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Federal Marijuana Legalization Could Endanger State Markets Without Anti-Monopoly And Interstate Commerce Protections, Report Says



A leading marijuana policy think tank is urging lawmakers to take a thoughtful approach to federal legalization that accounts for the potential unintended consequences that freeing up interstate commerce could have on small cannabis businesses and social equity programs that have emerged in state markets.

In a report released on Wednesday, the Parabola Center for Law and Policy said that an eventual end to federal cannabis prohibition is inevitable. The reform would better align state and federal policies, of course, but the group says it could also threaten to “disrupt and force the transformation of existing intrastate cannabis markets.”

“How the nation will shift from dozens of individual state cannabis markets to one national market, and the implications of that shift, is unknown but likely to be dramatic,” the report says. “It is also safe to assume that many advocates for federal de-scheduling are not aware of the consequences such a policy change portends for existing and entrenched state cannabis policies.”

Parabola is making three key recommendations to mitigate the risks of corporate consolidation, monopolization and undermining state markets—in addition to providing draft text to address the issue.

The first recommendation is to ensure that federal legalization legislation explicitly preserves states’ rights to set their own cannabis laws “as designed and without disruption.” Congress should “specifically state that it does not intend to preempt, prohibit, or otherwise limit any state law, regulation, or requirement regardless of whether the state law affects interstate commerce or favors in state interests,” the report says.

The next proposal is to allow small, social equity and worker-owned marijuana businesses to be prioritized in interstate cannabis commerce, which should be regulated through a registration system with the federal government. Registrations should be additionally be reserved for state-licensed entities that are 1) involved in promoting industry diversity, 2) offering support and services to “disadvantaged individuals, veterans, or individuals and communities most affected by cannabis prohibition and enforcement” or 3) protect workers’ rights to organize and co-own businesses.

Finally, Parabola is advising that legalization should be coupled with provisions to minimize the potential for corporate consolidation and monopolization of the cannabis industry—an issue the advocacy organization separately addressed as part of an educational campaign earlier this year.

The report also focuses on avoiding violations of the U.S. Constitution’s Dormant Commerce clause, which generally prohibits states from preventing or unduly restricting interstate commerce while granting Congress the authority to regulate such commerce.

As Parabola explains, state regulatory structures could open themselves to liability under federal legalization if they continue to keep their industries entirely intrastate. And without deliberate congressional action, as outlined in the report, there could be serious unintended repercussions for state-licensed businesses across the country.

“If federal legalization is not coupled with explicit federal protections for state-based intra-state markets, everything will change once cannabis is de-scheduled. The world of legal cannabis will look nothing like it does now,” the center said in the new report. “But this outcome is not inevitable. Congress can protect intrastate markets if it chooses to.”

“Without protection for small businesses, a shift from fragmented intrastate markets to one large intrastate market through the end of federal prohibition and the demise of interstate barriers will likely lead to consolidation of the cannabis industry and a monopolization of the market by large cannabis companies. Additionally, large corporations currently operating in other areas will enter the cannabis market once the risks and constraints of federal prohibition are removed.”

“Whatever one thinks of the benefits of a consolidated interstate cannabis market, it is clear that such a market is unlikely to prioritize the social equity goals that have driven many states’ existing policies,” it says. “Without specific efforts by Congress to protect state-level cannabis equity programs, and to limit market consolidation and monopolization, state efforts to create an equitable and inclusive industry will be wiped out.”

With respect to interstate marijuana commerce, California, Oregon and Washington State have each enacted legislation to set the infrastructure to prepare for cannabis imports and exports between legal states pending either federal reform or, in California’s case, an opinion from the state attorney general that engaging in such activity would not put it at outsized risk of enforcement action.

On the East Coast, New Jersey’s Senate president filed a similar interstate proposal last year, but it has not yet been enacted. In May, a Maine legislative committee rejected a bill that would have authorized the governor to enter into agreements with other legal marijuana states to allow interstate cannabis commerce.

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Parabola has played a key role in balancing the push for cannabis reform while highlighting the nuances of the debate that might otherwise be overlooked as momentum continues to build.

For example, the organization proposed changes to a House-passed federal marijuana legalization bill in 2021 that sought to ensure that the market is equitable and empowers communities that have been most impacted by prohibition to benefit from the new industry.

Late last year, the center also sounded the alarm about the influence of the tobacco and alcohol industries in shaping federal cannabis reform and encouraging lawmakers to rethink the idea of modeling legal marijuana regulations after those that are in place for booze.

“Excitement for federal legalization is mounting because state programs have led to good jobs and a lot of progress toward our goals of equity and justice,” Shaleen Title, founder and director of Parabola Center, said in a press release on Wednesday. “But flipping a switch to federally legalize marijuana would end all of that progress. Gradual implementation that protects small businesses and workers is the fairest option for everyone.”

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Photo courtesy of Mike Latimer.

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