Intro
Cannabis legalization in the United States is a matter of two systems. Some states, like California, Colorado, and New York, have legalized cannabis for either medical use or recreational use. However, at the federal level, cannabis remains strictly prohibited according to the Controlled Substances Act. This creates a legal paradox and creates challenges for businesses, patients, and consumers.
It is important to understand the rift between state and federal law. Many business owners need to sort through compliance problems, and consumers need to learn about their rights; either way, the evolving legal landscape will affect you.
The State-by-State Patchwork
Legal cannabis is no longer just a handful of progressive states. It is distributed throughout most of the country. Each state has its own rules, licensing requirements, tax rates, and product offerings. One state could allow edibles and concentrates, while another only allows flower.
This patchwork creates a lot of problems and inconsistencies. Transporting cannabis across state lines, even in legal states, is still federally illegal. Businesses are mostly confined to state operations and lack a safe and legal path to operate nationally. Consumers may accidentally violate federal laws while transporting cannabis throughout their journeys between states.
The Federal Perspective
At the federal level, cannabis is classified as a Schedule I substance under the Controlled Substances Act, placing it in the same category as heroin and LSD. That designation means being legally classified as having no accepted therapeutic uses and a high potential for misuse, even in light of the substantial body of scientific evidence that says the opposite.
This classification has substantial and consequential implications. Cannabis companies are banking limited because banks will not work with a company associated with federally illegal products. Many dispensaries use a cash-only business model because, without traditional banking, their company is insecure.
And lastly, if a business interacts with Schedule I or II substances, Section 280E of the IRS tax code prohibits the business from taking normal deductions for operating expenses, which results in meaningfully increased effective tax rates. The DEA and FDA have been slow to embrace widespread legalization, if not completely opposed, particularly to recreational legalization.
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Efforts in Congress & Legislative Progress
Despite the lack of action at a federal level, some bills have gained traction in Congress. The SAFE Banking Act is one bill that would allow cannabis businesses access to the banking system without the fear of penalty from the federal government. The MORE Act goes beyond that, seeking to not just decriminalize cannabis at the federal level, but also expunge certain convictions. The STATES Act would allow individual states to legalize cannabis without federal intervention altogether.
Some of these bills received bipartisan support, as polls indicate a majority of Americans support legalizing cannabis. However, although some lawmakers are on board with legalization, they cited issues about public health, youth access, and a myriad of law enforcement issues as reasons for a divide. Legislative processes can be glacial, and bills that have strong public support still face hurdles in the legislative process before they become law.
What Federal Legalization Might Look Like
It's hard to imagine what the landscape would look like if cannabis were legalized federally. If enacted, national regulations could affect things like product quality, product labeling, product safety, etc. This could lead to consumers feeling more confident in their purchases, and it can make it easier for businesses to do business across states.
Medical cannabis patients may be able to purchase reasonable products regardless of their location. Federal legalization could open more doors to research than are presently available, as scientists could face fewer obstacles to studying cannabis and the potential therapeutic benefits.
Legally recognized cannabis markets and suppliers could lead to the development of some big corporate cannabis brands, much like the alcohol and tobacco industries as a whole. While some would welcome the efficiencies and scalability of these large corporations, some of the independent LCBs and craft cannabis businesses may find it hard to survive large corporate brands.
Anticipating the next few months
There will not likely be sweeping federal legalization, but incremental changes are most likely. Descheduling or rescheduling cannabis under the Controlled Substances Act is an option and would lead to fewer restrictions on research and other legal obstacles.
Public opinion continues to propel cannabis reform. Election cycles like midterms often bring such issues to the forefront, as legislators feel the impending drag of public sentiment. In these times, it is important for businesses to be in tune and flexible in developing strategies that allow them to adjust to changing regulations, whether that be to expand to a new market, far more importantly, adjust compliance processes, or forge strategic partnerships.
Moreover, consumers should also be aware of laws at the state and federal levels. While there are laws governing consumption at the state level, if you are traveling into a separate state or using federal resources, e.g., airports, there are still limits on the drug's use.
Conclusion
The divide between local and federal cannabis laws is both a challenge and an opportunity. Although state legalization has created dynamic marketplaces and further access, federal prohibition is holding back development and uncertainty in many areas.
Many states are actively considering legislation, and public opinion has been growing in favor of reform; new legal realities are on the way. Whether you are a business, a patient, or someone who consumes recreationally, you will need to be informed, and so will the American public. The next phase in cannabis legalization is the result of lawmakers and the input and action of American citizens.