The Dangers of Poor Regulation on Burgeoning Cannabis Markets.
Stigma-driven compromise, and even well-meaning but misinformed policy, does more harm than good when creating new cannabis markets.
Despite the aggressive, yet ambiguous, anti-cannabis positions of the current federal administration, the ship towards full legalization has already sailed. Cannabis, used both medically and recreationally, will be an industry that meets — if not surpasses — all expectations as it normalizes within society.
Currently, around 90% of Americans favor legalizing cannabis for medical use, while 61% support full legalization — up from 40% in 2011. Spend a mere five minutes on Twitter, and you’ll see everyone from hardcore hippies, to MAGA screaming Deplorables, all united in the fight to end the persecution of this plant.
The real question, therefore, is how long we will have to wait to experience all the amazing benefits an unfettered cannabis industry brings with it, from jobs and tax income to a healthier and safer population in general. And even more importantly, how many more lives and families will suffer before the cannabis front in the “War on Drugs” finally comes to a close?
More than any one or two individual’s personal mandates, poor regulation can grind the progress of access down to a halt.
Poor regulation happens when states, having to build out their cannabis industry (sometimes reluctantly if it stems from a voter initiative), do so in an inefficient, market-mucking manner. We’ll get into some general examples of poor regulation and their effects in a bit, but first, let’s touch on how they happen in the first place.
What leads to poor regulation?
First, some legislators simply cannot get over the stigma, which affects not only conservatives but also some liberals who often don’t realize just how much the drug wars’ messaging has permeated their psyche. This causes an odd sense of guilt, which often drives them towards overregulation, making things unnecessarily burdensome, even if they live in a place where few constituents are concerned about it.
At the same time, there are still places where being anti-cannabis can help a lawmaker get elected. Even if it’s of minimal help, it’s still a natural choice for indifferent policymakers to take a harder stance on cannabis to pander to these voters.
Cannabis is also a soft target for political tradeoffs. Many places don’t view access as a critical issue, so even supportive lawmakers might be compelled to give ground to gain political capital for other matters.
Lastly, there are those who have a more sinister reason for pushing out poor regulation — they know the explicit damages of doing so. At this key inflection point in the industry, poor regulation can have a much more dramatic and negative effect than if folks took the time to get the best policies figured out upfront, and then implemented them at the most opportune time in the future.
Let’s take a look at a few of these policies, and then how they can be used to damage than industry:
• Limits to products — For example, not allowing sales of flower and/or edibles.
• Poorly devised dosing limits/requirements — Limits such as 10mg per packaged dose makes no sense for many long-term medical patients.
• Overly onerous testing and tracking — Having more stringent thresholds than other comparable agricultural items.
• High local barriers to entry — Namely, high license costs and requirements.
• Limits to workforce participation — Such as preventing those with nonviolent criminal records from working in the industry.
• Poorly devised canopy size limits (or lack thereof) — Too big or too small lead to suboptimal market outcomes.
• Poor zoning policy — Leads to geographically suboptimal development.
• Limits to medical conditions covered — Limits the total patient population that can be serviced (and keeps those suffering from conditions not included in limbo).
• Limiting access to banking — Makes operations more difficult, and significantly increases safety and security risks.
• Unfair tax policy — Unfair tax policy makes financially breaking even as an operator much harder, driving up industry costs.
• Price controls — The state over-meddling in the industry to control prices will likely backfire.
Consequences of poor regulation:
Poor regulation hurts by sustaining the black market, stymieing the benefits of a healthy industry, diluting the value of good regulation, and, ironically, allowing for monopolies and consolidation of capital and control in an industry particularly anathema to it. Ultimately, a flawed policy regime increases the chances for a public policy failure that anti-cannabis activists can use to delay further access to the incredible benefits of this plant.
1. Sustains a robust black market — If cannabis access is difficult due to eligibility requirements, geographic factors, or high price, folks will defer to the black market. Same if the marketplace is too limited in variety to cover market needs, such as restricting flower for “health” reasons.
2. Stymies the positive externalities created by healthy cannabis marketplaces — Inefficient policy leads to inefficient markets, which vastly decreases the industry’s capacity to create jobs. Also, it makes it harder to get into the hands of the patients who desperately need it — such as seizure disorder sufferers, veterans with PTSD, and poor souls addicted to opiates. Societal benefits sacrificed by poor regulation include the reduction in fatal traffic accidents that comes with access, as well as a reduction in public healthcare costs due to fewer of these accidents, less alcohol use, less opiate abuse, and even a reduction in publicly subsidized prescriptions via medicare and medicaid. Lastly, poor regulation can leave a lot of tax money on the table, or worse yet, creates conditions where tax dollars flow out of one state into a neighbor who has adult use access.
And this doesn’t even touch on the general health benefits that are starting to be confirmed with cannabis — particularly its capabilities as an anti-diabetic, anti-inflammatory, and anti-tumor agent.
3. Hurts regulations that are positive — Overly onerous regulation will drive folks to take shortcuts around other important regulations to meet all the demands placed on them. A good example is pesticide testing — overzealous and unnecessary testing standards drive folks to find ways around it, or simply to divert product to the black market. At the same time, it squanders an opportunity to have robust, focused and targeted testing requirements which ensure patient safety and overall product quality, without overly burdening producers.
4. Difficult or poor regulation can create barriers to entry that only allow for large commercial interests — The cannabis industry is somewhat unique due to the legal ambiguity it is built on. A lot of folks made huge sacrifices and often suffered so that everyone could one day have access to this substance. Regulations need to respect and honor this fact. Burdensome regulations and high costs raise barriers to entry, decreasing the amount of competition and participants; also, poorly designed policies allow a well-capitalized company to come in and scale faster than its competition, pushing out smaller competitors.
So what can I do?
Stay active! Join the National Cannabis Industry Association, Marijuana Policy Project and your local grower’s association. Attend meetings, participate in lobby days, and communicate with your lawmakers — don’t be afraid to write and call your local elected officials who are crafting cannabis policy!
And if you are a state official tasked with implementing a cannabis policy in your state, rather than bringing in a bunch of cannabis consultants from different locations, bring in an economist! They can objectively examine what makes sense and what does not, and combining that with a full review of best practices in other markets, they can build a regulatory regime that maximizes benefits for as many stakeholders and patients as possible.
Have any other ideas on how to help influence regulation? Or are there any industry-stymieing policies we missed? Let us know so we can share them!
