Wisconsin’s next growth industry?

The Badger State is still far from legalizing marijuana, but there’s a business case for going pro-pot.

From the pages of In Business magazine.

Advocates for legalizing marijuana believe that if there was ever a time to make a strong business case for the legalization of pot in Wisconsin — medically, recreationally, or commercially — it’s now.

Well over half of Wisconsinites believe marijuana should be legalized, according to a July 2016 Marquette Law School poll. Further, 59% of poll respondents said marijuana should be regulated like alcohol, a sizeable jump from the 46% who said they supported ending the prohibition on pot in a 2014 Marquette poll. Two years hence, it’s likely the number of Wisconsin residents pulling for legal pot is even higher, if national trends are to be believed.

An October 2017 Gallup poll showed 64% of Americans support full legalization of marijuana, a number not seen in almost 50 years of polling by the organization. The tide is even turning for Republicans, who have been slower to endorse legal pot. A majority of Republicans — 51%— now say they support legalizing marijuana, according to Gallup. That’s a 9% increase from just a year ago. Additionally, 72% of Democrats and 67% of independents also support legal marijuana.

The Badger State took its first, cautious steps toward a deeper dive into the legal cannabis waters in 2017 with the passage of two pieces of legislation that were the equivalent of dipping a toe in to test the temperature.

The first measure lifted a 60-year ban on growing industrial hemp, which has low levels of tetrahydrocannabinol, or THC, the chemical that gives marijuana, a related cannabis sativa plant, its psychoactive properties.

State lawmakers also unanimously relaxed restrictions on possession of cannabidiol, or CBD oil, a medicinal extract of hemp that proponents say reduces pain, anxiety, nausea, and seizures associated with a number of debilitating diseases.

Despite these developments, that’s as far as many lawmakers in the GOP-controlled Legislature appear willing to go. Other proposals, authored by Democrats pushing for more deliberate legalization for medical or recreational marijuana, have repeatedly stalled at the committee level.

Still, those who advocate for legal cannabis in Wisconsin maintain that it’s not a matter of if Wisconsin will make marijuana legal but when and how that will look. We recognize there are two sides to this issue, but we wanted to give advocates an opportunity to make a business development case for legalizing pot.

Wisconsin’s path to legalization

Wisconsin faces a few hurdles when working toward legalization, notes Shelley Kennedy, a board member for the Madison chapter of the National Organization for the Reform of Marijuana Laws (NORML).

“The biggest issue is that our state constitution does not allow for statewide binding ballot initiatives,” explains Kennedy. “The law must be changed through the legislative process, which brings us to our next issue and that is our politicians. The majority of our state representatives are anti-marijuana, and won’t even allow medical or recreational marijuana bills to have a hearing, much less a vote. To make progress as a state, we must elect representatives who are in favor of marijuana law reform.”

One of those lawmakers in favor of reform is Rep. Melissa Sargent, D-Madison. In August of 2017, Sargent introduced Assembly Bill 482, a 100-plus-page bill that seeks to legalize both medical and recreational marijuana and put a regulatory system for it in place. At our editorial deadline, it had yet to have a hearing in the Assembly Criminal Justice and Public Safety Committee, and prospects were dim that it would receive attention before the Assembly session ended in March.

AB 482 is Sargent’s third attempt to put forth legalization legislation, and each version has been more comprehensive than the previous one. State fiscal estimates from the Department of Revenue project $138 million in taxes and fees would be generated annually by the third year after passage of AB 482. The costs of a legal marijuana program are just a fraction of that — $346,000 in set-up costs, $156,000 to administer the program annually, and $1.2 million for the salaries of 10 excise tax agents, a supervisor, and a criminal investigator.

It’s been a while since a bill seeking to legalize only medical marijuana has received a hearing in the Wisconsin Legislature — 2009 to be exact.

