Why Legalizing Interstate Cannabis Is Critical for the U.S. Market
Mar 14, 2020 | Save On Cannabis
America’s legal cannabis trade is growing at a breathtaking rate—over 24% per year. By 2025, the industry may be worth over $66 billion, but there’s one major stumbling block that’s hurting producers, retailers, and consumers, and the problem will only get worse as the industry grows.
We’re talking about the problem of interstate commerce—or the prohibition thereof.
Because cannabis is recognized as a Schedule I drug under the Control Substances Act, federal law strictly prohibits its transport across state lines. So if—for example—you walk into a legal dispensary in Nevada, your options are exclusively limited to bud grown in the Battle Born State—even though Nevada has some of the worst growing conditions in the country. But the problem goes much deeper than just limited access to good product.
Why We Need to Legalize Interstate Cannabis
Nobody understands the fight for interstate legalization better than Adam J. Smith. Smith is the founder and executive director of the Craft Cannabis Alliance, and he helped to spearhead Oregon’s recent Interstate Transfer Bill (SB-582), which authorizes the state to participate in interstate cannabis agreements as soon as the U.S. government either lifts its prohibition or the Department of Justice publicly acknowledges that it won’t interfere with interstate commerce.
When we spoke with Smith about the importance of legalizing interstate trade, he didn’t mince words. “If cannabis gets entirely corporatized, it will tear the soul out of cannabis.”
Smith knows a number of second- and even third-generation cannabis farmers, many of whom fought for legalization in the hopes that they could evolve their underground operations into legitimate, above-board businesses. Because interstate trade is still illegal, those small farmers are now struggling to stay afloat as only multi-million-dollar mega-corporations can comfortably weather the intense supply-and-demand restrictions. According to Smith, “We’ve set up a system that is killing the heart of cannabis. To have it taken away from these folks and brought into corporate boardrooms is soul-killing.”
During our conversation, Smith laid out several reasons why interstate cannabis prohibition lies at the heart of the problem.
U.S. Cannabis Has Traditionally Traveled From West to East
For the past half-century, California’s Emerald Triangle has accounted for as much as 80% of the illegal cannabis grown and sold in the U.S. The Emerald Triangle consists of Humboldt, Trinity, and Mendocino counties, all adjacent to the Pacific Coast in the northern part of the state.
The Mediterranean climate, coastal morning fog, and rich soil provide this region with some of the best growing conditions on the planet. Plants have been known to grow 15 feet high, and abundant supply is never a problem. Similar conditions exist in Oregon and Washington, so it’s no wonder that cannabis has traditionally traveled from west to east.
Other states aren’t so lucky. In neighboring Nevada, where recreational use has been legal since 2018, growers require costly indoor facilities to overcome the insufferable desert conditions. This results in a product that costs significantly more despite being lower in quality—even though there’s a surplus of excellent cannabis just a few hundred miles away in the forests of Nor-Cal.
Other states throughout the country have the same problem. The high-supply states have little overlap with the high-demand states, and these states are incapable of doing business with one another. Every cannabis economy suffers as a result.
Indoor Grow Facilities Are Expensive–Really Expensive
One of the key reasons why mega-corporations are already dominating the legal cannabis market is because it takes tens of millions—sometimes hundreds of millions—of dollars to run an indoor grow facility. And because most parts of the nation don’t have optimal year-round growing conditions, these types of facilities are required in most states.
The cost can vary depending on the water requirements, electricity requirements, labor costs, and other factors. Some states additionally have to deal with costly extenuating circumstances like high humidity, which is why Florida facilities have to invest millions in dehumidification equipment.
By some estimations, you’re looking at an average of $75 per square foot just for the startup costs alone. By contrast, outdoor grow facilities cost as little as $10 per square foot. If your climate doesn’t accommodate outdoor growth, you’re simply out of luck there.
To compete in a major market, some indoor grow facilities span between 200,000 to over a million square feet, which means investing no less than $15 million just to get off the ground. This is why, in states outside the Pacific Coast, small-scale growers simply don’t stand a chance.
