As we turn the calendar to 2024, the legal cannabis industry in the U.S. finds itself at a crossroads, with significant potential regulatory, legal and legislative developments on the horizon. The unintended consequences of the 2018 Farm Bill have catalyzed a pressing need for federal action on hemp-derived products, challenging lawmakers to redefine the boundaries of this burgeoning market. Simultaneously, state-level residency restrictions are facing constitutional scrutiny, potentially reshaping the industry’s ownership landscape.
Amid these legal and regulatory changes, the industry grapples with a patchwork of lab testing requirements, underscoring the dire need for uniform national standards. At the federal level, proposed legislation and administrative rescheduling decisions loom, each carrying the potential to profoundly impact the industry’s future. As we delve into these pivotal issues, it’s clear that 2024 will be a defining year for the legal cannabis sector in the United States.
Intoxicating hemp-derived products: Regulatory changes on the horizon
The unintentional legalization of intoxicating hemp-derived products in the 2018 Farm Bill and the burgeoning market for these products has raised significant legal concerns across the country. State regulators have called on Congress to address the problem in the next Farm Bill, proposing specific changes including creating a new definition for “hemp-derived cannabinoid products” and designating a federal agency responsible for the oversight of such products. An extension of the Farm Bill was passed in November, giving federal lawmakers until September 30, 2024, to address the issue. In the meantime, the states continue to take varying approaches to regulating these products at the local levels.
Residency restrictions: A split on constitutionality
State ownership restrictions involving residency requirements are under increasing judicial scrutiny, as recent cases highlight potential conflicts with the Constitution’s Dormant Commerce Clause . The 1st Circuit has explicitly confirmed that the Dormant Commerce Clause applies to the medical cannabis industry, and that Maine’s residency restrictions violated the clause. The U.S. District Court for the Northern District of New York reached a similar conclusion this year and granted a preliminary injunction against New York, resulting in an indefinite delay of the issuance of several retail cannabis licenses. This shift could dramatically alter the landscape for cannabis businesses and investors, making the industry more accessible and diverse.
However, the opposite stance was taken in Washington state, leaving the debate on this issue unsettled. These cases signal a growing trend toward reevaluating residency restrictions in the cannabis industry which is likely to continue in 2024.
Lab testing requirements: The quest for uniformity
The legal cannabis industry’s laboratory testing landscape is marked by notable inconsistencies across states, posing serious risks to consumer health. As business owners scramble to comply with unique testing protocols depending on local regulations, the push for national standards is gaining momentum.
Recent research by Americans for Safe Access highlights the disparity in testing for contaminants and qualities, with variations across the states in requirements for cannabinoid, microbial, aflatoxin, residual solvent, pesticides, heavy metals, moisture content, foreign matter, and terpene testing. Americans for Safe Access’s recommendation for a National Office of Medical Cannabis and Cannabinoid Control, along with the adoption of comprehensive testing procedures at the state level, reflects a growing consensus on the urgent need for standardized, rigorous testing protocols to safeguard consumer health and ensure industry compliance.
Federal legislation and administrative rescheduling: A cautious outlook
Federal lawmakers reintroduced several pieces of cannabis-related legislation in 2023, each with varying prospects for passage in 2024. Each bill represents a distinct approach to federal cannabis policy, reflecting the ongoing legalization debate at the federal level. Amid that continuing debate, and with competing priorities including multiple ongoing international conflicts, the passage of any cannabis-related legislation through Congress in 2024 seems hopeful at best.
- The Secure and Fair Enforcement Regulation (SAFER) Banking Act, which would provide legal protections to financial institutions and other ancillary businesses that serve the cannabis industry but would not legalize or decriminalize cannabis at the federal level, passed through the Committee on Banking, Housing and Urban Affairs in September, but has not yet received a full vote in the Senate. Its future remains, as ever, cautiously optimistic.
- The Marijuana Opportunity Reinvestment and Expungement (MORE) Act aims for full federal legalization through descheduling with a particular focus on equity provisions, including expanded access to capital for small businesses and a community reinvestment program. The MORE Act was introduced in the House in September and has not yet passed through committee.
- Lastly, the States Reform Act of 2023 would similarly remove cannabis from the Controlled Substances Act entirely, but rather than equity, the act focuses primarily on limiting disruptions to existing state markets. Under the act, the states would maintain primary responsibility for the regulatory oversight of cannabis, with some limited exceptions. The States Reform Act was introduced in the House in October and has yet to pass through committee.
It is considerably more likely, however, that we will see a cannabis rescheduling decision from the DEA in late 2024. In response to President Joe Biden’s call for a review of the status of cannabis as a Schedule I substance, the Food and Drug Administration issued a memorandum to the DEA in October making a rescheduling recommendation. Although not yet confirmed by the FDA, reports indicate the agency recommended a move to Schedule III. While historically such rescheduling determinations take years to conclude, the president’s request for an “expeditious” review, coupled with increased pressure from a wide variety of stakeholders, could compel the DEA to reach its conclusion significantly sooner. Such a decision would mean an acknowledgment of the medicinal value of cannabis by the federal government and could have far-reaching implications for the industry, from research opportunities to banking and business practices. However, a move to Schedule III could also upend state recreational markets, as a designation under the Controlled Substances Act as Schedule III could potentially require a prescription.
Conclusion
The absence of a regulatory framework for hemp-derived products, the constitutional tides turning against residency restrictions, and the urgent call for standardized lab testing all show that the cannabis industry in the U.S. stands on the brink of fundamental regulatory changes. Federal legislative efforts, though steeped in uncertainty, hold the promise of reshaping the national approach to cannabis. The DEA’s anticipated rescheduling decision could be the most consequential turn, potentially redefining cannabis’ medicinal value and its legal standing. As these developments unfold, each step forward will not only challenge existing norms but also unlock unprecedented obstacles and opportunities for the industry.