“Bills to legalize marijuana for medicinal and recreational purposes, respectively, have [simply] stalled in the Wisconsin Legislature,” says Sargent. “In Wisconsin, it is at the discretion of the legislative committee chairs whether or not they want to hold a public hearing. The chair for the committee to which my bill legalizing marijuana was referred has not expressed support for the bill and has not agreed to hold a public hearing on the bill.”

Sargent says she’s not familiar with any plans in Wisconsin to take the constitutional amendment route for full legalization, as has been done in other states, and she’s not sure the state is at the stage where that would be the best path forward.

“I think many states have taken similar routes via referenda because it often leaves legalization in the hands of voters, giving elected officials some political cover on a contentious issue like this,” Sargent explains. “In Wisconsin, however, where our process requires passage in two consecutive legislative sessions and then is subject to voter approval, pursuing a constitutional amendment seems like a counterintuitive strategy.

“I’d like to see my bill passed by the Legislature first,” she adds, “and then if we want to go back to amend the constitution later, we can.”

(Continued)

 

Business case for legal pot

It’s natural for business leaders in states that have yet to legalize medical or recreational marijuana to be a bit apprehensive when the topic is broached, but so far in every state that’s legalized pot, those fears have by and large been put to rest, asserts Chris Walsh, editorial vice president for Marijuana Business Daily, a Denver-based publication focused on the financial, legal, and other business aspects of the cannabis industry. “There’s initially a lot of hesitation, and companies and people are scared because they grew up in this atmosphere where marijuana was demonized and they’re afraid that the sky is going to fall and people are going to be roaming the streets stoned and eating Funyuns,” explains Walsh. “It couldn’t be further from the truth.”

Still, it’s not unreasonable for employers to wonder what kind of workers they would be getting if pot receives the same legal treatment as alcohol, but Walsh believes those concerns are overblown. “In general, I think what you find is the attitude of employers shifts over time,” he says. “There’s not a huge wave of people overall coming into work stoned. It’s like anything else — if people come into work drunk, they’re going to be fired. If people are coming into work stoned, they’re going to be fired.

“When you look at states that have legalized recreational marijuana, they have among the top economies over the last couple years in terms of growth,” he contends. “Where is all the growth happening in this country in terms of jobs and where are people moving? Guess what, it’s Denver, Seattle, Portland, and places in California. These are places that have legalized recreational marijuana. The quality of life is strong, there are lots of business opportunities, and other employers benefit as this spreads.”

Madison NORML’s Kennedy puts it another way. “I would say that workers are already showing up to jobs on opiates and other prescription medications that are shown to cause much more ill effects and drowsiness compared to marijuana. In states that have legalized, we have seen a drop in opiate use of at least 20%. Also, the majority of cannabis users are responsible adults who know better than to show up to their job while under the influence of marijuana.”

“If people are getting off of work and going home and having a joint or eating a marijuana-infused gummi bear at night, and then they wake up and they’re sober and fine — just like if they drank a six pack the night before — it doesn’t really seem to affect performance,” adds Walsh. “Companies [in states where marijuana is legal] are setting their own policies, but over time that fear subsides. That’s not to say in every case. You do hear stories where companies might have a worker or two come in stoned, but that probably happens anyway in states where it’s not already legal.”

Kennedy says she recently spoke with a high-ranking member of the Teamsters union, and they are working toward a testing method that will show if someone is under the influence of marijuana at the time of the test, much like a Breathalyzer with alcohol. As marijuana use becomes more accepted, more accurate testing methods should become available, she notes, which will also make it easier for employers to ensure workers aren’t using or under the influence on the clock.

Among the biggest benefits to companies from legalized marijuana is on the medical side, Walsh says, echoing Kennedy’s concern about employees high on prescription opiates.

“You have employees who do have a medical condition and they have to take more serious prescription drugs that might actually knock them out at work or put them in a daze,” notes Walsh. “If you can help your employees find other ways to manage their pain because marijuana is legal, then there are benefits to companies because those employees may be more productive at work and they may be in a better mood because they’re not suffering from pain.”

