‘Essential’ cannabis businesses: Strategies for regulation in a time of widespread crisis

Most state governors and cannabis regulators were underprepared for the COVID-19 pandemic, a crisis is affecting every economic sector. But because the legal cannabis industry is relatively new in most places and still evolving everywhere, the challenges are even greater. What’s more, there is no history that could help us understand how the industry will endure the current economic situation. And so, in many ways, 2020 will be a year in which the cannabis industry in the United States (and abroad) learns much about itself. State officials and regulators will also learn much about preparedness and the efficacy of their responses and how each will impact the industry. 

Most states have been improvising instead of relying on well-founded strategies for cannabis regulation in a time of widespread crisis. That does not serve as a criticism of cannabis regulators. In many areas of policy, federal, state, and local officials were underprepared, and for many of them, decision making happened “on the fly.” 

However, these government decisions have had and will have significant impacts on the cannabis industry and its consumer base. These impacts stem primarily from the policy choices made in response to a series of critical questions:  

• Should cannabis dispensaries be allowed to stay open by deeming them “essential” businesses? 
• Should medical and adult-use dispensaries be treated differently?  

• How can a medical cannabis state most effectively serve patients, while still protecting those same patients who likely have heightened vulnerability to COVID-19? 
• How does a state protect individuals who self-medicate with cannabis via the adult-use market because they do not want to be added to a registry (most notably, veterans and people with public facing employment)? 
• How do you protect staff at dispensaries who engage with patients and customers daily? 
• How can the supply chain be protected if certain aspects of the industry are deemed “essential” while others are not? 

Each of these issues need to be addressed quickly, and officials are taking different approaches depending on the question, the state, and the part of the industry that is involved. A few examples highlight these points. While most states kept cannabis businesses opened, Massachusetts Governor Charlie Baker, ordered his state’s recreational dispensaries closed. Some states have allowed curbside pickup for orders, while others have not. In Washington, D.C., prospective medical cannabis patients can use telemedicine to be evaluated for a qualifying condition. Some states maintain greater regulatory flexibility to make such changes, while in others such changes may require legislative action. 

Beyond the logistical aspects of how the industry will operate during this time of crisis, the growing economic downturn will have dramatic effects on both the cannabis industry and how states respond to it. Although it is reported that the pandemic has led to increases in sales in places like California, other states, like Nevada, have seen a downturn in the industry. Depending on the length of states’ shut down orders and the depth and duration of the economic recession, the cannabis industry could face serious economic interruption. And while many businesses will receive some assistance from the recently passed $2+ trillion CARES Act recovery package, the Trump administration has made clear that the cannabis industry will not.  

Guidance from the Small Business Administration (SBA) is explicit that “direct marijuana businesses” and “indirect marijuana businesses” (those selling products to facilitate the industry such as agricultural equipment are ineligible for loan funds under the new law. And while some members of Congress have voiced interest for the inclusion of cannabis businesses in the next small business loan relief package, the likelihood is slim that leadership would hold up a broad relief package because the cannabis industry is excluded. Such a package would also not change the legitimacy of the SBA’s guidance. The SBA could reissue the same guidance, refuse to extend loans to cannabis-related businesses, and the legal proceedings that would ensue would likely far outlive businesses teetering on the brink.  

The pandemic further highlights how the disconnect between federal and state law has dramatic consequences for the industry. And until Congress takes serious, lasting action with regard to that disconnect, the cannabis industry will continue to face such problems. And in a moment of economic crisis, the task of assisting struggling cannabis falls at the feet of state officials who will have to use state money to do it. While only a minority of Americans disapproves of state-legal adult-use cannabis (and a much smaller minority disapproves of state-legal medical cannabis), the reality is that these companies employ tens of thousands of Americans who depend on those paychecks for their livelihood. By refusing assistance to the industry, Congress is not simply hurting wealthy business owners—the economic consequences are largest for rank-and-file employees.  

The current pandemic and the associated economic recession are historic by any metric, and that makes planning very difficult. However, this moment also presents an opportunity to begin broad, detailed, strategic planning for the industry ahead of future public health, economic, or other crises. Economic recessions happen and industries face rocky periods, sometimes at no fault of their own. The cannabis industry will need help again down the road. Now is the time for states to think about how they will support this unique industry—one that they have benefited from, and have allowed to exist and flourish while straddling legality. 

After the pandemic passes and the economy begins to return to normal, officials in all parts of government at every level (but especially state governments) will have to do after–action reports to assess how well they performed. When that time comes, the cannabis industry, consumers, and advocacy organizations must work closely with government to communicate the biggest successes, failures, and areas where improvement is necessary. That communication must also cross states, and cannabis policy is well prepared for that. Regulators already communicate frequently. States communicate with other states often—most notably of late, governors and regulators in four northeastern states formed a consortium to consider adult-use legalization. Cooperation and planning is essential for the welfare not only of the cannabis industry, but the employees, patients, customers, and affiliated businesses who depend on it every day in dozens of states. 

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