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The Kaya Cast podcast is a weekly show where we interview thought leaders in the cannabis industry about their experience and expertise of working with cannabis. The aim of the show is to help cannabis retailers do what they love and share their stories.
Intro: [00:00:00] Welcome to the KayaCast, the podcast for cannabis businesses looking to launch, grow, and scale their operations. Each week, we bring you interviews with industry experts and successful retailers, plus practical tips and strategies to help you succeed in the fast growing cannabis industry.
Tommy Truong: Hey, everyone. In this episode, we're joined by Aaron, the founder and CEO of the NCIA, the national cannabis industry association, the largest association in the cannabis industry. Aaron gives us an update on the recent developments on reclassifying cannabis from schedule one to schedule three, which has tremendous financial implications to everyone in this industry. Aaron also talks about other developments and what we can expect in 2024. Enjoy.
Uh, thanks everybody for joining us today. We have a, uh, we have a special episode. I am here with Aaron, the [00:01:00] founder, and CEO of the NCIA, the oldest and largest organization, I would say in the world, right? You gotta be the largest
Aaron: Yeah. Yeah,
Tommy Truong: founders organization in the world. So it's, it's nice having you on
Aaron: Great to be here.
so, you know, for the very small.
A group of people that, uh, you know, are listening that do not know about the NCIA. Can you just give us a quick kind of a summary on, uh, what you guys are about?
Yeah. So we are, uh, a trade association that represents the industry very broadly across the United States. Uh, we represent cannabis businesses from All verticals from growers to retailers, to manufacturers
and processors, as well as all of the ancillary businesses that are, that are in the space. And our focus is federal lobbying change, change federal law so that here in the United States we can have, uh, interstate commerce and be treated, uh, fairly like [00:02:00] any other legal, uh, American industry.
Tommy Truong: Well changing federal law, not an easy task.
Aaron: Yeah, certainly, certainly these days, getting Congress to do anything, even keeping the government open is, uh, is is a big deal now. So, um, you know, but, but we're up to the task and, and you know, there's some light at the end of the tunnel, I think.
Tommy Truong: So I know that there has been some, uh, some news regarding reclassification. Right. So, you know, talk to us about what's, uh, what is the forefront of what's going on with, uh, cannabis reclassification?
I.
Aaron: Yeah, so, well, I mean, this is kind of just backing up to, um, about a year ago the, uh, the president, uh, directed, uh, FDA to and the, uh, health Human Services Department to. Um, come up with a recommendation on, you know, whether cannabis should be reclassified. It's currently in a schedule one status under US law, which means it has, uh, supposedly has no medical benefit, no medical value, [00:03:00] and a high potential for abuse, meaning that it can't be prescribed by doctors. Uh, it's, you know, it's, it's up there with, with heroin and LSD. Um, so, you know, fast forward to, uh, the summer. The, uh, FDA came out with the recommendation to DEA, that the cannabis should be moved from schedule one to schedule three. Uh, schedule three is not making the industry legal. Uh, schedule three would, uh, but, but Schedule three does acknowledge medical benefit. It, uh, puts cannabis next to Um, drugs, like, uh, uh, uh, you know, um, gosh, I'm sorry. Um, steroids and, uh, drugs that have a high potential for abuse yet have a great medical value, which now we don't believe cannabis has a high potential for abuse, but it's a, it's a step in the right direction.
Tommy Truong: So what does, uh, what is the main differences [00:04:00] from, uh, having a scheduled one or a Schedule two, classification two, schedule three.
Aaron: Yeah, so schedule one, um, to three means that, well, from, for the cannabis industry as we know it, there's not a lot of changes. Uh, it's, uh, the cannabis industry would still be operating outside of federal law because. Um, to get a Schedule three pharmaceutical out there. You know, like I said, steroids is an example of a Schedule three pharmaceutical. To get that on the market, it has to go through FDA trials. Uh, it's a upwards of a billion dollar process to get an FDA approved, um, drug on the market. And then it needs to be prescribed by a doctor under a very strict conditions. Um, it needs to be dispensed through a pharmacy, not, you know, not a dispensary.
