The road ahead for cannabis entrepreneurs in North Carolina and nationwide is full of, well, potholes because state and national laws are a patchwork of contradictory laws, rules and regulations said Morgan Davis of Davis Legal, a boutique law firm focusing on corporate and cannabis law.
In a recent issue of Rolling Stone Magazine, Davis explained the mishmash of laws in the State of New York “The current law is that medical cannabis is legal. And recreational cannabis is legal for possession and adult use. But people can’t go to a dispensary because regulations don’t yet exist to manufacture and sell recreational cannabis.”
Davis advises clients who are cannabis cultivators, processors, retailers, investors and retail product manufacturers facing issues like supply chain reliability, quality control, FDA and state agency regulation, criminal enforcement, and business risks and rewards. “If you’ve got the patience and you’ve got the passion, this is a good industry.”
Understanding cannabis law begins with some definitions. “Decriminalization is taking cannabis out of the controlled substances act as we saw with hemp on the federal level and then adopted at the state level. After regulations were issued by the USDA and adopted in various forms by the states, hemp can now be grown, processed, manufactured and sold to the public,” explained Davis. “Legalization means it’s not only no longer a controlled or prohibited substance, but it’s a legal commodity. It’s completely legal to possess, sell or manufacture cannabis products. Regulations are created to guide the cannabis industry created by legalization.”
NC Compassionate Care Act
Under Federal Law, marijuana is a Schedule 1 drug along with heroin, LSD and ecstasy, which the DEA defines as “drugs with no currently accepted medical use and a high potential for abuse.” However, states are allowed to adopt their own rules and regulations due to a shortage of enforcement resources at the federal level.
In NC, marijuana is considered a Schedule IV drug: “with no currently accepted medical use and a low potential for abuse.” However, “The premise of the proposed NC Compassionate Care Act is that there is medical value and recognized medical use of cannabis. Whether or not the passage of medical cannabis will force the state to reschedule it, I don’t know,” said Davis.
NC came close to legalizing cannabis for medical use in the last session of the General Assembly with SB 711. It did not make it through the House. “I think a lot of people are hoping that since it had so much support already last year that it will pass easily this year.”
In January, SB3 was filed in the NC Senate. SB3 is the refiled SB711. The act would not decriminalize cannabis. It would only create an exception for the manufacture, sale and possession of medical cannabis.
“If it passes, it will most likely take 12-24 months for them to put together a regulatory board, get all the oversight regulations written, publish them, give them a comment period, then have people apply for licensing and go through all the necessary pre-license inspections.”
One of the biggest criticisms of the act is that the licensing requirements show a preference for large, multi-state cannabis companies and not NC-based hemp companies. For example, an approved licensee under the act will be allowed to sell only their own cannabis through their own distribution center. Also, the act allows for only 10 licenses.
Big Pharma and Pepsi
Federal legalization may be good for consumers and bad for the cannabis industry. “It will result in very large existing corporations getting into the business, which will result in a lot of small, medium and even large players being pushed out because they won’t be able to compete,” said Davis.
“There are only a few cannabis beverages doing well because they can only sell on a state-by-state basis. So, if federal legalization happens, suddenly Pepsi gets into the cannabis space, and nobody will be able to compete. Their production is already established.
“Pharmaceutical companies already have manufacturing processes, clean warehouses, and operations necessary to quickly make it available in every Walgreens in the country,” Davis added.
“If you want to succeed in this business, you need to be prepared for the various potential outcomes of decriminalization, legalization, and regulation and be ready to pivot when the path forward changes or dead ends.”