Cannabis Unbound: Exploring the Benefits, Risks, and Realities of Legalization

Rescheduling cannabis will likely trigger another rush of capital into the cannabis industry. The new capital would probably flow disproportionately to established top-tier companies with clearly defined long-term visions and strategies; select smaller cannabis companies will also gain access to capital through ATMs and increased leverage. All of these suggest we are headed to another significant increase in industry-wide capacity at a time when we don't need it. Increased supply and not increased access will then drive cannabis prices lower and put pressure on slim profit margins, similar to the cannabis market dynamics seen in 2022 and 2023. The industry will be better positioned to handle marginal pressure due to lower tax rates. Still, uncertainty remains about how the move to schedule three will change the attitude of bankers and exchanges in dealing with the industry. It's likely, however, that post-rescheduling, the fact remains that the industry is still under prohibition and federally illegal. Lastly, will the move to schedule III allow foreign competition to enter the market?  

That said, there is a notable shift in global attitudes towards cannabis, indicating growing momentum worldwide for policy reform focused on decriminalization and legalized regulation of marijuana. This international reform movement was sparked in part by Canada's groundbreaking legalization of recreational cannabis. Recent policy changes and debates across numerous U.S. states, along with support from the U.N. and advocacy groups, further showcase efforts to transition from ineffective prohibition policies towards a public health-centered approach to cannabis. This attitudinal shift is driven by increasing recognition of the failures and counterproductivity of outdated punitive drug policies. Compelling arguments around public health benefits, economic opportunities in taxation, job creation, and addressing longstanding social justice concerns related to disproportionate enforcement also provide further rationales for change.

However, the dysfunctional patchwork of current U.S. state-level cannabis regulations underscores the pitfalls of inconsistent rules across borders for an industry still in its infancy. This state-by-state approach prevents natural market development, increases production and distribution inefficiencies, escalates operator costs, and hinders product and branding standardization across state lines. These mounting issues shed light on the poor performance of publicly traded cannabis stocks over the past decade despite early optimism. As evidence, recent supply mismatches between newly legalized recreational markets in neighboring states, New York and Connecticut, showcase the complex challenges ahead.

Looking forward, a balanced regulatory approach to cannabis policy reform must combine complex considerations related to public health, economic opportunities, social equity initiatives, and safe standardization. Cannabis regulation requires consistent alignment with evolving international laws and evidence-based adaptive policies focused on product safety, potency research, equitable opportunities for communities impacted by prohibition policies, and sustainable market development. The long game for major cannabis players involves navigating uncertain legalization paths while building brand equity, production assets, and retail footholds for cannabis opportunities ahead. We currently see some significant and smaller publicly traded cannabis companies well-positioned for long-term success as legalization advances across North America and beyond, including:

• Glass House Brands Inc (GLASF) - This vertically integrated California-based producer brings decades of cannabis cultivation expertise to its expanding portfolio of popular branded products and retail dispensaries. The eventual move to interstate commerce will be a significant event for this company. 
• Green Thumb Industries Inc. (GTBIF) - One of the better capital allocators in the space. With operations currently spanning 15 U.S. markets, this nimble consumer packaged goods company continues leading the expansion of its hyper-competitive retail network and house of brands.
• Trulieve Cannabis Corp. (TCNNF) - Dominating its base Florida market with an unrivaled retail footprint in several other states and customer loyalty, Trulieve boasts profitability and strategically builds a multi-state presence.
• Cronos Group Inc (CRON) - This global cannabinoid company with an exclusive Altria partnership has built leading scientific and I.P. capabilities to develop next-gen cannabis products. It has the strongest balance sheet in the industry and will be a player in the U.S. business when federally legal. 
• Flora Growth Corp. (GRAM) - Leveraging highly cost-efficient California-based vertically integrated company. A long-term strategic asset for many larger cannabis operators
• Verano Holdings Corp. (VRNOF) - One of the largest multi-state cannabis operators with licenses spanning over a dozen U.S. states, Verano is known for premium products and careful capital allocation discipline.
• TerrAscend Corp. (TSNDF) - A passionate management team and diverse operations span Canada and the U.S. for everything from retail cultivation to manufacturing capabilities across flower and edibles.

We suspect the list will grow to include others in the space over time. 

GLOBAL MOVEMENT TOWARDS CANNABIS REFORMIS A WORLDWIDE EFFORT

The push for cannabis reform is not confined to any region but is a global movement that spans continents. From the USA to Uruguay, regions like Europe are reevaluating their cannabis laws. This wave of reform reflects a growing consensus that the war on drugs, particularly the prohibition of cannabis, has failed to achieve its objectives. Instead of curbing drug use, prohibition has often exacerbated the problems it sought to solve, fueling illegal markets and associated violence while failing to protect public health and safety.

