The following is a transcript of MJBA Executive Director David Rheins’ keynote speech at Indiana Cannabis Chat 1.0, last week’s educational mixer held at the historic Antelope Club in downtown Indianapolis. The event was produced put by the Indiana Libertarian Party of Marion County, and sponsored by Curved Papers.
Thank you, it is an honor to be able to address this historic first Indiana Cannabis Chat 1.0 event.
As Chris mentioned, my name is Dave Rheins. I am the founder and executive director of the Marijuana Business Association, or MJBA. MJBA is a national trade organization serving the legal cannabis industry. We represent hundreds of licensed cannabis businesses and the many professional services companies upon whom they rely. We support grassroots communities in Washington, Oregon, Colorado and New York/New Jersey with plans to add more as new legal states like California, Nevada, Massachusetts and Maine come online.
We host professional networking meetups, educational panels, seminars and workshops, host job fairs and vendor fairs, and run several cannabis-related media sites, including MJHeadlineNews, Marijuana Channel One and the MJNewsNetwork.
I am a Hoosier, born and raised in Indiana. I grew up in Indianapolis, graduated North Central and Indiana University, where I studied Journalism and English.
I spent my professional career at the intersection of popular culture, technology and commerce at places like Rolling Stone, SPIN and AOL Time Warner. My work with the MJBA is a natural part of that continuum. Pot Culture is Pop Culture.
MJBA was founded in 2012, before Colorado or Washington passed their historic voter initiatives legalizing adult personal use of cannabis, creating the first regulated pot marketplaces.
After 80 years of prohibition, our challenge was to create, from the ground up, a system of producing, processing and retailing a heretofore illicit product. Not only did we need to put in place the mechanisms of a whole new marketplace, we needed to reintegrate the underground cannabis industry and lifestyle into the mainstream economy. Normalization is our greatest challenge.
Legalization came by way of voter initiative, not legislation. Meaning that the people and not the political parties heralded in this enormous societal change. In fact, no major politician supported Washington’s I-502 or Colorado’s Proposition 64. And when both passed, the state was mandated to create a system for regulating, taxing and supervising this nascent industry. Every new legal state has had to create a system of commerce – and a regulatory schema that worked. Each of the 8 legal states has its own idiosyncratic set of rules and regs, and within each state, counties and municipalities add their own layer of rules and taxes, or in some case opt out of legal pot altogether. Your participation in the education and advocacy in your community is crucial.
The challenge has been enormous, made only more difficult due to the complexities of federal prohibition – which restricts the growth of the industry by inhibiting its access to those things it needs to grow: everything from simple banking and commercial capital, to medical research. Legal cannabis businesses operate at an extreme disadvantage when it comes to taxation. IRS Code Section 280-E restricts these state-regulated and legal businesses from deducting anything beyond simple COGS (Cost of Goods Sold), and the resultant high tax level making profitability elusive indeed.
Federally, marijuana is still classified as a Schedule 1 substance under the Controlled Substances Act. Federal prohibition has resulted in a crazy-quilted patchwork of state industries, no two alike, as every state government, and every community within these legal jurisdictions decide what legal cannabis will look like. And it is here that there is the greatest opportunity for the entrepreneur and independent investor.
It is at the state and local level that decisions are being made as to what legal products will be available, how they are grown, tested for quality and safety, packaged, distributed, advertised, marketed, sold and taxed. Decisions about potency, are being made by local participants in each community. Early entrants are uniquely being given the opportunity to define the marketplace. While our cannabis revolution is national, and indeed international in scope – the biggest opportunities are local.
Indiana will have the opportunity to build the legal cannabis marketplace that works best for its citizenry.
Let’s level set the business opportunity. According to the National Conference of State Legislatures, A total of 29 states, the District of Columbia, Guam and Puerto Rico now allow for comprehensive public medical marijuana and cannabis programs. In addition, 17 states allow use of “low THC, high cannabidiol (CBD)” products for medical reasons in limited situations or as a legal defense. Those programs are not counted as comprehensive medical marijuana programs.
Indiana’s House Bill 1148 would legalize the use of cannabidiol for patients with treatment-resistant epilepsy. The oil is derived from the cannabis plant but would be allowed to contain only up to .3 percent THC.
Eight states and the District of Columbia now have legalized small amounts of marijuana for adult recreational use.
The legal cannabis industry is the fastest growing industry in our economy. Tens of thousands of new licensed cannabis companies have created hundreds of thousands of new jobs and generated hundreds of millions in new tax revenues.
