INSIGHT: Growing Pains—The Cannabis Industry’s Need for Standards

As the march toward legalization of cannabis continues, states and local governments have begun to release a torrent of laws and regulations touching nearly every aspect of the cannabis sector.

This patchwork of often inconsistent and frequently changing law is burdening legal cannabis businesses by creating barriers to market entry, imposing costly changes to business practices, and even requiring inventory to be abandoned.

These costs on legal cannabis business serve to encourage the black market and thus inhibit the realization of public policy objectives underlying legalization, such as protection of the environment and public health.

The Growing Cannabis Regulatory Patchwork

The number of states that allow for and regulate some form of cannabis use continues to grow. As of publication, 10 states and the District of Columbia have legalized recreational cannabis use, and 33 states have legalized medical cannabis. Globally, legalized cannabis is also gaining momentum as governments around the world increasingly embrace the economic and social benefits of regulated markets for recreational and medicinal cannabis.

Separate efforts are underway in all of these jurisdictions, including the more than 40 states that now allow for some form of cannabis use, to develop rules governing the cannabis sector. For example, during the last year in California alone, three new state cannabis licensing authorities—CalCannabis, the Bureau of Cannabis Control, and the Manufactured Cannabis Safety Branch—each issued their own voluminous set of emergency regulations, then modified those emergency regulations, and finally proposed (and then modified) permanent regulations.

Add to this legal terrain differences across states and nations, and the result is a patchwork of frequently inconsistent cannabis laws.

For example, laws governing legal cannabis in Washington state and Colorado, the first U.S. states to legalize recreational cannabis, impose different industry structures and build on their existing medical systems in different ways, including with respect to license fees and state residency requirements

These distinct regulatory requirements created very different incentives and constraints for prospective market entrants in each state and high barriers to entry for businesses seeking to operate in both states.

The Costs of Inconsistency

The lack of regulatory alignment in the cannabis industry is costly. Differing state and local laws can impose expensive barriers to market entry on cannabis-related businesses.

For example, each state has detailed cannabis packaging, labeling, and advertising requirements that often differ from other states’ requirements, thus forcing cannabis packaging manufacturers to develop, produce, and continue to update state-specific packaging.

Similar concerns with differing requirements exist across all links of the legal cannabis supply chain, from what pesticides can be used in growing the plant, to how product must be tested, to the exit packaging product must be placed in when it leaves a retail store. In addition to differences across jurisdictions, small regulatory changes within them can translate into very high costs of compliance that can strand investments, stifle growth and inhibit innovation.

The burdens placed on legal cannabis businesses due to the lack of regulatory alignment encourages the black market. And by proliferating the black market, this lack of alignment undermines the fulfillment of public policy goals of legalization.

For example, black market cannabis is often contaminated with pesticides and other contaminants like mold. In addition to raising direct public health risks for consumers, heavy use of in many cases illicit pesticides by illegal growers can damage the environment, as can other destructive land use practices used by illegal growers.

The need to reduce the costs and disruption caused by differing state laws will become even more pressing should federal law be amended to allow for transportation of cannabis goods between states where it is legal. At that point, differing state laws governing the contents and testing of cannabis products may prevent the substantial benefits of legal interstate cannabis commerce from being realized.

Once international trade in cannabis is permitted, regulatory divergences across national boundaries will also create barriers to market access and inhibit trade and investment among key trade partners with regulated cannabis markets.

Efforts to Harmonize Cannabis Laws

These unintended consequences of regulatory uncertainty and misalignment are largely the result of regulatory processes being driven by state and local regulators in the face of tight statutory deadlines, rather than by industry members who have many years of experience and specialized knowledge of how the industry works.

But efforts are underway by the regulated industry to develop a body of best practices that can promote alignment of state and local cannabis regulations.

Cannabis Standards Development Activities

Standards can be the engine that propels the growth of the cannabis industry in a way that maximizes benefits to society. ASTM International’s nascent Committee on Cannabis, known as the D37 Committee, develops international standards for cannabis products and related processes.

More than 500 individual members from universities, private companies, government agencies, trade associations, and advocacy groups make up the committee, with representation from 15 different countries.

Standards finalized by the committee thus far relate to the measurement of water activity within cannabis flower, a standard guide for cleaning and disinfection at cannabis cultivation centers, and a standard practice for applying a Hazard Analysis and Critical Control Points (HACCP) system for cannabis consumable products.

These and other ASTM standards will help build consumer confidence by ensuring the quality and consistency of cannabis products, and stand to reduce regulatory burden by providing a framework for harmonizing laboratory test procedures and labeling requirements.

Public Policy Benefits of Cannabis Standards

Promoting alignment of cannabis regulations through governmental reliance on ASTM standards can help produce better regulatory outcomes for both the cannabis industry and governments. By allowing a range of experts to inform the development of international standards through an open, transparent, impartial, consensus-based process, cannabis standards developed through the ASTM process will be of high technical quality and globally relevant.

Cannabis standards will not only improve ongoing and future efforts by local, state, and even foreign governments to regulate cannabis, but will also serve as a powerful tool to change some of the more problematic rules that have already been issued.

Developing a Cannabis Model Code

One way of facilitating regulatory alignment is to develop a model code that shows how a state or local regulator might utilize ASTM standards, whether through incorporation by reference or other means.

A model code could also address other issues that relate to regulated aspects of the cannabis business that standards would likely not cover, such as licensing rules and law enforcement. Developing a cannabis model code could help fill these regulatory gaps.

In addition, a model code developed by a diverse group of experts could be used to inform and harmonize the ongoing, diffuse efforts by state, local, and national jurisdictions to regulate cannabis in a way that is evidence-based and achieves high levels of health and safety protection.

Lastly, a model code could clarify where gaps remain for standards development, and build a coherent vision for a well-regulated, competitive market.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.

Author Information

Tyler G. Welti is counsel in the Environmental Practice with Venable LLP in San Francisco.

Jeffrey G. Weiss is a partner in the International Trade Practice at Venable LLP in Washington, D.C.

Nathan Frey is an regulatory policy expert and consultant at Regulatory Strategies and Solutions Group LLC.