Legal Cannabis: Growth VS Tax Hurdles & Banking Chokepoints

The widening market for legal marijuana has created significant business opportunities for entrepreneurs. Estimates put the existing legal cannabis market at around $2.5-$2.7 billion at the end of 2014, while growth projections for the medium-term are bullish. Not only has legalization of medical marijuana reached a tipping point at the state-level, the beginnings of a legal recreational market are also emerging.

Given the significant developments that have taken place over the last few years with growing momentum for broader acceptance and in an effort to better serve our growing number of cannabis-based business clients, we undertook our first in-depth review of the legal marijuana industry, encompassing growers, testing labs, infusion, packagers, and retail outlets as well as participants providing ancillary services and products.

This paper outlines the size of the legal cannabis industry and highlights key legislative, regulatory, and major judicial developments, before diving into the hurdles entrepreneurs in this industry face on the financial and tax compliance fronts. We also provide an overview of the current funding picture.

Though the industry presents significant growth opportunities, they are tempered by ongoing legal, regulatory, and financial risks including:

• Cannabis-based businesses’ poor access to the banking system
• Distinctive tax burdens
• Ongoing uncertainty surrounding the interplay between states’ sovereign efforts to foster legalized marketplaces without preemption by the federal government’s continued enforcement efforts.

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