Leafly Buzz: 12 hot cannabis strains of May 2024

Including Tangerine Sunrise, Lemon Tree, and Wagyu.

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What Rescheduling Marijuana Means for California’s Cannabis Industry

California‘s cannabis industry suffers from a seemingly unending list of problems: high taxes, prohibitionist cities, a related lack of retail licenses and oversupply of non-retail licenses, a monster illegal market with no end in sight, burdensome and often senseless regulations, and so on. Unfortunately, rescheduling won’t solve most of these problems–at least not directly. Today I want to look at what rescheduling could mean for California’s cannabis industry.

If you’re not already up to speed on rescheduling, check out my colleague Vince Sliwoski’s explainer of the DEA’s notice of proposed rulemaking to move marijuana from schedule I (where it sits next to heroin) to schedule III, or any of the following posts of ours:

• Yesterday’s Marijuana Rescheduling News, Explained
• F*** the Treaties: Rescheduling and “Marijuana-Specific Controls“
• Three Myths and Three Facts on the HUGE Marijuana Rescheduling Recommendation
• What Rescheduling Means for Cannabis Investments
• Cannabis Rescheduling and Trademarks

With that out of the way, let’s look how rescheduling could affect (or not affect) California’s cannabis industry.

First and foremost, rescheduling does not mean that state-legal cannabis markets will be federally compliant. In other words, all California cannabis businesses will still violate federal law. The biggest change would be that  IRC § 280E – which prohibits cannabis businesses from making standard federal tax deductions – will go away. But the statewide cannabis industry won’t be federally “legal.”

What that means is that rescheduling will have no impact on things like the prohibition on interstate commerce, which has kept California walled off from other states (at least California’s legal market). So for now, California’s still on its own.

Rescheduling also won’t impact state law where it counts. Things like local control, burdensome regulations, fighting the illegal market, and so on, will stay the same. Importantly, local and state tax law won’t change: California and many local cities tax cannabis businesses as if they are piggybanks. While 280E relief will undoubtedly help, it makes it much less likely that the state will revisit its own excise tax or think about how it could cap local gross receipts taxes.

So with all that out of the way, is there any good news? I think the answer is a clear yes. Here’s why:

• Even without state and local tax relief, 280E relief alone will be a monumental change for the industry.
• Investments into California’s cannabis industry are likely to increase as investors who previously stood on the sidelines become more comfortable with the idea of investing into a (slightly) less regulated industry.
• Other ancillary service providers may also be more open to providing services to the industry for similar reasons. More ancillary service providers may reduce costs within the cannabis industry.
• It’s possible that state governments also decide to be more bold. For example, states could decide to roll the dice on interstate commerce compacts after rescheduling, even in spite of schedule III issues.
• Although the impact on the illegal market will likely be small, the removal of 280E liabilities could entice people who would otherwise have remained unlicensed to become legal and complaint operators.

We’ve got a long way to go before rescheduling happens. And while nobody can really say for sure how things will shake out, it seems like there are some definite positive outcomes for California’s cannabis industry. So stay tuned for more updates.

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Memorial Day — Honoring Those Who Served

Please join us in taking the day off to honor all who have served, so we can do things like have a Canna Law Blog and say whatever we want.

We will be back tomorrow with our regular programs.

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F*** the Treaties: Rescheduling and “Marijuana-Specific Controls”

Marijuana-specific controls in schedule III?

The Drug Enforcement Administration (DEA) published its Notice of Proposed Rulemaking (“NOPR”) last week to much fanfare. The NOPR would reschedule marijuana, “marijuana extract” and “naturally derived delta-9 tetrahydrocannabinols” from schedule I to schedule III of the Controlled Substances Act (CSA). But that’s not all.

In my very quick analysis after the rule dropped, I flagged DEA’s statement that it may develop “marijuana-specific controls” in conjunction with rescheduling. I’m surprised this DEA statement hasn’t spurred much discussion, despite its Easter egg placement at NOPR page 86. “Marijuana-specific control” rules could turn out to be a pretty big deal.

For context, the U.S. is a party to certain international treaties that require it to control cannabis and other drugs. Because of that obligation, the Department of Justice’s Office of Legal Counsel (OLC), has advised DEA that additional controls may be needed for marijuana on schedule III. That’s the simplest way to explain it: if you want more detail on the whys and wherefores of the legal regime and OLC’s rationale, go to pages 83-87 of the NOPR.

In my post last week, I highlighted that marijuana-specific controls would be considered by DEA “concurrent with this rulemaking.” In other words, DEA is saying, “we are looking at adopting new and special rules for marijuana, beyond just moving it to schedule III. But we don’t know what those new and special rules would be yet. Stay tuned.” This approach is artfully vague and noncommittal, and awkward, and begs examination.

