Week in Review: Federal MJ Moves + Memo to Tobacco Industry on Cannabis & Rec Sales Data

Just Released! Get realistic market forecasts, state-by-state insights and benchmarks with the new 2024 MJBiz Factbook member program, now with quarterly updates. Make informed decisions.

By John Schroyer and Tony C. Dreibus

Congress addresses some major marijuana issues, a Wall Street firm offers advice to Big Tobacco about cannabis, and the nation’s first two recreational states release new sales figures.

Here’s a closer look at several notable developments in the marijuana industry this week:

Wins & Losses in Spending Bill

The $1.1 trillion spending bill the U.S. House of Representatives passed Thursday night to avoid another federal government shutdown includes several key marijuana provisions that will affect the cannabis industry.

Marijuana proponents scored a major win with bill language that prohibits the Drug Enforcement Administration and the Justice Department from interfering with state cannabis laws. The bill specifically names 32 states that have legalized some form of marijuana, including many red states that have thus far only legalized high-CBD, low-THC cannabis medications.

This provision, according to The Washington Post, means a possible end to DEA raids on medical marijuana facilities. The implications could be enormous, especially in California where federal raids have been fairly common.

The bill also prohibits the Justice Department from meddling in the production of industrial hemp.

Unfortunately, the final bill also includes separate portions that could prevent marijuana from being legalized in Washington DC and possibly even overturn the city’s decriminalization ordinance.

But as The Post reported, there may be some legal wrangling to be done yet. DC’s non-voting congressional representative, Eleanor Holmes Norton told The Post that the bill draft “does not block DC from ‘carrying out’ enacted marijuana policies…therefore, it can be argued that the legalization of small amounts of marijuana can proceed.”

That provision also arguably contradicts the one protecting states’ rights, because that section includes the District of Columbia among its list of states that are shielded from federal interference.

So the exact fallout of the bill on DC’s marijuana laws is yet to be seen. But it looks as though the recreational cannabis industry won’t be coming to the nation’s capital in the near future.

Wall Street to Big Tobacco: Get On the Cannabis Train

RBC Capital Markets analysts wrote this week that large tobacco companies should start thinking about marijuana, as institutional investors are seriously looking at the industry.

With about 69% of millennials – who will eventually get older, wealthier and start voting more – backing full cannabis legalization, tobacco companies would be wise to consider moving into the sector, RBC said in a research note seen by Business Insider.

Marijuana legalization isn’t a fluke – it’s an ongoing trend that’s here to stay, the report indicates.

“We believe it is only a matter of time until investors start asking questions about how it (marijuana) will fit into the bigger picture,” the memo reads. “And while every tobacco company management we have spoken to on this topic has been unwilling to discuss it, we believe full federal legalization of marijuana in the US would likely lead tobacco companies to reconsider this space.”

Despite their insistence that they haven’t been looking at the cannabis industry, executives at tobacco companies will eventually move into the market, Patrick Basham, director of the non-partisan public policy research organization based in Washington DC and London, said during our Marijuana Business Conference and Expo in November.

Acceptance of both medical and recreational marijuana is on the rise while public opinion on tobacco has become more and more negative in past years. Tobacco companies can ill afford to ignore cannabis, Basham said. They already may be, according to a report published earlier this year in a health policy journal.

Marijuana legalization is gaining steam and likely will become a “critical topic for the 2016 presidential election,” the RBC memo said.

A Window Into Rec Sales

The latest recreational sales numbers are in: Washington saw a huge spike in October from the previous month, while Colorado reported that retail revenues were relatively flat.

Jon Hofer, a cannabis industry consultant based in a suburb of Seattle, said the 24% uptick Washington is likely due to several factors, including more retail shops opening their doors, the first outdoor harvest flooding the rec market with product, and an increase in the availability of edibles.

All three of those factors will continue to contribute to industry growth in the coming years, Hofer said.

In Colorado, rec sales increased by a meager 1.5% and medical cannabis sales rose by 2%. That follows a dip in sales between summer and the start of autumn.

Kayvan Khalatbari of the retail store Denver Relief said he doesn’t think the numbers indicate a drop in interest in the market, just that it’s maturing.

He added that such fluctuations, including wildly varying prices, will likely become a trend as bigger marijuana companies begin to purchase and open more shops. But that in turn could lead to market saturation, he warned.

“We’re already meeting demand here in Colorado…and people are still building cultivation facilities that are five times or ten times what they’re doing now,” Khalatbari said. “Where’s all this product going to go?”

That could mean a drop in prices to as low as $50 an ounce, he suggested, which could then cause a crisis for some of Colorado’s bigger cannabis companies.

“I don’t think we’ve even seen the tip of the iceberg when it comes to all this pricing and revenue wackiness that’s going to happen in 2015 now that the market is stabilizing,” Khalatbari said.

John Schroyer can be reached at johns@mjbizmedia.com; Tony C. Dreibus can be reached at tonyd@mjbizmedia.com