Why Speculation Misses The Point

SPEAKER_03 0:00

After all the speculation and our pontification about what we think is going to happen, just ignore us. Because as my smartest, most successful clients will tell you, they are focused on running the fundamentals of their business that will be successful, rescheduling or not, and they're looking at the long term.

Ben Larson 0:47

I'm Ben Larson.

AnnaRae Grabstein 0:49

And I'm Annory Grabstein. And every Tuesday we try to have conversations that matter, the ones happening in the boardrooms and the back hallways.

Ben Larson 0:57

It is May 5th, 2026, and we have an incredible show for you today. We're going to dive deeper into the rescheduling and we're going to talk about money, uh, which we all know we love. Uh, or at least love to talk about and hate. Love and hate. It just flows through. It's like water.

AnnaRae Grabstein 1:18

On a good day. On a good day.

Ben Larson 1:20

Yeah. How are you doing, Anna Ray?

AnnaRae Grabstein 1:26

I'm good. I uh I had such a good week last week of kind of touching all the grounds all over the country in the cannabis market. I was down in LA and visited some operators, and then I crossed the country and was in Ohio, and I attended the Ignite conference and then got some tours of some incredible Ohio operators. I went and saw Certified, which is the number one operator in Ohio, totally uh vertically integrated operation, growing lots of weed, manufacturing it into all sorts of products. And um, they have some of their own dispensaries and they also sell their products across the state. And I also visited um another operator that's a manufacturer called Nura. And um it was just a really wonderful way to reconnect with the humans that are building this industry and um meeting entrepreneurs that are doing really cool stuff. So it is invigorating and exciting.

Ben Larson 2:24

Oh, nice. Yeah, it's uh optimistic to hear that. And um there's a bunch of operators descending in DC next week for NCIA's lobby days, and I think those voices are so important to amplify, especially in these moments where we're talking about policy reform that we've largely been fighting for for decades, and uh it's a little bit more complex than anyone anticipated. So, in ensuring that people are hearing, especially those in DC, that it's not just automatically positive for everyone that there's real operators trying to understand what's happening and trying to navigate all this. And um, I feel like that's where I've been in the headspace for the last couple of weeks now, is just like, what's it all mean? And I've gotten to this weird place where I'm just like, like, oh, it's happening, and I'm just gonna I guess be open to the potential of having to do something to benefit from it, but jury's still out. Um, and so yeah, I I think I've been in a little bit of a bit of a status quo is where I where I ended up after the last two weeks of running through all the machinations of it's like, oh, maybe I'll spin out like a another entity and and get get get a DEA license or something like that, but I don't want the DEA up in my shit, so um, you know, that that's kind of where I landed.

AnnaRae Grabstein 3:45

Yeah. I mean, going back to the analogy of money like water, I think there's an element of flow that we all have to just be willing to accept here is that um it's not gonna move necessarily the way that we predict, but we need to move with the flow. And yes, you might be taken aback so you don't action today, but you're doing what I think everyone should be doing that this touches is trying to learn as much as we possibly can. Because the best thing that that we can be is informed. Um, so yeah. Um I will bring the optimism today. You can bring the skepticism. I'm I'm good with that. Uh, and I'm just gonna try to carry these stories from these folks all over all over the country that have been building this industry, you know, working so hard uh because things are gonna keep changing, but hopefully we keep the people at the center of it all.

Missouri Lawsuit And Retail Power

Ben Larson 4:35

Yeah, I mean, look, I I I want to insert it there. We'll get it more into just but just as a feeder, like I was feeling pretty, I guess, optimistic coming out of our last conversation last week. Um, Eric Berlin was you know kind of on the side of it's like, oh, this is kind of like a pseudo-legalization, and I'm like, I don't know what that means. And then I saw, I think it was like just the next day or two days later that the DEA was that there was gonna be a fee on every kilogram of of biomass that was grown. And it was like$113 a kilogram. And I immediately I just to think back to the cultivation tax in California. And I'm like, I'm like, that's not gonna work. Um, so yeah, we'll we'll dive into all that, but that was kind of a bit of news uh that kind of popped up to kick off the the week.

AnnaRae Grabstein 5:30

Well, speaking of news, uh, we've got two fun stories that are are worth covering here. Um the first one kept me busy on my airplane ride to Ohio last week. I read all 158 pages of the of the lawsuit. Um, this is Missouri supply chain litigation, Good Day Farms accused of running a price fixing cartel. Uh basically, the story is that two Missouri cannabis cultivators have filed a class action lawsuit alleging that the state's largest retail operators used a web of shell companies to bypass ownership caps and form what the suit calls a price fixing cartel. And at the center of the allegations is Good Day Farm, which the plaintiffs claim control 61 dispensary licenses, nearly triple of Missouri's legal cap of 22, masking the ownership, complex corporate structures and management boards, MSAs. And according to the suit, um the licenses operate under a bunch of different names, but are still controlled by the same people. And the plaintiffs allege that the concentration has created a market power that has forced wholesale prices down while they have not benefited the consumer and held the prices at the same level for consumers. And it's really a vertical integration playbook that has turned against the supply chain. It seems to be what happens when retail consolidation outpaces regulatory oversight. Uh, if the allegations hold up, I'd say it's a warning for every state that sets ownership caps and assumes that people are following them. Uh yeah, it's pretty wild. Uh we've we've had a bunch of discussions about Missouri because people have thought of it as a really exciting market, and yet we've seen some brands like STISY not be able to make it in Missouri and launch their uh maybe this is why. What are you thinking about?

