Do US cannabis companies need to resort to drastic measures to stay in business?

A New York Times article has highlighted how cannabis companies have been pushing the envelope of acceptable marketing and business practices by insinuating unproven (and in some cases outright dangerous) benefits for their products while also looking to create the strongest goods possible.

The article in question surveyed 20 of the “largest” brands – as defined in terms of sales by two industry data providers – and found two issues: “most” were selling products with disingenuous to outright illegal health claims, and potency had gone up while prices had fallen.

These two issues should be treated separately, as they have come about through different processes. However, both at least partly share a joint motivation. The companies behind both of these practices will generally claim they have to take such dramatic steps to avoid going under in an industry balanced on a financial knife edge. The inability to get bank loans, place business expenses as tax reductions, or transport goods over state lines to other legal markets limit margins, forcing companies to take drastic actions in order to stay afloat.

In that case, the initial question then is whether potential rescheduling of cannabis from Schedule I to Schedule III would serve at all in changing that. Rescheduling would open up business expenses to being listed as 280E tax deductibles. It may also open up more financial institutions to the idea of providing services to cannabis and cannabinoid companies – though that is not currently a completely closed door.

And while both of those would potentially alleviate some financial pressure on cannabis companies, they would not fully remove financial challenges – serious and inflated – from the cannabis sphere nor address root causes of both issues.

 

Is more enforcement the only way to stop the wild claims?

 

If cannabis was rescheduled, it would only potentially help with a limited range of issues. Cannabis companies would say they still face stiff competition from black market products that do not have to pay taxes or adhere to minimum growing and product standards that increase costs. They would still be limited by state markets and licensing systems and would still also potentially be facing competition from other legal intoxicating hemp-derived cannabinoid products.

So regardless of rescheduling, there would still be numerous straw men cannabis companies could point to in order to justify continued illicit health claims as well as increases in THC potency levels. In reality, reductions in both health claim and increased potency activity will have to come from elsewhere, as financial worry is certainly part, but only part, of the root cause.

Concerns about revenue will result in some unscrupulous companies making unsubstantiated health claims in order to drive sales regardless of potential public health impact. Even if impediments such as business expense tax deductions are addressed, there will still be some companies that continue to make whatever claims necessary to pad the bottom line.

Subscribe to our Newsletter

Join in to hear about news, events, and podcasts in the sector

"*" indicates required fields

Name*
This field is for validation purposes and should be left unchanged.

Outside those, there is still a significant portion of the cannabis industry that truly believes cannabis is a wonder drug and the best way to address what it is thought to be good at – pain relief, anti-nausea and conditions such as PTSD, for instance – and also capable of some of the wilder things it is claimed to be able to do, such as cure cancer, treat Alzheimer’s disease, and address nearly every mental health issue.

In this regard, these believers are fanatical about the possibilities of cannabis and fully back the idea that the only reason it is not already the leading treatment for such ailments is down to a long-standing conspiracy actively undermining it. This means cutting down on claims will only come through greater enforcement.

 

Revenue issues and products with high-potency THC

 

The New York Times article did note that, although the US Food and Drug Administration (FDA) had taken action on misleading CBD and hemp-derived cannabinoid product health claims, it had made no effort to tackle those made on behalf of cannabis products. According to the piece, the FDA said hemp was the priority because it was more widely available while not being regulated at the state level in many states – while cannabis was. The article added, however, that although many products reviewed by the newspaper would have violated state rules, state-level cannabis regulators were poorly resourced for enforcement beyond labels and packaging.

Meanwhile, revenue is certainly also a driver for increasing THC potency in products. But here, after a while, market forces will almost certainly reduce high-potency-THC products to a niche item. Legal recreational cannabis is still the new buzz for many consumers. They want to experiment and try different products and different strengths. But eventually, the sheen will wear off and the number seeking products with extremely high potency will drop, leading to general THC content smoothing out to a more standard level.

This level will likely be higher than the potency of products from the illicit market of previous decades. It may also be influenced by caps in many jurisdictions. But overall, the spectre of high-potency-THC products is already somewhat overblown – with traumatic individual cases of cannabis psychosis or other adverse effects being taken and used as illustrations of a wider problem that may not necessarily be proportionally represented by those isolated cases.

So there are issues in the marketing and product offerings of cannabis companies. And these are partly driven by financial issues. But neither rescheduling nor greater reforms to take on other revenue problems will entirely address these issues on their own, with solutions to more fully resolve them having to come from other sources.

– Feddie Dawson CannIntelligence staff

Image: AI-generated

Freddie Dawson

Senior news editor
Freddie studied at King’s College, London and City University and worked for publications including The Times, The Malay Mail, PathfinderBuzz and Solar Summary before joining the CannIntelligence team. He has extensive experience in covering fast-moving consumer goods (FMCG), manufacturing and technological innovation.