Published: April 30, 2020
While cannabis legalization gains momentum nationwide, its major reforms continue to occur on a state-by-state level — not federally.
This increasing cannabis legalization mirrors the wider opinions of the American population, 67% of whom believe the purchase and use of cannabis should be legal for adults. This figure represents a distinct shift in consumer consciousness. In 2000, only 31% said medical and recreational marijuana should be legalized.
How can businesses respond to the undeniable opportunities in today’s emerging consumer cannabis market while navigating state-by-state differences in laws, licenses, usage parameters, product restrictions and more?
This report traces how state legislative trends affect marijuana- or cannabis-related businesses (MRB or CRB), both plant-touching and ancillary. It reviews:
- Prevailing cannabis laws across legalized states.
- Major differences in marijuana-related state legislation.
- Medical, recreational and ancillary cannabis products experiencing the largest data-backed market demand.
- Upcoming bills and forecasted legislative trends regarding medical and recreational cannabis.
- Future trends in cannabis reform, plus its direct business impact.
The State of Cannabis Laws Across the United States
Cannabis remains a Schedule I drug under the Drug Enforcement Agency’s classification system. States, however, possess the authority to ignore DEA enforcement and spearhead major policy reform regarding cannabis usage, both recreationally and medically. Over 30 states, as well as Washington, D.C., have legalized medical marijuana, with 11 of these states and Washington also permitting recreational cannabis usage.
To understand the tapestry of marijuana laws by state, we must first review the six categories, or stages, of legalization currently quilting contemporary cannabis policy. Every state in the nation currently sits in one of these six stages.
- No legalized cannabis usage. States in Stage One do not permit medical or recreational cannabis legalization. Many maintain jail sentencing for even minor possession of cannabis.
- Legalized medical marijuana use only. The most pervasive and widespread legalization of cannabis, Stage Two laws legalize cannabis usage for prescription medication, patient treatments and pharmaceutical or medical research.
- Elimination of jail sentencing for cannabis possession. States in Stage Three have eliminated criminal prosecution and jail sentencing for possessing small amounts of cannabis.
- Medical marijuana and cannabis criminal reform. States in Stage Four cannabis reform have legalized medical marijuana as well as passed criminal-justice measures to decriminalize possession and, in some cases, expunge possession from criminal records.
- Legalized recreational and medical cannabis use. Stage Five cannabis legalization permits adult recreational and medical consumption of marijuana and marijuana-derived products.
- Legalized recreational and medical cannabis use across purchased and home-grown cannabis. Currently, Vermont, as well as Washington, D.C., permit home-grown cannabis consumption but have caps on the number of marijuana plants that can be cultivated residentially.
Tracking the legalization stages in your home state is pivotal to noting regulatory trends and its potential business impact, from developing business opportunities to changes in business tax rates, filings, banking options and industry-governing agencies.
1. Common Cannabis Laws by State
States beginning a cannabis legalization reform process must address several legal questions directing the activities of MRBs and CRBs.
In particular, states must answer who can grow, cultivate, test, retail and use cannabis and cannabis derivates. Tackling this involves each state setting the following common cannabis regulatory frameworks:
- Age restrictions: Cannabis users must be 21 or older in all 11 states and the District of Columbia, where recreational use is permitted. Some states impose civil or criminal penalties for minors caught using cannabis.
- Purchase and possession limits: Most states impose purchase and possession limits around an ounce (around 30 grams) for cannabis, though amounts and discrepancies exist. For example, Michigan allows up to 10 ounces to be kept at home, so long as amounts over 2.5 ounces remain in a secure, locked location away from minors.
- Tax rates: States set various taxes on marijuana flowers, trims, leaves and cannabis-infused products affecting nearly every MRB in the cannabis supply chain. Some states add a specific marijuana sales tax to regular state and local sales taxes.
- Business licenses: Businesses looking to enter the cannabis market must apply for specific licenses with their state’s appropriate regulatory agency. MRB/CRB-related business licenses span cultivators and growers, manufacturers, trimmers, testers, distributors and wholesale and traditional retailers.
- Licensing timeline: Each state implements a review process that organizations undergo when applying for a legal cannabis business license. Application criteria, standards, qualifications, fees and exemptions vary by state, as does the expected licensing timeline.
- Seed-to-sale tracking: The majority of states regulating marijuana like alcohol utilize a commercial database that tracks every cannabis product cultivated and sold in its borders. This is done through seed-to-sale software, which direct and ancillary MRBs and government agencies alike use to track marijuana cultivation locations, batch numbers, transit and distribution, product security, product testing, labeling and the final sales of cannabis and cannabis-derived products.