Ben Larson 7:33

I'm gonna stick with the the water analogy. Uh I I started my professional career as a civil engineer, and there's one thing that we always said as civil engineers water goes where water wants to go. And it's the same with capitalism. And not to sound like a libertarian, but this is what you try to do when you create markets through regulation and control. Like capitalism will find its way, people are creative, industrious, and they're gonna try to make as much money they can given the the rule set. And the best rule set is the natural order of supply and demand. And anytime you're trying to put in these controls and limited licenses and all these kind of things, entrepreneurs are gonna run amok. Uh, you know, the global using the global we here, not not me specifically. Um, and so I mean, this is right on the heels of AG Yo's uh lawsuit in Ohio. So we're just gonna see this over and over again. And honestly, it's it's rhyming with what we're seeing in rescheduling right now. It's like, oh, who was in the room? Who was writing the laws for this rescheduling that's happening that's super complex and maybe only benefiting a few? I don't know. I don't it's it's just it's all rhyming, and it's it's I I'm kind of sorry, I'm getting a little fired up because I'm just like sick of it. I'm sick of like the like politics and lobbyists trying to control what should be a simple supply and demand equation. And yes, this is a symptom of all of that, so it's gonna keep happening over and over and over again. And now we have precedent Ohio, Missouri, which state is next is my question.

AnnaRae Grabstein 9:11

Yeah, it's we we've talked about the three-tier system because as we have dove into what could be a future path for hemp beverages, there are some loud advocates for using the three-tier system. And I think that the three-tier system was largely created specifically because of situations like this to create uh bifurcation of the supply chain and hopefully lead to fairness between retailers and producers. Uh, that is not what's happening in cannabis. And especially as we're diving into all of this rescheduling, a big part of the conversation is around um around actual supply and if interstate commerce or import-export is a part of the story. And I think what's happening um in Missouri, using your term rhyme, kind of rhymes with that as well, because this issue is is about folks that aren't vertical, but we're only cultivators not having access to the shelf because of this large monopoly of retailers. And it occurs to me that through all of this policy change that we're looking at, that the folks that are growing the plant are really the most vulnerable to all of the policy change right now in terms of what's going to happen next. Um, because I would I would posture to say that that there probably is plenty of cultivation in the US right now to serve the entire country if there was the ability to move product over state lines. There would need to be no new cultivation built in a state like Mini Minnesota. Um but but right now there are state borders and there isn't enough cannabis in Minnesota to serve their new adult use market. And so what are folks to do? Um, what are folks to do? It's really really interesting.

Ben Larson 10:59

Yeah, yeah. This story's not over.

Indiana’s Ghost Market And Tax Loss

AnnaRae Grabstein 11:02

The story is not over. Uh well, let's move on to story number two. Uh, Indiana's$1.8 billion ghost market and the governor who's starting to pay attention. Um, a state commission study in Indiana has found that residents spend approximately$1.8 billion annually on illegal cannabis. And the state, the state is capturing none of it. With 96% of Indiana's population living within 100 miles of a legal dispensary in a neighboring state like Illinois, Michigan, Ohio, or Kentucky, the state is effectively outsourcing an estimated 180 million in potential annual tax revenue across its borders. The study found that 1.3 million active cannabis users in Indiana are uh are active users and one-third of them um are daily users. So the Republican governor Mike Braun cited the federal rescheduling move as making state-level legalization more likely in Indiana, framing the shift as moving from if to how. Uh very exciting. Another state.

Gail Rand’s Patient Advocate Origin Story

Ben Larson 12:10

Another state that will mess it all up through regulation. I mean, yes, this is this is great. I'm glad they're recognizing it. Uh, that is the positive. Um, but this is why we just need broad sweeping reform everywhere. I mean, like you could say the same about Texas's, you know, five billion dollar overnight hemp marketplace. Like, that wasn't all new. Those people were already consuming cannabis. It's just like this is a plant that needs to be recognized as a single plant and then legalized across the nation. And so, you know, I I don't have much to say about this article beyond thumbs up. Uh, but what I will do is take the opportunity to plug is like we need to keep fighting for better. Like the what this rest this is where I've arrived. The rescheduling over the last couple weeks is just like get into DC, keep pushing, and this is not good enough. Um, and I'm excited to dive into why uh for the remainder of the show.

AnnaRae Grabstein 13:13

Amazing. Well, let's get started and bring on our first guest. We have two, but we're gonna get started with um Gail Rand. Today, um, you know, Gail did not come to cannabis through a spreadsheet, though she spends a lot of time in them these days. She came through her son. And Gail spent more than 30 years in finance before becoming a co-founder, CFO, and patient advocate for Forward Grow, the first cultivation licensee in Maryland. She helped pass Maryland's medical cannabis legislation while fighting for access for her son, who lives with epilepsy and autism. Today she runs Grand Consulting, where she has advised more than 40 plant-touching and ancillary cannabis companies across 13 states on financial planning, business modeling, and strategic advisories. She's one of the sharpest financial minds in the industry. Uh, and she listens to every episode of our show. So we are really excited to have a reason to bring Gail Rand onto high spirits today. Uh, welcome, Gail.

SPEAKER_00 14:12

Thank you so much. It's it's truly an honor. I'm excited for our conversation today.

Ben Larson 14:18

Can I can I start with like a total total tangent? Um, I love the portmanteau of your name, the Gail Rand Grand. Like, as someone who owns Blarson.com, yours is just so much more elegant.