There are also environmental concerns with these massive indoor grow houses. An industrial-sized facility requires excessive heating and air conditioning, round-the-clock lighting, humidification and/or dehumidification equipment, and exorbitant amounts of water. Assuming that ⅛ of an acre requires 24,000 gallons of water per season, a 200,000-square-foot facility would use 864,000 gallons. As Smith noted, “Cannabis is not about destroying the earth. It’s a great way to reduce carbon.” So why are we relying on these environmentally inefficient grow houses when we don’t have to?
Rather than forcing dry and humid states to battle the forces of nature and produce cannabis at seven times the cost, it makes much more economic and environmental sense to open up interstate commerce and allow the surplus states to share their supply where it’s most needed—just as it has always been done in this country.
Excess Supply Actually Hurts Small Growers
The lack of interstate commerce doesn’t just hurt those states with insufficient growing conditions. Small farmers in places like California and Oregon often suffer most. According to Smith, “What Oregon didn’t think through was that when we legalized the industry we had, the industry we had was an export industry and had always been an export industry. Suddenly we had this tremendous glut in product. The solution they came up with was to make farmers grow less. The people who survived were those who could afford not to make any money for a couple of years.”
When farmers produce too much, and they’re limited in where they can distribute their product, the value of their weed plummets and they end up eating the losses. This has been a problem throughout the Pacific Coast region and has caused some farmers—many of whom have been growing in the area for generations—to lose their livelihoods. If only they could offload some of that excess supply to states where it’s desperately needed, the whole problem could be averted.
Delaware is one example of a state where things are especially bad. The state has nearly 10,000 registered patients but only six dispensaries to serve them—and the lack of supply means that cannabis is extremely expensive.
And then there are states like Utah and Missouri, where legislatures are learning how difficult it is to get a medical marijuana program up and running. Doctors are certifying patients, but patients have nowhere to go, which forces them to purchase from out of state or on the black market. Smith notes that it can take 3 to 4 years for states with no programs to fill their shelves. With interstate commerce, these new markets could fill their shelves with safe, certified products almost immediately.
Interstate Prohibition Reinforces Social Inequity
One of Smith’s passionate causes has been raising awareness about how interstate prohibition contributes to social and economic injustice. He notes that one of the reasons for the failure of New York City’s recent cannabis bill is that black legislators felt that it did nothing to address the decades of injustice inflicted on people and communities of color. Consider that African-Americans are almost four times as likely as whites to be arrested on marijuana charges, even though whites are just as likely to use and distribute the drug.
As noted by Smith, “New York City arrested 450,000 people for low-level cannabis. Eighty-six percent of those arrests were black and Latino. It was a system for putting young people of color through the criminal justice system. If that industry is centered around who gets to grow it there, it’s going to be large companies that can invest tens of millions of dollars in facilities.”
Smith is one of a growing number of advocates for equity licenses. The idea is to allow special licenses to individuals from those communities hurt most by the War on Drugs; let them import, distribute, and sell cannabis between states, and let them benefit economically from the very system that has targeted, exploited, and incarcerated them for generations.
Segregated Cannabis Markets Are a Recipe for Collapse
Currently, every recreational and medicinal state has its own marketplace with its own facilities, staff, and distribution model. Some of these marketplaces, like those in Virginia and Utah, are just being developed. But what happens when recreational medical marijuana is legalized at the federal level and the flood gates are suddenly opened? All of those cost-inefficient facilities in places like Florida and Arizona will immediately go under, putting tens of thousands of people out of jobs.
By forcing these markets into existence, legislators are setting up their inevitable fall. As Smith noted, “Under our constitution, states are not permitted to discriminate against a legal product. You can’t keep California oranges out of Florida. So when federal prohibition ends, which could be in two years or 10 years, West Coast cannabis is going to flood legal markets all over the country. At that point, if we have 25 separate production industries, 20 of them are going to go under.”
The sooner we legalize interstate commerce, the less fallout we’ll see as a result. By allowing interstate commerce before nationwide legalization, we can ensure a smoother and more gradual transition into this type of supply-and-demand model.
