Top 5 Cannabis Legalization Missteps In Recent U.S. History: A Selection

Cannabis legalization in the U.S. has been marked by numerous challenges, creating both headaches and opportunities for businesses, consumers and regulators.

While policies are normally well-intentioned, their implementation often leads to significant unexpected consequences. That’s because, after decades of prohibition, cannabis legalization is essentially a social experiment: no one can know precisely how it’s going to go down.

In this article, we explore some of the most significant regulatory missteps that have shaped the recent history of the U.S. cannabis industry. We offer a Top 5, from fifth to first, though you might have your own opinion.

Cannabis Regulatory Missteps: A Top 5

5. Minnesota's Legalization Loopholes

Despite legalizing cannabis in 2023, Minnesota won’t issue licenses until 2024, leaving a massive regulatory gap.

Seeing that the Office of Cannabis Management was dragging its feet, hemp stores and smoke shops have exploited this by offering cannabis as a "gift" with other purchases. Turns out, authorities are not happy about that and have responded by confiscating nearly $1.4 million in illegal products. Repeat offenders face a five-year license ban and will be left out of the licensed market, which is expected to include more than 3100 licenses.

4. New York's Regulatory Chaos

New York's cannabis program ostensibly aimed at social equity faced drama due to poor leadership and confusing regulations. As of mid-2024, more than 2,000 unlicensed shops operate, while only 120 legal dispensaries have opened. At the beginning of the year, NYC Mayor Adams decided to create a special task force to crackdown on unlicensed cannabis, shutting down more than 1000 stores.

The lack of appropriate granting of licenses and transparency, combined with ineffective enforcement, highlighted in a recent internal report, as reasons for the unlicensed cannabis market to flourish, for which the head of the Office of Cannabis Management (OCM) was fired.

3. California's Prop 64 And Thriving Unlicensed Market

In California, Proposition 64, passed in 2016, was intended to legalize cannabis and reduce black market activity. However, high taxes and complex regulations drove many businesses into the illicit market. By 2024, the black market was thriving, often outperforming the legal industry, demonstrating how excessive regulation can push businesses underground. Considering this situation, California Governor Gavin Newsom and the California House moved forward with a series of bills aiming to improve the balance sheets of legal cannabis companies and offer alternative markets for producers, including Farm Markets, and Amsterdam-like coffee shops.

But most recently, the governor decided to ban hemp-derivated products, imposing a strict THC content limit and restrictions on manufacturing in the State. Among other consequences, this emergency ruling -which took the hemp industry by surprise- is affecting parents whose children rely on high-CBD products. The situation is now being disputed in court, with a recent ruling against the hemp industry’s claims.

Read Also: Legal California Cannabis Market ‘On The Verge Of Collapse,’ While Illegal Growers Thrive, Destroying Environment

2. Washington D.C.'s ‘Gift Economy’ Workaround

In Washington D.C., cannabis possession is legal, but the district cannot set up a regulated market due to congressional interference. This led to the creation of a "gift economy" where cannabis is bundled with unrelated products.

This loophole has prevented the district from generating tax revenue and stifled the growth of a legitimate cannabis market. Though regulators in D.C. are not entirely to blame (because the special status of the District makes it hard to legalize cannabis in the territory), the Senate recently passed a rider that would have allowed the City to create its own adult legal sales system.

Now, D.C. authorities are aiming to crackdown on gift shops, assigning public resources and police efforts to push this business to convert into medical cannabis dispensaries, something they have never been.

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1. 2018 Farm Bill Federal Loophole

The undisputed champion of regulation blunder is without a doubt the loophole in the 2018 Farm Bill that legalized hemp derivatives.

Farm Bill 2018 legalized hemp, which is defined as a cannabis flower carrying less than 0,3% THC per measure, but inadvertently allowed delta-8 THC, delta-9 THC, and other similar compounds to be synthetically derived in labs using chemical extraction methods.

These psychoactive compounds are the basis of a whole industry that sells unregulated products, some of which might be respecting demanding manufacturer practices, and others that might not.

Most of the hemp manufacturers have used the legal advantages over the cannabis industry to mount federal logistics that are forbidden for cannabis producers. Still, the outcome of this unpredicted result is chaotic in terms of public policy and regulations, forcing state-by-state decisions, crossfire between lobbyists and confusion for customers.

These five cases illustrate how incomplete or poorly designed regulations can have long-lasting impacts on the cannabis industry.

As the legal landscape continues to evolve, future missteps are likely as regulators and businesses navigate uncharted territory. This list only highlights a few issues so far. There are undoubtedly more challenges ahead, as the cannabis industry continues to grow and regulators attempt to build a solid framework with the ball rolling.

• Read Next: Buy A T-shirt, Get Busted: Loophole In Minnesota Cannabis Market Could Cost Retail Operators A 5-Year Ban

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