Cannabis legalisation gains ground in midterms as industry gears for further federal push

Lawmakers urged to move in haste

Amanda Khatri

Amanda Khatri

Editorial Manager

Cannabis legalisation gains ground in midterms as industry gears for further federal push


The push to legalise cannabis for recreational use inched forward following the US midterm elections on Tuesday, 8th of November 2022. Two deep-red states approved measures, while three others rejected proposals to open adult-use cannabis markets.

Voters in Maryland and Missouri approved legalisation measures, and there were also decriminalisation initiatives passed in Ohio, Texas, and Wyoming.

In total, 21 states including the enormous markets of California and New York, Washington D.C. and two US territories now allow the recreational use of cannabis. In comparison, sixteen states and two territories permit the plant to be used for medicinal purposes. Cannabis use remains illegal at the federal level.

Missouri and Maryland’s addition to the list means more than 50 percent of Americans now have access to legal cannabis.

According to industry research firm Headset, the additions would add about 10% growth to the $26 billion that US adult-use marijuana sales are predicted to earn in 2022.

Low voter turnout in a non-residential election year and significant opposition from prominent conservative anti-cannabis figures were behind the failures in Arkansas, North Dakota and South Dakota, legal experts said.

Legalisation efforts in Arkansas met heavy opposition from groups like the Arkansas Family Council Action Committee, which enlisted former Vice President Mike Pence to encourage citizens to vote no on the measure.

Public opinion continues to move towards pro-legalisation. More than two-thirds of US citizens support legalising cannabis, whereas a decade ago that number was below 50% when Colorado and Washington were the first to fully legalise adult use.

Lawmakers urged to move in haste

Missouri will launch a state-wide licensing program to grow and sell cannabis, and a lottery system to provide licences and certificates. It will impose a 6% tax on sales that will go towards funding local initiatives. Further details are yet to emerge, and there is some confusion over municipalities’ level of authority to ban recreational cannabis through their own public votes.

Maryland residents overwhelmingly supported legalisation, and the successful amendment triggered a complementary bill that also provided grants to support minority and women-owned businesses in the cannabis industry. State lawmakers will now flesh out the parameters of its approach to generating the recreational cannabis industry over the coming months.

“State-wide polling had consistently shown that a supermajority of Marylanders support legalising cannabis, and the outcome of this referendum was never in doubt,” Paul Armentano, Deputy Director of the National Organization for the Reform of Marijuana Laws said. “Now it is incumbent upon lawmakers to move swiftly to adopt rules to oversee a regulated cannabis marketplace in accordance with voters’ demands.”

Long road ahead

Attention now turns to federal government efforts, following an executive order from President Joe Biden in October that pardoned more than 6,000 people with minor charges of possession of cannabis.

Biden also asked the Department of Health and Human Services and Attorney General Merrick Garland to review the federal classification of cannabis. It is currently a Schedule 1 narcotic, the most stringent regulatory level, making the drug illegal at the federal level.

Reclassification as a Schedule II would do little to close the gap with states, experts say, as any scheduled drug below Schedule, I still require Food and Drug Administration (FDA) oversight, which means that cannabis products may have to be FDA-approved.

However, existing legislation in the works at the federal level would remove the guardrails hampering the banking sector from providing services and would take sanctions off the table for the likes of insurers, credit unions and lenders wishing to enter the market.

Experts are split on whether the two newest approvals will move the needle at the federal level, however, where a Bill to grant the ability of cannabis firms to gain access to the regulated banking sector has been stuck in limbo for the last few years.

“The idea that the number of states passing legal cannabis will suddenly shift something in Congress just has not been borne out in the experience of cannabis policy in the United States,” said John Hudak, deputy director at the Centre for Effective Public Management at the Brookings Institution. “We have three-quarters of American states that have legalised medical cannabis, and that has not moved medical cannabis policy at the federal level.”

The recognition of conservative states in how legalised adult use can generate enormous amounts of tax dollars may cause priorities to shift elsewhere, said Bridget Hennessey, vice president of public affairs at Weedmaps. “Advances in any state bring us closer to achieving our goals at the federal level. But we still have a long road ahead,” she said.

“If history is to serve as any precedent, I wouldn’t count on this review being wrapped up at a time when there is still a Biden administration,” added Armentano.

Picking up the SAFE Act

Following the midterms, matters of federal legality will now be picked up by the newly-elected 118th Congress.

New legislation proposed by Colorado’s Democratic Senator John Hickenlooper, the PREPARE Act, would require the US Attorney General to convene a ‘Commission on the Federal Regulation of Cannabis.’ Hickenlooper’s proposals would empower a governing body to make recommendations related to cannabis policy, without having the authority to institute any new policies itself.

“This bill will provide lawmakers across the ideological spectrum the opportunity to engage on cannabis reform by creating a fair, honest, and publicly transparent process for the federal government to establish effective regulation to be enacted upon the termination of its 85-year prohibition of cannabis,” wrote Hickenlooper’s office in a summary of the bill.

The SAFE Banking Act remains the most significant legislation for cannabis businesses, however, as it would open access to banking for companies and has major implications for capital flows, stocks and shares, and the rest of Wall Street.

The Act aims to harmonise federal and state law by prohibiting federal regulators from punishing depository institutions that provide banking services to legitimate cannabis-related businesses and ancillary businesses that serve them.

Essentially, it establishes a safe harbour for banks and credit unions to provide banking services to cannabis-related legitimate businesses with the appropriate licensing.

Proceeds from a transaction involving activities of a legitimate cannabis-related business would not be considered proceeds from unlawful activity. This would prevent businesses from falling foul of strict anti-money laundering laws and asset forfeiture risks designed to stop the financial system from becoming a tool for criminals to wash cash.

Cannabis dispensaries are also frequent targets for robberies and violence because the current federal law requires them to be predominantly cash-only businesses. Not having full use of the banking system means they have limited access to credit or even credit cards as do other businesses.

Jumping the gun

For some businesses, sitting in anticipation of the green light from the US government is no longer an option.

One of the world’s largest legal cannabis companies, Canopy Growth, has said it will no longer wait for federal legalisation to buy three US cannabis companies.

The Canadian operator has identified opportunities to benefit from strong growth in state-by-state cannabis sales and has announced a plan to consolidate its US assets into a new holding company called Canopy USA.

“Our goal is to be the leading North American cannabis company,” Canopy Growth CEO David Klein told the media. The formation of Canopy USA marks a “logical next step” toward that goal, he said.

Canopy USA will house New York-based cannabis company Acreage Holdings, Colorado-based cannabis edibles specialist Wana Brands and California extracts maker Jetty.

With the US market poised to reach $50 billion within the next five years, Klein said there are clear opportunities for further growth in the US despite the federal uncertainty.

The fully-legal Canadian market, an outlier amongst the largest nations, has struggled with oversupply and other issues. And so, the creation of Canopy USA will diversify the company’s revenue toward the US, where individual state markets offer enormous potential, the firm said.

Regardless of the US federal approach in the short-to-medium term, the creation of Canopy USA “gives us a head start on any regulatory reform to come through,” Klein said on a conference call with analysts.

Keep ahead of emerging cannabis regulations by speaking to CUBE.




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