SPEAKER_00 14:32

So my husband joined my firm after 20 years with the Security Exchange Commission, and he used to take companies public. He was in the tech space, and he joined my firm. He retired from the FCC last year. And whenever we don't exactly agree on something, he's like, and his name is Colin. He's like, I'm just gonna form CRAN Consulting. And I was like, Yeah, good luck.

Ben Larson 14:51

Yeah, good luck with that. That's amazing.

AnnaRae Grabstein 14:54

Um, blarson.com. Okay. I'm checking out. It's all the rage. Amazing. Gail, um, take us back to the beginning. Uh, we would love to platform and hear about your story getting into the fight for Maryland's medical cannabis legislation.

SPEAKER_00 15:16

So it's been a journey. Uh, in June of 2012, I first heard about medical cannabis for epilepsy through our listserv for the rare type of epilepsy my son has, which is called DOSA syndrome. And the reaction was fascinating because back in 2012, nobody was talking about this. This was before you know the weeds special with Sanjay Gupta. Um, but nothing was working for my son. Um, my son would have drop seizures. Uh, he was in the emergency room every other month because despite wearing a helmet all the time, he would fall wherever he was. Um, I describe it as if he was a marionette whose strings were just cut off and he would just fall wherever he was. And he was three at the time. So we had tried six pharmaceuticals, the ketogenic diet, steroids. We had gone to Johns Hopkins, Children's Hospital in Washington, Mass Gen, flew across the country trying to figure out what to do. And um, we're out of options at this point in time. Um, so when medical cannabis came up, I listened. Um, but honestly, it took me a year to do anything about it. Um, we talked about moving our family to Colorado because that's what people are doing at the time. Um, but we decided um for our family reasons to stay and try to pass a medical cannabis bill. Um, unfortunately, I didn't know that much about cannabis or politics, um, but I figured it out and project manage it like I did all the other work that I do. Um and with forming an organization called Stop the Seizures, working with a lot of parents across the state. I was very proud of the bill that we passed. Um, it was very patient-friendly, it was science focused. Um, it actually worked out pretty well for the industry. Um, I think we didn't do as good a job as we could have on social equity, um, but not for lack of trying. Um, and that was supposed to be the end of my journey. Um and people were asking me to be a mom figurehead on the Maryland applications, and that's just not my background. Um, that's not who I was. Uh so um I I'm a CPA, I did lean process improvement in the finance function. So I didn't need a team that was interested. Um, and I helped launch the first grow, as you mentioned.

Executive Order Emotions And THCA

Ben Larson 17:23

Gail, with with your journey we we talked about schedule three uh at the end of last year and the importance of the executive order for a just recognizing finally that medical are their medical applications for cannabis and and how important that was at the federal level. And I'm curious as to how you felt in that moment uh when that was all happening, and then subsequently, and this will fast forward us to here today, like how we're feeling on over the last few months about what that's transformed into.

SPEAKER_00 18:04

Um it was really dramatic for me on the day the executive order was signed. Um, I was brought to tears and was totally surprised by that. Um, my son does get access to the to the medicine now, so it wasn't like we needed it necessarily from that perspective. Um, he takes THCA. I just want to clarify CBD helped with his learning, but THCA is what stopped his seizures. Um, he has had a clear EEG. Um, but just feeling like I was acknowledged that this is medicine and and access for my son hopefully will continue for the rest of his life uh because that's always a concern. Um, it's not something I take for granted. There's a lot of people who've been fighting for decades and decades for access and still are struggling in certain states or struggling to get the medicine they need needed. Um I was driving yesterday and um was a little surprised again by my reaction. I started crying again because I was having a call with somebody who helps with his support network. And one of our hopes, um, my son's name is Logan, and he's a very social person. And our hopes and dreams for him is that someday he could live on his own in a group home with a lot of supports because he has a pretty significant intellectual disability and a lot of challenges. Uh and one of the biggest concerns we've always had about a group home is that they wouldn't administer THCA, um, even though it's state legal. And I realized yesterday that there's a path now that maybe that could happen. And that has profound impacts for my son and quite frankly, for our lives that were was was very, very meaningful to me in ways that I didn't even think about.

AnnaRae Grabstein 19:47

Wow. I have goosebumps right now. Uh, it's so wonderful to kind of preface this story with the humanity in it all. And I'm so appreciative of you sharing the story with all of us. Uh and and to take it more into the kind of the topic of today, you took this experience um with your son, and you actually ended up turning it into a career in business and finance for yourself. Um, why don't you quickly give us that um that segue, like how how that happened, and um, and then we'll we'll dive into the rescheduling order and bring on Michael Harlow to have more in-depth conversation about all that.

Michael Harlow Joins On Tax Reality

SPEAKER_00 20:29

So I launched the first grow in Maryland. Um, I always joked that if I had to do it again, I would have been second because it was really complicated to figure out all the regulations to implement metric when nobody in the state had used it before. We grew in a greenhouse. So trying to figure out those mechanics when nobody's grown at that scale. Um, but it was an exciting time. Um, I worked at we had three months where we were the only grower. Um, so from that perspective, it was actually quite interesting uh and um and a fun way to run a business and get to profitability pretty quickly when you're the only supplier. Uh and um I did that for four years and then decided to go out on my own to do this CFO advisory work, um, which I really enjoy. Uh it's always I have I always joke I love my clue cans by the best clients. It's such a challenge, just when you feel like, and and I do appreciate what you're saying, Ben. Just when you feel like you've got your groove, you've got your systems in place, you've got your processes in place, you're, you know, your head spinning with all the new regulations. And that's happening at the state, the federal, and sometimes the local level.

unknown 21:40

Yeah.

