Aaron Smith Keeps His Eyes on the Prize

Aaron Smith’s unpretentious demeanor puts to rest any notion that a amboyant personality is a prerequisite for running a national trade association for the cannabis industry, or running it well. e soft-spoken executive director of the Washington, D.C.-based National Cannabis Industry Association (NCIA) — founded by Smith and attorney Steve Fox in 2010 — goes about his business with an unassuming competence that actually serves as a counterweight to the worn counter-culture stereotypes still too often associated with the industry.

Indeed, Smith’s discreet professionalism has been a key element in NCIA’s success in attracting crucial allies to the reform movement, just as his loyalty to its democratic underpinnings has helped him maintain NCIA’s relevance over the years. In addition to staying focused on the group’s mission to fix two “monolithic issues” at the federal level — namely, banking and 280E — Smith has been busy expanded member benefi ts in a way that Smith believes sets NCIA apart from other trade groups.

“NCIA provides a value proposition that is diff erent from the other non-profits in the space,” he said in late March during the fi rst policy summit hosted in Sacramento by NCIA affi liate, the California Cannabis Industry Association (CCIA). “We sell a product, which is membership, and a part of that product involves political work but it also gives people access to networking events for free, as well as discounts on products and services. A lot of our members actually pay for their memberships through a discount. For example, if you’re a dispensary in Denver and a member of NCIA, you get a 5 percent discount on Dixie Elixirs, which alone could cover someone’s basic membership. We have other member benefi ts coming down the pike and will continue to provide more tangible and immediate benefits while also educating members on why the work we are doing in D.C. is probably more important than all the benefits combined.”

That last comment speaks to the difficulty inherent in running a national trade association for an industry that doesn’t even exist at the federal level. No matter the unique challenges they face, cannabis business owners, like all business owners, get tired of pumping money into lobbying eff orts year after year, and sometimes begin to evaluate the worth of the association based on member benefits — an ROI evaluation that can lead members to devalue the core mission of the organization. As Smith explained it, the trials he faced when starting up NCIA were consistent with the challenging nature of the undertaking.

“We started in the summer of 2010 and had our first board meeting that December,” Smith said of the early days. “We had thirty businesses from six states — California, Colorado, Montana, Washington, Nevada, and New Mexico — and they constituted the board. Then we launched [the organization] to the rest of the world.

“The first two years were very challenging,” he confided. “I was hardly able to make a paycheck for myself, and we had minimal infl uence because we didn’t have the funding.”

The charter members built the organization from scratch. “Up front, the biggest challenge was getting the industry to recognize that it was an industry and getting businesses to behave like legitimate businesses, which they were. Part of that was getting them to understand that whether you were a medical cannabis collective in Washington State or a dispensary in Colorado or a cultivator in Los Angeles, you all had the same common business interests in fixing federal laws. So there was a lot of work educating folks in the industry to understand the need to get politically engaged — not just locally but nationally, because most of the problems people face at the local level stem from federal prohibition. There wouldn’t be this intense stigma if it was not for federal prohibition. So, there was a lot of outreach within the industry to get people involved who were outside of Denver and the Bay Area.”

Smith, who had developed a bent for advocacy work at an early age, got involved in the cannabis movement in 2005, and worked with the Marijuana Policy Project in California “doing grassroots organizing and lobbying in Sacramento.” The idea for NCIA came from a realization that a representational void existed and needed to be filled.

“Between 2005 and 2010,” he recounted, “I started seeing a real industry evolve, with businesses like Harborside Health Center and Berkeley Patients Group operating professionally and paying their taxes like any other business in the country. But they were also dealing with a lot of issues stemming from marijuana prohibition that were specific to the industry, like the lack of banking and 280E, and we — Steve Fox and I, along with the help of Rob Kampia at MPP — saw an opportunity to organize the businesses as a new constituency in the fight against prohibition.”

MPP, which operates at both the state and federal levels, has a very different mission from that of NCIA, said Smith. “The majority of their resources are put into state-by-state efforts, whereas our resources are devoted to federal policy work,” he explained. “We also focus on issues that affect our members day-to-day, like the banking problem and 280E, which are priority issues for us. We still support the larger reform effort, but on a daily basis we are really talking about banking and 280E.”

There is a reason why those two issues are front and center, and will be until they are resolved. Financial institutions are notoriously reluctant to extend commercial banking privileges to cannabis businesses, and 280E (26 U.S. Code § 280E) prevents those same businesses from deducting operating expenses like other businesses in the nation. The tax code reads: “No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business (or the activities which comprise such trade or business) consists of trafficking in controlled substances (within the meaning of schedule I and II of the Controlled Substances Act) which is prohibited by Federal law or the law of any State in which such trade or business is conducted.”

It seems a no-brainer that the industry would put headwinds like these at the top of its “fixit” list, but that’s not what happened in the early days, said Smith, “We saw specific issues that were of great import to businesses, but the philanthropists who support groups like the Drug Policy Alliance and MPP weren’t in the [cannabis] industry,” he explained. “They were more social-justice activists who were less interested in something like 280E and amending the tax code so business people could take their deductions. They thought the industry should work on that while they worked on legalizing the next state. We organized the industry around those two issues so we had a voice on the Hill in an organized way in order to get them resolved.”

