For those of you who no longer shop at Ikea, today is 4/20, a very special day in the world of cannabis. On 4/20, we celebrate the existence, product, development and culture of marijuana. It's kind of a counter-cultural holiday, like Devil's Night in Detroit, but with less fire and looting.
For those of us who invest in cannabis tech, today is also a day of contemplation and reflection, because the short-term future of cannabis legalization in the U.S. is as murky as a tube of bong water after a frat party on St. Patrick's Day.
Sooner or later, cannabis will be fully legal, everywhere. It's just a matter of time, like same-sex marriage or self-driving cars. But in the short-term, last year's election of Donald Trump may reflect a major setback in the course of cannabis history. President Trump - and in this case, more importantly, Attorney General Jeff Sessions - is likely to take a very divergent path from Obama on regulating cannabis.
Two administrations, two policies
While the Obama administration did little to officially normalize cannabis (had they removed cannabis from Schedule I of the DEA list, it would have helped legalize functions like banking, interstate commerce and transportation), they mainly looked the other way as states like California, Colorado, Maine, Massachusetts, Nevada, Alaska, Washington and Oregon legalized recreational marijuana.
Meanwhile, Sessions is a long-time opponent of cannabis (he also hates the Easter Bunny and tooth decay) and has vowed to use his power, which includes overseeing the Bureau of Alcohol, Tobacco and Firearms, to counter the trend of legalization.
What does that mean for the cannabis sector?
While cannabis tech companies have some opportunity today servicing some people in the 29 states (plus DC) who permit medicinal marijuana, the real opportunity lies in recreational.
Last fall, the voters of California handily approved recreational legalization of cannabis. By some estimates, California constitutes 40% of the U.S. cannabis market (because most of it still operates in the gray economy, these estimates are pretty unscientific). California state regulators are now working on rules around recreational cannabis, with the goal of the product being available to all adults in 2018.
That reflects a growing trend, which means two things: (1) real opportunity for cannabis-tech startups as recreational expands; and (2) as recreational cannabis becomes commonplace, more and more venture capital funds will be able to start investing in the sector because their institutional investors will care less about anti-sin investing prohibitions.
For cannabis tech to work in the short-term, it needs a marketplace (wide-scale recreational legalization) and liquidity (cash from investors so they have time to build a company, invest, lose money at first and then become profitable, just like every startup).
If Jeff Sessions starts sending in ATF agents to bust up recreational dispensaries, that shuts down the recreational market short-term (unless the courts stop him). The press around federal action will also scare investors, which means less funding becomes available for most cannabis tech startups (those in peripheral spaces like cannabis media will suffer less). That sets up a vicious cycle where today's cannabis startups could lack the access to funding they need to survive the next few years (as state laws continue to change and evolve).
Nobody knows what it means, but its provocative
None of this means that cannabis won't ultimately become legal and available everywhere. In Canada, Prime Minister Trudeau just proposed national recreational legalization and in her campaign, Hillary Clinton had pledged to remove cannabis from the DEA Schedule I list.
But it may mean that the first truly great, truly successful cannabis startup may not yet exist (we are investors in Eaze, a San Francisco based startup commonly known as "Uber for weed" so I hope I'm wrong).
Or, like a lot of what comes out of the Trump administration, their antipathy for cannabis may just be bluster, California may proceed apace, the recreational market could rapidly expand, and cannabis tech startups will start becoming profitable in the next few years.
No one knows. And most people celebrating 4/20 right now probably don't care, as long as their supply (however they get it) remains intact.
But if you're looking at cannabis as an investment opportunity, the next few years are likely to be pretty bumpy (and that's without the cartels doing anything about the disruption they're facing).
Eventually, 4/20 will go from a counter-cultural holiday to a mainstream holiday, like Arbor Day or National Pancake Day. But like pretty much every other issue our nation is facing, a lot of it comes down to the whims, decisions and emotional outbursts of the guy at 1600 Pennsylvania Avenue and, in this case, his buddy a few blocks away at the RFK Department of Justice Building.
Hopefully they'll find better things to focus on, like North Korea, tax reform and, as Chuck Schumer has noted in his constant Sunday press conferences, the high price of breakfast cereal.
If that happens, the future of fully legal cannabis will come a lot sooner than we realize.