This page addresses some basic definitions and questions about the marijuana/cannabis industry. More questions and suggestions are always welcome! Last updated: May 26, 2020.
Marijuana Industry 101
Cannabis – Refers to a group of three plants with psychoactive properties, known as Cannabis sativa, Cannabis indica, and Cannabis ruderalis.
Hemp – Under the 2018 Federal Farm Bill, hemp is defined is the cannabis plant that does not contain more than 0.3 percent of THC by dry weight. The Brookings Institute has a useful overview of the 2018 Farm Bill and hemp more broadly.
THC – Tetrahydrocannabinol, a crystalline compound that is the main active ingredient of cannabis. THC is an intoxicating, psychoactive component.
CBD – Cannabidiol, one of the many cannabinoids, or chemical compounds, found in marijuana and hemp. Unlike THC, CBD is not intoxicating.
280E – Portion of the IRS Tax Code that applies to cannabis businesses since they are in violation of federal law. Wurk.com provides an overview of the implications of 280E
Vertical Integration – Business strategy by which one organization is involved in multiple phases of the production process. In the cannabis industry these would include cultivation, extraction, product manufacturing and retail. Some states such as Washington have prohibited vertical integration while others such as Colorado initially required some vertical integration before eventually loosening those requirements.
Frequently Asked Questions
Q: Can I enroll in your Business of Marijuana class?
A: Unfortunately, not at the moment! I left the University of Denver after the Spring 2019 quarter and am now a faculty member at the McIntire School of Commerce, University of Virginia. I am not yet scheduled to teach a similar course at UVA but am hopefully it will be available in the future. In the meantime, I am available to assist with educational programs at other universities, professional associations and industry conferences. Please email me at pseaborn (at) virginia.edu if you would like more information about any of these options.
Q: How can I get a job in the marijuana/cannabis industry?
A: You can start by reviewing the employment advice section of this website! You can find lots of job listings on individual company websites and general recruiting sites like Indeed.com or cannabis-specific sites like Vangst.com.
Q: When was recreational cannabis legalized in Canada?
A: Originally the date was set by the Federal Liberal government for July 1, 2018. However due to delays in having the Cannabis Act approved by the Senate the date was delayed until Oct 17, 2018.
Q: Why does your website and the title of your course refer to the term “marijuana” rather than “cannabis”?
A: This is an important question as these two terms both have significant historical meaning dating back to the early 20th century when marijuana/cannabis was first made illegal in Colorado and elsewhere. The practical reason I chose to use the term “marijuana” was that the ballot initiative and state legislation that legalized the industry in Colorado used that term, as does the primary state regulatory body that oversees the industry (Marijuana Enforcement Division). Some jurisdictions including Canada that have taken later action to legalize some aspect of the product have made use of the term “cannabis” and I have come to understand why many prefer that term over “marijuana”.
Q: Why are some cannabis companies able to be publicly traded and others are not?
A: Access to public stock markets is based on two primary factors: geographic location and the nature of the business. The major U.S. stock exchanges (NYSE, NASDAQ) are not open to licensed “plant-touching” U.S. cannabis companies because they remain in violation of federal law. However they are open to licensed cannabis companies from Canada if they are fully legal in the markets in which they operate. As a result, the only cannabis company trading on NASDAQ is a Canadian company, CHRONOS. There are also over 100 Canadian cannabis-related companies trading on major or more obscure Canadian stock exchanges because medical marijuana is nationally legal there (recreational as of Oct 2019). Two examples are Canopy Growth (TSE:WEED, NYSE:CGC) and Aurora Cannabis (TSX and NYSE:ACB).
Akerna (formerly MJ Freeway) is a U.S. software and services company that supports the cannabis industry but does not have state licenses to cultivate, process or sell cannabis. Thus it is considered compliant with federal laws and thus meets the standard for the NASDAQ Capital Market, which is designed for smaller companies and has less listing requirements than the largest NASDAQ tier. Scott’s Miracle Grow (NYSE SMG) would be another example that supports/supplies the cannabis industry but is not “plant-touching” so has no issues with US exchanges. U.S. ancillary companies such as Kush Bottles that support the licensed industry but do not “touch the plant’ have also been able to trade on U.S. over-the-counter markets. New Cannabis Ventures provides a regular updates on publicly traded cannabis stocks.
