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The Trouble Spots for Legalized Pot

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The Trouble Spots for Legalized Pot

Weed is now big (legitimate) business. In the U.S., 30 states now allow for medical marijuana and nine have legalized recreational use. Canada, meanwhile, is set to allow regulated pot sales nationwide starting Oct. 17.

Altogether, the North American market could generate an estimated $16 billion in revenue in the coming year, including $9 billion in U.S. sales and $7 billion anticipated for Canada. Legal weed rivals the size of the U.S. potato chip industry, although one can probably assume that market will grow exponentially as an, ahem, side effect.

But this gold rush isn’t happening seamlessly. Bringing a black market industry into the light of day doesn’t come without some hiccups. As battles continue in some states and nationwide in the U.S. over legalization, and businesses sprout rapidly, like, um, weeds, some trouble spots are starting to emerge for the industry.

Here are some areas to look out for:

Banking

One of the problems which continues to plague the industry is the dearth of banking options. Only about 30 percent of cannabis businesses in the U.S. have a bank account, according to Forbes. That means most must rely on a variety of complicated workarounds, including armored vehicles for carting around hoards of cash.

Although banks can technically handle money for pot companies in many U.S. states, the drug’s status as an illegal substance at the national level means there’s a ton of extra red tape involved. Banks must file a suspicious activity report for every cannabis-related transaction, a procedure that often makes doing business with the pot industry time and cost prohibitive, according to Forbes.

Industry advocates warn that unless Congress gives the green light for banks to work more freely with legal pot companies, growth in terms of revenue and job creation could be stifled.

Insurance

A huge issue faced by many marijuana producers is a lack of crop insurance. Ordinary farmers often receive subsidized crop insurance through a federal program. However, that means that the federal government closely regulates the program, and crops that are illegal at the federal level (i.e. pot) are not eligible.

Without insurance, marijuana producers are at a vastly greater risk of losses from perils such as fire, drought, and plant-damaging storms.

The insurance industry, which is typically more closely regulated at the state level, has begun to offer some solutions such as marijuana-specific crop insurance. However, it may be more expensive than federally-subsidized policies other farmers have access to.

Patents

The opening shots have already been fired over patents for marijuana strains and cannabis-derived products. Just like in the traditional drug industry, patent battles are starting to become a significant litigation hazard. Since at least 2017, dozens of cannabis-related companies have been filing for patents. The U.S. Patent Office has also been awarded patents in that space since 1942, according to Forbes.

Types of patents issued include cannabis compositions, drug formulas, methods of preparation, the interaction of marijuana compounds with the human body, and methods of treating diseases with pot-related substances, according to Forbes.

Biotech United Cannabis Corp. filed what is believed to be the first weed-related patent lawsuit in July. The company alleged in its case, lodged in Colorado federal court, that rival Pure Hemp Collective Inc. is infringing its patent for cannabis-derived medicines. As the industry grows, we can probably expect to see a lot more of these disputes.

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David Kani

David Kani is a Newport Beach, California based business lawyer with a focus on cannabis companies, their investors, employees and cannabis-related litigation.
To connect with David: [hidden email] or 714-907-0697.

To learn more about David: davidkani.com
To learn more about David's book Pot Inc.: suttonhart.com
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David Kani & Steve Hochfelsen are represented by Elite Lawyer Management, managing agents for America's best attorneys.
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