Federal Legalization of Cannabis Could Severely Threaten State Markets Without Certain Protections

Federal Legalization of Cannabis Could Severely Threaten State Markets Without Certain Protections

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A new report finds that small marijuana businesses and state-specific social equity programs could be put at risk by a rush to legalize cannabis at the federal level.

With the recent recommendation by the Department of Health and Human Services to reschedule marijuana from a Schedule I to a Schedule III narcotic on the Controlled Substances List, many industry advocates and stakeholders have begun a somewhat premature celebration of the end of prohibition.


Suppose the DEA makes the suggested change, as many agency experts believe it will. In that case, the door to a broader array of research on the plant will be swung wide open, which could provide the necessary evidence to justify the legalization of marijuana by the federal government.


A new report by a leading cannabis think tank is now cautioning congressional leaders to approach legalization reform carefully to mitigate any potentially harmful consequences that liberating interstate commerce might have on small marijuana entrepreneurs and social equity initiatives in legal state markets.


The study, released by the Parabola Center for Law and Policy on Wednesday, makes the ever-more obvious assessment that the end to federal cannabis prohibition is a certainty. And while the change in law would create a better synergy between state and federal policies, the group concludes it could also cause significant disruption 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. 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,” the report says.


"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. 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.”

- Report on Federal Marijuana Legalization by Parabola Center for Law and Policy


As a result of its findings, Parabola is offering up three vital recommendations to limit the risks of corporate consolidation, monopolization, and undermining state markets.


1. Congress must ensure that federal legalization measures explicitly maintain and preserve states’ rights to determine their own cannabis laws “as designed and without disruption.”


The report says congressional lawmakers 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.”


2. The group also suggests that Congress stipulate via legislation that small, social equity and worker-owned marijuana businesses receive priority in interstate commerce to be regulated through a federally maintained registration system.


Parabola also believes registration should be reserved for state-licensed companies that:

  • Promote diversity within the industry.
  • Offer support and services to “disadvantaged individuals, veterans, or individuals and communities most affected by cannabis prohibition and enforcement.”
  • Protect workers’ rights to organize and co-own businesses.

3. Finally, the think tank strongly advises that legalization reform be paired with legislation that minimizes the potential for corporate consolidation and monopolization by deep-pocketed multi-state operators, an issue the group highlighted earlier this year in an educational campaign concerning the end of prohibition.


Additionally, the report focuses on avoiding violations of the U.S. Constitution’s Dormant Commerce Clause, which bans states from preventing or restricting interstate commerce while simultaneously giving Congress the authority to regulate such commerce.


The core issue Parabola is striving to limit, if not eliminate, is that state regulatory guidelines could expose them to liability under federal legalization statutes if they continue to maintain their market sectors as totally intrastate. And unless there is intentional action by Congress, as detailed above and in the report, the consequences for state-licensed marijuana companies across the country could be dire.


“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. But this outcome is not inevitable. Congress can protect intrastate markets if it chooses to,” the center said.


"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. But this outcome is not inevitable. Congress can protect intrastate markets if it chooses to.”

- Report on Federal Marijuana Legalization by Parabola Center for Law and Policy


Parabola has positioned itself as a trusted and objective organization concerning the issue of cannabis legalization and the regulation of legal markets. It has played a crucial role in providing a balanced approach to pushing for marijuana reform while educating lawmakers on the nuances of the debate.


In 2021, the group advised changes to a House-passed federal cannabis legalization bill that sought to ensure equitable markets and the empowerment of communities most negatively affected by prohibition. Last year, the center raised significant concerns about the influence of Big Tobacco and Big Alcohol in crafting reform legislation. Furthermore, the group admonished lawmakers to rethink modeling marijuana regulatory guidelines after those in place for alcohol.


This latest report is just a continuation of the center’s work to help guide the industry from a loose confederation of insular state markets to a complex network of state and national businesses working to create a safe, fair, and economically powerful nationwide industry.


Hopefully, the message will be received by congressional lawmakers and market regulators. If not, the legislative and legal headaches will only multiply and intensify once federal prohibition ends.