Welcome to our Q&A with partner, Jennifer Gumer!
As a partner at CGL and our Regulatory and Compliance Practice Lead, Jennifer provides strategic counseling, practical advice, and expert advocacy to clients with production needs. As an Adjunct Professor of Law and Bioethics, she is uniquely qualified to handle all interactions with federal, state, and local regulators who oversee product development, manufacturing, and marketing activities, including the FDA and Local Hemp Regulators.
Q: What was your biggest prediction for the cannabis industry in 2020? Did it end up coming to fruition?
So, my prediction was that we would see reduced investment interest in the cannabis industry given that at the end of 2019 we saw some large players in the industry, such as MedMen and Eaze, make major layoffs, which were indicative of wider economic issues in the industry. Cannabis businesses have particularly thin profit margins given several factors: 1) the high cost of compliance with complex/onerous state regulations (including the licensing process); 2) high state taxes; 3) costs/burdens associated with federal illegality (such as the inability to take normal tax deductions and difficulties finding banking and traditional sources of investment); and 4) black market competition. I predicted that these industry challenges would become more of a deterrent for investors as “cannabis fever” began to subside, thus leading the cooling trend that emerged at the end of 2019 and continued into 2020.
Unfortunately, the prediction was pretty spot on. The cooling trend continued into the start of 2020 and was further exacerbated by the pandemic and accompanying economic uncertainty. The good news however, is that despite investor hesitance, the US cannabis market increased 40% in 2020 (13.2 to 19.13 billion) and cannabis tax revenues in CA increased by a record 80% this year, in part likely due to the amount of cannabis people have been consuming during lockdowns.
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