The work on banking and 280E continues to this day, and seems to be moving toward a favorable outcome, not least because of the steady work being done by NCIA to influence the way the industry is perceived by legislators who once studiously avoided people they considered outlaws and drug dealers.

“There has been a huge evolution over the last six years,” said Smith of the industry’s newfound access to lawmakers and their staffs. “It used to be hard to even get a meeting, and when you did there would be a lot of jokes and snickering. But now everyone takes it seriously; even our opponents are respectful, because they see us as a serious industry that at least deserves to be listened to even if they don’t appreciate what we’re doing. They know the tide is turning, but we have also really changed the dialogue so that it is no longer this 1960s counterculture thing and is instead a boring discussion about business. We’re in there talking about being able to comply with state regulations and pay taxes at the state and federal level, and why it’s important to have a bank in order to do that. Mundane things like that may seem boring to a typical cannabis consumer, but they are vitally important to our members and land a little better with members of congress.”

If things are going smoothly at the federal level, Smith believes the situation is a direct result of work at every level of political engagement. “At the federal level, the political will to get in line with the voters on any issue — and especially this one — is ten years behind,” he said. “It’s also important to recognize that most members of Congress still do not represent states with any sort of cannabis industry in them, which is one reason why we have the NCIA Lobbying Days — to put a face on the industry and show them we’re not the crazy hippies they may have imagined.”

Political engagement at the state level is vital, he added, because “getting new states online [with legalization] feeds into the federal work” by creating momentum D.C. cannot ignore. As to when the end of federal prohibition will happen, Smith said a variety of factors are in play. “At the federal level you have to be thinking out from 2017 to 2020, because things move glacially slow in D.C. Obviously, this election is huge for the industry, with at least seven state ballot initiatives in addition to the presidential contest and everything else going on. I think of 2017 as the watershed year for federal cannabis reform because of the initiatives. It should be a tipping point, but it’s not a guaranteed win — especially in California, which could go either way. Let’s put it this way. If Maine, Massachusetts, Nevada, and Arizona go legal but California does not, the headline will still read, ‘California rejects marijuana legalization; the tide is turning against reform.’ That’s the role of California, which is why it is critical that we work to push the state over the finish line.”

To that end, NCIA has lined up in support of the Adult Use Marijuana Act (AUMA), the so-called “Sean Parker initiative,” which may (or may not) be the only cannabis-related measure on the California state ballot in November. Of those in the industry who remain critical of AUMA, Smith said, “I do appreciate what folks say about AUMA, but they have to understand that we have an electorate in California for whom cannabis is not their top concern, even if they do support legalization. Everything is regulated, and we have to pass an initiative and change the law within the framework that we have.” He paused before adding, “I am very hopeful that those who are on the side of letting the perfect stand in the way of the good will see that AUMA, once it qualifies, is a step in the right direction. Is it perfect? No. Is it a step forward? Absolutely.”

At the federal level, Smith sees a type of status quo that spells forward progress for the industry. “There is a lot of legislation we support,” he said, “but the reality this year is that at best we will see appropriations amendments pass.” He mentioned Rohrabacher-Farr, “which has passed two years running, and supposedly keeps the Justice Department from being able to use tax dollars to undermine state medical cannabis laws,” as well as “a banking amendment [sponsored by Rep. Perlmutter (D-CO)] that similarly prevents the Treasury Department from sanctioning financial institutions that do business with our industry… And then there is the McClintock-Polis amendment, which is similar to Rohrabacher-Farr except it goes beyond medical. We only need to flip eight votes to get that passed, and with all of these initiatives on the ballot, especially in California, we should be able to pick off several from the California delegation.”

In the big picture, he added, “The appropriations amendments are more than symbolic. They don’t change the statutes and they have to be renewed every year, but they also establish the intent of Congress, and what we have seen for two years running is that Congress does not want the executive branch to use tax dollars to undermine state medical marijuana. So, we want to get other appropriations amendments passed in order to establish that same intent as we go into next year with another administration. Even if we are facing a less-thanideal presidency, Congress has established its intent, and next year’s Congress will probably be more Democratic.”

In the end, Smith’s message to the industry is to keep the pressure on by continuing to support its functioning trade associations, including, of course, NCIA, which “creates a model that makes it very accessible and easy to make sure someone is advocating for your business in Washington. A basic membership is $1,000 a year, not cost-prohibitive for any operational business, and except for Lobby Days” — which hosted its sixth-annual gathering in May — “members don’t have to fly back and forth to D.C. to do lobbying. We’re there doing it for them, just like CCIA represents their members here in Sacramento.”

Optimistic about the future, keenly aware of the challenges that remain, Smith thinks the industry would be wise to coalesce its resources to ensure its place as the next great American industry. “I’m proud of what NCIA has achieved, getting a thousand businesses engaged so that we can have a presence in D.C.,” he said,” but let’s try to get to 5,000 in the next year and see where we get then. There is so much opportunity out there, and the fact is those businesses that aren’t really engaged with us or with their state associations represent a lot of resources that could be used to help the whole industry.”