According to New Frontier Data, legal consumer spending across North America grew 34 percent in 2016 to $6.7 billion and can be expected to grow at a 27 percent compound annual growth rate (CAGR) over the next five years, to $22.6 billion in 2021
“While the uncertainty created by the mixed signals coming out of the Administration may cause a temporary dip in some valuations of cannabis companies and some more risk-averse institutional investors and multinational companies may continue to stay on the sidelines, it won’t impact the growth of the market much at all,” said Troy Dayton, CEO of ArcView Market Research. “No matter what the administration does, states will continue to issue cannabis licenses to a long line of applicants and licensed cannabis outlets will continue to have long lines of consumers ready to purchase this product from regulated establishments.”
- North Americans spent $56.1 billion on legal and illicit cannabis products in 2016, about half of the $105 billion they spent on beer. But only $6.7 billion of that was spent legally and 87 percent of that came from just five states and Canada;
- Growth in legal cannabis sales has already eroded the illicit market. This erosion will greatly accelerate in 2018 with the arrival of legalized adult-use programs in North America’s two biggest markets, California and Canada. Meanwhile, the 20 states without legal cannabis programs contributed nothing to the accelerating erosion of the illicit market;
- Voters in Florida, Arkansas, Montana, and North Dakota passed medical cannabis initiatives in 2016. This means that 63 percent of Americans can legally obtain cannabis with a doctor’s recommendation;
- Voters in California, Massachusetts, Nevada, and Maine passed adult-use measures in 2016. This more than tripled the portion of Americans that will be able to purchase cannabis without a doctor’s recommendation in their home state to 21 percent; Compound annual growth rates above 50 percent since adult-use legalization in Colorado and Washington drew significant new segments of the investment community into the legal cannabis industry in 2016, driving triple-digit gains in public stocks and double-digit gains in capital raised by operating companies and a growing group of cannabis-focused investment funds;
For Hoosier investors who want to capture some of the industry’s rapid financial growth, but aren’t able or don’t want to get involved with plant-touching firms that grow or sell cannabis and products still prohibited under federal law, lots of opportunities exist. Here are some of my favorites:
- Real Estate
- Hardware: big ag tech for growers, extraction machines for processors, and point of sale for retail; consumer products (vapes and accessories)
- Nutrients and hydroponics
- Testing, Labs & Quality control
- Branding, Marketing and promotion
- Business Intelligence
- Professional services – Legal, Accounting, Business planning
- Investment – penny stocks, equity and debt investment
Hemp is the most immediate opportunity for Hoosiers.
According to Vote Hemp approximately 9,650 acres of hemp crops were planted in 15 states during 2016 in the U.S., 30 universities conducted research on hemp cultivation, and 817 State hemp licenses were issued across the country. This hemp cultivation is legal in 32 states, which have lifted restrictions on hemp farming and may license farmers to grow hemp in accordance with Sec. 7606 of the Farm Bill, the Legitimacy of Industrial Hemp Research amendment.
Historically: Indiana has had a long and proud hemp history. In 1930, it was the third largest crop grown in the state. And in 1940, there were six hemp processing plants in Indiana alone.
Hemp was grown widely until the 1970s Controlled Substances Act. 2 acres of hemp were cultivated in Indiana last year for research purposes.
Today: Indiana Hemp Law Year Passed: 2014 Summary: Senate Bill 357 authorizes state regulators to begin the process of licensing farmers to grow hemp commercially.The American Farm Bureau led by the Indiana Farm Bureau recently endorsed ending the federal prohibition on industrial hemp at its annual meeting in January.
Most recently, the US House of Representatives approved language in the federal Farm Bill to allow pilot studies specific to hemp cultivation to take place in states that have authorized them. Indiana’s farmers ought to be able to take advantage of this pending change in federal law.
Statute: Ind. Code § 15-15-13-7 (2014)
Gov. Eric Holcomb signed Indiana’s first medical cannabis legislation in April. It legalizes cannabidiol or CBD – for the treatment of epilepsy.
How will Growing & Processing of CBD be governed in Indiana?
Kentucky grew more than 2500 acres of hemp last year, making it the second largest producer behind Colorado. The Hemp CBD representing $130 million in sales in 2016 with growth at a 53% AGR (Adjusted Growth Revenue).
A recent editorial in the Indy Star from Indiana Attorney General Curtis Hill, whom I understand will be in this same hall tomorrow, acknowledges that legalization is sweeping the country and the unstoppable trend is headed this way. Legalization is coming to Indiana, sooner than you think.
The question for you thought-leaders in the audience should be HOW to get in on the ground floor of this emerging market. We suggest that you start by 1) Getting Informed 2) Getting Connected 3 )Activating attend conferences, organize more Cannabis Chats and join groups – political and business.