The legal weed business has a regulation problem

America’s budding cannabis industry suffered a pair of setbacks over the past week.

• Mastercard last Friday instructed US financial institutions to stop allowing any marijuana transactions on its debit cards, citing the drug’s illegal status on a federal level.
• Then on Monday, a $2 billion deal that would’ve created America’s largest cannabis company was called off in a mutual decision by Cresco Labs and Columbia Care, due to “the evolving landscape in the cannabis industry.”

Things weren’t exactly going well before, either

Many states where cannabis is legal saw an annual decline in reported sales last year. This includes three of the top-selling states by volume – California, Colorado, and Washington – which collectively lost $1.1 billion in taxable revenue compared to 2021.

Despite the recent downtick, however, the upside is… high. The US cannabis market was valued at $13.2 billion in 2022, and is expected to grow to $40.1 billion by 2030.

But, like Harold and Kumar’s journey to White Castle, there are a few challenges to overcome before reaching the promised land.

1. State-level bureaucracy. The rollout of each state’s cannabis program is often complicated and time-consuming. In New York, for example, it took nearly two years for officials to issue the first dispensary licenses following legalization in 2021. And to date, just 21 retailers across the entire state are open to the public, leaving farmers and processors with hundreds of millions of dollars in slowly-deteriorating crops they aren’t yet allowed to sell.
2. A thriving illegal market, which made up an estimated 75% of all US marijuana sales in 2021 (the most recent data available). This includes the vast majority of cannabis sales in legal states like Michigan, California, and New York.
3. Existing federal banking laws that effectively ban all US cannabis companies from traditional financing and loans – an obstacle the industry has been trying to overcome for a decade. Last year, a proposed law allowing the cannabis industry access to US banking services failed in the Senate, despite receiving House approval for a seventh time (an eighth attempt is scheduled for this fall).

🌿 Zoom out: After a new Minnesota law officially came into effect on Tuesday, recreational cannabis is now legal in 23 states and the District of Columbia, while medicinal marijuana is legal across 38 states plus D.C.