Aaron Smith, CEO of the National Cannabis Industry Association (NCIA), joins Guillermo to discuss the impact of potential federal policy changes on the cannabis industry, focusing on the benefits of rescheduling cannabis from schedule 1 to schedule 3. They address the tax challenges under the current classification and the importance of FDA guidance for state-legal cannabis businesses. Aaron calls for industry engagement in policymaking, including lobbying for retroactive tax relief for payments made under tax code 280E.
"One of the biggest issues facing the industry is IRS tax code 280E, which prevents businesses from taking ordinary business deductions on our tax on federal taxes. Businesses in the industry are essentially paying on their gross receipts and facing double or triple the effective tax rate of other businesses. This is something we've been fighting in Congress for a long time, and it has been a real uphill battle.”—Aaron Smith
The finer details of this episode:
●Potential impact of federal policy changes on the cannabis industry
● Importance of rescheduling cannabis from schedule one to schedule three
● Alleviating tax burdens for cannabis businesses
● Providing opportunities for small and independent businesses
● Advocacy for retroactive relief for tax issues related to 280E
● Engagement with policymakers to shape future cannabis regulations
Episode resources:
● Book a free consultation with Guillermo: https://anderscpa.com/virtual-cfo-cannabis/
● If you’d like to be a guest on the show: cannabizsuccessshow@anderscpa.com
● https://thecannabisindustry.org/
Timestamps:
The cannabis industry association and its founding (00:00:26)
Aaron Smith's role in founding the National Cannabis Industry Association and its advocacy efforts.
The potential reschedule in 2024 (00:00:26)
Discussion on the potential rescheduling of cannabis in 2024 and its impact on the cannabis industry.
Policy at the federal and state level (00:01:26)
Focus on federal and state-level policy initiatives, including the treatment of hemp-derived products in California.
Background and founding of the NCA (00:02:30)
Aaron Smith's background and the founding of the National Cannabis Industry Association.
Representation of small and independent businesses (00:05:54)
The importance of representing small and independent businesses in the cannabis industry and the role of the NCA in doing so.
The tax issue and 280E (00:10:09)
Discussion on the tax issue and the impact of 280E on cannabis businesses.
Rescheduling of cannabis and its impact (00:11:20)
The potential rescheduling of cannabis and its impact on taxation and federal regulations.
Next steps for rescheduling and timeline (00:13:26)
The next steps for the rescheduling of cannabis and the potential timeline for its implementation.
Involvement in the comment period (00:17:02)
The significance of the comment period and how stakeholders can get involved in influencing the rescheduling process.
Impact of rescheduling on small businesses (00:19:41)
The potential impact of rescheduling on small businesses and the need for enforcement guidance and congressional action.
Retroactive relief for 280E (00:22:42)
Discussion on the need for retroactive relief for 280E and potential proposals for such relief.
Federal Rescheduling and Refund (00:22:53)
Discussion on negotiations for federal rescheduling and the potential impact on the cannabis industry.
NCIA Stakeholder Summit Events (00:24:31)
Description of the purpose and benefits of attending NCIA stakeholder summit events, including insights from regulators and lawmakers.
Integrating Hemp into Cannabis Supply Chain (00:28:02)
Discussion on legislation in California and Missouri to integrate hemp-derived cannabinoids into the state's program and the need for sensible regulations.
Challenges in California's Cannabis Market (00:32:33)
Insights into the challenges faced by the cannabis industry in California, including tax regimes and regulatory overreach.
Impact of Policy on Cannabis Industry (00:34:53)
Discussion on the impact of policy changes on the cannabis industry, addressing issues related to taxation, consumer pricing, and market sustainability.
NCIA Lobby Days (00:38:22)
Explanation of NCIA's annual lobby days, encouraging industry leaders to participate in lobbying Congress and the benefits of engaging in policy advocacy.
Intro (00:00:00) - Welcome to the Cannabis Success Show. If you're a cannabis company owner or operator who's ready to scale your business, grow your profits, and plant the seeds to take your business to new heights. This show is for you. We'll share expert insights, industry trends, and actionable strategies to help you blaze a trail of success in the cannabis industry.
