HOW IS CANNABIS REGULATED AT THE STATE LEVEL? MEDICAL OR RECREATIONAL IS THE KEY

 

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There is general consensus that the cannabis industry needs to be regulated from a state level, and eventually at a federal level to end the failed “reefer madness” prohibition. Even the medical cannabis industry in California recognizes that the lawlessness of the “wild west” is not sustainable. The question arises who is responsible to implement and enforce a regulatory scheme for overseeing the sale of cannabis on a state level?

So first, let’s turn our attention to the State legislature. In some instances, such as Florida, New York and Georgia, to mention a few, the legality of the use of medical cannabis was approved by the legislature. These type scenarios have firmly left the drafting and implementation of legal cannabis to the state powers.

As you may be aware already, state legislatures are an interesting starting point for cannabis regulation for several reasons. Most state legislatures are bicameral in nature. In other words, there are normally two houses like in the federal system – a lower house of representatives and an upper house of senators.

In terms of achieving consensus regulatory policies, there are jurisdictional battles amongst and within the two houses of the state legislature. There are issues that arise within the delegated committees. Committee chairmen can kill a proposed bill by simple inaction. There are issues that arise along the lines of political party domination. There are issues that arise with the will of the people and the Governor. Even if the Governor is of the same political persuasion as the legislature, there is no guarantee of consensus or approval of implementation and regulation.

Currently, Florida would be a prime example of all of these issues playing out, even after the 2014 voter initiative failed by less than two percentage (2%) points garnering 58% approval of the voting electorate. In Florida, to amend the state constitution, an initiative needs to achieve a super-majority vote of sixty percent (60%) to be deemed successful.

On the other hand, there are states that legalized medical cannabis use by popular vote such as Alaska, California, Michigan, Nevada and Massachusetts. All recreational use has been initiated by voter approval of ballot referendums such as Washington, Oregon, Colorado, Alaska and the District of Columbia.

However, even with voter approval many states are stuck in a holding pattern for actually allowing the legal sale of cannabis for medical purposes. Why?

As previously discussed there are the political reasons for the stalemate. But there is also agency jurisdictional issues that arise as well. Much like in the securities industry context there is always a dispute when the issue of financial regulation takes place since the SEC is ultimately monitored by the Banking and Finance Committee and the CFTC is ultimately monitored by the Agriculture Committee, which for historical purposes focused on futures contracts involving corn, wheat, pork bellies etc. Neither agency wants to cede its perceived jurisdiction, even if doing so might achieve more efficient and streamlined regulation.

In the cannabis industry context, the states have taken a similar approach to regulation as well. If a state has legalized medical cannabis, it is most likely that the state’s Department of Health would be the lead regulator. If there is recreational use permitted, the most likely agency to be involved is the Alcohol or Liquor Control Board. To some extent this makes sense. Medical cannabis involves dosing issues, HIPPA concerns and other medical constraints and mirrors more of the pharmaceutical regulatory framework. Many of these concerns need not be addressed under recreational cannabis use, however public health and safety is always an imbedded concern. Regardless of lead regulator, a state’s Department of Revenue is always involved in the regulatory scheme in order to secure tax revenue that is due to the state based on cannabis sales.

So depending upon whether medical or recreational cannabis use is at issue, the lead regulator will be different and may have a different agenda. Some of those agencies may have “special relationships” with certain vendors or certain lobbyist may be more successful at pressing their clients’ interests than others. It is therefore necessary, to have these state regulatory agencies work with one another, or even create a separate and new regulatory agency, that will try and cohesive and comprehensive draft and implement required regulation. No reasonable person in the cannabis industry wants to see legal product diverted or illegal product placed in the system. The issue of legitimacy is pressing and helps protect against unwanted federal intrusion at the moment which surely involves the DEA.

So it is essential that state regulatory agencies, in conjunction with state legislatures, work together to implement the will of the people by enacting strong legal regulation of the cannabis industry. This will go a long way to legitimizing the shifting paradigm of cannabis production and sale, whether in a medical or regulatory context. However, the only way this can be accomplished is by the state legislatures and respective overseeing agencies to coordinate their efforts on a comprehensive basis, rather than one which simply concentrates on the collection of revenue from cannabis sales

Barry Gainsburg, PA providing legal counsel to the Cannabis and Securities Industry

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