Highlights from Melissa Vonder Haar’s February NACS cover story on marijuana and the convenience industry

The 2018 NACS Show in Las Vegas marked the first-ever NACS session on the marijuana industry: “Marijuana: Capitalizing on a Budding Opportunity.” The session featured Scott Sinder, NACS general counsel and a partner at Steptoe & Johnson LLP, Don Rhoads, president and CEO of The Convenience Group LLC, Ryan Sevigny, founder of High Tide Ranch, and Keelan Gallagher, director of trade marketing and brands for Smoker Friendly International–and was moderated by iSEE’s marketing director, Melissa Vonder Haar. Melissa also reported on the standing room only event in February’s NACS Magazine. Here are the highlights:

The Buzz:

“According to cannabis analytics company New Frontier Data, the marijuana industry could cumulatively generate $105.6 billion in federal tax revenue and 1 million new jobs by 2025, if legalized at the federal level. ‘This is a movement,’ said Scott Sinder… Don Rhoads has firsthand experience with the market as the owner and operator of a cannabis production and processing facility in Oroville, Washington. ‘I really do believe it’s a game-changer,’ Rhoads said ‘But it’s going to take some time.'”

“2018 was a great year for the legalization movement, with Sinder noting ‘marijuana legalization advocates may have emerged most victorious’ of all the political parties last year. Victories included the November midterms, when Michigan legalized recreational usage and Missouri and Utah legalized medical usage, as well as Oklahoma’s passing of medical usage in June and the Vermont legislature’s passing of recreational usage in January (though Vermont does not allow retail sales). This means that as of 2019, only four states—Idaho, Kansas, Nebraska and South Dakota—have not legalized some form of marijuana usage, and there are 10 states (plus the District of Columbia) where the substance is fully legal.”

“The revenues the marijuana market already is generating explain the increased interest from state lawmakers. According to “The State of Legal Marijuana Markets, 6th Edition” report by Arcview Market Research and BDS Analytics, combined recreational and medical marijuana sales reached $8.5 billion in 2017. Bloomberg predicts this number could grow to $50 billion by 2026.”

“Despite the fact that marijuana is an illegal substance under federal law, a 2017 Marist College study showed that more than half of U.S. adults have tried it, and 55 million describe themselves as regular users. ‘That’s only 5% less than cigarette smokers,’ said Rhoads. ‘This is not going away.'”

The Roadblocks:

“‘The sale or distribution of marijuana is a felony,’ Sinder said. ‘[Marijuana is] classified as a Schedule 1 drug, meaning it’s got the same treatment as heroin and LSD. The ramifications are that you can be prosecuted under federal law if you sell, distribute or aid and assist in the sale or distribution [of marijuana] in any way.’ This classification was reaffirmed as recently as 2016.”

“Marijuana businesses have difficulty accessing proper banking or insurance, and they take a major hit on the tax side. ‘Any expenses that you incur in the illegal business are not deductible—but the revenues are fully reportable,’ Sinder explained. ‘The tax burdens for marijuana businesses are much higher.'”

“Even if marijuana were decriminalized tomorrow, the convenience channel still faces a significant regulatory roadblock: Recreational state markets currently prohibit traditional retail channels from participating… In most states, retail licenses come with strict requirements that make it difficult, if not impossible, for convenience retailers to qualify. Everything from restricted hours of operation, geographic limitations, onerous insurance and security requirements and most importantly, prohibitions against retailers selling non-cannabis products (often specifically including alcohol and tobacco) can completely prevent an existing retailer from engaging in this space. ‘That’s the biggest problem for us,” Sinder said. “It’s an exclusive channel.'”

Proactive Steps:

“Retailers in states where recreational marijuana already has been legalized encourage those in other states to get involved in the legislative process early. This way, they can help ensure that the convenience channel can participate if and when it is legal to do so. ‘We have all these different states with different laws,’ said Keelan Gallagher of Colorado-based Smoker Friendly. ‘Regulators are looking for feedback as to how the system should work. If you’re proactive, chances are you’re going to be more suited to benefiting from the industry.'”

“To assist retailers in this engagement, NACS and Sinder have put together a toolkit with resources to help the convenience industry advocate for its participation in the recreational marijuana market. ‘If a state like Texas moves forward with legalization, we want to make sure that convenience retailers are able to sell a legal product in a legal manner, just like anybody else,’ Sinder said. ‘Rumors are rampant in D.C. that Congress will formally vote shortly after the new year to remove any federal prohibitions on marijuana-related activities. That would open the door to the provision of full banking and insurance services to the fledgling industry.'”

NACS members can read the full February cover story here