The cannabis industry continues to thrive as an essential business through a particularly challenging period of economic struggle. In 2021, as more conversations focus on the push for legalization, the near-future possibility of states entering interstate compacts is emerging. This potential shift in the industry will allow legal importing and exporting of cannabis across state lines and could mean big things for the industry. While we likely won’t see interstate compact deals popping up right away, the moves made across the industry in 2021 will be vitally important to interstate commerce in the imminent future.
Smart industry leaders are looking at growth through the lens of hubs—large grow facilities that eventually will supply retail operations across state lines from a vertically integrated or wholesale standpoint. From a vertically integrated standpoint, centrally located growing hubs will allow cannabis companies to supply stores and build nationwide brands. From a wholesale perspective, these hubs will be able to supply dispensaries across the country. Establishing networking hubs will become key for setting up a successful transition into interstate commerce.
Industry folks, think long term! Strategically visualizing locations of hubs for grows and dispensaries in relation to accessible trucking routes will be essential when preparing businesses for long-term success. Midwest states could see a huge rush in cannabis production due to their proximity to easily accessible trucking routes.
Investors, don’t obsess over the timeline. There is no crystal ball when it comes to federal and state regulations. Focus less on when interstate commerce is going to happen and more on understanding it will happen. Companies thinking about long-term growth, hubs, and interstate commerce are no doubt the future of the industry. Consider investing in companies that are fully aware of this shift and making plans for the future. Focusing your attention on companies that are “built to last,” as opposed to being “built to flip,” will bolster your investment portfolio in the long run.
Conglomeration and commercialization prevention
Once states are allowed to engage in interstate commerce (again, when, not if), the risks for further conglomeration and commercialization of the cannabis industry starkly present themselves. To avoid such abrupt economic challenges, it is crucial participating states remain proactive in preventing small cannabis businesses from being overpowered by larger companies that will have access to a variety of interstate commerce trucking routes. Small cannabis companies already are dealing with the fear of being overpowered as large, multistate businesses also are setting up shop.
As states continue to alter their legalization status, this will continue to happen. The arrival of interstate compact deals between neighboring states potentially could mean the end of the line for many small, localized operators. The question of effective regulation processes and standards continues to arise as states move toward legalization and interstate commerce compacts to prevent instances like these from developing. Of course, only time will tell what the situation actually will look like as the movement persists.
It is no surprise the main risk of erasing state lines for imports and exports centers around the ability to distribute quality products. For example, major hubs producing lower-quality cannabis across the country may become staples for exporting due to the large amount of product produced. In turn, lower-quality cannabis could be distributed to unsatisfied customers, highlighting yet another factor to be addressed. Real fear simmers in this area—new largely accessible trucking routes lead to the possibility substandard weed from one state could find its way into another state all the way across the country if proper measures are not implemented.
Pricing challenges have the potential to surface as well. Pricing is controlled by supply and demand, so if the supply in one state is low while the demand is high, consumers could be gouged by out-of-state suppliers increasing their prices. Plus, each state puts its own set of rules and regulations in place, and these laws can have a significant impact on the growth, manufacturing, and sale of cannabis. Without the creation of a national marketplace, quality, supply, and pricing challenges inevitably will creep up as interstate commerce catches on.
States to watch
But why would states want to enter such pacts? According to Alliance for Sensible Markets founder Adam Smith, opening a market for interstate commerce would “see valuations for thousands of farms and businesses increased by multiples, which will spur an immediate wave of investment expansion and job creation.” Smith and other proponents argue legalizing interstate commerce for cannabis means consumer states will be able to get their legal cannabis industries up and running sooner, “spurring an immediate wave of investment, business formation, and tens of thousands of jobs just when the states need them.” But such deals could spell trouble for states still holding out on legalization. Consider Pennsylvania as an example. With New Jersey recently voting to legalize recreational use, if Pennsylvania doesn’t get on board with recreational sales the cannabis grown in the Keystone State, which is legal for medical use, likely will be shipped out to neighboring recreationally legal states. That would deny Pennsylvania valuable tax dollars.
Predictions highlight mature markets like the West Coast and Pacific Northwest can begin entering interstate commerce compacts within two to three years. There could be a heightened sense of urgency with the recent U.S. Senate races in Georgia. Democrats taking control of the Senate with a 50-50 split presents a better opportunity for cannabis banking reform and legalization, which would spur conversations around compacts. The conversation continues across the map from west to east, including the western Rocky Mountain region between Colorado and Arizona and around the East Coast states of Pennsylvania, New Jersey, New York, Connecticut, and Massachusetts. The Pacific Northwest already is heavily connected by legalization and primed to be an initial leader in interstate commerce activities. Because of national trucking routes, Midwest states like Missouri, Illinois, and Michigan also are on the radar of many investors. All are viable contenders for shifting the cannabis industry into a lucrative national market working favorably for producers, consumers, and investors alike.
Opportunity for a national presence
Much work must be done and many conversations must address interstate cannabis commerce. Strategic placement of hubs in addition to accessible trucking routes will unlock myriad opportunities for years to come.
Once states are authorized to move into interstate commerce compacts, massive opportunities for solidifying a truly ubiquitous national presence will exist. Despite the growth of cannabis companies nationwide, the industry remains largely fractured. In fact, few companies are able to deliver their brand outside state lines, leading to inconsistent branding and messaging from state to state. The act of participating in interstate commerce brings the opportunity to solidify their presence on a national stage. It’s an opportunity to become a Nike or Coors of the cannabis world.
Peter Marcus is communications director for Terrapin, a national company with roots in Boulder, Colorado. Prior to joining Terrapin, he served as senior statehouse reporter for the Colorado Springs Gazette and ColoradoPolitics.com. The Washington Post twice named Marcus one of the top state-based political and legislative reporters in the nation.