Guillermo (00:00:26) - Aaron Smith is the co-founder and chief executive officer of the National Cannabis Industry Association. The NCIA is the largest trade association representing legal cannabis in the US, and the only one that's working to advance policy at the more at the national level. So, prior to launching the NCIA, Aaron was involved in California with the public advocacy, marijuana policy reform. And so, he talks a lot about that. He talks about that in the episode, in his intro. And he's built coalitions with elected officials. Building these relationships, it's a big part of moving, policy forward. And, most impactful in all the years of cannabis state run programs is the potential reschedule in 2024. So, this is the year where we could see the biggest forward movement, in the cannabis world.
Guillermo (00:01:26) - And so we get into some of that. But, today we're going to talk about policy at the federal level and what's next. At one point we get into some state level initiatives, such as how California is treating hemp derived products and comparing and contrasting that to other markets. And I love what he has to say about what our,what is going well in some markets and what we can learn. so we can implement that into new programs. And so, make sure you stick around to the end. when we talk about lobby days and that's happening in Washington, DC. And if you were looking to get involved to shape policy, what you can do by attending lobby days. So that's what's coming up right now. So enjoy our conversation with Aaron Smith. All right. Well welcome to the Cannabis Success Show. Today we are joined by Aaron Smith, CEO and founder of the NCIA. As a firm we are members of the NCIA. Aaron, we love what you do for the industry and our members.
Guillermo (00:02:30) - I don't know if you remember, but we try to catch up at Benzinga and it was a wild goose chase with everything going on and all the conversations. So, we didn't get to meet in the lobby. So, I'm glad we got you here today, and I'm looking forward to getting into all things policy and all the great things that the NCIA is doing this year. It's going to be a it's a pretty big year. And I'm sure with, you know, you've been around in cannabis for a very long time. You might agree that it seems like one of the biggest years that we've had, definitely from a federal standpoint. And so, we'd love to share stories here about what is working, because you hear so much in cannabis about the difficulties, right, and the things that aren't working. But we do know that success is possible, and policy is a big part of that. And the NCIA represents, what you call Main Street Cannabis. Right. And I know from my background is in large corporate, actually.
Guillermo (00:03:27) - But when I became a virtual CFO, our clients are now in the 2 to 20 million. So more of the small business. And what I can say from a policy standpoint is I remember being a part of the corporate pact and how impactful it is to get to know your policymakers, to influence policy, to get issues resolved all the way down to the very local level. But small businesses don't have those resources to have a pact and to have people going out to Washington. And so, the NCIA does a lot of that great work for the industry and for those who aren't well represented. So, thank you for everything you do for the industry. But so today we're going to be talking about policy, the major policy movers this year and what we can expect, maybe what members and others can do to move policy forward. But before we jump into all that, Aaron, can you just tell us about your background? How did you get into the cannabis space and founding the NCIA, and become the CEO of the NCIA? Can you just kind of give us the path, the trajectory, over the last few years?
Aaron (00:04:40) - Yeah.
Aaron (00:04:41) - Well, first of all, thanks for having me Guillermo. It's great to finally connect with you and be here and connect with your audience. yeah. NCIA is proudly the largest trade association of the cannabis industry, and we started back in 2010 when I was working for the Marijuana Policy Project. And. Another great organization in the state of California on various issues. And we saw an emerging industry there. And in Colorado, to some extent, Washington, you know, in 2008, nine, ten and there it became readily apparent that that, you know, industry needed a voice at the national level and that while, you know, normal and MPP and the groups at the time were doing fantastic work representing cannabis consumers, there wasn't really anybody to represent the industry, to talk about the issues that affected the industry more intimately, such as to aid the banking, situation. And so we started NCIA to fill that fill that void. you know, you fast forward today, you know, and so back then, were the only voice for the industry, as and there were no states have legal marijuana yet.
Aaron (00:05:54) - We knew Colorado and Washington were on the horizon. but they had, you know, not passed their laws yet. You know, fast forward today where we have, you know, just over half the country lives in a state with legal cannabis. There are hundreds of lobbyists in DC working on, on cannabis industry issues. But like, you alluded to, we're the only one representing small and independent businesses. the rest, you know, it's kind of scary that the number one group lobbying on this issue right now is primarily funded by Big Tobacco. And then after that, you have the, the largest MSOs that have their own lobbyists and they've got their own K Street firms working for them in DC. and then there's us, and we represent everybody else, and we're making sure that, you know, not only do we get federal legalization, but we get it right, and we do it in a way that small and independent businesses can, can thrive, and not be squashed out by the, you know, the larger interests.
