New York Weed Legalization
When New York finally legalizes cannabis, accountants will have to ensure that the newly legal businesses run like any other, keeping accurate books and paying taxes.
To that end, the Foundation for Accounting Education, an affiliate of the New York State Society of Certified Public Accountants, held a conference in New York City on Wednesday, geared toward accountants and other financial professionals. The conversations had an emphasis on banking and taxes, but covered a wide spectrum of other issues, from Congress to vaping.
Vivien Azer, the managing director of Cowen and Company, gave a cannabis industry overview, during which time she covered alcohol and pharmaceutical companies’ interest in cannabis, banking hurdles, the potential revenue windfall with cannabis beauty products, and how vaping illnesses are affecting sales.
“The market in the US: we think this is an $80 billion opportunity by 2030, growing from about $50 billion today. This does include illicit sales and it does assume that there is a change in the federal landscape at some point,” Azer said.
One trend that Azer mentioned is that cannabis flower sales have dropped over the course of the last few years. Vaporizers, for a while, were white-hot in the cannabis sector.
“Vapor has been very disruptive on a multi-year basis for the category, but the last two months have been very challenging,” Azer said. According to the latest from the Centers for Disease Control and Prevention, 1,888 people have fallen ill with lung illnesses linked to vape use, and 37 deaths have been confirmed in 24 states. To put things into context, Azer said, both THC vapes and nicotine vapes have been on the market for roughly a decade, and with THC vapes, “cumulatively there have been less than 40 deaths. The cigarette category kills over a thousand people a day.”
Azer continued, “The unfortunate reality is that the media picked up these headlines, and they’re driving a lot of what I would argue is a bit unfounded fear. Because what’s not getting press coverage now is the fact that the CDC and the FDA have actually come out and said: ‘OK, we still need to do more work, but we really think this is illicit vapes, above everything else.’ But it’s had a negative impact on the vapor category.”
In September, she added, month over month vape sales fell 14% in California, Nevada, Colorado, and Washington, but “the good news for the cannabis category is that the total category still grew 1%.”
Azer asked the audience for a show of hands of how many gave their dog cannabidiol (CBD) or knew someone who did. When hands shot up, Azer said, “Wow, that’s really impressive,” and added that the pet CBD field is “fascinating and deserves a little bit more attention.”
“I talk to investors about CBD. I certainly get the pushback, ‘Oh, it’s snake oil doesn’t really work.’ And my response is, ‘well, if people are giving it to dogs and it works on a dog, there’s no placebo effect,’” Azer said.
Azer also highlighted potential new cannabis users by “re-engaging what we would define as a lapsed consumer,” or one of those people that answers in a survey that they’ve consumed at some point in their life, but aren’t a regular user. Polls have shown that Americans 55-plus are increasingly open to legalization and consumption.
“The easiest way to do that is for more states to legalize, because once it becomes legally permissible, then the stigma starts rolling off,” she said.
Azer highlighted a monthly survey of 2,500 consumers that Cowen conducts every month. As cannabis use rose, “misuse of pain relievers has gone down,” she said.
“Cannabis, we believe, is a highly under-appreciated policy solution for the opioid epidemic,” Azer said.
During a question and answer period, someone asked if they should “hold onto” their Canadian stocks, several of which have tanked in 2019.
“Investing in cannabis is just not for the faint of heart. You know, this is a long term play, like on structural disruption in consumer packaged goods,” Azer said, adding that what’s hurting Canadian cannabis companies is that “there is not enough good quality supply of cannabis in Canada right now” because “they really under-appreciated was how hard it is to grow high-quality a.k.a. high THC cannabis at scale.” There aren’t enough cannabis shops, and the illicit market remains “sophisticated,” two other areas that bruise Canadian cannabis companies.
On banking, Azer referenced the importance of the SAFE Banking Act, saying “we think it gets done next year in the Senate.”
Next, New York State Senator Liz Krueger gave a keynote address and tackled banking issues head-on.
“I really do think the federal government will legalize the banking question very soon. It’s passed the House. It’s expected to pass the Senate. They’ve just gotten caught up with this little thing called the impeachment of the president right now,” Krueger said.
Krueger acknowledged the crowd of accountants, some of whom were receiving credit for the conference. When New York passes a legalization bill, Krueger said, “It’s going to translate into a large number of different legal businesses in New York State. And when you have legal businesses, at least I expect them to follow the law and pay their taxes, which means you will come in making sure that they actually have books set up or are accounting for their money in and out and then are ultimately paying their taxes … I think your field has lots of ins and outs that people don’t always think about.”
Krueger also reiterated what she’s said in the past, that she believes that Gov. Andrew Cuomo will again attempt to legalize through the state’s budget process, which is sometimes an easier way to pass “controversial” legislation. This year, Cuomo tried and failed to squeeze legalization into the budget, and lawmakers and Cuomo couldn’t agree on a legalization plan before the session ended in June.
(Read Cannabis Wire’s previous coverage of New York’s efforts to legalize this spring Here and here.)
“There’s justification to deal with it within the budget. And we’ll see. And if we’re not successful getting it through the budget, [Majority Leader Crystal Peoples-Stokes] and I, and our two houses, are going to continue to try to move that legislation through before we end the session,” Krueger said.