Opportunities for promotional products distributors to increase business with clients in the legal marijuana industry may be poised to grow like a proverbial weed, say merch professionals who already sell into the nascent end-market.

These promo pros are optimistic because of recent developments at the federal government level that, if brought to fruition, will likely make it easier and more profitable to operate a legal marijuana business.

“If the change goes through, we would see a lot of cultivators and shops have more budget to invest in their branding, marketing and retail merchandise,” says Andrew Nunes, president of CB Disco (asi/173050), a Massachusetts-based promo distributor that works extensively with cannabis clients.

Federal Rescheduling Coming?

Nunes is referring to the fact that in late August the U.S. Department of Health and Human Services (HHS) sent a letter to the U.S. Drug Enforcement Administration (DEA) recommending that marijuana be reclassified from a Schedule 1 Controlled Substance to a Schedule III.

The DEA is now considering the request … and won’t make any possible change overnight. The process will likely include a review of the HHS findings and public input. It’s unclear how long that might all take.

23 U.S. states,
plus Washington, D.C., have legalized marijuana for recreational use by adults. (Reuters)

Still, “if the DEA makes the change, it will have a massive impact on the industry,” says Ryan Tickle, vice president of sales at Cannabis Promotions (asi/42996), a Florida-based supplier that specializes in branded products for the marijuana industry.

A Sales Catalyst for Promo?

As a Schedule 1 substance, marijuana is considered by the DEA to be on par with the most dangerous drugs, like heroin and LSD. That carries all kinds of federal restrictions and impediments.

However, if the DEA changed marijuana to a Schedule III drug, cannabis companies would no longer be subject to a tax code regulation that prevents credits and deductions from income generated by sales of Schedule 1 and II substances, analysts say.

“Cannabis companies don’t get most of the tax benefits and tax deductions that standard businesses get,” says Tickle. “Rescheduling will allow them to do so in many areas. These savings alone will give them much larger budgets for advertising and promotional products.”

Schedule 1 classification also prevents cannabis businesses from engaging in routine banking and financing. Rescheduling would likely allow for much easier, open banking and interactions with the financial industry.

“Cannabis companies don’t get standard banking services, which makes managing money and borrowing much more complex and expensive,” notes Tickle. “The increased access to banking services that rescheduling will allow would enable cannabis companies to thrive and have faster access to their money, and also allow them to raise capital easier.”

As today is “4/20” – the official unofficial holiday of the #cannabis community – ASI Media is shining a (black)light on the industry with this special report aimed at helping #promproducts distributors spark #merch sales in the legal market. https://t.co/8Fga3GuKco@ASI_MBell

— Chris Ruvo (@ChrisR_ASI) April 20, 2023

The rescheduling could enable much wider research on marijuana – a boon for cultivators who would have a larger end-market to serve beyond dispensaries in states where cannabis is legal recreationally and/or medically.

“Also,” adds Tickle, “most cannabis companies cannot ship cannabis across state lines. By rescheduling to a Class III, it might make it easier for companies to ship across state lines, which would reduce costs. This would lead to increased profits and increased sales.”

The tax, banking and other benefits for cannabis companies could translate to expanded sales opportunities for promo products distributors who work with businesses in the niche, says Justin Herman, president of OnPoint Promotions (asi/466954), an affiliate distributor of Top 40 firm iPROMOTEu (asi/232119) that generates approximately 50% of its business with customers in the cannabis space.

“Cannabis companies would now have greater profit margins, which could lead to further expansion and in turn create larger opportunities for distributors,” Herman says. “For example, if a company operates 10 dispensaries and orders 100 rolling papers per location, then it would stand to reason that if they add another dispensary or two, the total order quantities would increase with the added locations.”

MINNESOTA
became the 23rd state to legalize marijuana for recreational adult use at the end of May. Cannabis remains illegal at the federal level.

Herman also believes marijuana companies would be inclined to reinvest added profits resulting from rescheduling into their brands to better promote themselves in what’s become a crowded, often highly competitive marketplace. “This could mean a greater investment into branded resale items by more dispensaries, as well as adding more point-of-purchase giveaway items,” he adds.

Nunes thinks along similar lines, saying greater profits that lead to more robust marketing budgets could propel cannabis companies’ investment in higher-quality branded merchandise that they would look to retail to their customers.

“The biggest opportunity I see for cannabis dispensaries is producing high-end apparel and accessories and being able to resell at 40% to 50% markup,” Nunes says, noting that even though times are changing, subtlety in graphics and messaging could help spur sales. “The stigma around cannabis is being lessened, but there are still a lot of people who do not want to flash a dispensary logo on a shirt in public due to perception. More-creative branding that goes under the radar may help alleviate such hesitancy.”

Nunes also thinks that promo distributors selling to the cannabis market could become more competitive as the stigmas lift – something that rescheduling may also compel to an extent.

“Cannabis companies and cannabis promotional products are going mainstream,” states Tickle. “The rescheduling will make this happen even faster, so it’s time for distributors to get on this fast-moving train before it passes them.”