The path to marijuana-specific controls

I am not an administrative law expert. However, my understanding is that DEA would be required to notice any proposed, marijuana-specific control rules in the Federal Register and open them up for comment. In other words, the process would mirror what we just saw with last week’s NOPR.

If this happens, it will be interesting to see what the “specific controls” rules provide. To that end, I’m not aware of any such rules for other schedule III drugs. Instead, there are only general controls applicable to all schedule III drugs: e.g., certain storage requirements, allowances for paper or telephone prescriptions, refill caps, etc. None of that seems applicable to e.g. marijuana flower, which isn’t approved by FDA for anything.

On the other hand, what could these rules possibly say that would matter, especially with respect to state marijuana programs? Would anyone, outside of scientists studying marijuana, pay any attention to a DEA’s “specific controls” for schedule III marijuana? Probably not. Would DEA set about enforcing these rules against state-licensed marijuana businesses, medical marijuana card-holders, etc.? I can’t imagine it would. So, what’s the point?

Marijuana-specific controls and the international law conundrum

Smarter people than me have puzzled over whether the international drug treaties are “flexible” enough to accommodate a schedule III landing for marijuana. Folks have also wondered whether these treaties can be read to accommodate what states have wrought under their Tenth Amendment powers, legalizing weed.

If the correct answer is “schedule III is viable under the treaties”, the OLC recommendation that DEA create “specific controls” for marijuana strikes me as: a) very smart and b) totally impractical. I don’t mean to speak ill of the wizards at OLC, but I’ve noted on our sister blog that lawyers should avoid “purely technical legal advice which is also inadequate”, per ABA Model Rule 2.1[2]. This advice has that look and feel, for me.

Why we don’t need marijuana-specific controls

Is there a better approach than what OLC recommends? I think so. The U.S. could simply ignore its treaty obligations as to marijuana. That may sound extreme, but here are my arguments:

First, the U.S. arguably has ignored the Single Convention for many years with respect to marijuana. Strong arguments can be made that the U.S. has violated the treaties by failing to enforce the CSA in the face of state-level adult use legalization. More recently, OLC itself declared the U.S. in derogation of treaty requirements in the specific context of cannabis manufacturing and research. Did the sky fall when this OLC memo dropped, describing lawless policies? No. Hardly anyone noticed; fewer people cared.

Similarly, did anyone care last year when the International Narcotics Control Board expressed concern over the “international trend to legalize non-medical use of cannabis.” Nope. Again, no one cares. As I’ve explained elsewhere, “public international law is decentralized, unenforceable, unpoliced and frequently broken.” In the drug treaty context, enforcement is an academic consideration at best.

The second reason the U.S. could simply ignore its drug treaty obligations, rather than writing dumb, unenforceable rules, is that other countries have done this. Yes, there is a map. And instead of looking bad, or receiving mild sanctions, these countries have come off looking like the principled leaders they are. Way to go, Canada! And Germany. And South Africa. And everyone else.

Third, the U.S. does not faithfully and consistently comply with international treaties– when it even bothers to ratify them. A quick and discerning Google search will turn up many articles with long lists of treaties the U.S. has signed and failed to ratify, or that is has ratified and subsequently violated. Why single out cannabis for pious adherence?

What’s next

I’ll be interested to see if DEA actually proposes rules on “specific controls” for marijuana in Schedule III. My guess is it will happen, in keeping with the grand tradition of impractical U.S. drug policy. I think we’re just seeing an unorthodox, two-step approach here due to political pressures to hurry marijuana along to schedule III. The order to review marijuana’s status came straight from the top, after all.

If DEA decides to propose “specific control” rules, it should happen fairly soon. Such a scenario seems more likely, and more manageable, than marijuana landing on schedule III “as is”, with specific controls to follow at some future date.

Watch this space.

____________

For related reading, check out the following posts:

• International Cannabis: Breaking the Law, Staying Honest
• BREAKING NEWS: DEA Issues Notice of Proposed Rulemaking to Move Marijuana to Schedule III
• Yesterday’s Marijuana Rescheduling News, Explained
• Three Myths and Three Facts on the HUGE Marijuana Rescheduling Recommendation
• What Rescheduling Means for Cannabis Investments
• Cannabis Rescheduling and Trademarks

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Setting the vibes right for your long weekend

If you’re in Los Angeles, you know that a long weekend calls for setting the vibes just right. And who better to guide us than our favorite weed influencer, Biz? With his finger on the pulse of the cannabis scene, Biz shares his top picks to elevate your long weekend experience. Featured products Biz’s strain […]

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The Cannabis Industry Now Supports Over 440,000 Full-Time Jobs

As the 2024 elections draw near, the economic impact of cannabis legalization is set to become a prominent topic in political discourse. With billions in total sales and millions in tax revenue, the economic benefits of legal cannabis are clear. However, beyond the monetary gains, there is a crucial aspect that must not be overlooked: job creation.

