Clark Howell: SB-1326 Cannabis Interstate Agreements

The chatter around interstate cannabis commerce has lately become louder, with the Governor’s approval of California’s Interstate Agreements legislation (SB-1326), the introduction of the SHIP Act in Congress, and President Biden’s recent statement.
The Biden statement is a spark for future changes, and is best thought of as a signal from the Office of the President to agencies under his purview. The statement itself does not change federal law, but has a quality of historical significance that we hope will trigger a series of reforms over time. While that story unfolds, some Governors and Members of Congress are seizing opportunities to drive legal cannabis forward. In this bulletin, we’ll tell you about important developments concerning interstate commerce, focusing on two bills in particular. 
SB-1326 Cannabis Interstate Agreements 
Status: APPROVED
Until recently, state law was unwavering in its prohibition on transporting or distributing cannabis across state lines. SB-1326, signed by Governor Newsom on September 18, 2022, creates an exception among states that authorize medicinal and/or adult-use cannabis activity, as long as transfers occur in compliance with states’ regulatory requirements. 
But don’t load up the vans just yet. The federal government must first take action to allow or tolerate such transfers. For any agreement to take effect, one of these 4 triggers must occur:
  • Federal law is amended to allow for interstate cannabis transfer.
  • Federal law is enacted that specifically prohibits federal funds from being expended to prevent interstate cannabis transfer.
  • The United States Department of Justice issues an opinion or memo allowing or tolerating interstate cannabis transfer.
  • The Attorney General issues a written opinion that state agreement(s) will not result in significant legal risk to the State of California under the federal Controlled Substances Act.
When such pacts are proposed, there will be a chance for public comment. Stay tuned. 
The Small and Homestead Independent Producers (SHIP) Act 
Status: INTRODUCED
Just a few days before SB-1326 was chaptered, US Representatives Jared Huffman (D-CA-02) and Earl Bluemenauer (D-OR-03) introduced federal legislation to protect craft producers under future federal legalization. The Small and Homestead Independent Producers (SHIP) Act would allow small growers and manufacturers to ship products directly to consumers ”using the Postal Service or any private or commercial interstate carrier.” 
If passed in Congress, the SHIP Act would take effect only after both of these triggers are met:
  • Cannabis (“Marijuana”) is removed from the list of scheduled substances under the Controlled Substances Act, and
  • Federal criminal penalties for an individual who manufactures, distributes, or possesses cannabis, are eliminated.
Food For Thought
Which of the two bills above is the most exciting? 
The answer depends in part on your license type and the scale of your operation. 
  • Pay closer attention to SB-1326 if you’re a retailer, a distributor, a bigger-than-craft cultivator (i.e., your total canopy exceeds SHIP Act limits) or a bigger-than-craft manufacturer (i.e., your total revenue exceeds the SHIP Act ceiling). If you are a single-state licensee, pacts could open new markets for you at some point.
  • If you’re a craft grower or manufacturer, keep an eye on both. Both the SHIP Act and SB-1326 could create new markets for your products and new competition from out-of-state producers. If your brand has name recognition in other states, you might want to follow the SHIP Act’s status in Congress and express your support. 
What are some possible issues?
  • Under SB-1326, distributors can travel through states that authorize it and/or by means authorized under the laws of each state (note that federal laws and major private couriers’ policies are prohibitive). For a period, California producers might be trying to export to other producer states that are accessible via interstate highways. Under the current circumstance of overproduction in western states, that isn’t likely to help California growers until a clear travel route or transport mode opens up to access so-called “consumer states.” And if consumer states develop complete supply chains by the time such a pact is signed or practicable, they might not welcome competition for local producers.
  • Multi-state operators (MSOs) who have invested heavily to build state-by-state supply chains may be opposed to, and lobby against, proposed interstate pacts.
What if Biden’s administration reschedules or deschedules?
  • Interstate commerce pacts would likely become less desirable or relevant. 
  • However, under a better scenario, if cannabis is descheduled and federal criminal penalties eliminated, the SHIP Act (assuming it’s passed by Congress) would become effective, and small producers can start sending weed around the country. This could become a significant survival strategy or advantage for legacy, equity, and other small growers and manufacturers.
How important is interstate commerce for your future business plans? What’s on your mind as you think through the possibilities and issues we unpacked above? We’d love to hear your thoughts.

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