Some big changes are coming to the US cannabis space:
- Its once-biggest company is officially over.
- The DEA wants to reschedule the plant from the same category as heroin to the one with ketamine and steroids.
Here’s how those two things intersect.
The weed unicorn
MedMen was ready to cash in on California’s cannabis legalization in 2016. Its well-lit, tech-savvy dispensaries led many to compare them to Apple Stores, and by 2018, MedMen boasted a $3B valuation.
But MedMen got too high on its own supply, expanding rapidly and taking on debt in an uncertain industry.
- With cannabis still federally illegal, businesses face tighter regulations, higher taxes, and are cut off from many banking services (credit-card processing, loans, etc.)
- MedMen invested heavily in NYC, where legalization efforts stalled.
- MedMen’s attempts to complete a $682m merger with fellow dispensary PharmaCann ran into antitrust pushback.
Through 2019, its once high-flying stock had lost 92% of its value, and in 2020, co-founders Adam Bierman and Andrew Modlin were out. A Politico deep dive revealed lawsuits alleging racism, fraud, labor issues, and funds lavishly spent on personal panic rooms and luxury cars.
So, what now?
Irresponsible spending and overexpansion can tank any business, but weed is not an easy industry in the US.
While moving cannabis from a Schedule 1 to a Schedule 3 drug wouldn’t impact those banking issues, businesses would be able to deduct expenses, which is huge. Currently, the tax rate for most weed businesses is ~80% of gross revenue, per Forbes.
It may also be easier to court investors and, more broadly, signals the possibility of full legalization, after which cannabis could be treated more like alcohol.
Of course, rescheduling still needs to clear a review and public comment, so it could be months before we see a change.
Fun fact: Just 11% of Americans think cannabis should not be legal for any purpose, per a Pew Research Center poll, while 57% think it should be legal both medicinally and recreationally.