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The Cannabis Industry is Legally Illegal. That’s weird.

The Cannabis Industry is Legally Illegal. That’s weird.

2020 is weird, that much is fairly clear. However, outside of the oddities in 2020 that we’ve all been familiar with up to now, there is one thing happening that really tells the tale of inconsistency and lack of direction, and that’s how the country and states within it view the cannabis industry. In nearly every state where cannabis is legal, businesses that sell cannabis have been deemed essential. However, oddly enough, federal funding for small businesses or other federally provided relief efforts do not make their way to the cannabis industry due to federal prohibition.

Alternatively, if you’ve done anything at all to try and start your business that relates to cannabis, from securing funding, establishing financial tools to conduct sales, and even marketing, you’ve discovered just how challenging these things can be.

Yes, it’s been incredible watching states relax laws and allow for legalization of medical and recreational cannabis use, it’s only effective if the laws surrounding business allow for efficient processes.

On top of that, have you ever tried to do marketing for a marijuana related business? What a nightmare. Let’s take the way paid advertising is approached by Google, and Facebook, for an example. Pretty basic system in place here that I think most are aware of or can assume how they work. You get some options for how you want to go about targeting, with Google this is done by way of keywords and some other factors, with Facebook you can get a little more advanced, target things like people who like certain things, etc.

Once you’ve worked out your targeting, you can specify if the advertisements should be shown to everyone, or only mature audiences, you can pick the state, etc. Different platforms allow for different targeting options. From there, you load up the ads, be it images or text, and set a budget. Your budget dictates how many people your ads are shown to within the targeting you’ve established.

This is where things get a bit weird, and where the overlap of federal and state laws really start make situations frustrating. Even though recreational cannabis is legal in California, paying for advertisements through these ad platforms is difficult. You can’t really advertise your products, if you try to do so you will get an alert from the ad platform telling you that your campaign violates laws regarding illegal drugs. Some of these platforms allow you the ability to dispute the decision, some don’t. If you’re able to dispute the decision, citing that said substances are legal in your state, and that your ads only target age appropriate customers in said state, it will be rejected.

Alternatively, if you want to start a business selling cannabis or any kind of product related to cannabis, like CBD, you will find an equally frustrating uphill battle. Aside from the challenges involved in advertising and marketing your new business, you will also run into issues when you attempt to figure out how to actually accept money for the products you’re trying to sell.

For most businesses, you can just set up a PayPal account or get yourself registered with Stripe, or some other online merchant, and you’re essentially off the races. Sure, there’s more details involved after that, but the barrier to entry is pretty low, and it’s fairly easy to get yourself started with some kind of solution that allows you to do business online and process payments.  However, if you’re doing any kind of business related to cannabis, even if it’s in a state that’s legal, and you specify that you will not send products or sell products to any customer in a state where it is not legal, these merchants will shut down your account, and refuse to act as a merchant.

To secure proper services, you need to find a “high-risk” merchant account, these high-risk merchant accounts require businesses to follow certain compliance standards and charge substantially more per transaction vs other traditional merchant accounts.

This is where the SAFE banking act comes in. Congress has been debating over this act for a while now. It was voted on in 2019 and approved by the House. It has since been hung up with the Senate, who have requested some adjustments before being brought to vote. Democrats attempted to introduce the act again in the HEROES act presented by the House to address the Coronavirus, but disagreements between the House and Senate have kept that from being passed.

What is the SAFE banking act? As outlined by Investopedia:

“Specifically, the act would prohibit regulators from terminating or limiting either deposit or share insurance of such a financial institution for the sole reason that it does business with a cannabis company. It would also prohibit regulators from in turn barring such institutions from offering financial services to these companies, as it would stop regulators from encouraging financial institutions to not do business with those companies.”

This disconnect between state and federal legality has long plagued the discussion revolving around legalization and decriminalization. In the early stages of legalization in California and other areas, it was often an issue where dispensaries that were legal in their state, were being raided by federal agencies:











This really outlines a major issue within the cannabis industry at this moment in time. Granted, the issue with federal agencies cracking down on businesses who are operating legally within their own state laws isn’t really happening as much these days, and that’s a good thing, the industry clearly still faces challenges that makes doing business very difficult. As we’ve outlined in other blog posts, making it legal to do business is one thing, allowing businesses the ability to actually do business in an efficient manner is another altogether.

There is a lot involved in the intricacies of legalization and decriminalization, from banking, the overlap of federal and state laws, and the way that individuals are handled who have been put in jail for cannabis related charges in states where legalization has made it so those crimes are no longer crimes. Allowing recreational or medical legalization is the first step, and it’s a necessary, good, and vital step in the process, but it’s not the only steep that need be taken. If we really expect to see the industry thrive, these laws and obstacles for businesses must be handled properly and addressed in a way that allows businesses to operate in an efficient manner. It’s truly a confusing place in history that we find ourselves in, where cannabis businesses are deemed essential by the government and allowed to remain in business during a global pandemic, but still face immense uphill challenges when actually trying to do business like any other business would.