TREVOSE | Pennsylvania – May 2024 – The promotional products industry could be poised for a significant boost if the U.S. Drug Enforcement Administration (DEA) follows through on its plan to reclassify marijuana as a less dangerous substance, according to a report by Christopher Ruvo of Advertising Specialty Institute (ASI).
Currently, cannabis remains illegal on the federal level despite 24 states and Washington, D.C. legalizing recreational use for adults. This Schedule I classification hinders cannabis businesses by preventing them from deducting normal business expenses on federal tax returns.
Potential Tax Relief Could Lead to Increased Marketing Budgets
If reclassified to Schedule III, cannabis companies would be able to deduct expenses like rent and payroll, potentially freeing up significant capital. Industry insiders believe a portion of this newfound cash could be directed towards promotional products.
“The implications of rescheduling for promo distributors would be huge,” says Justin Herman, president of OnPoint Promotions, a distributor that generates roughly half its business with cannabis clients, as reported by Ruvo in ASI. “If cannabis companies can take federal tax deductions, they can write off marketing expenses. It will also free up cash to use for further marketing promotions and campaigns.”
Increased Competition Could Drive Demand for Branding
Herman anticipates his current cannabis clients, along with others in the industry, will utilize these additional resources to invest in merchandise that helps them stand out in a crowded marketplace.
“Differentiating your brand from the competition in the cannabis space is very important,” Herman explains. “It stands to reason that rescheduling will increase the budgets these companies will have in the future for promo and apparel items.”
Long-Term Growth Expected, Experts Advise Patience
While Andrew Nunes, president of CB Disco, another distributor with experience in the cannabis industry, agrees that rescheduling would ultimately benefit promotional products companies, he cautions against immediate expectations, as reported by Ruvo.
“Over time, cannabis businesses could have some additional capital for their marketing budgets,” Nunes says. “I think this change will take years. There are so many investors in the market still trying to get their return on their initial investments.”
Banking Hurdles Remain a Challenge
Even with reclassification, cannabis businesses will likely continue to face difficulties accessing traditional banking services due to federal regulations. The SAFER Banking Act, which aims to address this issue, has yet to pass Congress.
A Positive Outlook for the Future
Despite these remaining hurdles, the potential for federal rescheduling of cannabis is seen as a positive development for the promotional products industry. Increased marketing budgets and a growing cannabis market could create significant opportunities for promo distributors in the years to come.
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