AnnaRae Grabstein 21:40

Yeah, wild. Well, um, you reached out and said that your colleague and friend, Michael Harlow, would be a great person to join you in the conversation today. So um, we're gonna bring on Michael and we're gonna go deep with Gail. Michael is the managing partner of Cone Resnick's DC Metro Office and is the National lead for the firm's cannabis practice. Michael spent 20 years advising clients on tax accounting and attestation. And for the last decade, cannabis has been at the center of his work. Cone Resnik is one of the biggest names in tax and serves clients from single dispensary operators to some of the largest MSOs in the country. And Michael can tell us what the heck is going on, at least as much as he knows. So Michael, welcome to the show.

SPEAKER_03 22:30

Thank you very much. I'm thrilled to be here. And even that, you know, as the news broke about rescheduling, I think she and I connected relatively quickly. We both got into details and we geek out about the same policy details. And like to have somebody that can be fascinated with what's on page 23 of the final order and how that impacts taxation and the distinctions between medical markets and adult use. I realize that makes me a complete tax geek, but I appreciate the fact that I can have those conversations with Gail.

Ben Larson 23:16

Well, you you you tell us how to get all of our 280 taxes back and you'll be fully redeemed.

SPEAKER_00 23:23

No pressure.

Retroactive 280E Relief Explained

SPEAKER_03 23:24

No pressure at all. Well we'll see how that goes. I mean, the the Treasury uh press release as of last week recommended, well, stated the Treasury is going to recommend to IRS that cannabis rescheduling be retroactive for tax purposes back to the first day of the tax year. So medical, that's 2026. We'll see what happens with adult use. Theoretically, all of counter year 2026 is 280 free for medical operators. I mean, there's a lot of details that matter, we got to get into the nuance. But then if you look at the actual final order, it goes further. And page 23 of the final order actually recommends, and I'm not sure exactly how this works. I don't think DA has the authority to tell Treasury what to do and then have Treasury tell the IRS what to do. But the DA administrator is recommending that 28 relief be retroactive to the medical markets. So actual prior tax years. Now we have to wait to see how IRS responds to that. But that's great news for a lot of people in medical markets.

Ben Larson 24:30

So a lot of this is beyond the scope of my schoolhouse rock uh education. Um you know, when you're a bill on Capitol Hill, there's only so many components that you really worry about. But when there's this like interagency recommendation, what I'm picking up over the at least the last couple years is like the only interagency recommendations that really seem to matter these days is the White House to everyone else. What's it mean when like these one agency is recommending something to another agency?

SPEAKER_03 25:02

That's a good question. I was thinking about that on the drive up this morning. How to explain that. And to me, it's kind of like watching you know, a fantasy movie. You gotta suspend this belief just a little bit and pretend like the world we're operating in now is normal. Um, because that doesn't normally happen. Um, normally it takes an act of Congress to allow retroactive tax relief. Um, but what the final order did do very nicely is outline why cannabis is being rescheduled and why it doesn't fall within the meaning of a 280 schedule or a schedule one narcotic. So even if um IRS does not move forward with providing relief for all of 2026 or retroactive relief to the prior years, the federal government has given every operator and every legal counsel serving the industry a roadmap for arguments to follow to try to challenge that. Now, as you know, I was speaking before we went live, even as recently as today, we have seen clients receive notices from the IRS challenging 2AE. So it's safe to say that nobody told the field agents at the IRS as of this morning what was happening with rescheduling because they still haven't got the memo. Um, but that's gonna take some time.

AnnaRae Grabstein 26:23

So, first of all, I I just love that you talked about having your your friendly cannabis geek that you reach out to and that Gail is one of those. Because I think that we all have that. Like we've we've got our like dial a friend on text of like, holy crap, did you just see whatever just happened? And it when you were describing that, I almost thought, wow, if only we could get like a whole thread of of all the geeks together. Because Ben and I certainly are that with the late night texting, and what we can get get you guys on that text thread. Um Michael, you talked about what clients are are interested in or paying attention to as it relates to the rescheduling. Um, Gail, maybe I'll turn it back to you as well. Uh, what what are your clients and the businesses that you're talking to focused most on as they're trying to metabolize rescheduling in terms of what they're gonna be doing tomorrow and in the next 60 days?

Planning Cash Flow Under Uncertainty

SPEAKER_00 27:22

So a lot of people are focusing on the their cash flow planning. Um, what does it look like in two very different scenarios? If 280E goes retroactive before January 1st, sorry, 280 does not apply retroactively before January 1st, 2026 or not, it has profound implications on your cash flow. If that cash does come in, and even if it goes retroactive, it'll take a while. They're not gonna probably, you know, wire you the money the next day. Um, how do would you plan on using that money? How do you plan on growing? Do you plan on um growing, you know, organically with your company? Do you plan on doing some acquisitions? Um, I think we're gonna talk about that a little bit later. Um, but it it's very important from that perspective. Um, I'm also getting a lot of questions, and Michael could probably add to this about, you know, what does this look like in a in a legal environment? Do I go ahead and get rid of all my organization structure and get rid of my 280E policy that I have and my approach and my guidance there is to just hang tight. Let's let this play out a little bit more. Let's, you know, plan accordingly, but understand what that looks like. Um, because I think there's the possibility, especially if you do get an IRS audit backwards, if it doesn't apply retroactively, um, that you could be at risk of implying that your whole, you know, chart of accounts and your whole cost of it sold approach was solely because of 280E and that it wasn't actually real to your business. Um so that's another thing that we're talking about quite a bit. Um and then understanding because I do live in Maryland, I'm having a lot of conversations on what the dual and hybrid considerations mean. Should you separate your business into different business lines so that you at least can do analysis on what the medical and the adult use side looks like? And I think that's going to be a very important conversation, even if adult use does get schedule three status in the hearing, should you be evaluating your business in different ways? Because medical and adult use might look different, but we still need to know a lot more about the dual and hybrid approach before we go down that path.