Uh. Uh, a state licensed dispensary. So the state licensed businesses would still be really outside of that system. Um, it could open up opportunities for, and it, and it will open up opportunities for pharmaceuticalized [00:05:00] cannabis. Uh, and that's, you know, that's not a bad thing, but that still doesn't meet the needs of the the modern cannabis consumer. Um, one, you know, one benefit it'll have to the industry though is that it eliminates the burden of, uh, section two 80 e of the tax code. So that's huge for, you know, anybody's trying to operate in this space, um, knows that can, you know, if you're trafficking, quote unquote trafficking in cannabis or any schedule, one or two substance, you can't deduct the expenses from your, your taxes that will go away when it moves to schedule three.
And that's, and that's huge for the industry. Um, and then it also creates momentum for, uh, descheduling. We call it, you know, Mo, you know, actually moving forward with federal legalization down the road.
Tommy Truong: So that's, that's probably the biggest, the biggest change is, um. Not having to deal with twe, DE and especially if you're a non vertical, vertically integrated, um, cannabis
business, just [00:06:00] dispensaries, twe DE is, it's, it makes it so difficult to run profitably and actually make, uh, you know, make money in, in this industry.
So that's huge. But, but what you're saying is from a federal standpoint, nothing kind of changes in terms of the legality.
does. You know, if there's an abundance of product in one state, you can't really necessarily ship it to another state to sell.
Aaron: Yeah. This would not legalize, um, the interstate commerce, it really, it, it again, doesn't actually legalize the activity that's already happening in the States. Um, there are some concerns and I, I. They're valid concerns, but I don't share them as, as much as others. But there are some concerns that, you know, actually moving to Schedule three, there's now a whole new federal statute that comes into play.
The Food and Drug and Cosmetic Act, which is, uh, enforced by the FDA. So it kind of moves the jurisdiction from DEA to [00:07:00] FDA and the FDA could begin sending letters out to every, you know, every licensed, uh, marijuana business in the country saying you're out of compliance with. With the law, these drugs are not approved by the FDA and you need to, you need to stop, um, that, you know, would, for the cost of a postage stamp, uh, they could really upend the industry doing that. I don't think that that's likely. Um, but it is something that's, you know, of concern and we're working to, we're working with Congress and the administration to have some enforcement guidance. On the congressional side, Congress has the opportunity to defund that sort of behavior. So that sort of activity from FDA, they could say, you know, if businesses are compliant with state law, the FDA does not have the authority to use tax dollars to, uh, undermine those state laws and, and go after those businesses essentially. Um, and they've done something similar for medical cannabis back dating back to 2014 that's continues to be in [00:08:00] the federal budget. Uh, so that's one way, uh, the, that's one way to, to affect the enforcement priorities. Another way would be, uh, which I think is pretty likely would be to have a memo out of the Justice Department that says, you know, just to clarify. We're using our enforcement, uh, priorities to go after illegal marijuana businesses, not state compliant cannabis businesses that are licensed under state laws. And I think politically that's the likely, uh, outcome. Certainly the Biden administration doesn't want to have a crackdown on cannabis. We, this whole. You know, this whole change is being made. And I can say, I'll, I'll back up and say the change isn't necessarily being made. This is a recommendation. I think it will be acted upon. But, uh, when it, when it is acted upon, it's being done. So because there's political pressure to. To rela relax cannabis laws because 70% of Americans wanna see it.
