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December 20, 2022

New York Cannabis Insider: "The Effects of Federal Cannabis Legalization on the Emerging New York Cannabis Industry"

Jason Klimek, Cannabis Team co-leader, had his “The Effects of Federal Cannabis legalization on the Emerging New York Cannabis Industry” article published by New York Cannabis Insider. The article highlights President Joe Biden’s review of cannabis’s Schedule I status on the federal level and the impact descheduling cannabis could have on New York State’s emerging cannabis market. 

If cannabis were a Schedule II drug, researching it would be much easier. However, there would still be negative consequences on the cannabis industry if it is trafficked. The article states, “Lowering cannabis to a Schedule III–V drug would still carry federal criminal penalties—to the extent they are enforced— but would alleviate tax issues under Section 280E of the Internal Revenue Code.” Trafficking cannabis, regardless of its schedule and state legalization, would remain federally illegal unless the cannabis operator obtains federal authorization.

Jason’s article goes on to explain the structure of the social equity component and regulation and taxation regime under New York State’s cannabis law, noting that it differs from other states and, therefore, impacts the cost of cannabis. The article states, “That means interstate commerce will almost assuredly result in rendering New York a retail outlet for cannabis produced in the lowest-cost states, with all but retail jobs flowing out of state.”

The article notes how New York’s medical cannabis market is structured and how the adult-use cannabis market will differ from other legal states: “Market dynamics place New York’s brand new adult-use market in a poor position to compete with companies operating in other legal states.”

A number of factors—from tax rates on THC content, regulations banning many single-use plastics, and regulations under Section 280E of the Internal Revenue Code—will impact the price of adult-use cannabis, making it far more expensive than medical cannabis. These prices will also likely impact profitability for small business owners, giving more opportunities to multistate operators, who are more capitalized. 

Jason’s article notes that federal legalization of cannabis would likely “disproportionately harm the economic outlooks of small cannabis businesses in general, and weed companies owned by women and minorities in particular. Those effects will also ripple through ancillary businesses in the local communities and potentially suppress income growth.”

One way to prevent these issues, Jason notes, “is to allow states to prohibit interstate commerce,” which would require Congress to suspend the federal Dormant Commerce Clause, allowing for the continued state funding of social equity programs support for local businesses. However, before cannabis is federally legalized, President Biden has pushed for policy with a legislative component. 

Jason’s article was also quoted in “NY Cannabis Insider’s Week in Legal Weed for Dec. 10, 2022” on Syracuse.com.
 

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