AnnaRae Grabstein 29:33

Double-clicking on that, if if the hearings do have an outcome where adult use is schedule three, but maybe does not have the privilege of the framework that has been proposed for medical, um, what would be the reason for bifurcating your business if they're both schedule three in the way that you just described?

Medical Versus Adult Use Definition Fight

SPEAKER_00 29:54

So if medical becomes legal, well, medical is legal, if adult use becomes schedule three but is still illegal because it doesn't meet with international treaties, then I think you're gonna have very different businesses. I think on the medical side, you'll have access to payment processing, you'll have access to the capital markets, you could uplift, you could go public. Um, you'll I mean, Michael again could talk about this, but you have a lot of tax benefits, bonus depreciation. Um, so you would need to keep your fixed assets separate. Um, but to further answer your question, if schedule three, if adult use goes schedule three and somehow becomes legal, whether they allow adult use people to have DEA licenses, that's a different story. I honestly um I don't have a crystal ball, but that seems of like an unlikely scenario to me at this stage.

Ben Larson 30:47

Yeah, DEA license to me means DEA inspector, and that's all I need to know to bifurcate my business. Um, but Gail, you're you're talking about like kind of this wait and see and the like all the unknowns. Michael, when we were talking earlier, you described it as a bunch of gobbledygook, uh, which I totally agree and love that. Um from your perspective, you know, what are the major uh unanswered questions? Like, what do we need clarity on to even feel some sense of a stable ground to proceed forward?

SPEAKER_03 31:25

So I would break that down on maybe two major areas or topics. One is are we actually gonna have rescheduling of adult use recreational? And I don't mean to be the pessimist, but I am the tax accountant, so it's kind of my job to be the buzzkill. Um, I'm not convinced we're gonna get that in 2026. I think um, you know, say whatever you like about the president. He's very direct, uh, he doesn't beat around the bush. He is focused on medical use, uh, the veterans, PTSD, medical benefits, he said nothing about adult use. Uh, he's expended significant political capital to get this this far. I think he's gonna see this as a political win. If there is positive development for rescheduling in the DA hearing in June and July, I don't think he's gonna be object to that. But if there are lawsuits or anything else that slows down that process, I don't think he's gonna spend any more political capital moving adult use forward. We can already claim the win that he's gotten medical taken care of. So I think there's a very good chance we get an operating this bifurcated market. And at least somebody in Treasury thinks that's a possibility, too, because you'll note in their press release, they specifically address the fact that there'll be transition guidance about how to bifurcate tax filing positions between uh schedule one and schedule three, like they're already anticipating this problem. So somebody in the federal government thinks this could be the environment in which we're operating. So that's a big, big unknown. Like, are you going to have um operators in medical markets that are operating now at a significant financial advantage and completely different economics than operators in adult use markets? Now, as I said, I think the federal government has laid out a very nice roadmap within the final order for anybody who wants to challenge within the meeting of a Schedule I narcotic. But those operators are gonna have to fight for that. That could be taken, that will be addressed through litigation over future years. Meanwhile, medical operators could be seeing refunds for prior years and a non-three environment immediately. Um, so that's one big issue. The second one that I'm thinking about and concerned about is what exactly is a medical market? Like I live in Washington, D.C. Washington, D.C. is a medical market that allows self-certification. Well, across the border, Maryland is a dual use, adult use uh medical market. So let's say that the federal government decides that Maryland is adult use and Washington, DC is medical. Now, the shift that we saw when Maryland went to adult use and revenue went from DC into Maryland, you can see just the opposite. As Maryland as DC operators can now reduce their prices because they're not dealing with the 280 drag, the Maryland operators could be dealing with. Or the DA could get into the details of the application and say, wait a minute, this is this really a medical market? Right now, the final order suggests that they're going to give great deference to the state medical programs. And if you're operating with state medical program, theoretically you're good to go. I want to see those licenses actually be applied and issue. Like I want to see where that ends up.

How Rescheduling Could Grow Demand

AnnaRae Grabstein 34:42

Yeah, wow. Um it's it's really it's really confusing because even in um in states like our home state in California, uh, where Ben and I are, the the DCC, our state regulator has issued notice of making it easier for licensees to convert um or to basically designate their license as medical as opposed to adult use. And they even have a dual-use adult and medical designation. Uh and if you have a medical designation in California, you're still able to sell into the adult use market. So is it the license or is it the transaction and who purchases the cannabis all the way down through the supply chain? Um, sure does get complicated. Uh I've been thinking a lot about the the overall market size implications as a result of this. And um, and if if the actual opportunity in front of us is going to change um as a result of rescheduling. So leaning on a bit of market data, uh, BDSA projects that this year, 2026, the um the US cannabis market is valued at 31.8 billion, and that by 30 uh or by 2030, so four years from now, it would be 36.8 billion. So that's about a 4% compounded annual growth rate over the next few years, which is not huge. And it's certainly a smaller growth rate than we've seen over some of the years since legalization, the legalization wave started happening. And I'm wondering if you guys believe or think that there's anything about this rescheduling new reality that we're living in that's going to change the trajectory of the business opportunity with the folks that that you're working with or just that you see industry-wide. Like will those numbers change?