Where it becomes a gray area is allowing employees to use marijuana on the clock to treat their medical condition. That’s where CBD oil has gained in popularity.

“It’s the part of the marijuana plant that doesn’t get you high but it does have pain relief,” Walsh explains. “It has no mental effects and it works for certain types of pain. A lot of people in states where it has been legalized medically use that, and you can use that whenever because it doesn’t affect your mental state.”

In legal states, the number of sick days employees have taken has actually dropped, states Kennedy. “That also saves in health care costs as more people turn to marijuana for pain relief rather than opiates, which have a high rate of addiction and therefore increase the costs of employee health care overall.”

Sargent says passing her bill to legalize marijuana probably wouldn’t substantially affect how employers actually regulate drug use in the workplace, but that doesn’t mean it wouldn’t have an effect for companies.

“My bill prohibits employment discrimination against the use of a lawful product (i.e., marijuana) off of the employer’s premises during non-working hours, which is how we treat alcohol use in Wisconsin,” says Sargent. “So the bill basically says that a business owner couldn’t terminate an employee because they choose to use marijuana in their personal time.”

There is an exception to this, however, in instances where the person’s use of marijuana off the premises impairs the person’s ability to adequately undertake their job-related responsibilities. If a person’s marijuana use outside of work affected their ability to perform their job at work, that could potentially still be grounds for termination. “Otherwise, my bill is largely silent on how employers treat lawful product use in the workplace,” Sargent adds, “so other than not being able to terminate someone for off-the-clock marijuana use, it sort of leaves it open to the business’ own internal policies. A lack of clarity in this area has actually been the subject of legal challenges in other states, so I think at least a little bit of guidance for business owners is better than the alternative of solving it through costly litigation.”

Battling the black market

Among the concerns about marijuana that create the strongest business and public policy debates is what to do about the black market that will inevitably exist once cannabis is legalized in a state.

Legalized marijuana actually is the answer to the black market, says Walsh, because in states where marijuana is still prohibited the black market is all that exists.

“By our estimates, retail marijuana sales in states that have legalized medical or recreational cannabis hit around $6 billion last year,” says Walsh. “If you think about that, where was that money going before this industry was legal? Sure, some people are using marijuana who didn’t before, but even if you say conservatively that 50% of that was around before, then that’s $3 billion that was going somewhere, and that’s the black market.”

When a state legalizes marijuana, you can see the direct impact on the black market based on retail sales, explains Walsh. If Wisconsin legalized and sales were $500 million the first year, he says as an example, that equates to likely several hundred million dollars that’s being spent right now on the black market.

“It does have an immediate and direct impact on the black market,” says Walsh. “Of course, the black market will always exist, just like it does for certain types of other products. However, patients, as well as regular marijuana users, vastly prefer being able to walk into a store and buy a product that has labels on it, has been tested, and is in a safe environment. They may pay a little bit more for it, but they know what they’re getting and don’t have to go to some guy’s basement and sit there hanging out with him for a half hour when they buy their marijuana each week. The key to a successful program is to make sure that the prices stay fairly competitive with the black market. If the tax rate on marijuana is too high, it pushes up the prices and that does actually drive more people to the black market.”

That was certainly a concern in other states where their original enabling legislation had pretty significant tax rates attached — 30% or more when it was all said and done — which allowed black markets to exist and prosper, notes Sargent. “Many states have had to go back to reduce tax rates to address this market concern, reducing it to closer to 10–25%. We’ve watched this happen in other states, so it’s been a learning opportunity for me to make adjustments to my bill (AB 482) as necessary. Several things about my bill have changed drastically since I first introduced it in 2013, and that’s one of them.”

Curbing the black market also depends on whether a state allows you to grow at home, says Walsh. In Colorado, for instance, you can legally grow a certain number of plants at home, and some people choose to do that.