Legal Biden is not the biggest fan of cannabis himself, but his, his campaign and the people around him [00:09:00] are saying you need to do something. So if, if to have this backfire into, uh, a series of crackdown seems unlikely. And, and even if we have a Trump presidency. Um, which, you know, that's the, like the likely, uh, nominee on the, on the GOP side. Well, we have, we've already been through a Trump presidency and there was no crackdown then. So, you know, I think that likelihood we're going to see sort of a status quo where the federal government just turns the other way at state licensed businesses for the most part. But we have relief from two 80 e and, uh, but we gotta continue to fight for descheduling so that we can have. Interstate commerce so that we can have banking access, uh, that's normalized and, you know, really to treat the industry, uh, fairly like any other, any other industry.
Tommy Truong: Gotcha. So, you know, how close are we to reclassification or rescheduling?
Aaron: So, you know, I mean, that, your guess is as good as mine to be honest on that. But I, I would [00:10:00] expect this to be done, uh, before the election. You know, I think this is sort of a political, there's political pressure to get this done. Um, it's not going to be, it's, you know, it's not an expedient process. The FDA and the DEA, these are. These are slow moving organizations. Um, the way that the process works is that FDA made the recommendation. DEA now has, they can do whatever they want with it. The, the DEA has authority to reschedule, uh, and they're the only agency that does. So I think the likely outcome is that they will, uh, to accept the recommendation to move this to schedule three. Uh, because, you know, the DEA also reports to the, the president.
The DEA administrator and the, uh, but to, but to get there, there needs to be an administrative review process, uh, which takes some time. It'll include public comments, so they'll hear comments from organizations like ours that are going to say, you know, we support schedule three, uh, as an interim measure, but really [00:11:00] this needs to be descheduled.
That's our position, um, which the DEA has the authority to do as well. I don't think they will, but they have the authority to, and they'll hear from, they'll hear from others folks on the other side that are saying, you know, the, the reefer madness people that are saying, you know, this needs to be kept in schedule one, even though it that, you know, defies all reason and, and science on the issue. Um, and then it will go through that process and then they can make an, you know, an official change. Um, so I think, you know, it's, it's certainly. I, I think it's certainly likely to happen before the election, but it could be, you know, it could be the summer of next year or fall before it really, really takes effect.
Tommy Truong: So tHe, the DEA in Congress, they're the bodies that are responsible for reclassification and any substance that's in schedule on schedule three. It's really the FDA that's responsible for administering and making sure that, you know, what are the processes that, uh, this substance can be sold federally.
Aaron: Yeah, the FDA would have the [00:12:00] jurisdiction over any, you know, any of these, these drugs that are prescription drugs. You know, you go and you go to the pharmacy and you get, you get, uh, codeine or antibiotics, whatever it is. Those are all. Under the jurisdiction of the FDA and this would put, um, cannabis there alongside, you know, an example of a, another Schedule three drug we marinol, which is, um, synthetic.
THC that's used for, uh, you know, for a number of, a number of conditions. Um, so this would put, put that there. Um, but yeah, Congress, Congress has the authority to change the law. They could, you know, Congress couldn't do any, the, the law was created, the Controlled Substances Act was created by Congress.
They could repeal it if they. They wanted to. Um, and they could certainly amend it in any way. And I don't think that, uh, and then the, the administration through the DEA has the authority to change the schedule so they can move something up or down. They've, they've actually never moved anything from Schedule one down to two or three in the past.
They've only [00:13:00] actually, uh, moved in the other direction. Um, so this is sort of unprecedented in that regard.
Tommy Truong: This is probably one of the biggest piece of legislation that I, that I think, our listeners are, are really interested in. And the, the second part really is banking.
So reclassifying to schedule three. That doesn't change banking at all, does it?
Aaron: No, you know, this be because again, you know, the businesses of the cannabis industry as we know, it would still be out of, you know, out of compliance with federal law, which would still give, uh, banks some, you know, caution when it comes to especially providing, uh, lending. You know, a lot of, a lot more banks are, are providing depository services now.