SPEAKER_03 36:37

Absolutely. I think so. Again, as a resident of Washington, DC, as you may have heard, DC has a lot of federal employees. Uh, DC also has a medical program. I know lots of people in the local community who have not pursued uh getting a medical card DC because they're concerned about somehow that jeopardizing their employment with the federal government. Well, if the DEA is now putting their stamp of approval on that program, I would think that changes that concern dramatically and potentially opens up uh the market quite a bit. Um, and you also have to keep in mind that 280E, and I've had clients say this to me before, like, wow, 280 is so punitive, it's like they don't want me to be successful. That's exactly what they want. They don't want you to be successful. It's supposed to be punitive, it's supposed to make it very difficult for you to grow your business. So we've had a situation where illicit operators are operating without 280. They're probably not paying payroll taxes or anything else. So they're operating at a very different cost structure than the regulated licensed market. And this is a good, a good step forward to equalizing that. And I think when that happens, you will see more price competitiveness between the illicit market and the regulated market and potentially more conversion of consumers into the regulated market.

Ben Larson 37:58

I hope you just you just made something pop in my head. It was like the access for like ath professional athletes, like, does this act as a trigger for for all the the associations to allow their athletes to to consume? And I know we've we've had a general progression in that direction. Um, but now that you would have a federally legal like category of cannabis, then um potentially that opens it wide open.

AnnaRae Grabstein 38:24

Because the consumption habits of a sports team is going to change the trajectory of the industry and they're gonna be consuming so much cannabis. I get it. It's the hearts and minds for sure.

Interstate Commerce Fears For Cultivation

SPEAKER_00 38:39

Gail, what are your thoughts? Um, I agree with what Michael said. I mean, my hopes and dreams is that somebody is gonna go into a doctor's office and meet with a doctor, and the doctor themselves is gonna bring up medical cannabis based on their clinical research and the fact that it might be an option. Um, I've yet to hear a story like that, and I think that might change. Um, I mean, that's usually how medicine works, right? It comes from the medical professionals. Um, I what I think is also interesting is is it gonna make people feel more comfortable on the adult use side? I mean, I think it's as much as I care about the medical side and it's it's my reason for being in this space, it is super important to not demonize the adult use side. I feel very strongly about that. And I think that um there's gonna be a uh, and nor should we demonize it from a business perspective, because even though I'm excited about the opportunities for medical and it being legal and access to capital markets, et cetera, I do think there is gonna be some, there are gonna be some people who just don't want to bother to get a medical um certification and they just want to walk into a store and they want to have the conversations about what they want to buy, and they should be allowed to do that, in my opinion. Um, so I'm also hoping that there's gonna be some trickle down. Um, now on the wholesale side, I do have some concerns about what the market's gonna look like. Um and the big question that I have is what is interstate commerce gonna look like? And what is direct to consumer? If we go down that path, it's a very fundamental different business. It's much closer to what we're seeing on the hemp side. Um, and I don't know the answer to that. I don't I don't know that anybody does at this stage. Um, but if once if we have interstate commerce and one state allows imports, um, I do have concerns to what you talked about, Anne Ray, in the beginning of the show about the cultivation side of things. Um, you can bring in product that's grown, you know, around the equator or very cheaply in Africa, that I'm hearing some more about Africa being a center and not having to, you know, it that could be imported into our state. I think it has profound implications on cultivation. So focusing on your cost of cultivation is going to be absolutely critical to survive if that goes down like that.

AnnaRae Grabstein 40:57

Yeah. Last week at the Ignited conference on stage, a Juci executive said basically, good luck to anyone who thinks interstate commerce is coming. And to me, that was a message and a signal that the that the state legal cultivation operators are going to look to protect their fiefdom, their borders as best as they can because these cultivation assets have been incredibly expensive to build. And while I understand that that kind of protectionist perspective of one's own business, uh, I think it presents a lot of bigger questions about who we want to be and what a healthy market ultimately looks like at maturity and and runs up against some hypothesis of some other operators, namely Glasshouse that built the biggest cultivation in the world and from the very beginning has said that their hypothesis would be that one day they would be uh supplying cannabis to the whole country. So it's kind of be like, well, who who wins that battle and and how's how's that going to all unfold?

Ben Larson 42:07

Anna Ray, you last week you you brought up an important aspect is just like, does this evoke the the dormant commerce clause uh which only uh relates to the the interstate commerce uh when it comes to international, I I think I can imagine that moving a lot slower, especially under the current administration, where we are very happy to apply a tariff to uh to international imports. So um it is interesting to to see the the impending battle of of this licensed regul or the licensed operators fighting against the interstate commerce, though.

AnnaRae Grabstein 42:47

Yeah, what are Trump's tariffs going to be on cannabis? A million dollars a pound.

Ben Larson 42:52

Oh yeah, a million percent.

AnnaRae Grabstein 42:53

Million percent. A million percent.

Ben Larson 42:57

We have the best weed.

M&A And The Move Beyond Vertical

AnnaRae Grabstein 43:01

Uh so I think that what we're talking about is a real restructuring of the industry that is is hard to predict right now. Uh Gail, I know you're thinking about a lot of MA and how the industry could be moving towards a real restructuring. You mentioned a move from vertical towards horizontal businesses. Uh, let's dive into that a little bit more.

