Why Some Investors Aren’t Lighting Up Cannabis

Investors share vastly different opinions on cannabis but it all stems from one fundamental fact – cannabis is still illegal under federal law. The implications are quite serious and do raise more than reasonable concerns, the first being enforcement.

As of now, it is unclear whether cannabis contracts and intellectual property are enforceable in federal courts since cannabis is a controlled substance. This uncertainty leaves investors cautious. How does one operate uncontested and exclusively with confidence? What is known is the federal government hasn’t been afraid to enforce the Controlled Substances Act (CSA), raiding state-legal cannabis operations on several occasions. Why should the Federal Courts then uphold cannabis contracts and intellectual property?

Secondly, most banks won’t touch money from cannabis companies, also because of the CSA. Afraid the feds will come after them for money laundering, banks have left cannabis high and dry. That means only cash, not bank cards, can be used to purchase cannabis, although in some locations cryptocurrency is accepted. As one can imagine, not very many dispensaries operate with cryptocurrency so that results in hoards of cash that need to be guarded. One farmer was said to have hid his cash in trees. Another unidentified producer disclosed he had carried $120,000 in a bag on a drive from Los Angeles to Oakland to pay his supplier. Smaller cannabis companies have fewer resources to dedicate to storing their cash and could become crime targets.

A more obscure reason investors shy away from cannabis is the half-baked insurance for cannabis operations. In dealing with biological assets, many vulnerabilities are present. A pathogen can decimate an inventory in no time leaving one stranded, so insurance is crucial. Insurance companies could be seen as being involved in illegal monetary transactions from the federal standpoint and many stay away for this reason. Additionally, there is no oversight for the rates set and often doesn’t favor the insured. The Clarifying Law Around Insurance of Marijuana Act (CLAIM Act) was introduced in 2019 and intends to provide clearer guidance for insurance in the cannabis industry, if passed.

As you can see, the cannabis industry isn’t all green. It’s red-stained by the CSA and you can’t look away from it until it has been reformed! For more insights, sign up for the Cannabis Patent Forecast® today!