But, you know, it is, there's still a, a lack of access to to, to lending and, and that kind of financing. So, um, there, there's the Safer Banking Act, which has been pending in Congress for a number of years. Um, that is continuing to build support that would address the banking issue, just kind of on its own.
It doesn't really address [00:14:00] any other issues around the, uh, around cannabis prohibition. But, uh, that would provide some relief on the banking front and we're, we're hopeful that. In the next year, we, we could see that, uh, uh, a passed as well. But it's, it's been an uphill battle getting anything done in Congress these days.
As, as anybody watching the news would, would know
Tommy Truong: So why has the Safe Banking Act? And I know that's been around, uh, and it's been on the floor quite a few times. What, what?
Aaron: Well, I mean, there's, there's kind of, I. Right now it's, it's general congressional dysfunction. I mean, you've got, uh, partisanship, you know, to, at a level at where it's never been, where you have, you know, the, the Republicans don't want to give the Democrats a win, uh, and vice versa, and they're very, uh.
Reluctant to work with each other to get anything done. So that's, that's a problem that is facing the country. It has nothing to do with cannabis. And that's every, everybody who's, everybody who's working on Capitol Hill is, [00:15:00] has, is frustrated by that, that scenario. Um, but it, you know, it also has had headwind over the years just because, especially Republican members of Congress see that this is, you know, seeding to the, the marijuana movement and they still are, you know, digging in as, uh, uh.
Reefer Madness, kind of minded, uh, Republican members, but there's less and less of those. And you know, we're seeing, you know, especially as more states come on, well, that those members of Congress now represent voters who voted. To make this legal. And even if they don't support legalization, more and more coming to the mind that, you know, we need to do something around the banking issue.
Um, because it's, it, you know, it's it having a very cash heavy business in your district as a member of Congress is a, is a, a magnet, can be a magnet for crime and other problems.
Tommy Truong: Can you talk a little bit about the Safe Banking Act? Like what is the Safe Banking Act and what are the changes proposed in this bill?
Aaron: So, [00:16:00] you know, the current, current situation is you have anti-money laundering laws, uh, bank reregulate banking regulations that, uh, prevent business of banks from doing business with the industry without fearing that they're going to run afoul of those laws and that they're going to get sanctioned by Department of Treasury in some way.
I'll say that, you know, treasury Department has not been going after banks, but they're, they're, they're very . Risk averse. Um, this would provide an exemption saying, you know, if these businesses are state licensed businesses that, you know, there's, there's kind of a safe harbor for financial institutions looking to do business with them.
That's in effect, that's what what it does. It also, you know, would open up access to credit card processing for, uh, for the industry, which is another big, you know, you know, while they can put their cash in a bank account. These days most businesses have bank accounts. Where they can deposit their cash, a checking account.
Um, they don't have access to credit card processing, which means that it's a cash heavy industry. [00:17:00] It's, it's, it's burdensome to have this cash. It's, it's dangerous. Um, it's a, it's a nuisance to the consumer who has to, you know, go to an a tmm in order to get their cannabis. Um, and all, all of that gets resolved by this, this bill. And it does really little else. It doesn't really, you know, and this is why it has more support on the Republican side, is it doesn't do a lot of other things that, that, you know, advocates like us would like to see. Um, and that's why it has the support of the American Bankers Association, which frankly is marked far more powerful organization than mine, um, that, uh, that, you know, has the ear of, of Congress.
Tommy Truong: Gotcha. So this is, know, it's stuck in the right direction. I mean, declassifying is the ultimate kind of g like the ultimate, uh, goal that we have. But these two are, are big. I mean, it, I can see it helping a lot of businesses in states, Alaska, for example. Who, don't necessarily have really good access, to banking and it's quite expensive as well.
Is there anything else [00:18:00] that's happening that, you wanna share with everybody today , what's going on in Washington?
