2020 is a year that many will try to quickly forget: a pandemic, global shutdowns, and a political climate best described as a dumpster fire will not be remembered with fondness. However, the marijuana industry faced these issues head on, proving once again its dynamism and resiliency. As we venture into 2021, I wanted to reflect on what happened in 2020 and where the industry might go from here.
As the pandemic emerged as a major public health challenge, various retail industries were forced to close if not deemed “essential businesses.” However, the marijuana industry mobilized in force to avoid a complete shutdown by various state and local governments by ensuring they were deemed “essential” – a testament to the political sway marijuana has over state and local governments.
The federal government on the other hand was not concerned with marijuana, and industry participants were unable to access the billions of dollars made available to federally legal businesses as part of the Coronavirus Aid, Relief and Economic Security, or CARES, Act.
Further state legalization
Marijuana legalization at state level was the clear winner in 2020 on an election night that was polarized to the extreme by the presidential election. Voters from across the political spectrum in New Jersey, Arizona, South Dakota, Mississippi and Montana resoundingly voted to regulate and tax marijuana in some form, reflecting a broad consensus. One thing is certain – marijuana continues to win – and win decisively. With the addition of four states to legalize adult-use (recreational) marijuana, approximately 1 in 3 Americans now live in a state where the cultivation, sale and use of marijuana by adults is legal at the state level. The number of states to legalize medical marijuana stands at 36; of those, 15, including the District of Columbia, have also legalized cannabis for adult recreational use.
House Votes to Decriminalize Marijuana
On December 4, 2020, the U.S. House of Representatives passed the Marijuana Opportunity Reinvestment and Expungement Act of 2019 (the “MORE Act”), which would effectively legalize cannabis by removing marijuana from the Controlled Substances Act. The MORE Act is a substantial step in cannabis legislation. Reactions to the proposed legislation have been mixed. While the bill does include some measures aimed at social equity, critics of the bill claim it does not go far enough. Similarly, while the bill includes a federal permitting provision, this would be just the beginning of a nascent federal regulatory scheme. While this bill passed in the U.S. House of Representatives, it would still need to pass in the U.S. Senate. Given that the Senate recently flipped to Democratic Party control, the passage of this bill seems like a rational possibility in the near term assuming our elected officials can get on the same page.
2021 and beyond
Having been part of the marijuana industry since 2009, I have learned that every year will be dramatically different than the previous year(s). Given the Democratic control of Congress and the White House, I absolutely expect new federal legislation in the near term that will address two key areas – access to banking and relief from 280E of the federal tax code. However, my mantra for the marijuana industry is “hurry up and wait.” Any federal legislation will (i) be complex and beg for additional regulation on allowing intrastate vs interstate commerce, (ii) need to address a loss of tax revenue from exempting state-legal marijuana business, and (iii) provide for a social equity component to assist minorities that have been disproportionally affected by the “war on drugs” over that past 50 years.
These legislative complexities are further exacerbated by the various competing interests in the marijuana industry. For example, multi-state operators that have piled hundreds of millions of dollars into the current system that is only legalized on a state by state basis (thus necessitating that business is conducted solely on an intrastate basis) might not be fans of immediate implementation of interstate commerce until they are able to recoup such investments. While potential new market entrants, like national alcohol distributors that are lobbying for a three-tiered system, will likely push for an immediate interstate model that allows them to insert themselves into an interstate market because they already have the national infrastructure set up.
2021 will clearly see monumental shifts in the marijuana industry (like every year before that); the question will be who will win out. Chips are being pushed into the pot by various market participants as they try to anticipate the true trajectory of the marijuana industry. One thing for sure is that it will not happen as fast as some want and there will be clear winners and losers. I am excited to see how this dynamic industry develops in the year to come, but how exactly that all shakes out we will all have to “hurry up and wait.”
Steve Levine is a partner in Husch Blackwell’s Denver office, where he leads the firm’s national cannabis, marijuana and CBD and industrial hemp practices.