Retake on Double Take: Cannabis Highs and Lows

As the US legal landscape evolves, we explore the many opportunities and unique challenges of selling marijuana products.

Once considered a criminal enterprise, the cannabis landscape continues to evolve rapidly, as a growing number of nations and US states move to legalize the mind-altering drug for medicinal and recreational purposes. However, within the US, despite the many states that have decriminalized marijuana, the drug remains federally illegal. Under the Controlled Substances Act, marijuana is currently classified as a Schedule 1 drug—deemed to have no accepted medical applications. Its status as a controlled substance at the federal level poses the primary headwind for emergent business models within the industry for both recreational and medicinal players. In the latest episode of Double Take, we explore the many opportunities and unique challenges of selling marijuana products in the US.

To better understand the specific headwinds faced by the recreational space, we spoke with Christine Hersey, investor relations executive at cannabis dispensary, Trulieve Cannabis Corp. (Trulieve). According to Hersey, one of the most significant challenges that her business faces is the requirement for dispensaries to operate entirely in cash, as banks and credit card companies cannot provide processing and payment services to businesses that the federal government regards as illegal. As Hersey discusses, this is problematic for several reasons:

The reality is this does pose a safety concern for our employees at the dispensaries because it makes them a greater target for crime, and the same thing is true for the customers. All of our customers have to buy with cash, there’s no credit. And so for a lot of folks, cannabis is medicine and it’s a part of their daily life that they rely on. So, they don’t have a lot of flexibility, they either have the cash or they don’t.

Christine Hersey, Executive Director of Investor Relations at Trulieve Cannabis Corp.

Another issue unique to the US cannabis industry is the absence of inter-state commerce. Dispensaries must follow the rules and regulations of the states within which they operate. This generally means that all marijuana products sold at a dispensary must be not only sold within that state, but also sourced within that state.

These constraints—in conjunction with the expected inflationary pressure on customers as the Federal Reserve and central banks across the globe continue to raise interest rates—present a unique scenario for the industry. With many consumers beginning to tighten their belts, it is difficult to predict how cannabis will fare, particularly given the lack of historical data; today’s legal cannabis retailers were not in operation during the last economic downturn in 2008.

For some, cannabis is a staple, while for others, use is discretionary. Conventional wisdom suggests that marijuana use during a recession might look a lot like alcohol—while consumption might increase overall, consumers in different categories (e.g. ground flower and single-serve edibles) may trend up or down depending on price points. Whether use is recreational or medicinal, Hersey reveals that there is a strong consumer desire for more information and guidance on how to safely and effectively consume cannabis. Hersey says:

Every single day, cannabis is becoming increasingly more mainstream…We find that people are more and more looking for regulated and tested products with labels, so that they can know exactly what they’re buying and what they’re putting into their body, and that cannabis is something different to everybody. For a lot of people, it’s a medicine. For some people, it’s recreation. And as the industry matures and there’s more and more access to cannabis and legal products, you’re just finding that people are coming more and more into the fold and finding different ways to incorporate cannabis into their lives.

Christine Hersey

To better understand the medical perspective on the need for consumer guidance, we spoke with Dave Batista, chief experience officer at EO Care, Inc. EO is a Boston-based health-care start-up that develops tools for patients and clinicians alike to create personalized cannabis care plans—in short, to professionalize an industry that some say lacks credible medical plans, data and clinical standards.

After years of legal medical use, we now know it can be pretty darn tricky for a cannabis user to arrive at the product’s doses and times of use that are most right for them, whether they’re looking to address pain, sleeplessness, anxiety, epilepsy, or even autism spectrum disorder. So at the moment, we have a situation where millions of people are using cannabis for medical and wellness reasons in demonstrably suboptimal and often unsafe ways…There’s a growing body of research that has recently emerged from places like Massachusetts General Hospital and Thomas Jefferson University Hospital that suggests a close iterative partnership with an expert clinician is actually kind of essential for the safe and most effective use of cannabis.

Dave Batista, Chief Experience Officer at EO Care, Inc.

At present, clinical providers may be authorized to prescribe medical marijuana cards to patients with a pertinent diagnosis, but guidance typically ends there, with patients largely expected to determine specific product dosing and time-of-use options on their own. While the need for personalized evidence-based care is well established, the financial cost of that care is more than most can afford, as insurance coverage is currently not an option. Given the drug’s Schedule 1 status, insurance providers are unable to include medical marijuana in the scope of their coverage. Batista is hopeful that health-care companies and insurance providers are ready for a change:

There’s too much value to be delivered to patients in the form of cannabis care, and there’s too much opportunity for health networks and payers to really kind of serve as a guide when it comes to cannabis and earn the affection of either patients or members through the responsible provision of cannabis care.

Dave Batista

Achieving meaningful buy-in from insurance companies is contingent on the federal decriminalization of cannabis. However, federal legalization is not the only factor that could sway insurance providers to accept medical marijuana products as health-care treatment options. Health-care networks and payers also need to see data sets to support the medicinal benefits of cannabis — particularly data that points to best-use cases and applications for different medical conditions. Batista is reasonably confident that the research will be more comprehensive in the next few years. He tempers that confidence with anecdotal evidence from countries where marijuana use is already fully legal:

The health-care establishment in a lot of these countries is still justifiably skeptical about cannabis because they need more of kind of the longitudinal wellbeing-focused, satisfaction-focused, and efficacy-focused data that allows them to compare, rather, cannabis care to other substance-based treatment modalities like opioid-based care, SSRIs (selective serotonin reuptake inhibitors), all the big sleep meds, and so on.

Dave Batista

Significant smaller-scale developments in federal regulations may be on the horizon. In the US, there is a new bill in Congress known as H.R.8454, or the Medical Marijuana and Cannabidiol Research Expansion Act, with several meaningful provisions. For instance, if the legislation is passed, it would allow, for the first time federally, doctors to speak to patients about cannabis as a potential treatment option without the fear of federal prosecution.  

Batista and Hersey largely agree that there is no sure-fire way to predict if and when cannabis will be legalized at the federal level. However, momentum is building in Washington DC, as US lawmakers consider easing federal regulations and allowing financial institutions to offer services to the cannabis industry without the risk of repercussions. While the emerging legal landscape of the cannabis industry faces a unique set of challenges, it also presents a myriad of opportunities. Research efforts are under way to provide health-care providers and payers with data sets supporting the efficacy of medical marijuana products, which could transform the industry. Whether for medicinal or recreational purposes, cannabis is becoming increasingly more mainstream, as more and more people, across all demographics, are finding ways to incorporate it into their everyday lives.

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Authors

Raphael J. Lewis

Head of specialist research

Jack Encarnacao

Research analyst, investigative, Specialist Research team