Guillermo (00:06:55) - So was there, a time, you know, in that, as you, you know, move forward to, to create the NCIA and saw the need at the more at the national level. Was it focused on the non-MSOs from the very beginning or was there a moment where you said there's a need for small business, for the social equity applicants for that, that piece of the market? or how did you come to see that need.
Aaron (00:07:24) - Yeah, I mean, that need developed, a few years ago. You know, in the beginning, were the voice of the whole industry, and there were there was no, you know, there were no MSOs back then. Right. And so, but as we started seeing just the playing field in DC get, you know, more and more crowded with advocates working on this issue, and make no mistake, I'm glad they're there. They're working on this issue. And for the most part, we agree on policy matters.
Aaron (00:07:51) - But it became more apparent that the voice that there needed to be a voice for Main Street cannabis specifically and that, you know, we couldn't let the dialogue be completely, you know, dominated by the top 3 to 5 MSOs. and, you know, but I would say that NCIA from the beginning has always been a very democratic organization. We've always been, you know, we our members, for example, elect our board of directors. They serve on committees that inform our views. So, we have always wanted to ensure that were representing the industry broadly. but I think that the positioning around Main Street Cannabis is something that, you know, that really evolved in and, you know, there's sort of an epiphany about, you know, three years ago around that and that that really was the space we occupied. and, you know, now we're making a point of making sure I guess people know that's the space we occupy, because it is confusing. There's so many groups and acronyms out there not, you know, not to mention, like I said, big tobacco and other interests, working on this issue nowadays.
Guillermo (00:08:56) - Yeah. And it's a huge need, right? I mean, the regulated cannabis market, for the for the vast majority of the members that you say it's, it's difficult and, in a lot of ways it's not working. You know, from my perspective, I look at the dollars and profitability and the biggest challenges is taxation. Also competition. And I've talked to those who work, you know, raising capital. And it's just like, it's so hard. It's nonexistent in a lot of cases. So, for a small player or for someone who doesn't have the financial backing, it could be really difficult to get your business moving forward after year one, two and three. or when competition gets much, much tougher. What is the biggest? There's a lot going on right now. But what do you see as the biggest mover, the most impactful, from a policy standpoint, that we could see this year that would really help Main Street Cannabis move forward and continue on.
Aaron (00:10:09) - Yeah. Well, I think, you know, the that you mentioned, the tax issue, that's one of the biggest issues facing the industry broadly ADE which is a little known provision outside of the industry, but very well-known provision of the tax code in the industry that prevents us from taking, ordinary business deductions on our tax on federal taxes. And then we've businesses that are facing, you know, essentially paying their on their gross receipts and facing double, triple the tax rate, effective tax rate of other businesses. And that for, you know, something we've been fighting in Congress for a long time, and have had a real uphill battle getting any, any relief through Congress. But the good news is, this year, we're anticipating a rescheduling of cannabis from the administration, from the DEA. this if you back up and rescheduling cannabis with schedule one to schedule three, would, remove the burden of to ADE you back up to last year, the president had directed the FDA and the Department of Health and Human Services to provide guidance and recommendations on the classification of cannabis.
Aaron (00:11:20) - It's, you know, to remind listeners it's currently a schedule one drug under federal law, which is alongside heroin, LSD, drugs that that are deemed to have no medical value and a high potential for abuse. well, we all know there's significant medical value in cannabis and relatively low potential for abuse. The you know, toward the end of the year, the HHS and FDA recommended moving schedule from schedule one to schedule three, which schedule three is has some medical value and some potential for abuse. And that puts this alongside, drugs like ketamine, anabolic steroids. So, you know, it's not legalizing. But, for whatever reason, to ADE only applies to schedule one and two drugs. So, while the move to schedule three doesn't fix all of our problems, it will present some complications. In fact, probably, it will resolve the issue to ADE, which is huge. I mean, that's millions and millions of dollars. Now on the balance sheets of companies that, you know, that's currently been saddled with this, unfair provision of the tax code.
Aaron (00:12:31) - And, and I see, you know, our position, NCIA, is that cannabis should be scheduled, regulated in a different, you know, creating a different pathway, regulatory pathway at the federal level, it's probably more akin to alcohol. but that's still a ways off. And you know, we're still going to push for that. But rescheduling, fixing two and also acknowledging the medical value of cannabis is going to present an opportunity to build on the momentum to get to further reforms in the in the coming years.