At the end of the day, marijuana consumers want to know the exact product they’re getting, the exact cannabinoid content, and that the plant has been tested for pesticides and other chemicals, says Kennedy. “This is something the black market simply cannot provide.”

(Continued)

 

Raising all ships

It would be wrong to assume legalized marijuana would have its biggest benefits only on growers and sellers.

Nearly all industries will benefit from marijuana legalization, notes Kennedy. “From the tourism industry to the food industry — I say that with a chuckle — as well as all other industries that will have a happier, healthier workforce.”

As an example, Forbes published an article earlier this year highlighting a couple who infused marijuana throughout their wedding, from the food to the bouquets and everything in between.

“Weddings are certainly a niche area where legalizing marijuana could present a boost — it’s actually been amazing to learn about how different industries, goods, and services have seen economic benefits from legalization in other states,” says Sargent. “I think people often think of the economic benefits to be pretty compartmentalized and only benefitting marijuana retailers and producers. But what we’re seeing in other states is that legalization’s economic benefits aren’t isolated to the people who grow it and sell it; we’re talking about this having a positive effect on countless other industries.”

One of the biggest benefits of legalized marijuana for businesses is that they can get involved in the industry in many different ways, Walsh concurs. Existing mainstream businesses such as consulting services, marketing firms, computer software developers, lighting companies, and greenhouses all benefit.

“You’ve got 60- and 70-year-old greenhouse companies that have served in a traditional agriculture space, that have created divisions just for the cannabis industry now,” Walsh explains. “These are conservative, mainstream companies and they’re able to serve this new growth industry. You have law offices that have gotten involved. Marketing, advertising, PR — the list goes on and on.”

Walsh says technology, in particular, is becoming a big factor in the legal marijuana industry. “You have some veterans in the tech space who have moved into marijuana and are starting companies. They’re doing everything from point-of-sale software to dispensary listing sites — like Yelp for the marijuana industry.”

Legal is also big right now. The industry needs lawyers and they have to be focused on a particular state’s laws, explains Walsh.

On the cultivation side, there are also myriad opportunities. Any company that makes lighting, greenhouses, nutrients, or anything tied to general agriculture is seeing a boost, as well.

“The legal marijuana industry employs over 200,000 people, so it’s a job generator, it’s a new avenue for entrepreneurs, and it provides a great growth industry for existing businesses to get involved in,” says Walsh. He adds that some of Greater Madison’s main industries like health care, biotech, and agriculture fit right into this.

“I guarantee in 10–15 years this will be completely mainstream, and every company will be kicking themselves for not getting involved, or for fighting it, or attaching a stigma to it and turning up its nose. The industries you have in Wisconsin are ripe to capitalize on this.

“You can do it with a morally justifiable position,” Walsh continues. “On the medical side, it’s hard to justify blocking legalization attempts or to demonize the industry, and that’s why you’ve seen this wave of states legalize, where well over half the country has now legalized medical.”

According to Sargent, recent economic analyses from the Marijuana Policy Group shows the economic boon resulting from full legalization in Colorado. In 2015 alone, the state saw $1 billion in marijuana sales and more than 18,000 new jobs. Marijuana in Colorado generates more per dollar in economic output and employment than 90% of the state’s other industries. By 2020, it’s estimated that marijuana will be the state’s highest excise revenue source.

“We have a pretty severe budget crisis in Wisconsin, and there is no shortage of areas in which we could use the economic surplus to address our insolvent transportation fund, boost AODA programming to address our heroin epidemic, or even just to make school funding whole after seven years of cuts,” says Sargent.

There is one concern for employers, argues Walsh. “I’d say the biggest concern is that the industry is going to take your employees. It’s an innovative, exciting, rapidly growing industry, and people want to work in it even if they don’t use marijuana at all. I came from a journalism background and worked as a business reporter and editor at newspapers. [Marijuana Business Daily’s] two co-founders came from the banking and marketing worlds. So other employers now have to compete with an industry that people actually want to work in because there’s rapid growth, and it’s fun.”

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