SAFE Banking Act Finds Support as Senate Hearings Begin: This Week in Cannabis Investing
The Senate this week began its first-ever hearings on the SAFE Banking Act, with the cannabis legislation finding support from the ABA.
Support for more equitable regulations on cannabis banking, including those found in the SAFE Banking Act, continues to come from the American Bankers Association (ABA) and it has been much appreciated by the cannabis industry.
Discussion on the SAFE Banking Act began Thursday in the Senate Banking Committee, and the ABA sent a letter to congressional leadership to voice strong support for cannabis banking reform.
"The SAFE Banking Act is an urgently needed, and widely supported, bipartisan solution that will allow banks to handle not only the proceeds from both state-licensed cannabis businesses and the ancillary businesses – accountants, skilled trades, landlords, law firms, and other service providers – those businesses rely upon to operate, but also accept deposits from and make loans to employees of those businesses," the ABA said in its letter.
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It's a positive for the industry to have professional groups such as the ABA consistently supporting federal reform of cannabis. There is plenty of room for new supporters to join in the effort to assist one of America's fastest growing industries. The House has already passed the SAFE Banking Act seven times, but this week marks the first time the Senate will participate in the process.
Missouri cannabis sales reach milestone
Did someone mention Missouri and its successful launch of a recreational cannabis market in 2023? Well, the progress continues with the state clocking in over $350 million in legal sales in Q1, easily surpassing recent estimates of the state being a $1 billion dollar annual market.
Not only are Missouri's tax revenues pouring in, but so are ancillary revenues like employment taxes from those working directly in legal cannabis or providing services to the industry. Business owners in Missouri expect numbers to grow even more once cultivation capacity grows. "I don't think we've seen peak numbers yet at all, just because there's still cultivation groups that haven't come online," said Tyler Hannegan, co-owner and chief of operations and sales at Robust Cannabis.
We know this trajectory will mature but for now, this is a celebration of the good that can come from sensible cannabis legalization.
Maryland to launch recreational cannabis sales this summer
The countdown to Maryland's recreational market opening has begun, and July 1 is right around the corner.
Maryland made its first step in this direction 20 years ago when the state recognized cannabis with medicinal purposes in direct conflict with the plant's Schedule I status. It is great to see this Mid-Atlantic state pushing past outdated stigmas created by broken politicians and special interest groups.
The Old Line State has shown an understanding of timeliness when it comes to enacting a regulatory program that we're encouraged by. It's very much true that delays in launching a recreational market create a void for the illicit market to occupy. We're looking forward to hearing about Maryland's first day of sales, right in time for the July 4th celebration of American freedom. Now that's some patriotism that we're in favor of.
New Jersey supports tax relief for cannabis companies
The federal government is typically slower to catch up with the will of the people and progress in cannabis has been frustratingly no different. It is encouraging to see the Senate start the process of a hearing on the SAFE Banking Act as their first step forward.
We support banking reform and would like to see a swift passing and enactment so we can move on to the next very pressing matter, taxes. Cannabis has been classified as a Schedule I substance under the Controlled Substance Act since 1970. Being Schedule I or even Schedule II makes cannabis subject to what is known as the 280e tax code. This is an intentionally destructive tax as the government's way of trying to discourage commerce in Schedule I or II drugs.
Cannabis is sadly a clear case study of how destructive that tax is. A new research report from Whitney Economics notes that the legal cannabis industry paid an additional tax of $1.8 billion in 2022 and expects $2.1 billion in 2023. Profitability was noted to have dropped from 42% to 24% of legal operators in the U.S. from 2021 to 2022.
We have seen so many companies fail in cannabis over the last 12-18 months, which in normal circumstances is not unusual for startups, but especially acute with this unjust tax. Cannabis entrepreneurs deserve to be treated equally as other startups in pursuit of the American dream.
States are where we see more action, good or bad, from lawmakers and regulators. New Jersey has recognized the destruction of 280e and has now made it legal for operators there to deduct that burden from their state tax. Every bit counts and this deduction will provide a bit of relief for operators in NJ. Sensible tax policy and regulations are good inputs to a healthy market and this is good pressure for surrounding states to follow suit or face loss of revenue with their residents traveling over. A very clear example is what we are seeing in real time with Missouri taking a big chunk of revenue from the highly taxed Illinois market.
Morgan Paxhia is Co-Founder of $PSDN ETF & Managing Director and Co-Founder of Poseidon Investment Management. With over 10 years experience in investing and finance, Morgan has developed a deep understanding of individual company analysis, portfolio construction, and risk mitigation. This content is not intended to provide any investment, financial, legal, regulatory, accounting, tax or similar advice, and nothing should be construed as a recommendation by Poseidon Investment Management, LLC, its affiliates, or any third party, to acquire or dispose of any investment or security, or to engage in any investment strategy or transaction. An investment in any strategy involves a high degree of risk and there is always the possibility of loss, including the loss of principal. This content should not be considered as an offer or solicitation to purchase or sell securities or other services. Any of the securities identified and described herein are for illustrative purposes only. Their selection was based upon nonperformance-based objective criteria. The content presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed. Past performance is not indicative of future results.
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