Guillermo (00:13:03) - And what is, you went through the whole through the steps. But as we stand right now, what is the next step and what are we really waiting for this to move forward. And then I'm going to ask just administratively, as you see it, is there a still a chance that the reschedule could happen in 2024?
Aaron (00:13:26) - Yeah. So, the next step is that the DEA now has the recommendation and it's up. They're the only agency that has the authority to reschedule or de schedule, a drug.
Aaron (00:13:39) - Now Congress could or the DEA, that's the way that the Controlled Substances Act is written. So, it's up to the DEA to act on their on the recommendation they do not have a set period of time to do so. So, it's well considered likely imminent. But really, nobody knows exactly when this will come down. And what they will do is they will, announce what they're how they're what they're going to do with the recommendation. They do, technically have the ability to just ignore it. And they have ignored rescheduling petitions and such in the past. but the difference with this one is, is initiated by the President of the United States so that, you know, it's a huge difference than other, other efforts to reschedule in the past. they could do something, you know? My worst nightmare is that they could do well. Let's split the baby here and do schedule two, which would, you know, really do nothing for the industry because it was still, you know, have to the burden of ADE.
Aaron (00:14:37) - And, but I think the more likely outcome is the most positive one, which is what, what we're hearing from inside the Beltway, what just seems to be and also it just seems to be the likely outcome based on president, is that they will accept the recommendation. They will announce that, and then there will be and whatever they do, there will be a public comment, period. and NCIA is preparing public comments and also will be encouraging our members to present, to prepare public comments, to submit to the DEA during that period. It'll probably be a 30 to 60 day time period when that happens. and then it'll go through an administrative review. I do think it is likely to be, completed this year. You know, it's an election year. we can't ignore the politics around this is that, you know, President Biden is not you know, he's an octogenarian and not a huge fan of cannabis. But the smart people in his orbit that want him to get reelected are telling him, you've got to do something on this issue.
Aaron (00:15:39) - And so I think, you know, that's there's going to be that's one reason that they're going to want to get this done before the election. And I think I think it's doable. But we probably are going to need to see that public comment period and everything open soon because the clock is ticking and these agencies don't move fast.
Guillermo (00:15:55) - Yeah.
Guillermo (00:15:56) - So 30 to 60 days. We're already in March. if you're talking mid-year, you start pushing into third quarter. So, this is really something that needs to happen second or third quarter. how long after the comment period does would you see go into effect?
Aaron (00:16:15) - My understanding is that it'll be just, you know, a handful of months, it won't be, you know, very wouldn't take very long. You know, I think that they want to get this buttoned up before the election. Also, because if the administration changes, you know, on a political side, they want the they want the points with voters that two thirds of which support legal marijuana. And more than that, even according to some polls.
Aaron (00:16:36) - But also, just on a practical matter, administrations don't like doing administrative actions that are going to be undone. You know, a year later, the handful of months later. So, I think they're going to want to get this buttoned up by. Yeah, but, you know, at least, at least by the end of the year, completely done. But I think from a political perspective, they want to be making a big splash and make an announcement, you know, certainly prior to November.
Guillermo (00:17:02) - Yeah. And I think there's those that are listening that say, well, how can I get involved and what can I do? You mentioned the comment period. I know for like, say a state level recreational program, you know, education, voter turnout has a lot to do with, re-educating voters. in many cases at the federal level. How impactful is the comment period? and those who those stakeholders coming forward and trying to influence this thing to move forward, is it a big piece of the puzzle? or what is the impact there for getting members or anyone to, to comment? And how do they do that?
Aaron (00:17:46) - Yeah, I mean it certainly is.
Aaron (00:17:48) - And people, you know, it's easy to become jaded around the political process in this country for clearly obvious reasons for anyone watching it but, you know, the, those in power do actually listen to constituents, especially elected. Now, the DEA is not an elected. They're not run by, an elected body, but other than the president, but it will, you know, they will want to be able to show that there is a large number of Americans who care about this issue and that are going to support, you know, a move to move cannabis out of schedule one. So the way, you know, we will make, through, you know, anybody coming to our website, the cannabisindustry.org, sign up for our newsletter. And we will be sending out information how to how to submit those comments. There'll be a portal like directly through the DEA website to do that. We'll provide talking points, templates and ways to make that easy for you.
