The legal cannabis business is booming despite the fact that the substance remains illegal at the federal level and in several states. Even so, by some estimates, legal cannabis sales in the U.S. are forecast to exceed $30 billion in 2022.
For businesses in the cannabis space, this projection is certainly something to crow about. However, the promise of record sales must be tempered by the uncertain legal status of cannabis and cannabis-related products federally and in certain other jurisdictions.
Current Federal Law
As of now, the possession, cultivation, and distribution of cannabis remains illegal under the federal Controlled Substances Act. That being said, there is some hopeful news for cannabis businesses: federal legalization (or, at the very least, decriminalization) of cannabis is in the works.
Pending in the U.S. Senate is the Cannabis Administration and Opportunity Act, which would remove marijuana from the Controlled Substances Act, introduce regulations to tax cannabis products, expunge prior convictions in some circumstances and maintain the authority of states to set their own marijuana policies.
Another piece of legislation under consideration in Congress is the SAFE Banking Act. If enacted, it would ensure access to financial services for legitimate cannabis-related businesses and service providers. For companies large and small in the cannabis world, this is critical, because current federal banking laws severely restrict the availability of financial services to companies selling cannabis and related products.
This means banks are limited from doing business with cannabis enterprises or those connected to them. Incredibly, many banks can’t even issue credit cards to or open checking accounts for these entities, which is a problem for several reasons. First and foremost, companies in the cannabis space are forced to maintain large amounts of cash on hand for payment of expenses, including inventory and employee salaries. This makes legal cannabis outfits prime targets for theft and other crimes.
Additionally, to the extent banks are off-limits to cannabis companies and would-be entrepreneurs, funding in the form of loans continues to be out of the question. And without a free flow of readily accessible capital, opportunities for growth are stifled. Clearly, if federal laws were relaxed pursuant to the SAFE Banking Act, an already thriving legal cannabis market would be poised for even more remarkable growth.
Of course, until the powers that be in Washington, D.C. make real headway, all this talk of changes to the federal law remains pie in the sky. And given political tensions when it comes to cannabis, it’s anyone’s guess when — or if — either of these two pieces of legislation will pass, leaving cannabis-related businesses in legal limbo.
The State of State Laws
As of this writing, the recreational use of cannabis is legal in Washington, D.C. and the following 19 states: Alaska, Arizona, California, Colorado, Connecticut, Illinois, Maine, Massachusetts, Michigan, Montana, New Jersey, New Mexico, New York, Nevada, Oregon, South Dakota (though litigation is pending there), Vermont, Virginia and Washington.
The medical use of cannabis is allowed even more broadly, with it being legal in 38 states and the District of Columbia.
The trend line toward the legalization of cannabis throughout the U.S. at the state level is undeniable. Nevertheless, the substance is taboo in several jurisdictions; cannabis is completely illegal in Idaho, Kansas and Nebraska, and access is severely limited in Alabama, Georgia, Indiana, Iowa, Kentucky, North Carolina, South Carolina, Tennessee, Texas, Wisconsin and Wyoming.
Legal Cannabis-Related Products (or Are They?)
– CBD: The 2018 Farm Bill legalized hemp federally. Consequently, CBD that is derived from hemp is thought to be legal from coast to coast.
On the heels of the Farm Bill, a vibrant health and wellness market for CBD products has blossomed, built on promises of pain relief, calming effects and more. But characterizing CBD as legal everywhere in the U.S. is inaccurate because the substance is not legal in all 50 states, even when sourced from hemp. It must be understood that all states have their own Controlled Substances Acts, and some (albeit few) still characterize hemp as illegal marijuana.
– Delta 8 THC: Delta-8-tetrahydrocannabinol is a psychoactive compound naturally occurring in hemp and believed by many to be legal at the federal level even though it produces a high. Mostly synthesized from CBD, delta-8 THC, while similar to delta-9 THC (the main psychoactive found in marijuana), has a different chemical structure, making it a milder alternative to its more potent cousin.
The Farm Bill seems to have created a loophole for products containing delta-8 THC (even in high amounts), so long as they are derived from federally legal hemp containing less than 0.3% delta-9 THC, making the manufacturing, distribution, sale and use of delta-8 THC in the form of gummies, vape cartridges, tinctures and the like arguably permissible under federal law.
As such, products containing delta-8 THC are being sold across the country without federal oversight. Nonetheless, several states have demonstrated their concern around delta-8 THC, given the absence of research regarding the compound’s psychoactive effects, by blocking its sale.
For instance, sales are restricted or the compound is currently banned in Alaska, Arizona, Arkansas, Colorado, Connecticut, Delaware, Idaho, Iowa, Kentucky, Michigan, Mississippi, Montana, New York, North Dakota, Rhode Island, Utah, Vermont and Washington.
A Marketplace Operating in a Gray Area
As the federal illegality of cannabis remains at odds with the law in an ever-expanding group of states nationwide, and given legitimate questions about the legality of cannabis-related products such as CBD and delta-8 THC, cannabis businesses find themselves in a unique position. On the one hand, they enjoy the fruits of a thriving domestic market. Yet on the other, cannabis concerns must operate amid ongoing uncertainty and navigate very difficult circumstances, especially in terms of finances, taxation and banking.
As long as the use of cannabis violates federal law, the industry as a whole will be unable to reach its full potential. By extension, an array of cannabis-related businesses will have to exist on the fringes.
But as the saying goes, “you can’t stop a moving train,” and there’s no denying that the cannabis train is running full speed ahead. As such, the aforementioned sales projection — $30 billion in 2022 — appears to be in reach.
No doubt, the legal landscape as it pertains to cannabis will continue to come into focus in the months and years to come. In the meantime, we can anticipate that legal cannabis and cannabis-related businesses will continue to flourish and expand exponentially.