Business and Marijuana: It May Be Time to Settle the Issue

MICHAEL CLINCH—Americans’ views on marijuana continue to shift in a favorable direction, fueling continued growth in the cannabis industry. Recreational marijuana is now legal in ten states and the District of Columbia, and New Jersey is likely to become number eleven. Also, thirty-three states and the District of Columbia allow some form of medical marijuana. However, marijuana is still classified as a Schedule I substance under the federal Controlled Substances Act. Schedule I substances are the most restricted and reserved for drugs with a high potential for abuse and no medical value. However, basic research has shown that marijuana has several medicinal benefits, but further research is limited by its status as a Schedule I substance. As the marijuana industry continues to grow and more American’s are consuming the substance for either health or recreational purposes, the Federal Government will eventually need to address the conflict of laws that exists between federal and state policy and amongst federal agencies.

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Aside from the legal issues surrounding the marijuana industry itself, the conflict of laws is impacting individuals and businesses. On March 7, 2019, two well-known, billion-dollar businesses made headlines for marijuana-related issues. The first was SpaceX, the private aerospace manufacturer. The other was the National Football League.

SpaceX founder Elon Musk smoked a joint on The Joe Rogan Experience podcast in September 2018. Although recreational marijuana is legal in California, Musk is prohibited from using illegal substances, such as marijuana, because he holds a federal security clearance. As a result, the Department of Defense is evaluating whether to suspend or revoke Musk’s security clearance. In the case of SpaceX, which was recently valued at $30.5 billion dollars, revocation of Musk’s security clearance would have many ramifications. While the extent to which the review will impact is the company is uncertain, SpaceX continues to grow and push the boundaries of space travel. The company also holds several government contracts and will likely launch NASA astronauts this year.

On the same day that the Elon Musk story broke, Dallas Cowboys defensive end David Irving announced on Instagram that he was quitting the professional football after being suspended indefinitely for his third violation of the league’s Policy and Program for Substances of Abuse. Irving, only 25, had been suspended for the first four games of each of the two previous seasons for failed drug screens. Despite the suspensions, Irving put up very good numbers, including averaging the third most sacks per game in the league during the two previous seasons. However, Irving stated that he has no intention of signing a new contract until the league reconsiders its stance on medical marijuana. Even the American Bar Association has published articles on the issue of marijuana as a banned substance in professional sports, stating that eighty-seven professional sports teams are located in states that have legalized either medical or recreational marijuana. The National Hockey League implemented a model that appears to be the most friendly to marijuana use. Regardless of the league’s model, the legal conflict still exists and must be addressed by lawmakers instead of league owners.

Adding to the complexity, the federal government recently legalized industrial hemp farming through the passage of the Agriculture Improvement Act of 2018. The hemp plant is part of the cannabis family but contains small (0.3% or less) amounts of the psychoactive compound THC. While the hemp industry is restricted to small-scale cultivation for limited purposes, the status of the compound cannabidiol (CBD) is still unclear. The bill simply removes hemp-derived products from Schedule I of the Controlled Substances Act. Nevertheless, in September 2018, the Drug Enforcement Administration reclassified CBD as a Schedule V substance. Thus, drugs containing CBD, which have also been approved by the Food and Drug Administration (FDA), fall under Schedule V.

Scientific evidence supports the health benefits of CBD and other hemp-derived products, driving market estimates of $691 million in 2019. The market could climb to $22 billion in 2022. The growing movement towards legalization and the potential financial rewards has induced major retailers like CVS and Walgreens to carry CBD products in select states. Despite this momentum, the FDA maintains its position that the Agriculture Improvement Act did not change the legal status of as CBD. In a press release, FDA Commissioner Scott Gottlieb wrote, “it’s unlawful under the FD&C Act to introduce food containing added CBD or THC into interstate commerce, or to market CBD or THC products as, or in, dietary supplements, regardless of whether the substances are hemp-derived.” In this case, there is not only a collision between state and federal law, there is also conflicting federal policy.

On any given day, Americans are faced with a series of conflicting laws regarding marijuana. For example, on March 28, viewers of the morning news were exposed to two conflicting but intertwined stories: the DEA is contracting workers to burn seized marijuana (and workers are required to take pass drug screens) and Walgreens will start selling CBD products in 1,500 stores. On that same day, news broke that truckers moving hemp across state lines are being arrested because officers cannot tell the difference between now-legal hemp and illegal marijuana. And what about all of the money? Most marijuana businesses cannot rely on traditional banks because of conflicts with Federal banking regulations. Ironically, on March 28, the United States House of Representatives Financial Services Committee advanced the American Bankers Association-backed Secure and Fair Enforcement (SAFE) Banking Act in an effort to address the issue. Adding to the tension between federal and state law, the Chairwoman of the Committee stated that the bill “addresses an urgent public safety concern for legitimate businesses that currently have no recourse but to operate with just cash.” Reference to marijuana retailers as “legitimate businesses” by a member of the United States House of Representatives underscores the conflict of law because the businesses are not “legitimate” under the Controlled Substances Act. Yet, the chairwoman’s constituents are engaging in business operations that are considered legal by state authority.

If anything is clear at this point, it is that the legal status of marijuana and marijuana-derived products is growing in complexity and the repercussions are being felt by a variety of stakeholders. While its status under the Controlled Substances Act has remained the same for decades, new state and federal laws are encouraging continued consumption and growth of the cannabis and cannabis products. Investments are growing in size and cannabis businesses are listed on the major stock exchanges. With each new law, the consequences of the legal conflicts grow. Some estimates place the potential market for legal marijuana at $150 billion. It is now time from the federal government to settle the dispute.