By Hugo Elliot
No doubt there is money to be made in the legal cannabis industry. How else can you explain major brands like Cookies and Curaleaf? Even so, building a small business into a nationwide brand isn’t easy. It takes a lot of work. It also takes figuring out how to account for so many different state regulations. That may be the hardest part of all.
State regulations are so important because cannabis is still illegal under federal law. Marijuana’s federal status encourages states to create their own rules based on how they think it is best to protect themselves, the industry, and consumers. But so many differences in state law mean having to comply with a patchwork of rules if you want to build a business on a nationwide level.
Cookies in Utah
Utah offers a glimpse into what it must be like for nationwide brands. Take Cookies brand cannabis products. It is sold by medical cannabis pharmacies throughout the state, including both Beehive Farmacy locations in Salt Lake City and Brigham City. In order for Cookies to sell to Utah pharmacies, they need to comply with Utah rules.
One of the more recently enacted rules will require all manufacturers, as of January 2024, to subject their products to terpene testing prior to sale. Products already need to be tested for quality, purity, and THC levels. Terpene testing just adds a new testing component.
The interesting thing with this new rule is that pharmacies will be required to provide terpene profile information at the time of sale. This could be accomplished through labeling changes or by printing literature distributed along with medical cannabis products. What does this mean for Cookies? Will they design new labels? Will they print literature based on testing? Somebody needs to ensure compliance.
A Lot like Tax Compliance
Having to deal with state-by-state compliance issues is nothing new for national brands. Complying with different state cannabis regulations is a lot like state tax compliance. Cookies, Curaleaf, and other national brands must deal with varying sales and income tax regimes and structures. They need to collect, report, and pay taxes differently in each state in which they operate.
Tax compliance can be so complicated that national brands must dedicate an entire section of the accounting department to it. Some companies even have tax compliance specialists on the payroll. It would not be unreasonable for cannabis brands to take a similar approach to the regulations that impact their businesses.
When Washington Makes Its Move
It will be interesting to see what happens with compliance once Washington finally makes its move to either legalize, decriminalize, or reschedule marijuana. Each of the three options would likely have a different impact on state compliance.
If full legalization is the path federal lawmakers choose to take, they might structure cannabis regulation similar to existing alcohol regulation. Washington would have control over the interstate aspects while states would retain control over what happens within their borders.
Decriminalization would probably have the least impact of all. Decriminalization would simply mean the federal government eliminating any and all criminal penalties for growing, distributing, or possessing cannabis despite the substance still being technically illegal.
As for rescheduling, it could cause the biggest disruption. Rescheduling would mean treating cannabis like other prescription medications. And that could introduce a whole new round of rulemaking.
One thing we know for sure is that national brands need to comply no matter how difficult it might be. So while there is money to be made, it is not easy money. Brands work for every penny they earn.
