Tax Changes Could Unlock 'Hundreds Of Millions In Cash Flow' For Cannabis Sector, Experts Predict
Aaron Grey said at Benzinga's Cannabis Capital Conference that the removal of 280E will be transformative for cannabis operators.
“The fall of 280E will be the single most impactful moment for cannabis operators in decades,” said Aaron Grey, senior analyst at Alliance Global Partners, on Tuesday at the Benzinga Cannabis Capital Conference in Chicago.
The panel, moderated by Claire Hanson, Member-in-Charge of the Denver Office and head of the Cannabis Litigation Team at Clark Hill Law, brought together key voices in the industry to discuss the impact of macroeconomic trends, interest rates, and the potential rescheduling of cannabis.
The future of the industry, they agreed, hinges on long-anticipated changes to tax policy, particularly the removal of 280E, and the ability for cannabis companies to deduct operating expenses like other legal businesses.
“We’re talking about hundreds of millions of dollars in cash flow suddenly being unlocked for major operators,” Grey said. “Some companies will immediately direct those funds toward M&A, others toward paying off debt or buying back shares—it will vary by operator, but the impact across the board is undeniable.”
Meanwhile, Paul Antonacci, president and CEO of Security Bank, echoed Grey's enthusiasm, stressing the role banks will play in the post-280E landscape.
“For the first time, we’ll stop hearing that ‘sucking sound’ from operator accounts,” Antonacci said with a chuckle. “This reform will let cannabis companies finally expand organically, without having to rely so heavily on debt.”
Antonacci explained that the current banking environment forces cannabis businesses to operate with razor-thin margins, largely due to federal tax restrictions. "It's as if the government makes more money off their efforts than they do," he said. With the removal of 280E, Antonacci believes operators will have the breathing room to focus on scaling their businesses more sustainably.
Interest Rates: A Double-Edged Sword
The panel also addressed the Federal Reserve's recent decisions on interest rates, and their impact on the cannabis industry.
Dan Roda, chief credit officer at Safe Harbor Financial, pointed out that rising interest rates have been both a blessing and a curse for cannabis operators. “Yes, the rates hurt margins, but they've also opened up new opportunities for well-capitalized businesses to secure interest-bearing accounts and structured credit facilities," he said.
Roda explained that the high-rate environment has led to tighter lending standards, but it has also allowed stronger operators to secure more aggressive credit terms than ever before. “It’s a paradox,” Roda said. “Higher rates have actually enabled some businesses to secure better deals. And as rates start to stabilize, we expect that lending conditions will improve even further.”
Looking ahead, Antonacci said, “We're expecting two more rate drops before the end of the year, which will definitely ease pressure on cannabis operators. But the key is competition—more banks entering the space will drive better pricing and more favorable terms.”
Inflation And Consumer Impact
Beyond the realm of tax codes and interest rates, the panel turned its attention to broader macroeconomic trends that are shaping consumer behavior. Grey noted that while inflation is cooling off, it's still squeezing the wallets of many cannabis consumers.
“You're seeing a lot of down-trading, with people moving toward value brands,” he said. “Cannabis is a social staple like alcohol or tobacco, but people are still making small adjustments to their spending.”
Neil Prasad, who leads the cannabis practice at accounting firm Marcum, weighed in on the long-term implications of these trends.
“What has evolved is companies and operators are a lot more nimble as to how they spend the dollars. They’re wise about decisions they’re making and therefore their operating margins are getting better and better.”
“So I think in the long run it’s gonna be good because when they come up with their refinance things or raise capital or as 280 goes away, it’s going to lead to more cash flow.”
Practical Tips For Operators
To close the discussion, the panelists shared practical takeaways for cannabis operators facing today's financial challenges:
- Aaron Grey recommended staying prepared for potential changes. “Operate the business as if nothing is going to change. But be ready for when it does.” he advised.
- Paul Antonacci encouraged operators to prepare for a more competitive banking environment. “With more banks entering the space, competition will drive better pricing,” he said. He suggested that building strong financial partnerships now would benefit companies in the long run.
- Dan Roda advised cannabis companies to have their financials in perfect order. “Having the tightest financials possible and understanding your business's needs will get you to the top of the pile when seeking capital,” he said, stressing the importance of presenting a concise loan package to lenders.
- Neil Prasad highlighted the importance of operational and financial discipline. “Companies need to be nimble and make sure they have solid internal controls,” Prasad said. He added that businesses need to have compliance in check and their audits in place to be prepared for any capital raises or loan opportunities.
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