- Consumption locations: Most states allow cannabis and cannabis derivatives to be consumed only in private residences, while others permit consumption in designated public spaces and venues as well as on-site retail consumption.
- Delivery: California, Colorado, Michigan, Nevada and Oregon currently allow some variation of direct medical as well as adult consumer deliveries.
- Overseeing agency: States appoint a designated agency to oversee the legal frameworks for its cannabis industry, such as Massachusett’s Cannabis Control Commission, or fold cannabis regulation into an existing regulatory body, as with Nevada’s Department of Taxation.
2. State and Regional Discrepancies in State Cannabis Laws
While sensible cannabis regulations overlap more than they differ, states still maintain some key variations. These legal discrepancies are just as important to note, particularly for ancillary MRBs or business owners looking to enter the ancillary cannabis commercial space.
- Distribution: Legal distribution channels for cannabis vary significantly by state. Who’s allowed to transport marijuana flowers, trims, leaves and derivatives, as well as where they can deliver and store these products, continues to cause serious business confusion amongst growers and retailers alike attempting to connect their operations along a streamlined supply chain.
- Mandatory vertical integration or deintegration: Some states currently require CRBs/MRBs to hold multiple types of business licenses to operate legally. This mandated vertical integration has been complicated by a recent trend to deintegrate state cannabis supply chain, spearheaded by states like Washington. Furthermore, other states, such as Colorado, give business owners free rein to apply for as many business licenses as desired to control as many aspects of its supply chain deemed relevant and profitable.
- Home cultivation: States also continue reinforcing a hodge-podge mix of laws pertaining to growing marijuana at home. These conflicting laws cover whether home-cultivated cannabis can be for recreational or only medicinal use, the number of plants that can be grown at home, plant maturity, the security of plants away from minors as well as if residential flowering plants need to be identified in the state’s seed-to-sale registry.
Legal Product Trends in the CRB/MRB Industry
Even within today’s patchwork of cannabis laws, entrepreneurs are finding highly profitable product niches in the wider cannabis industry. These cannabis-related products below are particularly valuable pieces in today’s “green rush” puzzle — and forecasted only to grow more so.
- Seed-to-sale software: Seed-to-sale software is at the center of each state’s regulated cannabis retail sales. Advancements in software would make it easier for startups along the marijuana supply chain to legally and profitably operate in their state’s industry, identify their products and stay in-tune with ever-changing legislation.
- Cannabis-derived products: Products made from non-psychoactive components of the cannabis plant, such as cannabidiol (CBD) products, represent a burgeoning market legal in all 50 states. These include CBD extractions, tinctures, oils, edibles, vaporizers, concentrates and hemp, the latter of which constitutes its own web of commercial goods.
- Closed-loop hydroponic systems: Hydroponic systems and similar greenhouse equipment unlock commercial-scale cannabis cultivation year-round. These eco-friendly closed-loop systems are a must for cultivators operating in many regions of the United States.
- CRB fintech solutions: Federal laws currently prohibit FDIC-insured banks from working with MRBs. As a result, MRBs are a predominantly — and precariously — cash-dominated industry whose only real alternatives are non-bank money-management tools in the form of apps and cryptocurrencies.
Major Upcoming Cannabis Legislation
These laws in the works at the state level represent major policy shifts that will help stabilize — and standardize — legal commercial cannabis operations in the United States. For business owners, these are particularly important pieces of legislation to track as state legislators return to normal sessions.
1. The STATES Act
The Strengthening the Tenth Amendment Through Entrusting States, or simply the STATES Act, would officially end federal obstruction over states regulating medical and recreational marijuana use. At its core, the STATES Act permits all states to create exemptions from the Controlled Substances Act (CSA), which classifies cannabis as a Schedule I drug.
What’s more, the STATES Act augments protections for banks serving CRBs/MRBs, which was passed under the SAFE (Secure and Fair Enforcement) Banking Act in September 2019. The SAFE Act seeks to eliminate federal prosecution of banks providing services to legally registered cannabis businesses. At present, banking hurdles represent one of the largest pain points in the legal commercial cannabis industry, since FDIC-insured institutions are barred from conducting any business with cannabis organizations.
2. Cannabis Legalization and Regulation Bills
Currently, 22 states, as well as the U.S. Virgin Islands, have bills in session to legalize cannabis for medical and/or recreational purposes as well as bills related to regulated medical or recreational cannabis.
Bills of note include:
- Vermont: An extensive modification to Vermont’s current cannabis legalization legislation, S. 54, seeks to harmonize disparate sales and consumption laws. Specifically, the measure will also propose a standardized statewide sales policy, broadening Vermont’s current legalization of cannabis possession beyond home cultivation.