Aaron (00:18:44) - We're also collecting comments from our members to us about, you know, how they how they view rescheduling and its impact on their business, how, they have seen the regulated market benefit, their community or individuals within their community. and then we're compiling some of that into our public comments that we'll be submitting as an organization to make sure that we're representing, not just the views of us and our board, but the broader interests of our hundreds of members across the country.
Guillermo (00:19:15) - Is there anything that that really stands out for, for the small business as we see it today, that. That we want to make sure. In the reschedule that there's not a disparity between how, say, larger MSOs or small businesses are impacted by the rescheduling. Is there anything that really stands out or any things that we need to change as things stand now?
Aaron (00:19:41) - Yeah, I mean, one of the big things that we need to ensure happens is that there needs to be enforcement guidance provided the FDA, because moving cannabis from schedule 1 to 3 will move the...
Aaron (00:19:52) - It doesn't legalize cannabis, but cannabis isn't legal now. Right. But what it would do is it would move the jurisdiction of the FDA. It would create, theoretically, new laws. There'd be new laws that were now the Food and Drug and Cosmetic Act, specifically, that now our industry is in violation of and the FDA is not going to, you know, no one envisioned Swat teams kicking down the doors of businesses that are selling scheduled three drugs. But, you know, there is a there is a potential that the FDA using its bureaucratic you know, machine could send out letters to everyone saying, hey, you're violating this act because these products aren't approved by the FDA. So, and while I don't think that's, you know, that's certainly not the intent of relaxing the cannabis laws from the Biden administration. It's something that we do need to be cognizant of. And we're working with the administration to create a memo that would say, you know, that that makes it clear that state legal operations that are licensed under state law should not be disrupted, under this, under this system, but also working with Congress to ultimately get a budget rider that that ties the hands of the FDA to say you cannot spend tax dollars going after businesses that are complying with state law just to make sure, because especially for the small businesses, just getting a letter like that might be disruptive enough that it ends your time in the, in the industry.
Aaron (00:21:17) - So, those are the kinds of things that, you know, we need to make sure our also make sure that members of Congress know that rescheduling is not the end. That's not, we're not declaring victory and going home. It's one step in the right direction. And that there's still the onus is still on Congress to act to go further, because, you know, it would have been sort of unheard of, I think, for the administration to de schedule. And I guess I didn't even include that as one of the options. The DEA could go further and say, you know what, we're going to schedule cannabis now. I mean, the odds of that or astronomically against us. But, because, you know, the system, usually they want to have Congress, which represents the people, buy in on any big change. So, we need to make sure Congress understands we need, on the incremental steps. You know, while there's rescheduling, we need to make sure that, there's clear enforcement guidance that, for to protect state legal businesses.
Aaron (00:22:17) - We also are going to work to try to get retroactive relief for 280 because rescheduling will fix 280 in 2025 and beyond. But, you know, we have businesses that have been operating for a decade or more, that have tax bills dating way back. And so, we need retroactive relief that that the hands are Congress holds the power to do that only.
Guillermo (00:22:41) - Yeah.
Guillermo (00:22:42) - And how do you see that, would you be proposing a three-year, two year or, how do you see a retroactive relief on to ADE?
Aaron (00:22:53) - Well we're still talking with our, our allies in Congress on what that could look like. You know, we would want to make that actually indefinite and that allow anybody to apply for a refund on that. I will say that it's not likely we will get exactly what we want. There's negotiations that have to happen, and it's not a particularly popular, you know, it's not a particularly popular issue. And even on the Democratic side, because you're giving tax money back to, to businesses, but it's important to us that, you know, if we get 2 or 3 years, that I would consider that a huge victory.
Aaron (00:23:28) - But we're going to, you know, we're going to push for, for even more.
Guillermo (00:23:30) - Yeah. Even a year in just the inflow of cash from, the first effective year of, of a reschedule is huge. Three years is, you know, obviously triple that. And just the level of funds that would come back into the industry and then further investment just because companies are more profitable, it's just so exponential on what the extra dollars could do. So, shifting on into the more the state level we've been focusing on the National. You also hold the stakeholder summit, events recently had one in California, and there's one coming up in Missouri. And we want to get into the dates and how folks can attend those. But can you talk about or let's go ahead and go into that, like, what are the NCIAA stakeholder events? We'll be attending here in the next couple of weeks. What can folks hope to gain from attending some of those state level events that the NCIA puts on?
