Cannabis 2.0: How technology firms are impacting cannabis regulations.
Editor's Note: This post refers to a white paper we produced in collaboration with Greenbits and can be read here.
In the headline-grabbing Trump Administration, it can be difficult to maintain focus on a policy development for more than a day or two. So when Attorney General Jeff Sessions made his move on state-legal cannabis, the public can be forgiven for seeing it as old news a few weeks later. But cannabis legalization is a complex issue, and we should continue to evaluate the next best steps for the nation. How best do we keep our communities safe, regardless of the status of cannabis legalization?
By simply doubling down on cannabis prohibition, Sessions has missed a critical opportunity to focus on new technology tools we have to hold the cannabis industry accountable. His simplistic approach to the issue undermines his stated goals concerning safety, security, underage access, and money laundering. It is too late to undo the Sessions’ memo, but it is not too late for Sessions to partner with the growing cannabis tech sector, a group who might be doing more to accomplish Sessions’s stated goals than anything the federal government has done in decades.
Since states first began legalizing cannabis for medical use, they have imposed regulatory regimes to govern growing, cultivating, and selling cannabis from seed to sale. States, however, quickly found they needed tech companies to put these regulations in practice, and the tech sector realized that a whole new market awaited their innovation and drive. We have seen the growth of a whole new tech sector.
From the retail side, stores are widely adopting software-hardware technology that enables them both to manage inventory and to upload immediately to state databases the details of sales as they happen. This point-of-sale technology syncs up with state regulatory databases, providing cost-efficient reporting for retailers while ensuring states get the oversight information they need.
In short, we now have more data about cannabis sales than ever before in the history of this country. Sessions should see this and welcome it. The state-tech sector partnerships strengthen accountability, traceability, and auditing of the cannabis industry. Indeed, Sessions should do more than welcome these partnerships, he should encourage them and collaborate with the cannabis tech sector to do even more.
Here’s one example why:
Because federal law deems cannabis illegal, the cannabis industry has struggled to access financial institutions, who worry about facilitating transactions for Schedule I drug. That means banking products like checking and savings accounts and lines of credit, as well as traditional payment-processing products, are out of reach to the industry. That reality has driven much of the cannabis industry to be a cash-only business. Ironically, the anti-money laundering laws that banks argue prevent them from banking cannabis, creates a system in which money laundering is unavoidable.
Technology has come to the rescue, enabling banks and cannabis related businesses to track product, transactions, money, personnel, and other basic and complex business activities. Sadly, Sessions’s policy-driven deficiency makes it riskier and costlier for cannabis firms to operate in an above manner fashion. Instead, the simplistic approach allows actors in the industry to engage in bad acts such as money laundering, graft, or diversion, technology is allowing cannabis companies to prove their compliance and empowering states to see it.
So, what can Sessions and the federal government do even if they are unwilling to rescind prohibition? First, Sessions should reaffirm that it is Department of Justice will be focusing its efforts on cannabis related businesses that are not holding themselves to the highest standards of public health, public safety, and accountability.
Second, he should be encouraging and working with the tech sector to make sure that all this new data is helping to advance public safety. Imagine what could be accomplished if Sessions devoted the resources he intends to spend on federal enforcement to educating states and tech companies on ways they can make their communities and neighborhoods a safer place to live and work.
In Cannabis Regulation, V 2.0: How Technology Firms Are Transforming the Cannabis Industry, we argue that innovative tech firms are uniquely positioned to develop tools for licensed cannabis businesses to comply with a constantly evolving and complex regulatory scheme. It is possible that federal policy will remain ossified on this issue for years. The continued credibility of the regulated cannabis industry depends on its ability to demonstrate flexibility and compliance with a variety of evolving regulatory regimes