Guest Post: Policy Changes to Legal Cannabis Provide Opportunity for ETA Members
By Charlie Wilson, CRO, GreenBits
Not long ago, the legal cannabis industry existed squarely on the fringe. In the few states that had legalized cannabis, the use provisions were so limiting and the reach so narrow that the category did not generate meaningful sales. As a result, the industry did not command much attention.
Today, things certainly have changed. The industry is booming. Driven by the desires of their residents, many more states now permit cannabis sale and consumption. Simultaneously, medical use programs are expanding and adult (recreational) use programs are appearing. The result is a flourishing and rapidly evolving landscape that ETA members stand to benefit from.
Large and Rapidly Growing Category
The legal cannabis industry today is large and rapidly growing, expected to generate $11 billion in U.S. sales in 2018[1]. Over the next decade, annual sales of legal cannabis are forecasted to grow to $75 billion, according to Cowen & Company.[2]
Counting Oklahoma as the most recent addition, 31 states and the District of Columbia have now passed laws legalizing cannabis for medicinal and/or adult use. That leaves more than 200 million Americans (approximately two-thirds of the entire U.S. population) directly or indirectly impacted by the legalization of cannabis.
As a result, the industry is finally commanding the attention of politicians, communities, businesses, and the media, all of whom seek to understand, address, and capitalize on a category with gross sales potential that will surpass the current gross domestic product of 95 individual countries.[3]
Fueling this growth are the highly regulated frameworks and tight inventory controls that states have implemented to ensure markets function as intended with proper protections for public safety and responsible use. In February, two leading authorities on cannabis regulation (Lewis Koski and John Hudak) published a white paper[4] illustrating how these frameworks have been implemented – and how the market has responded to them and grown accordingly. Despite rigorous oversight, the legal cannabis industry unfortunately remains a cash business with nearly all financial institutions and payment networks sitting on the sideline.
Although a bit overdue, the federal government is waking to this overwhelming trend. While there have been several bills introduced in the decades leading up to this point, our federal policymakers are getting more active on this issue. Just last month, for example, Reps. Tulsi Gabbard (D-Hawaii) and Carlos Curbelo (R-Florida) introduced the Marijuana Data Collection Act. This is just the latest piece of legislation aimed at reforming our cannabis laws for the better by forcing public policy to be based on sound data and science through enhanced data collection and study.
Perhaps more relevant to ETA members, though, Sens. Elizabeth Warren (D-Massachusetts) and Cory Gardner (R-Colorado) introduced the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act in June. Despite state legalization initiatives, cannabis is considered a Schedule 1 drug under the federal government’s Controlled Substances Act. This law makes it illegal for the payments industry to process payments for cannabis. Participants in the payments industry, many of which are subject to federal oversight, are paralyzed by this conflict between federal and state laws. Among other things, the STATES Act provides a path for federally regulated financial institutions to serve the legal cannabis industry without fear of retribution from the federal government.
This has important implications to ETA’s membership, and there are two major reasons ETA members should voice support for the STATES Act: responsibility and opportunity.
Social Good and Corporate Responsibility
No matter your personal stance on the legalization of cannabis, it is hard to argue the business merits of a cash-based economy against the backdrop of an $11 billion industry. A purely cash-based economy is less safe, less transparent, and less efficient than a cashless one, which positions ETA members to become leaders in addressing these very issues.
As an example, a recent research report published by ETA member Visa notes that cashless economies drive significant benefits to consumers, businesses, and governments alike.[5] The benefits are consequential and, as no surprise, address these very issues of safety, transparency, and efficiency.
When summarizing the benefits to government alone, the Visa report found that governments realize less cash-related crime (safety), increases in tax revenue (transparency), and reduced administrative costs (efficiency) when digital payments are adopted.
To provide some context, the largest legal cannabis operator in Washington state processed $1.9 million in sales in May 2018, which, when annualized, translates to $22.8 million. At present, every single one of these sales is conducted in cash.
Compare this to an average Target retail store, which generated $36.4 million in 2017. Imagine Target operating an all cash business. It is clear to see that, while a cannabis storefront shares many similarities of other small businesses, cannabis retailers’ sales volume is on par with major retail brand names.
With this much cash moving through the system, financial institutions and payment networks have a responsibility to drive toward an electronic economy, and ETA members need to be part of that solution.
Commercial Benefit
We’re all in business to generate business. With most retail categories in the United States already accepting electronic forms of payment, there are few places left from which to realize new sources of revenue and profit. The legal cannabis industry is an exception, and fortunately, it has the potential to be a lucrative one.
If we apply simple math to a $75 billion category with a hypothetical 2.75% discount rate and 50% electronic payment adoption, the legal cannabis industry stands to provide more than $1 billion in annual economic benefit to payments industry participants.
With this much cash moving through the system, financial institutions and payment networks also have an opportunity to capitalize on an electronic economy and, similarly, ETA members should be part of that solution.
What’s Next?
With an opportunity to lead in terms of both corporate responsibility and commercial opportunity, payments industry participants stand to benefit by enabling electronic transactions in the legal cannabis industry.
How do we get there? A simple first step is to lend your support to the STATES Act. ETA members should get involved and act now. Members of Congress need to hear from you – their constituents – about the opportunities and responsibilities that come with the passage of legislation like the STATES Act. We need to demonstrate that the impetus for change is here, and there is much to be gained by making these changes.
Since its founding, Green Bits has been at the forefront of many of these issues. We are hopeful that other ETA members will follow our lead and get involved. We stand ready to work with you.
Charlie Wilson is the Chief Revenue Officer of Green Bits, the nation’s leading retail management and automated compliance platform that processes more than $2.5 billion in cannabis-related sales annually. For more information, visit www.greenbits.com or email [email protected].
[1] “The State of Legal Marijuana Markets, 6th Edition,” Arcview Market Research and BDS Analytics, April 2018
[2] “Cannabis: $75B Opportunity; Category Cross-Currents Keep Us Cautious on Booze,” Cowen & Company, April 4, 2018
[3] World Development Indicators database, World Bank, July 1, 2018
[4] “Cannabis Version 2.0: How technology firms are impacting cannabis regulations”, Lewis Koski, John Hudak and Andrew Freedman, February 2018
[5] “Cashless Cities: Realizing the Benefits of Digital Payments,” Roubini ThoughtLab and Visa.