The Pot Startups Prepping for Jeff Sessions’ New War on Drugs
Amid all the chaos and confusion of the Trump administration, one certainty abides: Attorney General Jeff Sessions does not like pot.
The former Alabama senator once joked that he thought the Ku Klux Klan was “ok” until he found out they smoked weed. During a 2016 Senate hearing, he called marijuana a dangerous drug. He also didn’t shy away from Reefer Madness-era moralizing: “Good people,” he said, “don’t smoke marijuana.”
Federal law shares Sessions’ sentiment. The US still bans marijuana outright, placing it in the same category as heroin and cocaine. But these days, opposing pot is bad politics. During the November election, marijuana legalization polled better than either Donald Trump or Hillary Clinton. In Colorado, which has legalized both medicinal and recreational marijuana, one report found the industry added $2.4 billion and 18,000 jobs to the local economy in 2015. Even the staunchly conservative Florida governor Rick Scott has approved a measure legalizing medical marijuana for the terminally ill. Sending federal agents to raid marijuana dispensaries in the 29 states that have legalized weed in one way or another only seems likely to alienate voters.
“Does the GOP really want to piss off the senior citizens of Florida?” says Micah Tapman, who runs the Colorado-based cannabis startup incubator Canopy.
Tapman isn’t betting on it. What worries cannabis entrepreneurs like him most isn’t some blatant crackdown on dispensaries, but a more surreptitious war on drugs, in which government overseers like the Department of Labor or the Internal Revenue Service catch cannabis companies slipping up on the more mundane details of complying with laws around safety, environmental standards, and taxes. In other words, to stop pot, the Trump administration may find the answer in what it ostensibly despises most: government regulation.
Which, ironically enough, presents its own business opportunity. Today, there are businesses like Front Range Biosciences that test the quality of different growers’ cannabis. Adistry, meanwhile, ensures cannabis companies are compliant with advertising restrictions. Other startups help businesses track the product through the supply chain, manage wholesale orders, and yes, even handle payroll—all so marijuana companies can focus on selling a product that could still technically land their proprietors in federal prison.
Complying with local and state regulations is already a migraine-inducing experience for most any small business, much less one trafficking in a federally banned substance. Laws limit where and how marijuana sellers can advertise. They require dispensaries to track and trace all cannabis products from “seed to sale.” Even something as simple as paying employees poses challenges for these businesses, since big banks, still bound by federal law, can’t work with payroll providers that service cannabis companies. If the federal government decides to pile on with a new regulatory war on drugs, marijuana entrepreneurs may need help. And so startups are springing up to provide it.
“There are a lot of ways they can stick their fingers in the industry without having the DEA go after the industry,” says Keegan Peterson, CEO of Wurk, a payroll and compliance firm that works with legal marijuana companies. “It’s created a lot of work for us.”
Keeping the Books
Sessions has so far exercised caution as he tiptoes into the pot policy arena. He appears poised to keep in place the 2013 Cole memorandum, guidelines laid out by the Obama-era Justice Department that instructed federal prosecutors and law enforcement to de-prioritize cases against marijuana businesses that were following state law. Still, it’s clear Sessions sees marijuana as a scourge. “Our nation needs to say clearly once again that using drugs will destroy your life,” he said during a speech in March.
For people like Peterson, Sessions’ anti-pot animus suggests that while he may not seek to upend the industry entirely, he plans to keep a close eye on it. “They have made clear that they’re going to make sure the businesses that are operating are following the law,” Peterson says. And that likelihood has been a boon for the burgeoning cannabis compliance industry.
“All of these things say to a Department of Justice that’s unfriendly, ‘Look, we understand you disagree, but we’re being responsible,’” says Tapman. “We’re going 60 in a 55.”
For would-be pot entrepreneurs, it’s a different world than the one Steve DeAngelo stepped into when he opened Harborside Health, one of California’s first dispensaries, in 2006. Back then, DeAngelo had to build his own laboratory to monitor the plants’ quality and develop software that could follow it through the supply chain. Now, he says, “There’s been a sea change when you look at the kind of support resources available to a legal cannabis business today.”
And yet, industry leaders know that Sessions now holds the power to overturn that progress. Just last week, they saw how impermanent the country’s current drug enforcement rules are when Sessions directed federal prosecutors to pursue the “most serious, readily provable offense” in their cases. In doing so, Sessions effectively reversed the Obama-era drift toward doing away with mandatory minimum sentences for low-level drug offenders.
“It brings to mind the department’s ability to make quick decisions that affect a very large percentage of people,” Peterson says. “That’s the organization that controls the future of the cannabis industry.”
That future is still very much in flux. For now, the most the industry can do to prepare for such uncertainty is to keep its books in order.