Can a broad swath of Advocacy Groups be wrong?

Organizations such as the Global Commission on Drug Policy lead the charge for change, including former heads of state, Nobel Prize winners, professional athletes, and other influential figures. Unfortunately, POTUS is only paying lip service to the trend. These advocates argue for a shift from punitive approaches to ones based on evidence, public health, and human rights. By promoting dialogue and reform, they aim to reduce the harm caused by cannabis prohibition and pave the way for a more sensible, regulated approach to cannabis. Their efforts highlight the inadequacies of current policies and the benefits of adopting models that prioritize health, safety, and social justice. This global movement toward cannabis reform is not just about legalizing a plant; it's about challenging outdated paradigms, addressing systemic injustices, and embracing a more humane and practical approach to drug policy. As we continue to explore the arguments for and against decriminalization and legalization, it's crucial to consider the broader context of this shift: a reevaluation of priorities, values, and the role of government in regulating personal behavior.

ARGUMENTS FOR DECRIMINALIZATION AND LEGALIZATION

Public Health Perspective

The shift towards decriminalizing and legalizing cannabis is underpinned by a public health perspective (confirmed by the DEA) that advocates for treating drug use as a health issue rather than a criminal one. This approach emphasizes the importance of providing users with access to accurate information, safe products, and health services rather than subjecting them to the criminal justice system. By decriminalizing cannabis, resources can be redirected from law enforcement to prevention, treatment, and harm reduction services. Legalization further enables the regulation of cannabis products, ensuring quality control, reducing the prevalence of contaminated or adulterated products, and potentially lowering the incidence of emergency health issues related to unsafe consumption.

Economic Benefits

Legalizing and regulating cannabis opens up significant economic opportunities. It allows for creating a new industry, generating jobs, and stimulating economic growth. Tax revenues from cannabis sales can be substantial, providing governments with additional resources to invest in health, education, and community programs. Illinois and Colorado, for example, have seen hundreds of millions in tax revenues since legalizing recreational cannabis in 2014, demonstrating the potential for cannabis to contribute to public coffers. These funds can be particularly impactful in education and drug abuse treatment programs, creating a positive feedback loop that further enhances public health and social welfare.

Social Justice

The decriminalization and legalization of cannabis also address critical social justice issues. Historically, cannabis prohibition has disproportionately affected young people and marginalized communities, leading to uneven arrest and incarceration rates for cannabis-related offenses. These practices have had long-term social and economic consequences for individuals and communities alike, contributing to cycles of poverty and marginalization. Legalizing cannabis and expunging past convictions can help to rectify these injustices, offering a fresh start to those who have been unfairly penalized and reducing disparities in the criminal justice system.

CHALLENGES AND CONTROVERSIES: IMPLEMENTING SOCIAL JUSTICE REFORM

The Gap Between Intention and Impact

Despite the best intentions of lawmakers and advocates, the journey toward equitable cannabis legalization is fraught with challenges. The experiences of states like New York, Massachusetts, and California reveal a recurring pattern: ambitious legislative goals for social justice and equity face significant hurdles in implementation. In nearly every state that has attempted equitable legalization, the markets have quickly become overbuilt with excess capacity by large companies, leaving those most harmed by prohibition—mainly Black and brown communities—primarily on the sidelines. On the other side, the failure of the New York rollout of recreational cannabis is an example of the pendulum swinging too far toward social justice. The consensus is clear: good intentions are insufficient without robust mechanisms to ensure a balance between "big cannabis" and one that the benefits of legalization reach the communities most harmed by cannabis prohibition. The struggle to implement legal frameworks that successfully meet social justice goals highlights the complexity of dismantling systemic inequities entrenched by decades of drug war policies.

We need Progress At the State Level.

We are not going to unwind the current structure of U.S. cannabis. Still, there should be a call for federal legislation to protect and improve upon state-level policies, including interstate commerce. As states serve as "laboratories of democracy," their varied approaches to cannabis legalization offer valuable lessons (this is where the comparison to alcohol comes in.) Congress should incentivize states to continue experimenting with equity-focused programs, ensuring that tax revenues from cannabis sales are directed toward communities disproportionately impacted by the war on drugs. Elements of Illinois, New York, and New Jersey programs, which have established precise funding mechanisms to support harmed communities, illustrate the potential for effective policy design. Innovative measures like setting aside dispensary licenses for individuals from communities harmed by drug policies, as practiced in Oakland and Boston, represent tangible steps towards equity. Moreover, the concept of worker-owned cannabis cooperatives, as advocated by groups like Reclaim Rhode Island, introduces a model that could significantly benefit marginalized groups by ensuring they have a stake in the burgeoning cannabis industry. Lastly, interstate commerce is a reality in today's complex cannabis industry, and allowing for interstate commerce could lower COGS for the industry by 50-70%, benefiting all players... especially those that need it most. 