Aaron: Well, I mean, right now it's, you know, Congress is sort of in, in a bad place. They're struggling to keep the government open. Um, but they're, they're heading toward an election. We just had a poll that was sort of the gold standard polling, um, is the Gallup poll, which has been asking, uh, voters what they think of marijuana legalization since 1969.
I think. Uh, every year started off it was in the single digits for support in 1969 and now is 70% of Americans say they wanna see marijuana made legal. And that's across every single demographic. That's conservative voters, progressive voters, republican voters, democratic voters. You know, uh, boo Baby boomers, millennials, gen Z, every demographic has majority support.
And we also just hit a tipping point when Ohio voted to, uh, legalize cannabis in that state a couple weeks ago, where now more than half of Americans live in a state where [00:19:00] it's legal. Uh, 53% live in a state where it's legal. So, you know, this means that most members of Congress represent a state where it's legal.
Um, and, you know, almost half of the, the Senate represents a state where it's legal and that's, you know, really going to move the, move the dial. I think as we head into the election and anybody who's, you know, running for elected office needs to look at those, those numbers and realize this is an issue that they have to embrace or they're gonna get left behind.
Tommy Truong: I love it. It's inevitable. It's inevitable. And the work that you guys doing, that you guys are doing is really pushing the pace towards declassification. I, uh, you know, we are a member of the NCIA and maybe i, I want to take some time to talk to the audience on why you should be a member. You know, what is the benefit of being a member of NCIA and, and the work that you guys do.
Aaron: Thank you for your membership and, and you know, I, I would, I guess say I, let's not say it's inevitable because it's not, [00:20:00] and it seems inevitable because. Of this work that has been happening behind the scenes for decades, you know, not, you know, long, you know, NCI has been doing this since 2010 on behalf of the businesses, but there were people that came before us that were advocating for this, uh, for, you know, longer than I've been alive.
And this, you know, this is not, you know, there are a lot of issues facing Congress right now from gun safety to climate change, to the, you know, the national debt. Uh, there are a lot of issues facing Congress and the only way that you can move an issue up through the priority list is to have advocates, lobbyists on the ground in Washington, DC uh, working on your behalf.
And that's what NCIA does. We make sure that the small businesses in the cannabis industry have a voice in DC and we are, and we do this only for our members. We're a nonprofit. We exist only because of our members, uh, that, that fund, that work. So that's really the primary reason to be a member, is [00:21:00] to support this cause.
Uh, and then we also have a myriad of benefits, uh, that we provide our members in, in exchange for their support for, uh, supporting the movement. And that's, you know, networking opportunities, access to market data. Uh, and exclusive educational opportunities that can be found at our website, the cannabis industry.org.
Tommy Truong: Yeah. And you know, the market data, everybody is, is king. The market data that you guys have access to, it really helps to shape a business's, uh, direction. And, you know, knowledge is power, right? So, but that's, uh, it's a, it's been an unbelievable resource for us, uh, as an organization.
Aaron: Yeah, that's right. And we, you know, we, we wanna make sure that our members have a competitive advantage over, uh, people that are in the industry that are really just here to kind of ride the wave and aren't part of the movement. You know, because, you know, there, there are folks that are kind of isolated and just think that, well, I can come here and make a buck.
Our members are here to, for the long term, to build a, a [00:22:00] sustainable. Prosperous industry for decades to come, and we wanna make sure that they have a competitive advantage over, over others in the, in the, in the space. And, um, happy to support them in any way we can.
Tommy Truong: Yeah. Well, I wanna thank you so much for joining us. You know,
Aaron: Thank you.
Tommy Truong: it's amazing work that you guys, you guys are doing and really keep up, keep up work.
Aaron: Hey, thank you so much.
Outro: Thanks for listening to the KayaCast podcast. We hope you enjoyed the show. Don't forget to subscribe to our podcast in your favorite podcast app, or visit our website to learn more about our guests and to access the full archive of episodes from the show. Join us next time as we continue to explore the world of cannabis and help you grow, launch, and scale your business.