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US cannabis CEOs say coronavirus crisis will speed up legalization: ‘We have been deemed essential’

US cannabis CEOs say coronavirus crisis will speed up legalization: ‘We have been deemed essential’
  • U.S., April 19, 2020 (CNBC)- Cannabis CEOs say federal legalization of cannabis would provide economic stimulus through tax revenue and job creation during the Covid-19 recovery.
  • Eight states deemed recreational cannabis essential during Covid-19 shutdowns.
  • According to Cowen, weekly sales in March topped $134 million in California, Washington, Nevada and Colorado, a 17% increase from the weekly average in 2019.
  • In the second half of March, the average purchase also increased by 47%

U.S. cannabis CEOs say the chances for federal marijuana legalization will dramatically increase in the wake of the coronavirus pandemic, after several states declared dispensaries essential businesses, allowing them to remain open during stay-at-home orders aimed at halting the spread of the virus. 

CNBC spoke with the leaders of U.S. based cannabis producers Cresco Labs, Curaleaf, and Green Thumb Industries as well as cannabis investor Matt Hawkins about the state of the industry ahead of April 20, also known as “4/20,” the unofficial holiday for recreational cannabis users.

“When we all start to be able to lift our heads from this Covid experience, we are going to be faced with a scenario where a lot of jobs have gone away, a lot of economic development impact has disappeared,” said Charlie Bachtell, CEO of Cresco Labs. “How are we going to bring that back? I think cannabis has to be part of that discussion.”

According to Cowen estimates, the U.S. cannabis market is worth approximately $56 billion in 2020 with about 90% of sales going untaxed in the illegal market.

“One of the programs by the federal government right after the Great Depression was to focus on tax revenue generation,” said Curaleaf Executive Chairman Boris Jordan. “They lifted prohibition on alcohol and therefore started to tax it — and it became a major revenue generator for both the federal and the local governments around the country.” 

Jordan said governments will be looking for ways to generate revenue, as was the case after the Great Depression, and cannabis “is a significant revenue generator.” 

‘Essential businesses’

 As the global coronavirus pandemic brought most U.S. businesses to a near halt in March, cannabis dispensaries were designated as essential in 8 of the 11 states where adult-use is legal.

Sales have also surged. According to Cowen, weekly sales in March topped $134 million in California, Washington, Nevada, and Colorado, a 17% increase from the weekly average in 2019. In the second half of March, the average purchase also increased by 47%. Cannabis investor Matt Hawkins says the data makes the best case for legalization.

“You can just point to the fact that we have been deemed essential, why are we not legal?” said Hawkins, managing partner of Entourage Capital, a private equity firm with $200 million invested in Green Thumb Industries and other cannabis producers.  “There is going to be a need for increased tax revenue and where else to look but at a legalized industry like cannabis, that is one of the few growth sectors in the world right now.” 

Ben Kovler, CEO of Green Thumb Industries, said the crisis has put a different light on the industry and more states could start legalizing as a consequence, making the federal government take note. “The great American experiment will become more real as the federal government sees what’s happening at the states,” Kovler said.

Three states – New Jersey, Arizona, and South Dakota – are expected to have adult-use legalization on the November ballot. Three others  – New York, Connecticut and Rhode island  – have bills pending that could legalize adult-use cannabis through the legislature.

There is also a pending bill in the U.S. House of Representatives that would legalize adult-use cannabis. If the members of Congress from each of the 17 states that have legalized or are considering legalizing adult-use cannabis supported the bill, that would give 173 “yes” votes, 45 votes short of the 218 majority needed to pass the bill in the House. The bill would still need to pass in the Senate, but cannabis CEOs believe the momentum at the state level will have a pro-legalization influence on both legislative bodies.

“Every state that has progress on the issue of cannabis, increases the likelihood and the momentum of a broader success down in Washington D.C.,” said Bachtell. “Each additional state that passes an adult-use law now has two senators that come from states that have cannabis programs. They are going to be more familiar with it; they are going to understand the way the industry is developed, can work and can be a societal benefit.”

U.S. federal adult-use legalization has been described by many as “the holy grail” for cannabis producers. The CEOs agree proposed legislation like the SAFE Banking Act, which would allow cannabis companies to open bank accounts and accept credit cards, is progress. But Jordan, the Executive Chairman at Curaleaf, says the U.S. producers also need the ability to list on U.S. exchanges and access capital markets.

Curaleaf, Cresco Labs and Green Thumb Industries’ shares have all lost 60% of their value or more over the past year. Canaccord Genuity estimates that approximately 70% of cannabis shareholders are retail investors. All the CEOs believe legalization would help bring capital to the industry, but Kovler says the public is underestimating the impact a legal cannabis industry could have on other parts of a post-pandemic economy.

“To stand up a brand new consumer product business that big, people don’t understand that yet,” said Kovler, who believes legalization would have a ripple effect across industries. “Literally $300 to $500 million dollars in capital expenditure in Illinois alone to build the facilities — lots of labor, lots of steel and concrete, HVACs, jobs, massive real estate demand. It’s a big, big industry.”

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