(The Center Square) – The marijuana industry is booming. Last year, the $21 billion industry grew by more than 5%, faster than the U.S. economy as a whole. At the same time, states from California to Massachusetts have decided the marijuana industry needs subsidies. A coalition of Democratic senators is now asking the Small Business Administration to help the marijuana industry.
This is the same industry that the U.S. government has spent decades trying to eradicate, spending billions of dollars. Despite the government’s efforts, illegal cannabis businesses have continued to thrive.
State governments have taken issue with a legal industry made up of well-connected cannabis entrepreneurs that has marginalized the minorities who are most frequently charged with marijuana crimes. New York has created a $200 million fund for minority cannabis retailers, while smaller Michigan has offered $1 million in grants to support its “social equity fund.”
New Jersey provided $12 million last year. “The Cannabis Equality Grant Program will allow us to expand the pool of cannabis businesses in our state while focusing on the communities most impacted by the unethical war on drugs,” Gov. Phil Murphy, a Democrat, said. Colorado launched a similar program the same year. Marijuana offenders receive grants from Washington state to set up their businesses.
In other cases, states have heavily regulated and taxed the market, often enacting unenforceable rules that industry players say stifle the market. So California provided $100 million in relief funds in 2021 for marijuana businesses plagued by rules that drive users back to illegal dealers. Marijuana retailers received another $20 million increase in 2023.
The Illinois cannabis industry couldn’t get off the ground under the burden of the state’s initial regulations, so the state government provided a $20 million loan.
Massachusetts paid $27 million Subsidy Grants were available to licensees, but the marijuana industry wanted more. Sean Hope, who runs a marijuana business called Yamba in Cambridge, told the Commonwealth Beacon the grants weren’t enough to “help my business survive.”
Other states, like Maryland, have done both: The state gave medical marijuana companies millions of dollars in subsidies to help them skirt the legal red tape required to sell marijuana recreationally, but imposed racial and equity restrictions on the program. The state has since raised another $40 million.
New Mexico was an exception, making marijuana businesses eligible for standard economic development assistance, a move that appears to be supported by a coalition of senators led by Oregon Democrats Sens. Ron Wyden and Jeff Merkley, who wrote letters to their colleagues arguing for new legislation to get help to marijuana entrepreneurs from the Small Business Administration.
“Under SBA’s current policy, any small business that ‘directly’ or ‘indirectly’ provides products or services that support the use, growth, enhancement, or other development of cannabis is excluded from its loan and entrepreneurial development programs,” the senators wrote. “Thus, small businesses in states where cannabis has been legalized in any form must choose between remaining eligible for SBA loans and assistance or participating in or doing business with a burgeoning legal industry.”
Pete Sepp, president of the National Taxpayers Union, argues there are smarter ways to grow the marijuana industry than government programs. “Instead of giving more subsidies, why not remove the federal roadblocks that are preventing growth,” he told The Center Square. “Congress should allow marijuana businesses to deduct business expenses just like any other business,” he said, referring to Section 280E of the federal tax code, which requires marijuana businesses to pay higher federal taxes than other businesses.