The MORE Act and Beyond

The less talked about Marijuana Opportunity, Reinvestment, and Expungement (MORE Act) represents a federal effort guided by reparative and social justice principles. However, as the article argues, certain parts of the MORE Act, such as legalizing cannabis possession and beginning automatic expungement of records, should be implemented immediately to prevent further harm. I understand the concept of trying to prevent market domination by Big Tobacco and other large corporations, but balancing the reality of big cannabis and maintaining the integrity of cannabis legalization as a tool for social justice has an economic cost that needs to be funded. The need for careful, thoughtful implementation of cannabis legalization policies that genuinely serve the goals of social justice and equity is critical. It's a complex task that requires balancing the interests of various stakeholders (big and small) while ensuring that the communities most affected by cannabis prohibition are not left behind in the process. The stakes are high, and the opportunity to get this right is singular. The lessons learned from state-level efforts must inform a federal approach that prioritizes equity, balances corporate money, and honestly addresses the harms of the drug war.

RISKS ASSOCIATED WITH CANNABIS USE

Mental Health Concerns

One of the most frequently cited concerns about cannabis use is its impact on mental health. Research indicates that regular and heavy use, especially of high-potency cannabis, can be associated with an increased risk of conditions such as anxiety, depression, and psychosis, particularly among adolescents and young adults whose brains are still developing. The concern is that without proper regulation, the availability of potent cannabis strains could increase these risks. Legal regulation offers a framework for mitigating these risks by controlling the potency of cannabis products and ensuring clear labeling of THC content. This allows consumers to make informed choices about their cannabis use. Regulations can also restrict the sale of cannabis to minors, further protecting young people whose mental health might be more adversely affected by cannabis use.

THE FAILURE OF PROHIBITION

Market Dynamics

Prohibition has inadvertently led to a market dominated by more potent cannabis strains. Without regulatory controls, there is no incentive for producers to limit THC content, leading to an increase in the availability of high-potency products. This shift not only makes it harder for consumers to find milder products but also increases the risk of adverse mental health outcomes.

Counter-Productivity of Criminalization

The criminalization of cannabis use has been largely ineffective at reducing usage rates and has instead contributed to a range of social harms, including overcrowded prison systems and significant racial disparities in drug law enforcement. Furthermore, it has diverted resources away from potential public health interventions that could more effectively address the risks associated with cannabis use.

BENEFITS OF A REGULATED MARKET

Consumer Safety and Quality Control

A regulated cannabis market can enhance consumer safety by establishing standards for product quality, purity, and potency. Regulations ensure that products are free from contaminants and that consumers have access to accurate information about what they are purchasing. This not only protects public health but also reduces the burden on healthcare systems by minimizing the incidence of cannabis-related health emergencies.

Economic Incentives and Public Health Investments

The taxation of cannabis provides a significant source of revenue that governments can reinvest in public health initiatives, including drug education and treatment programs. This creates a positive feedback loop where the economic benefits of legalization are used to mitigate further the risks associated with cannabis use.

Evidence from Existing Models

Regions that have legalized and regulated cannabis offer valuable insights into how well-implemented policies can address public health concerns while providing economic benefits. For example, in states like Colorado and countries like Canada, regulation has been accompanied by a decrease in illegal market activity (but not eliminated) and an increase in public awareness about the risks and safe use of cannabis.

COMPARISON WITH ALCOHOL REGULATION

Public Perception and Policies

The regulation of cannabis and alcohol presents a fascinating study in contrasts and parallels. Historically, alcohol has enjoyed a more socially accepted status despite its well-documented risks to health and public safety. This acceptance is reflected in its regulation, which is generally aimed at minimizing harm while recognizing alcohol as a legal product for adults. Cannabis, by contrast, is emerging from a long period of prohibition and stigma despite evidence suggesting that it is less harmful than alcohol in many respects. The challenge for cannabis regulation is to navigate this legacy of stigma while establishing policies that protect public health and safety.