The 2024 Cannabis Jobs Report by Vangst reveals that over 440,000 jobs have been generated in states with legal cannabis, marking a 5.4% increase in the past year alone. This growth not only signifies economic stability, but also highlights the industry’s resilience in recovering from past job losses. As new markets like Missouri contribute to this job surge, the report underscores the varying dynamics of job creation across different states: newer markets are expanding while older ones face challenges. Despite these disparities, the forecast remains optimistic, with continued growth in sales and job opportunities anticipated in the coming years.

The economic benefits of legal cannabis

When discussing the economic benefits of fully legalizing cannabis, the subjects of total retail sales and related tax revenue are always immediately discussed, and rightfully so. Forbes estimates that the regulated U.S. cannabis industry will be worth $46 billion in 2028, and will surpass alcohol sales in some counties. Even in more remote and less populous states, cannabis has brought in millions in retail sales and tax revenue. In Maine for instance, cannabis sales reached $217 million in 2023. Missouri, despite a population of roughly six million, was the sixth largest market of all the states with legal cannabis in 2023. In all, Missouri topped $1 billion during its first year of recreational sales.

Job creation in the cannabis industry

As we approach the 2024 elections, cannabis will undoubtedly be an issue on the forefront of discussions. The rapidly increasing, multi-billion dollar figure of total cannabis sales and many millions more in tax revenue will be mentioned prominently. However, when discussing the numerous economic benefits of recreationally legalizing cannabis, politicians who run so heavily on platforms of American job creation, such as the reality TV star turned President, must also acknowledge the thousands of jobs that are created annually from states with legal cannabis.

Recovery and growth

One partial reason identified by the Vangst Report for the dramatic increase in 2023 cannabis jobs, is that cannabis industry overall experienced a loss of about 10,500 jobs from 2022 to 2023. Not only were industry businesses actively creating new roles for prospective employees by the thousands in 2023, they were recuperating from a deficit of job loss. Luckily for this flourishing industry, the legalization and opening of the recreational cannabis market in Missouri easily filled those 10,500 previously lost jobs for their billion-dollar industry.

State-by-state analysis

One noteworthy data set in the Vangst Report was precisely which states’ markets were creating more jobs, and the ages of various state markets in relation to job creation performance. Of the top nine states for cannabis job growth, three saw increases of over 100 percent; and none of those states had legal cannabis before 2018. One of those states, Utah, experienced a growth of about 16 percent, but is still a strictly regulated medical-only market. Even more surprisingly, Utah is the only state that could even be considered “West Coast” among the top nine.

Interestingly and worryingly, the eight states to experience the most staggering job loss all legalized cannabis at least a decade ago. On top of the mountain of issues that the California industry is already facing, the Golden State experienced the highest number of job losses in the past year. Neighbor state Nevada, despite attracting over 40 million tourists a year, experienced a seven percent job numbers drop. Colorado and Washington, the very first two states to legalize recreational cannabis in 2012, experienced the highest percentage of job loss by far, at 16 and 15 percent respectively.

“The national 5.4% growth in jobs wasn’t spread evenly. Now more than ever, America’s cannabis industry is a state by-state, region-by-region job market.” the Vangst Job Report summarized. “Young markets in recently legalized states continue to expand and create employment opportunities, while labor demand in mature markets contracts along with revenue and profit margins.”

Future projections

Even with the notable stagnation or job loss in the thousands for certain states, the report indicates hints of future job growth. Vangst estimates that anywhere from 7,500 to 45,000 jobs could be created in Ohio, for example, which recently legalized adult use cannabis. Out east, With Maryland awarding 75 more retail cannabis licenses, the number of jobs created in that state would almost certainly increase. Overall, the Vangst Report hypothesizes another wildly successful year for cannabis sales.

“In 2023 our legal revenue forecast of $29.2 billion came in at $28.8 billion (98.3% accuracy). This year we’re looking for 9.1% growth, with sales increasing to $31.4 billion. By 2030, we predict this will grow to $67.2 billion as more states legalize and more consumers participate. That growth will create more jobs, more wages, more taxes, and more ancillary support. Despite the challenges, this seems like a good problem to have as an industry.”

Conclusion

As the cannabis industry continues to evolve and expand, its economic contributions are becoming increasingly significant– particularly in terms of job creation and tax revenue. Job growth underscores the industry’s resilience and potential to create economic opportunities, even as older markets face challenges.

As the 2024 elections approach, it is imperative for policymakers to recognize and address the multifaceted economic benefits of cannabis legalization, ensuring that discussions extend beyond sales and taxes to include the vital aspect of job creation. With projections indicating continued growth in sales and employment, the cannabis industry stands as a dynamic and promising sector, one poised to make significant contributions to the American economy in the years to come.

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Memorial Day’s best weed, prerolls, carts, and more 2024

Crush the campout. Win the road trip. Leafly's experts help out.

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