- Minnesota, Delaware, Hawaii and Maryland: Each has hallmark bills awaiting session widening medical and/or recreational usage for adults.
- Iowa and Wisconsin: Iowa has reintroduced comprehensive medical marijuana legislative acts through two bills of note, SF 469 and HF 2208, while Wisconsin’s SB377, AB 220 and AB 930 would also move the state toward medical marijuana legalization. If passed when sessions resume, these bills represent a turning point for two the most historically stubborn Midwest states to join the contemporary cannabis industry.
3. Bills to Decriminalize Cannabis Possession
Thirteen states have decriminalization and cannabis judicial reform bills up for a vote. These 13 join the 26 other states and Washington, D.C., to legalize cannabis possession for commercial and/or consumption uses.
Decriminalization bills of note include:
- Tennessee: Tennessee has four bills in the running to legalize possession of cannabis under one ounce. However, the state has yet to pass bills legalizing the regulated sales or commercial cultivation of cannabis statewide — a major hiccup for its commercial cannabis industry growth.
- New Jersey: New Jersey lawmakers will be voting remotely on bills S 2101, S 312, and A 1897, which — if passed — would remove jail sentence for cannabis possession and instead impose civil fines.
- Kentucky, Virginia and South Carolina: This trio of southern states continues the region’s progression towards cannabis reform, with bills specifically removing jail sentencing for first-time possession as well as possible records expungement or resentencing for misdemeanors.
4. Bills to Expand Medical Marijuana Uses, Research
Comprehensive medical cannabis legislation seeks to validate the medical applications of cannabis. In addition, this type of bill can widen qualifying patient access to cannabis and cannabis derivatives by setting up realistic dispensary and home cultivation regulations or rectifying contradictory state laws.
Twelve states currently have such comprehensive medical cannabis bills up for a vote, joining the 33 other states as well as Washington, D.C., with legalized medical marijuana. Those bills of note include:
- Nebraska: The state legislature’s Judiciary Committee removed jail sentencing for possession and passed LB 110 to adopt a statewide medical cannabis act.
- Iowa, Wisconsin and Kansas: Multiple bills with votes currently postponed would permit medical marijuana adult usage amongst patients registered in respective statewide systems, with Kansas’ and Wisconsin’s governors particularly vocal in their support of pro-medical marijuana legislation.
The Future of Marijuana Legalization
What trends can business owners and entrepreneurs reasonably forecast for impending state cannabis laws? Several stand out among industry analysts.
- FDA reclassification: The FDA’s reclassification of cannabis from a Schedule I to Schedule II, III or IV drug seems inevitable. The looming passage of the STATES Act, along with current FDA efforts to evaluate cannabis’ marketing, intrastate transit and export laws supports this impending reclassification.
- Federal-level cannabis clarity, reform:According to reports from Politico and PEW, 296 current Congress members — over two-thirds of representatives — come from the 33 states in Stage Two or higher cannabis reform, meaning their states maintain some form of legal medical usage. This represents an inflection point in potential federal-level changes in laws. Congress may begin passing bills that harmonize, or at least clarify, its many convoluted and contradictory marijuana statutes, including the possible transportation of cannabis across state lines.
- Passage of the SAFE Banking Act: Passing the SAFE Banking Act would unleash tremendous new capital opportunities for existing MRBs and entrepreneurs looking to enter the direct or ancillary MRB space, as well as bring security and transparency to an industry forced to operate mostly by cash. The SAFE Banking Act also provides long-overdue protections to FDIC-insured banks that work with any MRB/CRB, reducing legal risks.
- Increased demand for CBD: CBD is one of hundreds of natural chemical compounds occurring in cannabis plants. It is also non-psychoactive — unlike THC, its more controversial psychoactive chemical cousin — and is therefore decriminalized in all 50 states. In 2019, CBD product sales increased by over 133%. By 2024, industry analysts calculate CBD retail sales will surpass $10 billion — and that’s for CBD oils alone no other forms of cannabis-derived products.
- Cultivation limits: As cannabis usage laws pass in more states, experts foresee increased regulations on the size of cultivation operations. Already, this trend can be seen in states like California, where laws restrict the size of cannabis-growing farms in attempts to create controllable and traceable cannabis seed-to-sale models as well as bolster fair competition amongst registered growers.
Understand How State Marijuana Laws Impact Your Business Prospects
Banking restrictions, alongside an inconsistent regulatory ecosystem differing state by state, have stymied commercial cannabis entrepreneurship.
Understand the full implications of entering the cannabis market, including direct production, distribution, sales or vendor partnerships, with our report “Marijuana Money: Can We Take It to the Bank? The Future Is Hazy.”
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