Aaron (00:24:31) - Yeah, thanks for bringing these up.
Aaron (00:24:33) - So the Stakeholder Summit events we just launched this year. The first one was in California a couple of weeks ago. We featured Nicole Elliott, who heads the California Department of Cannabis Control in that state, as well as Congresswoman Barbara Lee, the majority Assembly majority leader, as well, to talk about issues affecting the state. There the discussion was very well centered around the need for regulating hemp derived cannabinoids in the state, which is a big hot topic in almost every state. As well, as we had another panel discussion, what were just talking about federal rescheduling, how that's going to impact the industry, and kind of the outlook for federal reform. we do these events so that our members get an opportunity to, you know, to have an audience with regulators and lawmakers because you know, that's I see as an association that is one of the biggest, value, you know, some of the biggest value we bring to our members is that, you know, we're connecting you to those who have an influence over your business, like a regulator in that, you know, it's a lot harder for an individual business, especially a small business, to call it a regulator and get to talk to talk for half an hour, just with them one on one.
Aaron (00:25:48) - But through an association, we can create that forum, to help and to help guide, you know, guide policy in the right direction at the state level so, we do have that was our first. We've got three more coming. You mentioned Missouri. That's the next one. Saint Louis on March 28th. and we you know, thank you guys for sponsoring these events for this event. That's at Texas to downtown. Saint Louis. We, have just, we haven't quite even announced it yet, but you're hearing it here first anymore. The director of cannabis regulation in Missouri, will be a speaker there. We also have some other elected officials that are kind of in the works, that will be announcing in the coming weeks. And then we have events, similar events with similar lineups in Denver. April or, Baltimore, April 2nd. Denver, April 4th, as we head into the spring.
Guillermo (00:26:42) - Yeah. These events are just hugely beneficial from connecting, but also just getting in front of policymakers because that's already facilitated.
Guillermo (00:26:52) - I mean, I just remember like what it took to get in, like you mentioned, it's so hard to call up a policymaker and get five minutes in their office, but it's extremely valuable to get to know them, to get to get in front of them. and without a pact where you can, you know, take a donation and go see them and get that appointment. It's very hard to get your foot in the door. So, these events, for those listening, are great opportunity at a low cost to be able to get in front of those policymakers. So, you mentioned hemp in California. Let's talk a little bit about that. And so, I know there was a bill I saw it on the website, 22 AB, 2223 about integrating. The intent is to integrate hemp into the cannabis supply chain. Can you talk about what that really means to integrate hemp into the supply chain? Does that mean that it would fall under the state, cannabis program, or how would that really happen? And how is it happening in California? And then we can maybe move on to contrast how Missouri is handling the hemp program.
Aaron (00:28:02) - Yeah. So, they are, there is a legislation in both of those states that would fold hemp derived cannabinoids, intoxicating cannabinoids into the state's program. And it's, you know, we want to see, and I and I think both of these the legislation is in both states is very well intentioned and going moving things in the right direction. I think there's a lot of details that are still being worked out, but both places, you know, to make sure that this doesn't kill the hemp industry, but also levels the playing field, for hemp and marijuana and, you know, creates the public safety guardrails that we need for it. Intoxicating product. So, you know, our view on this is that the cannabis, whether, cannabinoids, whether they're derived from him or marijuana or even bio synthesized, should be treated the same according to their use. So if something is, you know, as a topical, non-intoxicating CBD bomb that you're buying at Whole Foods, well, that's going to have one regulatory pathway that's a lot different than, you know, an extracted product or a gummy that, you know, that you're going to take and, and have a toxic effect.
Aaron (00:29:17) - And they, they should be treated the same. And so, the legislation in California attempts to do that. You know, our view on that one is that you know. Yes, the hemp products should be folded into the system, but there's also overregulation in that system and that, you know, marijuana providers should be subject to less regulation at this point, frankly. and hemp, but hemp provider or hemp derived cannabinoid products should be subject to a bit more and to kind of level that playing field so that all that matters is that we have a, you know, we should continue to have a vibrant industry that can replace criminal markets. So, a big concern we have is that, you know, in the States, you know, this is apart from the hemp issue, but it's increasingly difficult to see that criminal market go away because of the regulations and the taxes imposed on our industry. when you have, especially in a place like California, where, you know, you have the criminal market's been thriving for decades and decades before there was ever legal marijuana.