Health and Social Impacts

Alcohol's impact on health and society is profound. It is associated with a range of adverse outcomes, including liver disease, cardiovascular problems, and addiction. Alcohol misuse also contributes to social issues such as violence, accidents, and family disruption. Cannabis, while not without its risks, particularly in terms of mental health and potential dependency, generally poses fewer direct health risks than alcohol. The societal impacts of cannabis use, such as impaired driving and potential increases in youth usage, are concerns that regulation seeks to mitigate. However, evidence from regions that have legalized cannabis suggests that these impacts can be managed through thoughtful policy and public education.

Regulatory Approaches

Both substances benefit from regulations that include age restrictions, marketing and advertising limits, and guidelines for safe consumption. However, cannabis regulation often incorporates additional layers of control, such as limits on potency and the requirement for product testing, that go beyond what is typical for alcohol. These differences reflect both the novelty of legal cannabis markets and the desire to manage its introduction into mainstream society cautiously.

Learning from Alcohol Policy Mistakes

There is an opportunity to learn from the successes and failures of alcohol regulation when developing cannabis policies. For example, addressing issues like addiction and social harm requires more than just legal access; it demands comprehensive public health strategies that include education, treatment, and support services. Similarly, ensuring that cannabis does not become dominated by a few large corporations, as has happened in the alcohol industry, is crucial for promoting social equity and preventing the exploitation of vulnerable consumers. Is this part even possible?

POLICY RECOMMENDATIONS

Decriminalization of Cannabis

Remove Criminal Penalties: Decriminalize the possession and personal use of cannabis to eliminate the negative consequences of criminal records for minor drug offenses. This approach prioritizes public health over punitive measures and redirects resources toward more effective drug education and treatment programs.

Automatic Expungement: Implement policies for the automatic expungement of past cannabis convictions, particularly for non-violent offenses. This step is crucial for correcting historical injustices and mitigating the long-term impacts of cannabis criminalization on individuals' lives.

REGULATION OF CANNABIS PRODUCTION AND SALE

Establish a Legal Framework: Create a comprehensive legal framework akin to alcohol for the regulated production, nationwide distribution, and sale of cannabis. This includes licensing requirements, quality control standards, and product safety testing to ensure consumer protection.

Age Restrictions and Marketing Controls: Implement strict age restrictions for cannabis purchase and consumption, similar to those in place for alcohol and tobacco. Additionally, regulate advertising and marketing practices to prevent targeting youth or promoting excessive use.

PUBLIC HEALTH STRATEGIES

Education and Prevention: Invest in comprehensive education campaigns about the risks and safe use of cannabis, mainly targeting youth. These programs should be based on scientific evidence and designed to promote informed decision-making.

Access to Treatment: Expand access to treatment services for those struggling with cannabis dependence. This includes providing resources for counseling, support groups, and other interventions that prioritize health and recovery.

Harm Reduction: Adopt harm reduction strategies that recognize the reality of cannabis use and aim to minimize its adverse health and social consequences. This includes providing accurate information on safer consumption methods and reducing barriers to seeking help for cannabis-related health concerns.

EQUITY AND SOCIAL JUSTICE

Equity in Licensing: Ensure that the process for obtaining cannabis business licenses is equitable, with a focus on providing opportunities for communities historically marginalized by cannabis prohibition. This could involve setting aside a certain percentage of licenses for minority-owned businesses or offering financial assistance and training to qualifying applicants.

Community Reinvestment: Allocate a portion of cannabis tax revenues to fund community reinvestment initiatives. These programs should aim to repair the damages of cannabis prohibition through education, economic development, and health services in affected communities.

CHALLENGES AND CONTROVERSIES

Opposition Arguments

Youth Access and Use: Critics of cannabis legalization often cite concerns about increased access and use among youth, fearing that legalization may lower the perceived risks associated with cannabis and lead to higher rates of use among teenagers.

Public Safety Concerns: Impaired driving and public intoxication are central to the opposition's argument. The challenge is to enforce laws that address these concerns without reverting to criminalization that disproportionately affects specific communities.

Addiction and Mental Health: Skeptics also point to the potential for increased addiction rates and the impact of cannabis on mental health, particularly among heavy users and adolescents, as reasons to caution against legalization.

Implementation Hurdles

Regulatory Framework: Developing a comprehensive and practical regulatory framework for cannabis is a complex task that involves balancing public health, safety, and economic considerations. Ensuring that regulations are enforceable and adequately address all stakeholders' concerns is challenging.

Market Regulation and Equity: Avoiding the monopolization of the cannabis industry by a few large corporations and ensuring equitable opportunities for small businesses and communities disproportionately affected by cannabis prohibition represent significant implementation hurdles.

Consistency with International Law: Cannabis legalization poses challenges in aligning national policies with international drug control treaties, which currently prohibit the legalization of cannabis for non-medical and non-scientific purposes.