As of March 30, 2018, 30 states and the District of Columbia have legalized marijuana in some form. Despite initiatives by state governments to end its prohibition, cannabis remains classified a schedule one substance by the Drug Enforcement Agency (DEA). At the federal level, cannabis is treated the same as heroin, LSD, ecstasy and other drugs with no accepted medical use and high potential for abuse.
John Torrens, professor of entrepreneurial practice at Syracuse University’s Martin J. Whitman School of Management, has studied the cannabis industry extensively. Torrens cites two sides of the issue that, in his opinion, make federal legalization a no-brainer.
The first element of the issue is the enormous potential for tax revenue generated from the sale of legalized marijuana. According to a recent study by Business Insider, cannabis would create almost $132 billion in federal tax revenue by 2025 if it were legalized today.
In states where cannabis has been legalized, a large portion of the tax revenue generated has been spent to fund education, infrastructure and social welfare programs. The state of Colorado expects total marijuana revenue for the Colorado Department of Education (CDE) to be $90.3 million in 2017-2018 – funding the CDE would otherwise not receive.
Another facet of the case to federally legalize cannabis is the amount of money that the government spends prosecuting and incarcerating people for low-level drug crimes. One study by the ACLU suggests that legalization would save the U.S. government $7.7 billion per year on enforcement expenditures.
“You save all the money you’re not spending on prosecution and incarceration,” said Torrens. “Then consider all the tax revenue that you’d gain and it’s mind-boggling that we’re not on board with this.”
Although many states have successfully legalized cannabis, the lack of federal leadership on the issue creates a multitude of problems for entrepreneurs and business owners in the industry. A common issue for cannabis entrepreneurs is the difficulty in establishing relationships with banks.
“Banks don’t want to touch this money. Instead, [business owners]have to deal with cash or find a bank that’s willing to take their money but charge them interest for the deposits,” said Torrens.
Unlike a typical deposit where the bank pays out interest to the depositor, banks charge interest on deposits from pot businesses because they view it as a risk. Even though a bank may do business in a legalized state, the sale of marijuana is still a federal crime. The threat of asset seizures discourages most banks from even opening a checking account for cannabis businesses.
Despite the current regulatory environment, Torrens still believes that the cannabis industry presents plenty of opportunities for entrepreneurs and offers advice for those looking to get into the industry.
“The best advice is to move to a state where it’s legal so that you’re protected. Then begin to learn about the industry and get experience,” said Torrens.
When Colorado and Washington became the first states to legalize recreational marijuana in 2012, many viewed the opportunity as the next gold rush. But not just anyone can make it the cannabis industry.
“The market is huge, but it doesn’t really solve any of the problems that entrepreneurs face. As a matter of fact, because it’s cannabis it just compounds [those problems],” Torrens explained.
Although there’s a new market with tremendous potential, all the normal rules of entrepreneurship still apply. Entrepreneurs still need to offer a good product or service, position themselves appropriately and manage effectively. If cannabis entrepreneurs nationwide receive a little help from the federal government, in a few years they may see more serious green.
Latest posts by Alexander Straus (see all)
- An Entrepreneur’s Perspective: Legal Cannabis & Its Impact - April 20, 2018
- #WhitmanWatch: Daniela Lisa - February 9, 2017
- MBA Reflections: Anila John ’17 - January 20, 2017