Aaron (00:30:21) - And we so we do need to see comprehensive reform. Part of that reform is bringing in hemp derived cannabinoids into the system.
Guillermo (00:30:31) - So do you see it as still, a grey area in how the two states are operating right now, California versus Missouri, before we have any policy around this, is there still kind of some uncertainty or some...
Aaron (00:30:48) - Incredibly uncertainty? Yeah. And states that don't, you know, we have you know, we have the farm bill which created this kind of loophole for, hemp derived products, which, you know, of course, it was great that hemp was made, legal in the country, but no one really contemplated the idea of, you know, Delta eight being, you know, being synthesized from these products and then sold in, you know, in grocery stores or liquor stores in places that didn't have marijuana programs. So, you know, we think that, you know, that's a growing segment of the industry and it's not going anywhere.
Aaron (00:31:23) - And it just we need to create this system, an ecosystem that allows both products to thrive. Both. You know, this is all one plan. You know, cannabis is marijuana. Hemp, it's all cannabis. And Delta eight delta nine. It doesn't it shouldn't be treated separately. At the federal level we support continuing to allow for, you know, hemp, hemp to be, legal, of course, but then have sensible regulations on specifically products that are intoxicating, and both marijuana again and hemp products.
Guillermo (00:32:01) - Yeah. So, you're, you're in at the state level as well and getting to see what the different markets are doing well in not well, I mean all you think of California, it's you know, what you hear more than anything is it's a saturated market. You know, prices are coming down. You know, based on, you know, the recent event. What is, what are some things that California is doing? Well, or maybe shifting, into the next couple of years.
Guillermo (00:32:33) - And what can we learn about, from, you know, some of the changes that are going on there?
Aaron (00:32:39) - Yeah. I mean, I think they're starting to see that the tax regimes are not, you know, not sustainable and that, you know, there's been there's been some, some tax reform over the last year that has improved conditions for the industry, but it hasn't gone far enough. And so, and then I think, you know, addressing the hemp issue is certainly a positive step. But the you know, the state really, I think needs to completely overhauled system and, you know, realize that the purpose of this isn't just to make revenue for the state, the, you know, and that you're not going to actually do that, sustainably and consistently through over taxation because businesses are, you know, a great number of licenses in California have just been abandoned because they're not folks have gone back into the criminal market, or they moved on and went into another industry altogether.
Aaron (00:33:30) - And so, you know, California should it be, a lesson to the rest of the country. And frankly, sadly, I'm a, you know, I love California and I'm a, I'm a native Californian myself. But frankly, it's a lesson learned on what not to do in almost every way. And, yeah, it's, but it is, it is it is heartening to see, that regulators and policymakers are beginning to, to understand that and slowly making some changes, you know, around the tax rules that, have made some, some advances.
Guillermo (00:34:05) - Yeah. There's just no absolute way to get all the taxing jurisdictions talking and really understanding what they're doing to price out the product, in the eyes of the, of the consumer. That makes it just extremely difficult, to be profitable when you're tacking on excise and sales taxes, to the end consumer. And so, yeah, a lot of the education that you do and at these events are helping these policymakers see that.
Guillermo (00:34:34) - Yeah. Maybe, in the short term, this is bringing in dollars. But in the long term, you know, I think y'all did a study on what the impact of going away and how businesses thrive, generate more revenue and actually a positive effect. But we have to think about it long term.
Aaron (00:34:51) - Yeah, yeah. And I think.
Aaron (00:34:53) - You know, we've a kind of a conflict, confluence of, of challenges as an industry. I think the significant inflation of a couple of years ago pushed a lot of folks into, into the criminal market, and they probably in some of them aren't, haven't returned. You know, that's, when you, you had, you have an option, but you know, you're between paying, you know, $5 and for paying $3, you're going to go for the $3 thing. Right or that's what. And whether it be whether it be groceries, can, you know, were caught up in all of the, you know, all of the verticals that were impacted.
