Across the supply chain in California. You heard from every different type of advocacy, group and company. Everyone was standing together to say this is not gonna work for us, and my hope is that that is why governor Newsom decided to veto this bill, that he heard us loud and clear. Yeah, so sometimes we see examples of when banding together works, and I'm thinking this is one, but a takeaway for me is to not forget that this did pass to get to the governor's desk and that right a lot of people in positions of power making policy that are not thoughtfully voting to Like deescalate the amount of regulation that cannabis business in California, and that is a problem.Speaker 1:
Well, another one that passed through Was AB 374, the cannabis cafe expansion and this one failed.Speaker 2:
This one failed oh.Speaker 1:
It failed. It didn't even make it to his desk.Speaker 2:
It may. Oh, it made it to his desk. Okay, I see what you're saying. Yes, it made it to his desk. Yeah, passed through both sides, which is a positive. So, yeah, let's talk about that one.Speaker 1:
Yeah and and and. Then maybe he got carried away and he's just like on vetoing cannabis bills and vetoed it, but like you. So cannabis cafes in California in particular are just very much handcuffed. It's very hard to run a cannabis cafe business when the only thing you're allowed to sell is the cannabis itself, because, as anyone that knows like a retail environment, like you want to encourage as many purchases as possible while the person is in your venue. But myself I'll speak for myself. I will go in and I'll find a five milligram, maybe a 10 milligram if I really want to get crazy product, and I'll consume it and I might sit there for three or four hours and have a great time with my friends and I'm like the least profitable patron of that environment. Right, one way that you would be able to extract more money out of me is by to feed me snacks, and I will even pay double what I normally pay for them. Like this is obvious. This was intended to be a lifeline for this cannabis license structure. I just don't understand why it would be vetoed.Speaker 2:
Yeah. So the assembly member, matt Haney, who's from San Francisco that introduced this bill and got it passed and ultimately to the governor's desk, was saying just what you said that it's reasonable to allow businesses to serve food and drinks to their customer non-alcoholic food and drinks along with cannabis and that this would be an opportunity for some of the cannabis lounges that have not been able to figure out a profitable business model to survive. And I agree with him. It sounds like you do too, and unfortunately, the governor, in his veto statement to this bill, said that he supported the concept in theory, but was concerned about workers' safety in the lounges being exposed to smoke, and that that is why he's vetoing this bill.Speaker 1:
So this is one of the the smoke already is already there.Speaker 2:
Exactly, it's already smoke. Yeah, allowing bananas and orange juice to be served with cannabis does not increase the likelihood of there being smoke exposure to employees. So to me, this is one of those moments where I'm thinking, huh, there must be some sort of special interest that is in his ear about this. Who is it that wants this to not be a success for the governor? And is it because he is secretly running for president, like lots of people think? Or is there a union that is in his ear about some sort of worker protection issue? I don't know, I wasn't at that table, but this seemed like one of those bills that was so reasonable that, when it doesn't pass, you got to figure out. Well, what is going on here to make this action be so illogical?Speaker 1:
Yeah, there's no way I could rationalize this one.Speaker 2:
I'm like what's second hand smoke for the bananas. You don't want the bananas get high. This is.Speaker 2:
Another one that made me think that maybe our governor is running for president is his veto of the psychedelic decrim bill, sb 58. And I know that we generally talk about cannabis, but I think psychedelics are highly adjacent, so worth mentioning, especially because this was a bill that, while not a medical access bill like Prop 215, was back in 1996, it was a decrim bill, which is what in many ways, prop 215 also did in California. And, interestingly enough, when the governor chose to veto the psychedelic decriminalization bill, the message that he sent was that he would like the legislature to create a bill to bring to him next session that creates a regulatory framework for psychedelics as opposed to straight decrim. And those were little stars going off in my head of like huh, he's trying to create a regulatory framework, like he did for cannabis for psychedelics. We'll see how much appetite there is for that, so we'll.Speaker 1:
Well, I know a lot of the advocates are in favor of creating the distribution and retail like environment is like this might be the Prop 215 for psychedelics.Speaker 2:
Yeah, we'll have to wait and see if there's anyone in the legislature that wants to carry forward a bill like that. And what the psychedelic community is now saying. Well, since SB 58 did not pass, they're working on a few different voter initiatives to try to get put this in the voters hands, and we know how well that worked with Prop 64. One of the things that's different about a Senate or Assembly bill moving through and getting the governor signature from a voter initiative is that voter initiatives are much harder to change once they become law and it's either a two thirds or a three quarters majority of the legislature needs to vote in favor of something for it to change a law if it was a voter initiative and the threshold is lower for a bill that passes. And the reason that I bring that up is just that voter initiatives are not always perfect and we've only seen that with California's adult use measure Prop 64, but it's really hard to change it because it was passed by the voters. So I am more changed to come through the legislature because it's just more nimble and more flexible.Speaker 1:
Yeah, very good. And on the flip side, there were three bills that were signed. So the provisional equity licenses SB 51, the prohibit, and then another one prohibit employers from asking about prior marijuana use SB 700. And then the final one was cannabis tags, the metric system SB 622. Which one of these stood out to you the most?Speaker 2:
I think SB 622 is really interesting. So what this is about is the plastic tags that are required, or have been required, to be put on every single plant that have RFID tags in them that nobody really uses, and it's a $15 million cost to the state every year to purchase these tags. It is millions of pounds of waste, is my understanding. I don't have the statistic right in front of me, but these tags- can't be recycled.Speaker 1:
They can't reuse a tag and you can't recycle. Oh my God.Speaker 2:
You're also supposed to hold on to them for a certain amount of time and they just take up a whole bunch of space. They add labor. So this going back to what I was saying about deescalating regulation this is actually a move in the right direction. This is California rolling back one very small element of over-regulation. So I'm optimistic here and happy to see this.Speaker 1:
Yeah, no, that's good, it's funny. I visited one of the farms up on the hill and they just had a big bucketful of tags and they're like, yeah, we just apply them when we need to and we're sure the plant is going to be harvested and turned into product. Because what's the point? Like you're just throwing tags away and throwing plants away and it's just like huge waste. Yeah, Also interesting, it's just like all right, people are finally stopping asking about marijuana use. Like we saw this at the federal level recently too. It's like the Cure Act that I think it passed through the Senate back in September. So good to just see that move and just former or further normalization.Speaker 2:
Yeah, and then SB 51, I think it's important to call this out. What this does is it extends the provisional licenses specifically for equity retail licensees, and this is huge specifically to help Los Angeles equity applicants, because it's been really challenging to get through the building department and the local entitlement process in some of these cities and to get the physical space to be in compliance, whether it be because of the CEQA Act or other different kind of land use issues that have been holding up the provisional licensees in LA, and this is hopefully a lifeline for those folks to be able to keep their businesses open while they invest in some of the upgrades that are needed, or whatever it might be, in order to be able to transition from a provisional to an annual license.Speaker 1:
I'm going to take a quick, hard left because this isn't in our agenda, but I was reading, like you brought up CEQA, which is the California Environmental Quality Act. I know that from my previous civil engineer days. It's a talk about normalizing cannabis. A lot of cannabis companies are falling under the scrutiny of environmental impacts in the state, and I just read this morning that Natura, which employs something like 450 employees in Sacramento, was Definitely shut down, temporarily shut down, whatever you want to say. Then raw garden almost got shut down as well for environmental impacts that they weren't mitigating. Watch it, folks. This is real business now.Speaker 2:
Sequel is messy. We could do a whole episode on that.Speaker 1:
I'll just let it hit you. Shudders just went through the audience Cool.Speaker 2:
Well, let's move to the other coast and put a pin in California and talk about Connecticut and emerging adults, another sea state?Speaker 1:
Yeah, yeah.Speaker 2:
Another sea state, connecticut, is a state that I have done a project. In Connecticut I worked with a vertical licensee. It was a different experience for me, coming from California, and that Connecticut issued the licenses before folks had to have real estate, which was opposite of the way that many other markets started. What that meant is yeah, it was a good way to do it because it meant that groups didn't need to invest in real estate when they weren't going to get a license. The Connecticut licensing process wasn't perfect. It included a lottery, which a lot of folks are very critical of because they allowed people to buy multiple lottery tickets and the lottery tickets cost money. Not perfect, but either way, I do have some experience in this market. Like I said, I worked with a group that has a vertical license to figure out basically what to build and what order and things like that. Connecticut is in this phase of really experiencing steady growth because the licenses that they've issued over the past 18 months or so are just starting to come on. I think Connecticut is a really unique market as well, because we've talked a lot about New York and the world is paying a lot of attention to New York. Connecticut is really like the bedroom community of New York.Speaker 1:
Yeah, yeah, it's also interesting. I'm sorry, I'm still hung up on this. Give them the license and then they can go get real estate. It's such an amazing because every market people have struggled with this. Businesses have gone out of business before they've been able to open their doors. I was thinking like Toronto, when people were readying their businesses. They were waiting for their license to drop and all of a sudden they made it an open market. People wasted a year paying rent and then all of a sudden it was flooded with competition. This seems like a common sense step. You can have an approval process once they get the piece of property and once they get it all built out, but at least give them some assurance that they're going to come out with a license. This is great.Speaker 2:
Especially Connecticut, is a limited license market. Once you have received one of those licenses, you have a valuable asset that makes it a lot easier to bring in investment money so that you can secure your real estate and have more confidence in the size of the market, what your total addressable market will be, because you know how many licenses there are and what people are allowed to do with those licenses. There's been, I think, a really great market opportunity there all in. I think that at this point there's a moratorium on issuing new retail licenses, at least in Connecticut for a couple years. We're looking at potentially up to about 65 retails could open across the state which, based on the size of Connecticut, I think will set those stores up for really high levels of success. They just crossed $25 million this past month for the first time. It's been slow and steady growth for Connecticut. I think it's great. I think it shows that it's going to be a great market.Speaker 1:
Yeah, Ninth is on the recreational side. It's also interesting, especially as a Californian. They have fairly significant weighted medical markets. Still it's like $14.4 million in revenue on the recreational side in September, $10 million on the medical side. If you look, if just isolate the recreational, it's actually had a record-breaking month. Every month since it launched in January it's like nine months straight of growth. Really exciting to see for them.Speaker 2:
I think that question of what happens to those medical customers and the medical market overall in states like Connecticut and New Jersey and other states that are working to maintain their medical markets while bringing on adult use is a very interesting question. If there's anybody out there that has some great ideas about it, let's have a conversation on this pod, because I think most of the mature markets that have tried to maintain their medical businesses and patient base have just floundered because it became not really worth it for patients to maintain their recommendation or prescription or whatever their medical card when they could just purchase in the adult use market, even if it costs a little bit more because you have to pay taxes.Speaker 1:
Yeah, let's see what happens. Yeah, just for anyone looking at the Connecticut market, I thought it was interesting that over half of the marijuana purchased last month was cannabis or flour, 30% were vapes, followed by an 11% of edibles. I thought that was a little interesting. I remember in years past people were postulating that it's like oh, edibles are going to take a greater proportion of East Coast sales just because of the lack of this entrenched flour market. This seems to be very similar to numbers that we have seen on the West Coast, so not too dissimilar there.Speaker 2:
I would say, with the knowledge that I have of the market, that part of the product mix that you're seeing is indicative of the immaturity of the licenses launching and that there's a number of folks that are still building their manufacturing capacity there.Speaker 1:
Pricing could play it into it as well.Speaker 2:
Pricing as well. Absolutely Soon, there will be more folks with beverage lines and more folks that have the capacity to do things like edibles and other manufactured products. I think that there's going to be a really exciting and robust brand environment for non-flower products in Connecticut.Speaker 1:
Speaking of beverage lines and this is going to be a terrible segue. There's a lot of beverages crossing over from cannabis and hemp. There's a report now that the hemp market size has surpassed that of legal cannabis, which is going to raise a lot of hackles. But we're here to talk about it agnostic-ly and just talk about the data, what we're seeing about it. For me, just off the bat, I've been having conversations lately about really needing to adapt to this conversation about the cannabinoid market. We talked about it with Pamela, I think we even talked about it with Rod and Gary, opposite sides of the conversation. But yeah, it's getting to this point where it's like the hemp market is going to have some real pull when it comes to shaping the future of what we all consider to be the cannabis plant.Speaker 2:
Yeah, green Market Report had a headline and this is how we tuned into this information. The headline was Hemp Wars on the Way.Speaker 1:
I thought, wow, that's a clickbait.Speaker 2:
What's the hemp war In it? It was just casually stated that the economist Bo Whitney has analyzed the hemp cannabinoid market and claims that it's $28 billion this year alone in 2023.Speaker 1:
Someone that doesn't know, Bo. He's very well regarded. He's the chief economist for the National Cannabis Industry Association and CIA. He's pretty prolific when putting out these studies in the cannabis space.Speaker 2:
Yeah, what this very short article was saying is basically the hemp businesses are making a lot of money, so watch out, they're going to start having a really strong voice in lobbying for policy. What I was more interested in was whoa the hemp cannabinoid market is worth $28 billion. I want to know more. Yeah, Yesterday we reached out to Bo and asked him for a little bit more information about his analysis of the hemp cannabinoid market. I'll just read a quote that he gave us to share today. He says that, in terms of data, I conducted personal interviews with manufacturers and was given access to their books if requested. I deployed a business survey and received over 800 responses. Brightfield and others have calculated the CBD market based on public data from stock analysts. Looking at Charlotte's web. Others have looked at how much sales could be derived by acre of biomass. We feel those estimates are erroneous, given that they do not take into consideration the massive amounts of excess biomass and CBD on the market in 2021, 2022, and, to a lesser extent, 2023. I took multiple approaches to this. I used average revenue per store, average sales by distributor, average sales at gas stations in some states, per capita spending and even revenue per milligram from a CBD cosmetics analysis. I did right as COVID was hitting. This was a pretty deep dive into the market. While I'm more interested in fiber and grain on industrial cannabis and hemp, I was pretty amazed at this hemp cannabinoid market when the data started rolling in. He goes on to give me some more data than that was in the green market report. He says that his estimates for 2023 is that the low end that the hemp cannabinoid space is worth $21.3 billion, the mid-range, which is what green market report quoted, is the $28 billion, and that the high end is that it could even be $35.8 billion. Holy shit.Speaker 1:
Yeah, and just for comparison, let's just take the low end $21.3 billion. Grandview Research. The North American legal cannabis market size was estimated to be $15.2 billion in 2022, and potentially reaching $18.3 billion in 2023. Not even getting close to the look where I mean it's close, but not super close to that, that, that lower end that he stated, which is Stunning. But I gotta tell you, I you know my last trip to DC with attach, there were a couple meetings where it was just very evident that 3G and some of the large hemp companies, 3g is the one that sponsored the NASCAR. I don't know if y'all see Kyle Bush or something like that. I participated in one fantasy NASCAR thing in the first year that they were doing it. That's my only exposure to NASCAR. So, anyways, 3g, they have millions of dollars to lobby with and because cannabis companies, even if our revenue is coming close to their revenue, like we're so heavily taxed that we don't have the extra resources to expend on lobbying and so, yeah, we might be close right now in in total revenue, but the excess capital that they have to go and lobby far exceeds ours as an industry and I can speak to that from experience in in in you know being involved with attach and NCIA. It's not, I think. I mean they're already like taking the lead. There's also these organizations that have you seen this other one that's been surf circling around one hemp no got folks like Reynolds and Denton's and CW and because we need another trade association right. I can be very clear this is a lobbying association. I don't think this is a trade association. This is like get it done with the FDA and but yeah it's. You know they're, they're organized and they're pushing. I don't know exactly what they're pushing for. I think it's kind of confusing because you do have adults in the room in some cases where people are putting pushing for very reasonable regulations, that kind of split the middle. You have ones that really just want to see CBD is a supplement and kind of wash, intoxicating cannapnoids, like completely out of the marketplace, and then everything in between. Then you have like the hemp operators that just say, hey, five milligrams of TTC is not, not intoxicating, usm round table.Speaker 2:
Yeah, well, whatever is the case in terms of federal policy, from a business perspective, seeing that the hemp market, the hemp cannabinoid market, is as big and bigger than the legal cannabis market today. And your point that, from a business fundamental perspective, on margins, while we don't have we don't have consolidated data on the average product level margin for hemp cannabinoids or EBITDA margins for these companies, I think that we can guess that with strong, with strong evidence that these companies probably have better EBITDA margins and product level margins and things for their hemp products. That this is. This is an industry that has become a behemoth in many ways and I think it used to be looked at and I certainly saw it as some sort of redheaded stepchild to cannabis and it's not anymore. It really isn't and we should all be paying attention.Speaker 1:
I don't want to. So I don't want to get anyone in trouble, but we're going to have a certain someone on this show at some point in the future. And I was talking with them last time I was in DC and he was telling me that he was hanging out with the CEOs of one of these companies and that the CEO is just very arrogant about how hemp was like serving the cannabis industry their lunch. And he might as well just crossover and get on the right side of history and like stop basically dilly-dallying with all these like poor cannabis folks. And I just I know he took a lot of offense to it and probably reacted emotionally. I have, through him, taken offense to it as well. It's just. It's just a very complicated place that we're finding ourselves in and you know we need to. The crazy thing and I haven't formulated my thoughts around this completely is that we really need to unify the voice when we're when we're going to the hill. We need to create a stronger, unified voice between cannabis and hemp, because it's getting really confusing to the Congress folks that are making the decisions around all this, because they're being fed so much conflicting information and I don't think it's serving the industry at all. I think it's going to it could end catastrophically. I mean, florida just now is cracking down on T H C O, which I kind of forgot that people were doing T H C O, but that's the one that supposedly is like 30 X more pop potent than T H C. They, they, they stripped it out of like 900 retailers across Florida and that's just one cannabinoid of the hemp market. So yeah, it's not. I guess that when you think about it's not surprising that the hemp market has gotten that much bigger than the cannabis market.Speaker 2:
And and while I understand the push towards one cannabinoid industry, that the truth is and I think this is the perfect segue into our next story is that Hemp and cannabis are treated differently and that cannabis is much more highly regulated, and not only highly regulated but highly taxed. So that creates a unequal playing field that businesses are struggling with, and it's it's really challenging, if you're on the side of being highly regulated and highly taxed, to link arms with someone that's selling a similar product to you but isn't in that same position, because the top of the funnel obstacles and challenges that your company faces are fundamentally different. And I think that in the hemp cannabinoid space, some of the top of the funnel challenges are about just ensuring that the policy remains so that the products can stay, and on the cannabis side, it's about de escalating regulation and and these taxes. It's a for the voices to be unified. I think the message needs to needs to really be worked on.Speaker 1:
Yeah, yeah, the taxes are crazy. I mean I remember I think it was last year, year before I did a little bit of analysis just here in the state of California and it was something along the lines of we were paying four times as much in tax in California than the alcohol industry and a fifth of the sales, so essentially a 20 X barrier for us on the tax side. Now what the US Census Bureau has done has tabulated all this information across all the different states, which we could talk about how huge and impactful that has been from a dollars and cents perspective. But also baked in the information is just interesting trends in the tax revenue A lot of markets like very clearly kind of kind of reducing over the last couple years, which is, as an operator, not super surprising based on the trends that we've been experiencing since 2021.Speaker 2:
Yeah, just to back up and give the summary for everybody listening, the US Census Bureau unveiled this report that they say they're now going to update every quarter. That is, sharing the state level cannabis excise tax that are levied on state regulated and licensed cannabis businesses what we were just talking about with hemp none of these hemp businesses are contributing to all of this and that they rolled out the inaugural report with six quarters, so 18 months of analysis Across the US. In those 18 months, almost $6 billion of taxes have gone into state coffers as excise taxes. Not only does that sound like a lot and it is a lot, especially when we're talking about a market size of around $15 to $18 billion a year proportionally but it doesn't take into account the 280E penalty that's levied on the federal level, which I think of as the federal excise tax for cannabis companies. Yeah, you're right. I think that it's monumental that the Census Bureau is publishing this data, though, because, as an operator, I think we often feel like the feds aren't paying attention to the struggles that we're having with over-regulation and the fact that a federal agency is choosing to just aggregate this data. I think is open, because this now means that it's not individuals or lobbying groups or trade associations needing to aggregate the data and convince people at the federal level to look at it. We can point to their own actual agency that they're funding that's doing this data analysis for us.Speaker 1:
Yeah, super interesting.Speaker 2:
It's really powerful.Speaker 1:
Yeah, just for anyone that's watching the video, I'm just bringing up a spreadsheet. The data it's right here and you said they're going to be updating this every quarter. It's a level of transparency that we just generally haven't had in the US cannabis economy. I remember how much I've enjoyed digging into the Canadian data because basically it's government run and so all the information's all there for everyone to pick apart which brands are really leading. This obviously isn't getting to that level, but hey, it's a start. More of this, more transparency.Speaker 2:
It is really interesting to get to see, to be able to look at Oklahoma as an example and see that over the six quarters or how many quarters they've got a bunch of more quarters here than I thought that are analyzed the tax revenue was highest the first quarter historically and then it slowly has inched down and down and down, but it's been fairly level. So it's been as high as 16.5 million and as low as 13 point or as low as 12.8 million and somewhere in between, and that is a big range. Actually that's a 20 to 25% decrease from the highest to the lowest and it just shows how the overall market is doing, because if the tax rate stays the same and the taxes levied is less, that means that there's just less economic activity in that market. So by publishing this I think we're going to see this some interesting trend lines over time and I think that it's optimistic.Speaker 1:
Should we lament our great state of California one more time? Oh my gosh, at one point about a quarter billion Q3. So these are in thousands, so a quarter billion and Q3 of 2021. I'm going to call Q1 of this year kind of an outlier, but yeah, down to 150 million. So lost 100 million in tax revenue. That's significant and being felt.Speaker 2:
And why should we care? I mean, it's not that businesses are thrilled to be paying these taxes anyway. I think that the reason, one of the major reasons that we need to care, is that this dynamic of taxes levied speaks volumes about how governments perceive and manage emerging markets like ours. And I think the cannabis isn't the only emerging market that's in front of us. There's a bunch of others out there AI, psychedelics, all kinds of like new cryptocurrency, all sorts of things and I look at this and I think whoa, the government just looks at our emerging market as an ATM, and that's how they're approaching policy is how much money can we take from this industry? And I'm not sure that that's really the right way to regulate and make policy.Speaker 1:
Yeah, yeah, definitely not. Well, we kind of jumped all around there emotionally, statistically, just across the country, but we are approaching the top of the hour, and so, in array since just us today, how about a last call from you, yeah?Speaker 2:
I'm going to take it back to where we started on the Israeli conflict and what's going on in the Middle East, and my last call is to talk to your teams and to reach out to the people that are most affected by this war and make sure that they're okay, to find courage in yourself as a leader to have the hard conversations.Speaker 1:
Yeah, Amen, I will second that. But to come up with a unique one of my own. I've been getting a lot of pictures this week from multiple events. So there's MJN Pact going on in Detroit right now. It looks like an incredible event. The stage is bigger than any cannabis stage I've ever seen. It's like I looked at this picture and I barely even saw the people sitting on the stage. It was just like so massive. So that was really cool to see. Similarly, and specific to the beverage category, the National Beer Wholesalers Association had an event in Vegas this week and there was a lot of representation from both cannabis and hemp beverage companies, and so I've been seeing reports come out from investors, and so it's really interesting just to see this confluence of mainstream beverage and our own little 2% of the market, if we're lucky, the cannabis beverage market. So kudos to everyone representing there. I know the hemp beverage alliance and a bunch of the other. Their representatives were there. I saw a bunch of brands that just handed out. It's just really great to see the normalization of cannabis in that form factor at something like the National Beer Wholesalers Association. So yeah, well done guys. Thank you Hell yeah All right. Well, with that, as we wrap up, remember that the dialogue doesn't have to end here. We invite you to continue these conversations and we'd love to hear your thoughts. Who would you like to see on the show? What topics would you like us to cover? We have some really great shows queued up, I think, all the way through November now, so stay tuned, it's going to get better. We are immensely grateful for you, our audience, so your engagement just encourages us to keep doing this work harder. Reach out to people like Bo Whitney and just try to get that inside voice for you. So stay engaged. Let us know what you think, share like subscribe, do all those things. It really helps us. I know people are starting to find the show, so that feels really great. And remember folks stay curious, stay informed and keep your spirits high.