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The Lid on Pot

Free-trade failures

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The main obstacle to creating a thriving legal cannabis business is the fact that the business is still totally illegal under federal law. Cannabis remains a Schedule 1 "narcotic," placing it in the same federal legal category as heroin—even though it's not even a narcotic.

The biggest perversity to arise from this is that a disproportionate number of Black people are still sitting in prison for precisely the same thing that a lot of CEOs—who are disproportionately white—are doing to get rich. But other perversities abound.

Legal pot businesses can't get access to banking. Researchers who study cannabis at universities often can't even work directly with plants for fear of losing federal funds. And federal taxation is a bewildering mess.

Among all of the problems created by this situation, perhaps the most harmful to the industry's growth is the ban on interstate commerce. Cannabis gummies made in Colorado can't be exported to California. Those who want to sell these products to Californians must make an agreement with a manufacturer in the state. Meanwhile, cannabis grown in California can't be shipped to Massachusetts, because the sale of goods is restricted to California companies.

However, reform efforts are underway in Congress to make it possible for companies in legal states to ship cannabis and cannabis products to other legal states without worrying about company execs and truck drivers getting busted for trafficking.

The proposed SAFE Banking Act, which was introduced a year ago, would provide a stopgap solution while we wait for federal legalization, providing cover until the time cannabis is treated like any other legal product. Also last year, two Oregon Democrats—Rep. Earl Blumenauer and Sen. Ron Wyden—introduced the State Cannabis Commerce Act, which would allow imports and exports among legal states. The former bill passed out of the House, but the latter hasn't picked up much support so far.

Now a group called the Alliance For Sensible Markets has come up with another approach: Get at least two states to agree to trade cannabis with each other, and then take the agreement to Congress for approval.

Such an agreement, if approved, would "spur an immediate explosion of new investment, expansion, and business formation, creating tens of thousands of jobs and generating billions in economic activity in local communities," the group says.

If all the states where cannabis is legal joined in such an agreement, growers in California and Oregon, for example, would be able to expand. And shops on the East Coast, where it's much harder to grow pot outdoors, would get access to huge supply chains, stabilizing prices and spurring demand.

Last year, Oregon passed a bill that would allow imports and exports, but it won't mean much until at least one other state signs on. Efforts to do the same are being made in California, but there are "factions" in the state that have "larger agendas," says Sean Donahoe, founder and CEO of the Oakland-based Sungrown Developments, an industry consultancy. Donahoe sits on the board of the National Cannabis Industry Association, which has lobbied for interstate commerce.

California pot businesses are already dealing with the consolidation of the three state agencies that govern cannabis and trying to get taxes lowered and regulations relaxed, so interstate commerce was already on the back-burner. "Then Covid hit," Donahoe says, which pretty much put everything on hold.

It's been a hard sell, even when the Obama administration's Justice Department issued a memo—which was later rescinded—telling federal law enforcement to lay off the legal pot industry. The wording specifically excluded interstate transportation of weed from that protection, warning the industry not to even think about trying it.

But that doesn't mean proponents have given up.

"If we don't get this shit together in California, states like New Mexico and Montana will take advantage," Donahoe says. The state government "doesn't understand the scope of where the cannabis business is headed."

Before cannabis can become a major, global industry, it first has to go national.

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