SPEAKER_00 43:25

I'm I'm super excited to see how this plays out. Um, and so I've been thinking a lot about what this could look like and having lots of conversations with clients and other people, um, my brain trust about this. Um, I do think that MA is gonna happen. Uh, I don't know when, but I wouldn't be shocked if it happens soon. Um, so if there's people that have cash and they don't have access to a medical and they think there's a chance that interstate commerce maybe they just need to buy one license and then, and if interstate commerce happens and direct to consumer, then all of a sudden, can that can open up to the whole entire country without them having to go into into individual states. So of course it's going to be a question of the valuation of those medical licenses. So what I was saying earlier that is kind of where I am now and I'm going to let this play out to to really draw the line in the sand, but you know, we've on the medical side, we've often had vertical integration. Each state's done it differently. There aren't a lot of industries that have done it that way. My business partners at Forward Grow came from the ag world. And we had an option to buy to apply for as a grower to apply for a dispensary wherever we wanted in the state of Maryland. And they didn't want to do it. That wasn't their world. They weren't in the retail world. They wanted to just do cultivation. Not sure that was maybe one of my few regrets that I've had in this space because we probably could have flipped the license and made a couple million just straight out of the gate. But I get where they're coming from. And does it really make sense that the agricultural world you know is also doing all the processing extraction and and retail. So I think it's possible on the medical side we might see a lot of consolidation and then dividing and conquering where then people will spin off their cultivation or they'll spin off their retail. And certain people will have different strategies again to your point based on whether or not they think interstate commerce is going to happen. So I strongly recommend that people get ready for possible MA, keep keep their ears um their eyes open, their ears peeled, listening for what's going to be going down the pipe because I think it possibly could start happening even before people really know what's going on and what the long-term plan is going to be you know I've I yeah I'd say that I always had sort of hoped that people could focus on what they were best at in cannabis as opposed to vertical integration because that's that's sort of the core of so much business frameworks about like do the thing that you're best at and do it well.

AnnaRae Grabstein 46:01

And instead um we've seen vertical companies sort of do okay at lots of things. But Michael, you work with a lot of these vertically integrated companies and I wonder from your perspective, do you see it differently? Will companies be breaking up the different verticals that they currently operate in and spinning them off, selling them deciding to focus on one or another or are they going to stay committed to the existing model that has gotten them to where they are today?

SPEAKER_03 46:33

Oh they're committed to the existing model as long as it makes money. As soon as that changes everything changes. I uh I don't think this is going to change as quickly as people anticipate though. Is interstate commerce coming? Absolutely but are the East Coast states Maryland Pennsylvania and others that have one there's a medical component to this there's also a jobs component to this like this was about driving employment and capital infusion into your states. There's no way that Pennsylvania Maryland New York et cetera are going to voluntarily allow for interstate commerce in the short term I if you look at the model of alcohol prohibition for 90 years after alcohol prohibition it is still a patchwork of state policies and regulations. Yes you can get national brands across the country but it's not frictionless. Every state has a different distribution network every state has different distribution licenses between Maryland Virginia and DC I go to three different locations three different shopping experiences one's liquor stores one grocery stores and you know one's corner stores so yes these changes are going to come but I think operators have time to evolve with their business as these legal challenges evolve it's I would guess we probably have five years before we truly see a true interstate commerce framework.

Social Equity Limits And License Transfers

Ben Larson 47:59

Michael you're you're you're highlighting kind of the nuances of these established state regulated systems and and a big piece of those were the the equity licensee components that were established alongside them. And I'm curious as to how those operators should be thinking about this as a either as an opportunity or a limitation and you know what are some we have this say it is a five year timeline. Do we have time for them to to act and and get ahead of some some potential challenges that's a difficult difficult question because my heart of heart I'd love to see all those equity operators be successful.

SPEAKER_03 48:44

I'd love to see them grow I'd like to see them cash flow positive and make a living off of their cannabis operations retailer cultivation. The reality is um particularly cultivation is a very capital intensive business. That takes a lot of money a lot of startup cost um and I think this well we have states like Maryland that have prohibitions on license transfers. That's a problem um but I think there are a lot of operators both social equity and just smaller operators in general that are going to see this as an opportunity to transact and take some money off the table.

Ben Larson 49:21

Let's double click on the the license transfer thing because I I I do think that is something that is uniquely burdensome for social equity applicants. It was intended it was with the right intentions is right it's like you you don't want people to be used just to win a license and then sell it off immediately but now we're entering this phase where that that could be like a a big level up for for someone where you know they've been operating it's been hard and it could potentially be a ticket out and and some capital upside but everyone else is going to immediately be able to do it but not them.

SPEAKER_00 50:00

Exactly Gail freaking I mean Maryland's my baby right so on the medical side we didn't have a ton of social equity um but they were can they converted their license from a medical license to adult use in July of 2023 to adult use and medical combined um so it'll be interesting to see what how that plays out but but their clock that started on the more the five year moratorium started when they did the conversion. So potentially they're about give it like three years into it. So maybe in two more years they could potentially exit and how that timing dovetails with everything else is going to be interesting. Whereas the social equity licenses quite frankly most of them still haven't gotten up and running a couple of them have and their clock started when they started operating so call it maybe 2025 I think maybe was the first so they're um whereas when I when I sold my business I wasn't handcuffed like the social equity um licensees were and I think that's a miss. You know not only that but they are um don't have that medical background that they had in the beginning um they they've been running you know the combined business from the very beginning as well.

SPEAKER_03 51:20

Yeah Nick you mentioned this the social equity licenses were well intended. I think all these programs tried to do the right thing of creating opportunities for social equity holders to build something but they were so restrictive in the way the deals could be structured it was very difficult to make them work from an economic standpoint.

