Time to Take a Big Swing at Federal Cannabis Legalization

Let’s stop chipping away at a very large regulatory boulder with small hammers.

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When I consider the countless hours of work, the tireless tenacity, and the sheer audacity that have supported cannabis legalization efforts, I can’t help feeling an overwhelming sense of accomplishment. After all, cannabis’s prohibition era quickly is coming to an end.

Legal cannabis for medicinal and recreational use easily can be purchased in an increasing number of states. CBD is the hottest ingredient in the personal care and nutraceutical markets. THC is widely recognized as a therapeutic ingredient with countless potential applications.

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And yet, I wonder: Is the current approach to legalization holding the industry back?

Yes, strides have been made by introducing sweeping policy measures that just a few years ago seemed like a pipe dream. Take, for example, the three most high-profile legislative initiatives to make headlines in the past several months. The MORE Act would decriminalize marijuana at the federal level. Passing this bill would be a major accomplishment in the name of social justice. Yet, decriminalization does not mean legalization.

The SAFE Banking Act approved by the U.S. House of Representatives would allow FDIC-insured banks to do business with burgeoning cannabis businesses nationwide. The industry could engage with the banking industry in full, securing credit and streamlining revenue management. In addition, this would eliminate the real security risks faced daily when transporting cash. But in the Senate, the bill is expected to be stonewalled by the conservative majority and lose traction.

The CLAIM Act would do for insurers what SAFE promised for bankers, opening one of the fastest growing consumer markets eager for insurance protections. Like any other agricultural business, cannabis crops are at risk of loss due to natural disasters. And, like any other controlled substance, cannabis products will be the subject of civil lawsuits. The industry wants and needs the protection the insurance industry is willing to provide, if only a legislative pathway existed.

Victory on any one of these fronts would represent a major leap forward. Yet, if the ultimate goal is federal legalization, then these laws will only chip away at a very large regulatory boulder with small hammers. Worse, as the United States continues to make incremental gains, we’re being outpaced by global competitors.

Capital investments in U.S. cannabis companies already have stagnated. The current backslide of publicly traded cannabis stocks can be attributed in part to the fact investment capital remains on the sidelines. Institutional investors are leery of jumping in until the legislative landscape comes into focus. The baby steps of incremental change hamper capital investment by leaving open the fundamental question, “What will cannabis regulation ultimately look like?” Current investors already have taken a hit. Why would they invest more in a market where regulatory uncertainty is not dealt with and exponential growth isn’t guaranteed?

The alternate reality to our current approach is happening right before our eyes in the European Union (EU).

The EU doesn’t just tolerate cannabis; it sees the potential of cannabis and actively supports research and development to expand medical markets and legitimize its use. Cannabis researchers in Europe and Israel are being given access to the highest quality cannabis, sophisticated testing technology, and regulatory support for R&D. It is no wonder GW Pharma completed its Phase III trials for Epidiolex back in 2016. Worldwide, there are nearly seventy Phase II cannabis studies in process to examine the impact of cannabis and cannabis-derived compounds on human health.

Contrast that explosion of knowledge to the United States, where the illegal status of cannabis has hampered all medical research efforts. In fact, many state universities cannot even broach cannabis research without putting their much-needed federal funds at risk.

The research institutions that are exploring cannabis, like the University of Mississippi, are using strains of cannabis cultivated in the 1970s. There is literally no comparison to today’s commercially available, hybridized and specialized strains.

Medicinal cannabis approved for human consumption in the EU is governed by centralized Good Manufacturing Practice (GMP). This allows European cannabis companies to batch test in one country and ship and sell products across the continent, reducing barriers to market entry and artificial barriers to trade. In Europe, changes in one country’s regulations signal changes in all member states.

Compare that to the current state of the U.S. market, where there is no interstate trade, no centralized GMP, and no operational efficiency or centers of excellence. Because of our approach to state-by-state cannabis legalization, we’ve locked ourselves into an inefficient vertical integration system bound by imaginary lines drawn on a map.

Want to expand operations from California to Nevada? Fine, then build an entirely new supply chain from the ground up. Do not expand your operation from one contiguous legal state to another. Do not grow your product under optimal agricultural conditions in one state and sell it in the world’s largest adult playground right next door. Do not pass go. Do not collect $200.

It’s no wonder Canadian and U.S. companies and investors are looking to Europe.

The National Cannabis Industry Association (NCIA) has recommended a comprehensive path forward for not only those in the industry, but also for individual and institutional investors to understand how cannabis will be regulated so they can put their dollars to work.

The plan starts by removing cannabis’s designation as a federal Schedule I substance. That sweeping legislative reform is exponentially more important than all state legalization efforts to date, combined. Once de-scheduled, cannabis regulations could follow the same testing and manufacturing protocols established for other consumer products like alcohol and pharmaceuticals.

The NCIA framework would allow all cannabis products to flow to the market through a regulatory process that builds on the existing expertise of federal agencies and the developing state-level industry. Potentially intoxicating substances and products making medical claims would be sold through controlled systems that limit their availability. Non-intoxicating products would not be hampered by those same restrictions.

The plan is sensible, workable, and achievable. Legalization efforts thus far have only chipped away at the core issues limiting the cannabis market without providing comprehensive solutions to a rapidly growing industry. In addition, they hold back the potential of cannabis products to improve the lives and health of millions of individuals. It’s time to take a big swing to bring about big change through NCIA’s actionable proposal to make cannabis a safe and accessible product.


Roderick Stephan Altitude Investment mg MagazineRoderick Stephan is a partner at European investment firm Altitude Investment PLC and New York-based investment firm Altitude Investment Management LLC. AIM’s portfolio includes BDS Analytics, Canndescent, springbig, and Front Range Biosciences. During his thirty-year financial career, he has worked at Longacre Fund Management (UK) LLP and Citadel Investment Group.

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