U.S. companies that are “plant-touching” – cultivators, processors/manufacturers, retailers/dispensaries – are unable to list NASDAQ and NYSE since they are in violation of U.S. federal law and that goes against the listing requirements for those exchanges. Even if the listings were possible it might still be too challenging for these companies to work with the U.S. banking organizations needed to make a successful IPO due to federal banking restrictions on plant-touching cannabis companies. So some of these companies have instead chosen to create a Canadian subsidiary/spin-off and have that entity go public on a Canadian exchange and/or as an over-the-counter stock in the US since the listing requirements for those options are less restrictive. Examples are MedMen (MMEN on Canadian Securities Exchange and MMNFF over-the-counter in US) and Cresco Labs (CL on Canadian Securities Exchange and CRLBF over-the-counter in the US), Charlotte’s Web (CWEB on Canadian Securities Exchange and CWBHF over-the-counter in US).
Certain U.S. states have also prohibited or restricted licensed businesses from having partial or full ownership by publicly traded corporations. Colorado was in that position until a new law was passed in Spring 2019 that will allow publicly traded companies to have an ownership stake in licensed Colorado businesses.
This June 2019 article does a fairly good job of describing the situation at that time: https://www.marketwatch.com/story/how-a-marijuana-software-company-became-the-first-of-its-kind-to-list-its-stock-on-nasdaq-2019-06-18
Q: How closely has Colorado followed the “Regulate Marijuana Like Alcohol” approach that was the slogan of Sensible Colorado’s Amendment 64 campaign?
A: Not that closely, in my opinion, although I do not see that as a bad thing. The slogan was politically effective because it associated marijuana with a product that had wide societal acceptance and created an image of an industry regulatory approach with which Colorado voters were already very familiar. However enactment of Amendment 64 has differed from alcohol in a number of ways. First, unlike alcohol, marijuana has both recreational/adult-use and medicinal applications (including medicinal applications for some youth) that Colorado’s alcohol regulations were not designed to accommodate so a different approach for these applications was needed. Second, because marijuana remains federally illegal and illegal in most of our neighboring states additional tracking and oversight of production, manufacturing and sale was deemed warranted to attempt to eliminate out-of-state diversion that is not a concern with alcohol. Third, whereas most Coloradans are familiar with the range of alcohol products available and their intended consumption methods and quantities, consumer education on the product options, consumption methods, potency and effect of marijuana products was completely lacking due to the newness of legalization and the rapid development of new product forms. This required multiple iterations of regulation on packaging, labeling, dosing, etc. Fourth, while public alcohol consumption is an accepted part of life in Colorado and most of the world to varying degrees, the implementation of Amendment 64 did not make any accommodation for public/social consumption. My general prediction is that the increasingly widespread legalization and normalization of marijuana will eventually lead to the reevaluation of alcohol regulations that in some situations may cause governments to regulate some aspects of the alcohol more strictly that is done today.
Q: How has tourism played a role in the legalized cannabis industry?
A: Tourism has played a big role in the early success of the industry in Colorado and other states that have legalized adult-use of cannabis but I see that role diminishing over time as more and more jurisdictions legalize. Tourism is evolving through three phases. In Phase 1, just having a legal means of purchase was sufficient to attract significant tourists. For retail businesses, two key advantages for attracting tourists were a) having a location near popular tourist venues (downtown Denver, Aspen, Vail) or near state borders (as described in this Cannabis article) or b) attracting significant news media coverage. In Phase 2, private experiences such as bus tours, events, “4/20 friendly” AirBnB hosts and cannabis yoga and painting classes have attracted tourists (and locals) to certain locations but have not provided the typical consumption options available to those consuming alcohol or tobacco. Usually these experiences require preregistration and keep their location confidential to be considered private rather than public. In Phase 3, which the City of Denver, Las Vegas and other jurisdictions have moved into, legal public/social consumption options are developing that attract tourists (and locals) to specific locations because of the ease of social consumption being more similar to alcohol in particular. However no location has quite figured out this phase yet. Denver currently has only a handful of social consumption venues such as the, The Coffee Joint.