How Proponents Are Helping to Make Interstate Cannabis a Reality
There still remains one obvious question: If neighboring states, like California and Nevada, both have cannabis-friendly laws on the books, what’s to stop those Mendocino growers from just taking the i-15 into Las Vegas and doing business with Sin City dispensaries? As it turns out, it’s not that simple.
As Smith explained:
“In order to be sold in a legal store in Nevada, the cannabis itself has to be in their system. There’s a track-and-trace system that the state uses. If the source is in Oregon, the state is not going to break federal law to let them get it into their system. You’ll have state employees committing a crime. There’s nothing to stop it from moving from California to Nevada. In fact, it does. But it cannot be put into the legal system in an above-board way. We’re not really talking about whether states like California and Oregon should import cannabis. What we need to do is have multiple governors calling on the federal government to allow this to happen. We need to lay this question at the feet of the federal government.”
And that’s exactly what Smith and other advocates are doing. The first step was drafting the Interstate Transfer Bill and putting it before Oregon legislators, getting government officials to officially recognize interstate sales and put pressure on the federal government. That was a success. Now Smith’s organization is promoting similar bills in other states.
“This is part of a campaign to make it legal by 2021,” according to Smith. “We’re putting essentially the same bill in both California and Colorado this year. And then we’re talking to folks in import states, in medical states like Delaware where it’s legal but there’s no access to medicine.”
The thing that makes these bills so potentially impactful is that they don’t actually require the federal government to legalize interstate cannabis. According to Smith, “We can do this when the federal government either allows it by statute or the attorney general issues a memo or policy directive that says ‘we will not prosecute people.’”
The passage of the Oregon bill has already led to the creation of a federal bill, the State Cannabis Commerce Act, in July 2019. Introduced in both the House and Senate by Rep. Earl Blumenauer (D-OR) and Senator Ron Wyden (D-OR), the act provides the language that the Oregon law called for. According to Smith, “We wrote it so that we have a shot at each branch. The idea is that if the Democrats win either the Senate or the White House, we have a really good chance to say, ‘Okay, we’re going to protect this industry.’”
What Interstate Cannabis Will Mean for the U.S.
Smith is optimistic that the movement toward interstate cannabis has a shot of being successful in the not-so-distant future—with or without federal marijuana legalization. And it will have a ripple effect that forever changes the state of cannabis in the U.S. “Our belief is that the minute this happens, we’re going to have a bunch of states who realize that they can suddenly regulate their industry.”
Such a development would allow producers along the Pacific Coast to once again become the nation’s leaders for high-quality cannabis production from sea to shining sea, and it would allow retailers and clinics nationwide to benefit from a more dependable supply of high-quality cannabis at a much lower cost.
Interstate commerce would exist between states in which cannabis is already legal. If states like South Dakota and Nebraska want to keep it 100% illegal, they wouldn’t be affected. In addition, transporters wouldn’t have to worry about getting busted in less-cannabis-friendly states. As Smith noted: “If you have the federal government giving you the okay, then you can put it on trains, which are federally regulated. You eliminate the possibility of some yahoo DA or sheriff in Idaho or Indiana pulling over a truck. You could also put it on planes, though that’s more expensive and less sustainable.”
Smith further noted that interstate cannabis is also the first step toward a lucrative international market. Nations like Colombia have already established an entire industry around exporting cannabis to places like the United Kingdom and Canada, and a similar market in the U.S. could open up a world of new economic potential.
According to Smith, “The interstate effort is just getting the feds to agree to let that open. International transport requires more proactive federal involvement. There’s more bureaucracy involved. And we should [do this] because we’re losing ground internationally to countries that are more visionary on this. We are losing market share every day that we do not participate in the international market.”
Regardless of what the distant future holds, the first step is just opening the door to interstate sales. That alone would be a game-changer not only for the economy but for the farmers who have worked so hard to build America’s cannabis empire.
It’s time to let the industry thrive the way it does best.
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