As votes for the presidential race continued to be tallied, cannabis emerged as a clear winner in the 2020 election as five states—Arizona, Montana, Mississippi, New Jersey and South Dakota—passed legalization measures, leaving many to wonder what comes next for these new markets.
In one historic night, the U.S. cannabis landscape shifted dramatically as Arizona, Montana and New Jersey passed adult-use legalization, Mississippi passed medical cannabis legalization and for the first time, one state—South Dakota—passed both medical and adult-use legalization at the same time.
All five of the newly legalized states are significant in their own way and could each play a role in the future of continued reform efforts, according to industry stakeholders.
New Jersey, for example, could be the tipping point for adult-use legalization in the tri-state area, as New York and Pennsylvania consider policy reform efforts heading into 2021, according to Steve Fox, counsel at Vicente Sederberg and managing partner of VSS Strategies, Vicente Sederberg’s policy and public affairs consulting affiliate.
“I serve as an adviser to the Cannabis Trade Federation, and we actually just put out an alert where I described these ballot initiatives as domino initiatives, noting that they were likely to lead to other states following that,” Fox says. “I think the Northeast, with New York, Connecticut, Maryland [and] Pennsylvania, … have good prospects for moving forward as early as next year.”
In addition, medical cannabis legalization in a conservative state like Mississippi is a good sign for the federal outlook, as cannabis becomes an issue that crosses party lines, according to Rachel Gillette, partner and chair of the Cannabis Law Practice at Greenspoon Marder.
“I think it shows the trend pretty clearly, that despite all sorts of political persuasions, cannabis has very strong support for legalization overall, nationally,” she says. “I think that’s a good sign for national legalization, and that’s regardless of which party controls the presidency or the House or the Senate.”
According to consumer research from BDSA, the market intelligence firm is seeing “consumption of cannabis in a bipartisan way,” says Liz Stahura, BDSA’s co-founder and president.
“Over 50% of those who identify as strongly conservative in our research are in support of some sort of cannabis legalization,” Stahura says. “And we’re really seeing that red curtain come down, as illustrated by states like South Dakota, like Montana, like Mississippi … that are embracing cannabis legalization.”
Five more states implementing legal cannabis programs could signal a major tipping point at the federal level, agrees Vincent Sliwoski, attorney at Harris Bricken.
“I think you’re going to have … more upward political pressure from states, states’ rights groups, state governors and all of those people to get federal policy changes,” he says. “And I think, in conjunction with that, when you see a Biden-Harris presidency, Biden’s been kind of not great, not like a lot of the other Democratic presidential nominees for cannabis reform. But Kamala Harris has really gone progressive on the issue, and I think those factors will help.”
And while the post-election makeup of Congress didn’t change much, Sliwoski is hopeful that federal cannabis reform efforts will continue their slow march ahead.
“Congress didn’t turn over very much—in fact, it went a little bit more red,” he says. “That’s not going to help anything. … I don’t know that you’ll get broad-scale reform, but you’ll just get this continued kind of slow, mounting pressure, and hopefully, we’ll see full-scale federal reform within a few years.”
Post-election, Gillette says the discussion around cannabis has shifted from whether to federally legalize cannabis to what federalization will ultimately look like.
“What does federal legalization look like, and how much involvement is the federal government going to have in state programs?” Gillette says. “Or are they going to get out of the way and just deschedule marijuana, have some oversight federally, but really let states continue on their paths? I don’t know the answer to that, but that’s the discussion we need to have.”
Education is key, she adds, to ensure that any federal reform aims to deschedule, rather than reschedule, cannabis, and that any regulations stemming from federal legalization create pathways, rather than barriers, for already well-developed state-run cannabis programs to exist.
BDSA estimates that Arizona will be one of the first programs to launch of the newly legalized, adult-use states, Stahura says.
“Arizona has a thriving medical market. It will continue to grow and build off a very, very strong foundation the 130 or so medical dispensaries have already built,” Stahura says, adding that they believe the market will launch toward the end of 2021. “And a lot of large players are currently spending time and energy and resources in the Arizona marketplace.”
Although there’s a lot of industry support for and interest in New Jersey, as well, BDSA forecasts that the program won’t come online until 2022, Stahura says.
“They have a little further to go in terms of building up the market, so there is going to be some additional time needed for the licensing and the actual building of the infrastructure of the market,” she says. But once that happens, the state will “certainly from a population and a location standpoint, be really well positioned to be a successful market.”
In South Dakota, BDSA predicts the medical market will launch first by the end of 2021 followed by the adult-use program by the end of 2022.
“By the time you get to 2023, so after both of those markets are up and running, our forecasts are $12 million for medical and $21 million for adult use,” Stahura said, calling the dual legalizations an “interesting case study.” “And the fact that this is happening in a ruby red Republican state makes it that much more interesting.”
As these five newly legalized states work to craft their regulatory regimes, Gillette hopes they will steer away from competitive licensing schemes, which she views as problematic.
“They basically create these grading systems and then have people compete for a limited number of licenses,” she says. “I think those systems are inherently flawed, and I think the outcome typically is the state getting sued by the first people who don’t get the licenses. … It’s very arbitrary.”
Instead, Gillette believes states should grant local municipalities the ability to create zoning and limit cannabis licenses within their jurisdictions to create more free market competition.
“I think it should be a local jurisdiction that determines the best regulatory system they want to put in place or ordinance they want to put in place for where they want their marijuana businesses to be and what types of marijuana businesses they want to allow,” she says. “For example, an industrial area might trend toward having more cultivations, whereas a city may say, ‘We only have retail space, so we don’t want cultivations in our community.’ I think that’s the answer.”
Social justice is another key component of cannabis regulation that should not be ignored in these newly legal states, Gillette adds.
“I don’t know that any state has gotten social justice right,” she says. “I think there’s been a number of communities, like LA, which is now being sued, and San Francisco, that try to implement these social justice programs. The intent was there—there’s great intent—but you can’t just award a few licenses to a few people and say, ‘We’ve now solved the social justice issue in cannabis.’ What you want social justice to mean is that it’s impactful to a great extent to all of those communities that have been disproportionately impacted by the drug war, to those people who have had their lives affected by the war on drugs and had their families arrested and put in jail for the personal use of marijuana. And that means you have to have a greater impact than letting a few people win a lottery ticket."
States should strive to reinvest in communities that have been hardest hit by prohibition, Gillette adds, by earmarking a portion of cannabis tax revenues for community programs.
However, these five states decide to regulate their new cannabis industries, Gillette echoes BDSA’s predictions that it will be one to two years before the markets begin to emerge and the states start seeing tax benefits.
“I think as far as the tax impact, it could be great for these states, but again, it comes down to their regulatory regime and their regulatory framework,” Gillette says. “Tax is a really, really important question for cannabis legalization. You have to get the tax amount right. This is where the federal question comes in, too. If the federal government decides to tax cannabis federally, in addition to these states having a tax, at what level does the tax become too burdensome that consumers go back to the black market? We want to avoid that.”