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Three Ways Federal Legalization Licensing Could Play Out

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No matter how federal legalization works out, inevitably there will be some friction. Licensing and compliance vary widely in state-regulated legal cannabis. When federal legalization happens, there are many different models and case studies to consider.

Current Compliance and Licensing Landscape

Compliance Tracking:

State issued tracking systems, such as BioTrack, Leaf Data Systems, and METRC.
States with no tracking system require reporting, inspections and accountability. These states include successful markets such as Arizona, Florida and currently Virginia.

Licensing Approaches:

Competitive limited license markets include Illinois, Florida and Virginia.
Uncapped licenses states include California, Oklahoma and Oregon.

Each stakeholder in the supply chain may have a different idea of how things should be mandated when federal legalization occurs, but there are a few hopes and concerns many of us share as an industry.

Hopes:

A right for home grow across the country will be protected. We should be able to grow this plant for personal use, like the thousands of home brewers across the country making their own beer.
The industry will enact the health, safety, worker, and other standards that already exist in other industries.
Interstate trade will begin.

Concerns:

There is a potential burden of federal oversight.
Regulatory conflicts between states may occur, which create challenging market dynamics.
Current market advantages will erode for some companies and states.
Will there be import protection from international markets? Export to international markets?

Modeling the Federal Program after a Successful State Market

Oregon has one of the best cannabis economies in the US. Not only did they survive a significant market glut in 2019, but they also have flourished with an open licensing scheme. Oregon contracts with METRC as the track and trace compliance platform, which universally is seen as a burden on businesses, hampering operations and costing licensees substantially each year. Federal banking and interstate commerce will only make the economy in Oregon stronger. The state passed a law in 2019 that halts the issuing of cannabis licenses when experiencing an oversupplied market, putting the state ahead of the curve as they champion these issues. They also approved a measure that, with federal approval, Oregon farmers can sell their goods to other regulated states.

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Pros:

Oregon cannabis can be shipped throughout the U.S., pending federal legalization or state compacts blessed by the federal government (even a reaffirmation of the COLE Memo would trigger this, according to Oregon legislators and industry insiders).
Cannabis licensees are currently monitored under strict compliance rules that many ancillary service providers have already built solutions for.

Cons:

The compliance system in place is METRC. The system has been plagued by outages and usability issues. The tags are a burden on operators and horrible for the environment. It does little to prevent diversion.

Creating an Entirely New Compliance System

If the federal government wants to emulate what states have attempted to date, they can design and implement (or contract for) a federal track and trace system. With federal legalization, we should also anticipate a Federal Excise Tax and some level of reporting to ensure this tax is collected. The industry should also expect federal guidance on testing standards, health claims (the FDA will be looking at this closely) and quality requirements (GMP, FSMA, etc.).

Pros:

A brand new, standardized track and trace system would give everyone an even playing field.
Social and racial equity could be at the forefront of the policies, supported by the Small Business Association and existing farm programs.
Regulatory changes could also level the playing field and nationalize operational requirements across state markets.

Cons:

A neutral market could mean stifling brand creativity.
High taxes could incentivize the illicit market to thrive.
Social and racial equity programs could be ignored.

The Federal Government Can Let States Handle It Themselves

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This would seem like a solution where everyone benefits, but if states are allowed to handle the markets themselves, fragmentation could hamper small businesses. Like alcohol, we could see state-run retail, which would limit job creation and access to the market. Navigating a patchwork of state requirements will create regulatory burdens for companies who want to sell on a national scale.

Pros:

States can champion social equity that is tailored to local communities.
States may compete to attract businesses by streamlining regulations and tax treatment.

Cons:

Operators will have to navigate differing state rules and regulations.
Imbalances in state implementation may cause imbalances in supply and quality.

Executives are split on whether they welcome or rebuff the idea of federal cannabis legalization. We welcome a legal open market with banking, diverse business owners and interstate commerce. Though, it’s hard not to be concerned about how federal mandates could stifle an industry in its infancy.

Businesses should prepare for the inevitable. Whether it’s this year or four years from now, cannabis prohibition will be end. When that time comes, each individual cocompany will need to have their supply chain ready to meet demand and survive yet another regulatory change for the industry. 2021 represents our opportunity as an industry to drive the conversation and regulatory landscape in the most rational, business-friendly manner, while still safe-guarding consumer, medical and social justice interests. How do we do this? Work through trade organizations and share your stories and insights with politicians, and the industry can have a huge impact on how life after prohibition shapes-up.

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The post Three Ways Federal Legalization Licensing Could Play Out appeared first on Cannabis Business Executive – Cannabis and Marijuana industry news.

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