Welcome to this week’s issue of the Dose, which tracks the psychedelics and cannabis industries. While companies and scientists delved into the potential of mushrooms and marijuana at South by Southwest, banking problems that have the potential to affect both industries began to unfold.
Weed’s legal fissure
Legal ambiguities that have helped cannabis thrive at the state level are coming back to bite it.
Recent bank turmoil is creating new risks for cannabis companies. While the industry exploited the gap between state and federal law for years to grow, it can’t escape all the consequences of its legally ambiguous existence. In fact, problems stemming from the asymmetry in weed laws are growing, from the thriving black market to the gaps between national and international standards.
Cannabis businesses could have taken a different path, and psychedelics startups, by comparison, hint that they may be better off.
See also: Banking Turmoil Threatens an Already-Fragile Pot Industry
Both industries presented their aspirations last week in dozens of panels at the South by Southwest conference in Austin, Texas. On the first day of the conference, right after Silicon Valley Bank’s failure, the networking chatter was about what risks psychedelics companies faced. Given that they’re grouped with biotech stocks, it was assumed there might be some fallout. But the impact was minimal.
“Everyone banks psychedelics,” Daniel Goldberg, co-founder of psychedelics-focused venture capital fund Palo Santo, told me. He reflected that because psychedelics companies are steering a legal course to try to win US Food and Drug Administration approval to use drugs such as psilocybin or MDMA for therapeutic use, the industry hasn’t had a hard time finding banks to work with. That’s likely to hold true even if there are more failures amid the midsize banks that have taken on other high-risk, high-growth industries, such as crypto and cannabis, Goldberg said.
Other participants said that, as they move through clinical trials, some of the psychedelics companies are staying so lean that they would only have less than $250,000 — the amount insured by the Federal Deposit Insurance Corp. — in their accounts.
The example is instructive for cannabis companies. Despite a similar model of trying to build a business in drugs that are still federally illegal, and a significant crossover of investors, pot has forged a totally different path, with voter campaigns and political lobbying that have helped usher in state-level legalization.
As the week of bank turmoil wore on, it became apparent that cannabis has more potential for fallout. That’s because marijuana companies didn’t go the FDA route (GW Pharmaceuticals is the well-known exception) and began selling at the state level without federal legal support. The only banks willing to serve cannabis companies are the midsized ones affected by the financial turmoil.
It isn’t the first example of problems arising from cannabis’s legal purgatory. Cashless-ATM workarounds to the credit-card systems have been shut down. A loophole in the federal farm bill has also led to the proliferation of cannabis products synthetically derived from hemp that now threaten the state-licensed companies that deal in traditional, plant-derived THC.
It has become apparent just how entrenched such problems are: A recent report from Acreage Holdings and MPG Consulting quantified the threat of the thriving illicit market, estimating that New York state alone will lose out on $7.2 billion in revenue from 2023 to 2030 due to black-market sales.
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