Ending another prohibition

History teaches a lesson when it comes to the federal legalization of cannabis

With cannabis now legal in some capacity in most states, the chance of legalizing marijuana at the federal level is more likely than ever. It would be a big move for our country, but not one so unlike the events of the past.

The federal government has regulated and taxed alcohol and tobacco going back to the economic plans of our first secretary of treasury, Alexander Hamilton, who sought to secure a solid financial base from which the new government could grow.

The explosive political environment of those times included many debates concerning the authority of the new federal government, with taxation being a major focal point. An early crisis in the establishment of the government’s authority was the Whiskey Rebellion in Western Pennsylvania, in which federal “revenuers” were harassed and locals refused to pay the tax until forced by the Army.

In the Prohibition Era, from 1919 to 1933, the United States outlawed all beverage alcohol and made its consumption illegal.

After the passage of the 21st Amendment, which restored alcohol production and sale for beverage use, the 1935 Federal Alcohol Administration Act established a system of controls over the newly allowed industry. It provided for government review and approval of labels, formulas and processes and defined standards for product identification as well as a system of controls that included on-site supervision of the alcohol industry to enforce this heavy regulatory regimen.

Now in the 21st century, more than 80 years after the end of alcohol prohibition, we are soon to repeat in some fashion that transitional era. At some point, cannabis is likely to be made legal under federal law. The social, economic and political winds are certainly blowing in that direction and the need for a federal regulatory and taxation system is apparent. In this instance, the states have taken the lead, legalizing the product and establishing tax and permit rules, typically modeled on their own alcohol and tobacco regulatory structures. Most federal bills in Congress do the same, providing for the treasury’s Alcohol and Tobacco Tax and Trade Bureau (TTB) to take on the duty of regulating cannabis production and distribution while collecting the tax. At each level, the governments are not “recreating the wheel,” having learned how to manage these types of products through nearly a century of alcohol regulation and enforcement.

The cannabis industry, as it gains in social and economic legitimacy, will acquire its place in our socio-economic culture, leaving behind the legacy of its criminal past. However, just like “moonshine” and “bootlegging” carry on in a resilient illegal liquor industry, it would be foolish not to envision that an illegal cannabis industry will carry on, as well. Once the government legalizes and taxes the commodity and its derived products, production outside of that regulatory structure will remain illegal.

Revenue and economic activity are the likely driving forces that will end federal prohibition. Criminal justice reform and other community concerns remain as issues that must be accounted for in the future of any legalization effort.

With the early days of post-prohibition alcohol being a model, it is not hard to envision that the early days of post-prohibition for cannabis will certainly see a number of regulatory issues requiring agency action to interpret and explain policy and ruling statements. How the legal industry develops and separates itself from the illegal industry will be up to those in the legal industry, as well as the regulating government agencies. Just as the alcohol industry did in its 1930s revival, the cannabis industry will create history, building upon itself as it leaves the shadow of outlaw status under federal law.

 

Jim McCoy is the director of program operations at Verde Compliance Partners, a full-service team of experts with decades of experience in federal, state and local permitting, regulation and compliance in the cannabis, alcohol and tobacco industries. He spent 32 years with the Bureau of Alcohol, Tobacco and Firearms (ATF) and Alcohol and Tobacco Tax and Trade Bureau (TTB). For the past 10 years, he has assisted numerous alcohol and tobacco industry members with federal permit, product, tax and operational compliance issues.

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