Federal vs state law: Marijuana businesses brace for investment chill as US changes policy

January 5, 2018 - 12:23 PM
A bag of marijuana being prepared for sale sits next to a money jar at BotanaCare in Northglenn, Colorado, December 31, 2013. REUTERS/Rick Wilking/File Photo

SAN FRANCISCO/NEW YORK – Cannabis businesses across the United States said they are bracing for an investment slowdown following the US Justice Department’s Thursday directive that will allow the enforcement of federal marijuana laws in states that have legalized the drug.

US Attorney General Jeff Sessions announced that the Justice Department was rescinding an Obama-era policy that eased enforcement of federal marijuana laws amid a wave of legalization in states from Alaska to Pennsylvania.

”In the short term, this news will further scare away investors which will, in turn, slow down cannabis entrepreneurship,” said Nicolas Ruiz, co-founder of Cloudponics, a San Francisco startup that makes technology which can be used to grow marijuana.

Marijuana legalization has spurred new businesses from growers to retailers, delivery services, providers of supplies and technology startups serving the industry.

Lawmakers from US states that have legalized marijuana, including California and Colorado, denounced the directive, vowing to enforce their laws and protect the burgeoning cannabis industry.

“In California, we decided it was best to regulate, not criminalize, cannabis,” said California Attorney General Xavier Becerra. “Unlike others, we embrace, not fear, change.”

The shift in policy comes just three days after California launched the world’s largest regulated commercial market for recreational marijuana.

Funding for cannabis startups has surged since Colorado’s legalization of recreational marijuana use in 2014. Since then, the industry has seen nearly $1.3 billion in equity funding, with more than $600 million in 2017 alone, according to research firm CB Insights.

“While it’s unclear if this directive is going to directly impact cannabis funding itself, it demonstrates that the space is still very uncertain from a regulatory standpoint,” said Nikhil Krishnan, senior intelligence analyst for CB Insights. “That uncertainty alone makes many investors uncomfortable and can hamper a company operating in the space.”

Investors and entrepreneurs point to the industry’s momentum as a reason for remaining bullish on the sector’s prospects.

“The train has already left the station,” said Jonathan Rubin, chief executive of New Leaf Data Services in Stamford, Connecticut, forecasting a backlash from voters, patients and politicians. New Leaf runs a data and pricing service for cannabis clients.

Others say the directive has them concerned.

Still, Mike Kramer, CEO of 420Blockchain, a Boca Raton, Florida, startup whose technology lets cannabis companies track their supply chain, said the industry was concerned, if determined. “We’re going to be resilient,” he said.

Steve DeAngelo, executive director of Oakland, California, dispensary Harborside, said he has no plans to change his operations nor does he expect the Justice Department directive to impact his business, which begin selling recreational marijuana this week.

“Every day, I instruct my employees to scrupulously observe California’s laws and regulations regarding cannabis,” DeAngelo said. “We did that yesterday, we are doing that today, and we will continue to do it tomorrow and well into the future.”