Week in Review: White House threat, CA growers at risk & unique cannabis investment fund

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By John Schroyer

The Trump administration hints at possible enforcement on recreational cannabis businesses, thousands of Northern California cultivation jobs are in jeopardy, and a new marijuana investment fund is in the works.

Here’s a closer look at some notable developments in the marijuana industry over the past week.

White House signals potential crackdown

The cannabis industry erupted when the White House press secretary on Thursday intimated the recreational market could be in for a serious fight.

During a news conference, Press Secretary Sean Spicer told reporters, “I do believe you’ll see greater enforcement” of federal adult-use cannabis laws. He also talked about an “opioid addiction crisis blossoming” and added, “the last thing that we should be doing is encouraging people.”

Spicer made the remarks after he was pressed on the disconnect between federal law and many state marijuana laws and also on whether the Department of Justice, under Attorney General Jeff Sessions, will crack down on the recreational marijuana industry.

Spicer’s comments prompted immediate responses from cannabis advocates, who decried his overtures and called it inappropriate for him to draw parallels between opiate abuse and adult-use marijuana.

The Trump administration “seems insistent on throwing the marijuana market back into the hands of criminals, wiping out tax-paying jobs and eliminating billions of dollars in taxes,” Drug Policy Alliance Executive Director Ethan Nadelmann said in a statement. “As for connecting marijuana to the legal opioid crisis, Spicer has it exactly backwards. Greater access to marijuana has actually led to declines in opioid use, overdoses and other problems.”

Mason Tvert, Marijuana Policy Project communications director, noted in a press release that a Quinnipiac University poll released Thursday found that 71% of voters back medical marijuana and 59% support full legalization.

“This administration is claiming that it values states’ rights, so we hope they will respect the rights of states to determine their own marijuana policies,” Tvert said. “It is hard to imagine why anyone would want marijuana to be produced and sold by cartels and criminals rather than tightly regulated, taxpaying businesses.”

Even the bipartisan Congressional Cannabis Caucus, made up of four congressmen from states that have legalized rec, issued a statement saying its members “stand ready to educate this administration on the need for more sensible marijuana policies.”

The congressmen did not directly repudiate Spicer’s comments but said his “statement reaffirms the need” for the caucus.

Spicer’s comments might not be reason for the industry to despair, however.

San Francisco-based attorney Henry Wykowski said he’s heard through the political grapevine there’s growing political will in Congress to expand the Rohrabacher-Farr Amendment to include protections for state-authorized recreational marijuana businesses.

The amendment, first passed by Congress in 2014, must be reauthorized by the House and Senate before it expires April 28, and Wykowski said there’s a push to change the measure before any required congressional vote.

In the meantime, Wykowski said, rec businesses should “make sure they are in strict compliance with their state regulations governing the sale of adult-use cannabis and let their elected representatives know they expect them to step up and defend them if the DOJ tries to interfere with the state’s right to regulate cannabis.”

Growing pains in California

The cannabis cultivation trade in California is on edge after the news that thousands of small businesses are in jeopardy as local governments adjust their laws in advance of the statewide regulatory system.

Sonoma County has enacted a new zoning law that is threatening the livelihoods of roughly 3,000 small-scale cannabis growers, and it could be just the start of a host of local battles that MJ businesses can expect between now and when rec marijuana becomes legal in California in early 2018, said Hezekiah Allen, executive director of the California Growers Association (CGA).

“This is the start of the new wave,” Allen said. “This is regulation on steroids. And we’re just going to see more of this.”

For instance, he said, would-be licensed cannabis businesses showed a significant amount of interest  in San Diego County, but it seems doubtful officials there will be eager to give the industry a green light.

“Every municipality as it makes this transition is going to face this challenge. There are a lot of cottage growers in the state,” Allen said. “We really do have to find a way for more than half of the 50,000-60,000 growers (statewide) to be in the system, otherwise it won’t work. And that’s a broad-scope challenge.”

But, Allen said, he’s hopeful marijuana advocates and local governments will find middle ground.

He pointed to Humboldt County, which has enacted a program of incentives, including some tax breaks, for growers who relocate. Other ideas for mitigating the issue include reformatting marijuana grows into small-scale farms that also cultivate other types of crops, or possibly finding wiggle room in local zoning ordinances in terms of square footage of cannabis grow sites.

Allen said the CGA continues to “try to come up with a compromise solution” in Sonoma County and that his goal is to protect as many of the estimated 3,000 cultivation businesses in the county as possible.

A new investment opportunity?

It was, perhaps, only a matter of time.

ETF Managers Group of New Jersey unveiled plans to launch an exchange-traded fund with a specific focus on publicly traded medical marijuana companies, potentially a first for the industry.

It should be interesting to watch how the fund develops, said cannabis finance expert Matt Karnes.

Karnes, founder of GreenWave Advisors in New York City, said his biggest question is how the fund would adjust if any of the stocks involved begin to dabble in recreational marijuana instead of only medical marijuana or ancillary businesses.

“I think they’re definitely going to attract more mainstream by using the ‘m’ word – medical. That’s smart,” Karnes said. “But when you do a deep dive and evaluate the nuts and bolts, there may be a smidge of recreational to it, just because (they may be) investing in a state where there’s a combined market.”

Karnes noted that the fund’s profile index composition includes several Colorado-based companies, such as Medicine Man Technologies. It also includes businesses based in California, where the rec market will be up and running in 2018, as well as companies with interests in Canada, which could legalize rec as soon as this year.

“It wouldn’t be unreasonable to assume there will be some funds that emerge that will follow suit, on the same trajectory as these guys, but it’s definitely more risky to go out there and raise money for rec,” Karnes said. “The consensus is that medical will be left as it is … but with rec, you’re going into more uncharted territory with (the Trump) administration.”

However, he said, the proposed Emerging AgroSphere ETF “looks like a good mix” of solid marijuana-related stocks.

John Schroyer can be reached at johns@mjbizdaily.com