Open Flow CEO, Adi Jagan, is speaking at Canna Con on October 15, 2022. Follow us for updates:

Federal Cannabis Legalization is Coming—Are You Ready?

By Adi Jagan

Forward-thinking cannabis brands are already planning for when cannabis is finally fully legalized at the federal level. I say when, and not if, because Congress is going to end federal prohibition sooner than you think. 

Here’s just a small sample of the evidence for that claim:

All of the Political Winds are Blowing in Marijuana’s Direction

Despite the different pro-cannabis bills passed by the House, efforts to legalize cannabis at the federal level continue to die in the Senate, primarily due to staunch conservative opposition.  Even the SAFE Banking Act, which would simply allow legal cannabis businesses to access banking services, has been passed by the House six times but never taken up in the Senate. Securing the 60 Senate votes needed to federally legalize cannabis is no simple feat. 

But for the first time, polls are projecting that Democrats may hold their Senate majority in November 2022—and perhaps pick up seats, bringing us closer to passage of a legalization bill that a supermajority of Americans clearly want. (Best headline award goes to unlikely cannabis journalists Yahoo Sports for their piece on this conundrum, “Most Senators Still Oppose Doing A Hugely Popular Thing”). 

Prediction Models Strongly Favor Legalization Within the Next 5 Years

The culture has shifted, but the numbers also indicate legalization is close. 

Researchers at the University of Colorado, Boulder, and the Santa Fe Institute assembled extensive data on legislation that began at the state level (as cannabis legalization has) and went on to become federal law. Analysis of that data showed a strong probability that cannabis would be federally legalized by the end of 2022, while the likelihood that it would remain federally illegal after 2028 was lower than 30 percent.

Popular opinion and data are on the side of legal cannabis. 

When Prohibition Ends, Cannabis Businesses Need to be Prepared

In many ways, legalization will throw a lifeline to struggling small business owners. It will finally give the cannabis industry access to banking and financial services as well the ability to write off business expenses. It will add tens of millions more legal consumers, the ability to advertise, and the potential to sell product across state lines and national borders. It will be nothing short of a revolution—but surviving and thriving during a revolution, even a peaceful one, requires careful forethought and planning. 

No one is advocating for our current, wildly inefficient system, in which cannabis operators must function within a patchwork of state marketplaces—but changing to a new system of interstate commerce is still a challenge that must be navigated. As attorney Christian P. Foote states, too many “fail to fully consider the upheaval that will result from federal legalization.” 

Rapid de-scheduling of cannabis could leave smaller businesses vulnerable as large operators consume the majority of capital. Foote points out that our intrastate system, frustrating as it is, has created a “protected cannabis industry within each state that is walled off from interstate competition….With the advent of federal legalization, however, the lynch pin upholding this entire state-by-state industry will be removed, and interstate competition will come crashing down.”

The end of federal prohibition means all of these plant-touching businesses will be launched out of their state market onto the massive uncharted waters of national and international trade. Arizona growers must compete with Oklahoma growers, Nevada extraction facilities must compete with Colorado extraction facilities, and everyone will be in competition with California, the largest legal cannabis market on earth. 

All cultivators, extract producers and brands should be planning for what their business model will look like when consumers and manufacturers can order products from anywhere in the nation. Will their current market remain in place? Can they retain their existing current customer base? What will their pricing structure look like? Have they planned to protect formulations and trademarks

These questions aren’t meant to inspire doomcasting—far from it. In addition to the benefits for cannabis businesses I listed above (imagine not having to pay your taxes in cash!) legalization will have many welcome results for society at large: Tens of thousands of new jobs, increased tax revenue for schools and roads, an end to arrests and incarceration for possession and a final blow to a century of unjust stigmatization. Legalization reflects the will of the populace, and the end of prohibition will be cause to celebrate—but the time to consider the unknown and start planning and building for the post-Prohibition world is now. 

Is your business ready to compete in a national cannabis market? We can help with your transition strategy when federal cannabis legalization happens. Let’s talk!

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