Q: Which jurisdiction has the most progressive social consumption rules for cannabis?
A: At this point I do not see any particular jurisdiction having implemented an ideal set of social consumption rules. In Colorado there has been an effort to establish state-wide rules through the legislature but that process has gotten bogged down in the details of the regulations such as the number of individuals and quantity of cannabis that would be permitted and concerns about odor and visual sight lines. The City of Denver has moved farther than most with its I300 program which established rules for allowing social consumption businesses. However because of the significant restrictions in terms of setbacks from schools, parks and other facilities, building requirements and an inability to sell cannabis or alcohol products only one business, The Coffee Joint, is operating under a social consumption license. Another, Vape and Play, quickly went out of business and a third, Utopia Wellness, ran into zoning issues. In Nevada, expanded social consumption laws are vehemently opposed by the casino industry, presumably because they are prohibited from involvement in the industry due to federal illegality and expanded social consumption venues away from the casinos could draw customers away from casinos.
Q: Which jurisdiction has made the most progress on impaired driving protocols?
A: This is another area where I do not see any particular jurisdiction having developed an ideal approach. There are multiple challenges including the lack of an effective roadside impairment assessment tool (equivalent to the breathalyser for alcohol impairment), variation in personal physiological reaction to THC consumption and a lack of agreement on what measurements can be relied upon to indicate impairment. This Toronto Star April 2018 articles summarizes the challenges that remain. A number of parties are working on new technologies to address this challenge, as described in this April 2018 Rolling Stone article. In the meantime I expect we will learn more about how cannabis consumption affects driving performance – something that is currently not that well understood.
Q: What restrictions does the industry face in terms of marketing?
Q: What has Colorado learned about edibles manufacturing, labelling, and consumption?
A: Quite a bit! One of the biggest surprises of legalization in Colorado was the popularity of non-flower forms of cannabis – edibles, concentrates – that now make up more than 50% of state sales. Regulations around edibles in particular have evolved considerably in recent years as described in this Westword article and CBS news story and now provide an excellent starting point for regulations in other states.
Q: Does Colorado still have a black market for marijuana?
A: Yes, but the nature of the black market has changed significantly since legalization. It appears that the vast majority of Colorado residents now choose to purchase from legal medical or adult-use retailers, with the potential exception of counties and cities that have restricted medical or recreational sales or both. However there is a concern over diversion of both legal and non-legal cannabis produced in Colorado to states that have not legalized due to the significantly higher product values in those states. High per capita sales at Colorado border towns have raised concerns about possible diversion (in addition to legal in-state consumption by visitors to Colorado). Although it was hoped that such diversion issues would be minimized in Canada due to a national system of legalization, the limited retail venues currently open and very limited legal product forms available until Fall 2019 have continued to leave a large opportunity for black market sellers. Clearly a number of elements are required to significantly eliminate the black market – widespread legalization without neighboring areas where sales are restricted, high quality legal product that is widely available and competitively priced, and cultural acceptance of legalization so that customers feel comfortable making use of more visible, public legal purchase options.
Q: Is owning or investing in a cannabis business a guaranteed path to success?
A: Absolutely not! There are more ways for companies to fail in this industry than in other sectors due to the increased regulatory and compliance burden, unstable political/legal status, banking/taxation/financing restrictions, unclear long-term consumer tastes and many other factors. Prominent examples of businesses that have experienced challenges include SweetLeaf (regulatory/criminal issues), MassRoots, Frozen Budz (Alaska) but there are also thousands of other businesses that have struggled or ceased operation for less dramatic reasons such as cash flow challenges, ownership disputes or inability to attract customers.