WEST PALM BEACH, Fla., Dec. 18, 2023 (GLOBE NEWSWIRE) — A cannabis industry reeling from market corrections and over taxation will find stabilizing relief in 2024 when the U.S. federal government reschedules cannabis to a Schedule III substance, according to leaders at Sweet Leaf Madison Capital (SLMC), a nationwide provider of tailored debt financing solutions for the middle-market compliant cannabis industry.
In August, the U.S. Department of Health and Human Services (HHS) recommended rescheduling marijuana from a Schedule I substance to a Schedule III substance under the Controlled Substances Act (CSA). The recommendation’s expected approval by the U.S. Drug Enforcement Agency (DEA) would eliminate for cannabis businesses the burdensome 280E tax regulation, which prohibits businesses from taking normal business deductions on federal tax returns.
“Once 280E falls, the industry will have a chance to catch its breath and maybe regain some momentum. It may break a bit of a dam,” said Andrew Kaye, Chief Commercial Officer for SLMC. “I think that rescheduling may be more important in many ways than full legalization. It won’t require legislative action to reschedule, and all of the sudden everyone’s balance sheet will look better.”
Election-year politics will stifle legislative reform
In spite of the expected rescheduling decision in 2023, there is little hope for any Congressional progress on SAFE Banking or full legalization. The current contentious political environment combined with election-year posturing will virtually eliminate any momentum for legislative accomplishments during the coming 12 months. The lack of progress will continue to impact the cannabis industry, constraining access to capital and maintaining current financial challenges to the industry.
“Even with the elimination of 280E, the compliant cannabis industry will continue to be capital constrained for both equity and debt,” Kaye said. “Persistently high interest rates precipitated by the Fed’s ambitions to tame inflation, will continue through the year although there may be a continued pause in additional rate increases. This results in unavoidable higher rates for the cannabis industry, which are exacerbated by continued federal restrictions on its normalization.”
Brands will become more critical as markets expand nationwide
The national phenomenon toward state-by-state cannabis legalization will continue in 2024, despite lack of progress on federal reform. The ongoing proliferation of legal markets will expand efforts by brands to establish a national footprint not otherwise attainable in the state-by-state regulatory environment. There will be more national approaches to branding and attempts at more package and product consistency across markets by these brands.
“As the march toward legalization continues, it won’t be long before you can drive coast-to-coast in all legal states. This is going to make branding even more important and more efficient,” Kaye said. “Establishing solid brands will also be critical as segmentation continues to proliferate in order to connect with the growing influence of women and older consumers.”
