Feb 27 , 2023
Banking Roadblocks: How Lack of Financial Support is Hurting Small Cannabis Companies
In 2022, cannabis-related business owners spent more than $5.4 million on political lobbyists to enact bills that favor financial support for their entrepreneurship. This wasn’t just for bills that make marijuana legal across the board. This was for essential items like federally backed banking options, interstate transportation challenges, and state-compliant packaging concerns. To put that in perspective, the alcohol industry spent over $237 million – a 4,288.89% increase.
Why does this matter? Walk into any grocery store, and you will likely see alcohol, tobacco, and soda lining the shelves. Even in states with blue laws, there are bound to be wine bottles next to the snack items. But you know what you don’t see? Cannabis products.
Even though most Americans view alcohol, tobacco, and sugar-related products like soda as way more addictive and dangerous than cannabis, small business owners and dispensaries are placed under way more restrictions. This is especially true when it comes to financial support.
The Banking Problem
At MSN Packaging Inc., we have covered the general banking differences for cannabis-related business owners. These companies cannot access ordinary banks because of FDIC requirements not allowing customers to use items still outlawed by the federal government. What most people don’t realize is there is a systematic issue with funding marijuana businesses as well.
When you start a company, you typically contact your local bank to finance the equipment, rental space, and first few months of expenses. This is a loan you agree to pay back with reasonable interest rates from a recognized lending institution. If your business fails, you can declare bankruptcy, liquidate your assets, and move on to the next idea.
Cannabis-run businesses do not have any of these options. Instead, they must seek financial resources from equity and debt holders. Those angel investors offering equity are willing to take on a higher risk for a higher reward. Unfortunately, debt holders are not so kind. They expect their loans to be paid back in full, on time, and with interest.
So, what happens when a cannabis business fails? Financial ruin. Bankruptcy is not available for cannabis-run enterprises because the federal government views them as engaging in criminal activity.
The Political Football
To fix these issues, many inside the marijuana industry are turning to anything and anyone that can help resolve these disparities. We go through as much regulation and child-resistant packaging as possible to ensure we comply with any new laws or ordinances.
However, our industry has nowhere near the support of Big Tobacco, soda companies like Pepsi or Coca-Cola, or alcohol. These industries have significant lobbying power and have been working to maintain their dominance in the market.
That is why some in our industry have turned to some new acts that could change the game.
The SAFE Banking Act
One potential solution to the banking problem is the SAFE Banking Act. This would open up traditional banking options by giving legal protection to financial institutions that provide such services to cannabis business owners.
If the SAFE Banking Act were to pass, it could significantly impact small cannabis companies. It would provide access to financing, everyday banking services, and bankruptcy support at the national level.
Even though this Act has passed Congress, it has failed to pass the Senate three times. This is not an up-and-down block by both parties. The problem comes from senate leadership not taking the time to strike a valuable deal. Both republican and democrat led states want some sort of arrangement, seeing how most US states now have recreational or medical marijuana available. This is a cash crop.
Yet, when you have Pepsi or Jim Beam knocking on your senate office door promising massive contributions, you tend to forget about the mom-and-pop dispensaries operating on cash and risking it all to make a living.
IRS Regulation for Fair Tax Relief
Another significant challenge that cannabis companies must face, besides ever-changing state-compliant packaging, is a lack of tax relief. You do not get to write off anywhere near as many deductions when you run a company like this. The result is a massive tax burden compared to your competitors in the tobacco, soda, and alcohol industries.
Relativity easy fix to this problem is regulating the fair tax relief plan for cannabis companies. If the substance were to be removed as a Schedule 1 drug, it would enable these companies to use the same tax benefits, deductions, and expense schedules as other regular businesses. That would dramatically level the playing field of competition and open new lanes of cash flow for most cannabis growers, retailers, and dispensaries.
The blame for this issue falls at the feet of federal judges. There needs to be a case that works its way up to a federal appellate court that rules in favor of cannabis business owners. That is not likely to happen until the FDA and DEA lobby for cannabis to not be a schedule 1 drug. But, again, our industry does not have the deep pockets of others like alcohol, tobacco, and soda to make this happen. There simply is no financial incentive for these agencies to take the risk.
A Grass Roots Campaign
The answer to these financial woes that can help support small business owners on the verge of collapse is massive public support. If we cannot leverage financial incentives to budge political adversaries, then we must make enough noise to convince them the wave is shifting and moving in the opposite direction.
Only 1 in 10 US adults say marijuana and related products should not be legal. Over 59% of the rest say it should be for medical and recreational use, and 30% say medical only. Even if we were to allow medical-only dispensaries, that is still 89% of the total US adult population saying bring it on!
It is clear the blockade against these business owners is related to money. With that much public support, this issue is going to take time. While we wait for our local, state, and federal representatives to wake up and smell the ganja, we risk the livelihoods of hardworking individuals hoping to build a prosperous business.
The best way to show your support is by joining advocacy groups like the National Cannabis Industry Association and offering your support and membership to demonstrate to out-of-touch political leadership that marijuana-related products are here to stay.
Need More Help?
Are you wasting money on strain-specific packaging for your edibles, Sativa, Indica, and Hybrids? Can you reduce your cost and sell more just by educating your customers?
In today’s market, there is no relief from federal government legalization, which means the IRS considers you an illegal business. With so much pressure, why keep up the costly marketing expense? Especially when you consider Child Resistant Packaging is a State by State Regulated industry. It is just getting more and more expensive with every new law.
Without Federal relief soon and without the SAFE Banking Act and IRS Business Tax Benefits, how else can you reduce your cost in State Compliant Packaging?
MSN Packaging Inc. can help reduce your cost in bulk and dress up your custom-branded packaging without Strain Specific Marketing to reduce your SKUs. Improve your profit margins with Larger Quantities with your Brands Specific and Flavor varieties. This will also reduce the marketing materials you need to prove Strain Specific in your Live Resins and Cannabutters on your Certification of Analysis (COA).
Contact our team today to lower your business expenses while improving your target marketing. We look forward to helping you thrive in today’s volatile political and financial market.
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