Compliance Will Be Critical as California Legalizes Cannabis

Low Hanging Fruit in California

Guest post by Andrew Kline, President, National Association of Cannabis Businesses

As the New York Times recently reported, California is already a major “exporter” of cannabis to other states. If California’s new state-wide regulatory regime, expected to come online in 2018, fails to tame this problem, Attorney General Jeff Sessions and other cannabis opponents will have more ammunition to argue that states’ cannabis regulatory systems are ineffective at preventing black market sales across state lines. Indeed, California’s success at reining in illegal grows and preventing diversion from state-licensed businesses is likely to have profound impacts on the Federal government’s approach to cannabis businesses across the country. Thankfully, licensed businesses are positioned to take several steps that will protect themselves and the industry at large.

California faces a challenge that is unique among states that have legalized cannabis.  Since medical cannabis was legalized in the state in 1996, cannabis businesses have only been regulated locally. As a result, many cultivators have operated in a grey area with essentially no accountability to government regulators. Now, as the state prepares to roll out a system that requires all cannabis businesses to be licensed and maintain compliance with complex regulations, California must address the many growers that are unwilling or unable to meet new legal requirements.

If allowed to persist, the presence of illegal cannabis growers in California means that supply will continue to far outpace demand. Consequently, the market will be flooded with cannabis that is unregulated, dangerous to consumers, easier to move across state lines, and more likely to be a cause of violent criminal activity.

Nobody wins when the legal and illicit markets are left to compete with each other. If illegal operations are allowed to persist, the public is exposed to a greater threat of crime, environmentally irresponsible growing practices, and unsafe products. The Federal government and others will unfairly attribute the illegal business’s misconduct to all cannabis businesses, perhaps using the illicit business’s activities as a reason to crackdown on the entire industry. Indeed, in letters questioning the effectiveness of cannabis regulation in Colorado, Washington, Oregon, and Alaska, we have already seen Attorney General Sessions conflate the behavior of criminal marijuana traffickers and licensed businesses.  Additionally, licensed businesses that are operating lawfully and spending time and money on compliance, are at an unfair economic disadvantage to unlicensed operators.

Businesses that take compliance seriously should follow two main paths to mitigate the harms presented by illicit businesses in California. First, such businesses should support efforts to crack down on operations that don’t meet California’s standards. The fact is that non-compliant businesses hurt the entire cannabis industry. Rather than oppose enforcement against all cannabis businesses, the industry should support government efforts to close unlicensed businesses and ensure licensed businesses meet their legal obligations.

Second, licensed businesses should go out of their way to demonstrate their compliance to the public and government actors.  Businesses that can show they are abiding by state law will likely be left alone by the Federal government. Those who are operating in violation will not fare as well. Moreover, as businesses focused on compliance proliferate, government actors will be less able to use bad actors’ actions as a pretext for broader crackdowns on the cannabis industry.

As a former Federal prosecutor, I can tell you that when the feds come knocking, it is far less likely that you will be in their crosshairs if you can demonstrate that you are doing everything that you can to meet state requirements and avoid activities that implicate the Federal government’s enforcement priorities.


About the author:

Andrew Kline is President of the National Association of Cannabis Businesses (NACB), the cannabis industry’s only self-regulatory organization which is working with its members to develop national standards that will help strengthen cannabis-related businesses by reducing regulatory uncertainty and increasing legitimacy. Andrew is a former Federal prosecutor and senior advisor to the White House and Senate.

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