Who Really Wins From Tax Refunds

AnnaRae Grabstein 51:39

Perhaps this is a reset with 2AD no longer on the table with operators in medical markets, you know, the fundamentals of their business and their ability to cash flow and not have 60-70% of gross revenue go to taxes changes their cash flow dramatically they may actually be able to attract capital they couldn't have attracted before but I still think it's a very uphill battle as it relates to the operators that have been paying the 280e punitive taxes over the past few years at the at the highest level the largest MSOs have mostly not been paying the 280e liabilities and have been um created they created a line on their balance sheet and uh have been showing them as uncertain tax liabilities. But there is there are a couple exceptions namely GTI has continued to to pay their taxes and and there's discussion about retroactive tax relief. And theoretically the equity operators that are open are also could be subject um to getting some of the taxes back that they paid previously but it seems like the folks that are set to benefit the most are the ones that paid the biggest amounts of those taxes, uh, which are the biggest companies. And I'd I'd like to to get your guys's prediction on how likely it is that that whether it's equity operators or GTI might be looking at big cash refunds from the IRS on the other side of this.

SPEAKER_03 53:17

I I will disagree with you that they're not the ones with the greatest advantage. The ones with the great advantage are the ones who let those liabilities accrue with the federal government and had use of that money to invest in their business over the past several years and now they're poised to have those prior year liabilities wiped out. If they were if they were operating medical market in prior years and the IRS provides the relief that DA recommended the Treasury that recommends IRS so um I think that's a that was a strategy that a lot of people pursue.

SPEAKER_00 53:48

Can I play devil's advocate to that? Because I'm on team Anna Ray here on this one. So we're getting this get a little heated and interesting here. I um I I think that you know especially when you're talking about GTI they're cash flow positive even paying their 280 taxes. And quite frankly one thing that I'd like to see happen when we do have the the MA and potentially the public offerings that happen could happen in a an illegal market is that we don't do the wild spending that we had had for many years in the beginning when we went through that whole land race and people were just trying to gobble up whatever assets they could because they went public in Canada and had cash. And hopefully we can learn from that and be more thoughtful and more disciplined in our spending um in ways that are impactful. And it's possible that if GTI gets this big refund, that they're sitting here already cash flow positive with all this cash coming in that I again think is going to lead to huge MA opportunities. So we talked about moving away from vertical but I think there's going to be a move a little bit to sort of a horizontal approach and what that could look like is medical being one silo, adult use being another silo, potentially the cannonoids and Medicare being a third, um maybe some sort of beverage being a fourth, hopefully for everybody's sake. And then what else is there, right? And what other businesses because as smart as there's a lot there's a lot of brilliant people in this industry, I don't believe that anybody has a really clear picture about which of those silos are going to be profitable. And so we're going to need to sort of have some sort of horizontal diversification to sort of play this out and figure it out.

Final Advice And Listener Callouts

Ben Larson 55:26

Yeah I I think this line between adult use and medicals this is where this conversation will be decided. Not today but in in the future and it's just interesting it's just like GTI's strategy has has been to heavily focus on those medical states that were transitioning to adult use with the intention of going to adult use right and so now now we're in this paradigm where it's like oh what what what can we actually call call medical and so it it's kind of flipping everything on its head yeah well guys um we are at the hour and so it is time to move to our last call with these awesome guests this has been a great conversation thank you guys so much um let's start with Gail and then we'll go to Michael uh Gail what is your last and final message for our listeners today so I'm gonna go back to my origin story and what I would love to hear people doing is just having more and more conversations about the medical benefit of cannabis without demonizing adult use and without giving medical advice but you'd be surprised how often a casual conversation if you hear somebody who's suffering from seizures and you say I know somebody who benefited from THCA, having conversations with your medical providers.

SPEAKER_00 56:44

Maybe they don't know yet that it's it's legal and there's an opportunity to educate on that. When I first started this process in 2012 I didn't tell anybody what I did um what I was doing what I was trying to advocate for um ended up needing to take it a little public to make it happen. But I think those conversations really do me move the needle in ways that could be impactful.

AnnaRae Grabstein 57:05

Awesome thank you.

SPEAKER_03 57:07

Michael last call for you um so I think my final takeaway is that after all the speculation and our pontification about what we think is going to happen, just ignore us. As my smartest, most successful clients will tell you like they are focused on running the fundamentals of their business that will be successful rescheduling or not and they're looking at the long term and I think it's a fascinating like thought experiment to talk about all these things that might happen and who's going to get a refund and what's the IRS going to do in response to it. But it's back to basics cash flow run a profitable business and focus on that. And if you want to be part of some future roll-up start cleaning up your internal operations now. Don't wait for that to happen love it.

Ben Larson 57:55

Love it celebrate medical focus on the fundamentals and don't listen to us great advice such good advice Gail Rand from Grand Consulting and Michael Harlow from Cone Resnick thank you so much for spending the last hour with us the insight uh is very helpful in this period of time and I I can't thank you enough for joining us. Yeah thanks guys thank you so much for the opportunity this was so fun awesome well we'll talk to you soon and Gail have have fun in in Atlantic city say say hello to the community for us. We'll do all right what do you think folks are y'all ready? Are we rescheduled? I don't even know I'm still confused I got more questions uh thank you to our teams at Virtosa and Wolfmeyer and of course our producer Eric Rossetti if you've enjoyed this episode please share like review do all the things Apple Apple Podcasts Spotify YouTube here on LinkedIn wherever you listen to us thank you for listening and as always folks stay curious stay informed and most importantly keep your spirits high. Until next time that's the show