Aaron (00:35:30) - Inflationary pressure. And you know while that's easing now, you know we're still seeing sales as have been slumping. And it's not that people all of a sudden are using less cannabis. The cannabis consumption is seems from all indications is consistent and if not growing but it's not. Yeah. So, it's just not necessarily being procured in the legal industry. And so, the whole purpose of these laws was to and from the perspective of a, of a public health. And for perspective, frankly, most voters wasn't to make, you know, make it easier to get cannabis for everyone because cannabis is fun. They wanted to make sure that the criminal market was put out of business because there's violence associated with it. They wanted to make sure that cannabis was tested so that it had, so, so it was safe, and it was properly labeled so that there were less public health concern around it. Those are the things they care about. So the only way to ensure that we get those aims is to have a thriving legal industry that is attractive to consumers so that they're not going into the industry, that the side of the industry that isn't testing its product, that isn't labeling its product, it isn't checking for IDs, and, and isn't paying taxes or giving back to the, to the community in the way that our legal businesses are.
Guillermo (00:36:56) - Yeah.
Guillermo (00:36:56) - It should just be so obvious that you can't tax, a product like this to the consumer or to the business itself and expect consumers to continue to buy a product, you know, ten times the cost that they could get it elsewhere. It's just simple economics. And, you know, it's going to take some time. But like you said, we that was the original intent. And, you know, all these years later and we're just not there yet. So, getting closer, you know, back to your comment at the very beginning of the conversation is that, things are hopeful. And it's one huge step, you know, to ADE go in a way. And the reschedule is a is a huge step. So, we've talked a lot we've talked a lot here. we're getting kind of towards the end here. And I think our listeners are really going to benefit those who are listening. They want policy to move forward. and you've touched on how people can get involved, whether joining the NCIA or the comment period that is coming up.
Guillermo (00:38:07) - There's also events where people get together for policy. Right. And a big one is, is Lobby Days that is coming up. Can you, as we wrap up, I mean, talk about lobby days and how folks can get involved in what is lobby days.
Aaron (00:38:22) - Yeah.
Aaron (00:38:22) - Thank you. So, on every year, we bring together, cannabis industry leaders from across the country to lobby Congress. And we set up two days of meetings with members of Congress, their staff, and it's a way for, you know, we'll it's a way for us to do, you know, 2 or 300 meetings across Capitol Hill in two days. and it's also a way for our members to really understand how the sausage is made, so to speak, in DC. It's a really great experience. it moves the dial in a way that nothing else does in this industry. And, frankly, every industry does this, but NCIA is the only organization doing it for the cannabis industry.
Aaron (00:39:05) - And so we encourage our folks or anyone listening to come out, with meet us May 14th through 16th in Washington, DC. We have a you know, the event starts off with a kind of casual opening network reception the night of the 16th or the 14th, and then we get you really busy all day on the 15th of meetings. We supply training on how to lobby Congress, how to meet, with elected officials and talking points on the important issues. We also put members in groups. So, you're not out there, you know, by yourself. We w have members who've done this before, and they lead groups of 4 or 5, six people across the hill. And then we close with a, ending reception that will feature, number, a number of members of Congress and key champions and VIPs, in Washington, DC. the event is, it's our 12th year of doing this. It's actually the first year we've opened it up to folks who are not members of the association.
Aaron (00:40:08) - They, you know, we want to just get as broad and diverse of a of a audience there as possible. So, I really want to encourage everybody to go to our website, the cannabisindustry.org. You can click on events and find out about the stakeholder summits we discussed. Those are free for members. The stakeholder summits, if you're not a member is a nominal fee to attend. So, it's still open to everyone. and again, the lobby day is happening May 14th through 16th. all that's on our website, the cannabisindustry.org
Guillermo (00:40:37) - Well, now I don't even have to ask where can people connect you or find out more because you covered it. And so, no excuse not to get involved with or at the state level. Some may not be able to travel to DC, but there's plenty of events all around the country where folks can get involved and get involved at the state level. So, Erin, it's been a pleasure speaking with you today. I know our audience will find this conversation hugely valuable, especially those who are looking to get more involved.
Guillermo (00:41:06) - And it's challenging out there. Right. But success is possible. We keep saying that we're here to help you find your own success in the cannabis world connecting with a national organization or the only national organization like trade group such as the NCIA is a part of that success, getting to know others and working together. So Aaron, thanks again for joining us today. And we'll see you next time on the Cannabis Success Show.
Aaron (00:41:34) - Thank you.
Intro (00:41:36) - Enjoy this podcast. Visit our website anderscpa.com/virtual-CFO-cannabis to get more tips and strategy for achieving business success in the cannabis industry.