Cannabis State Regulatory Agencies
By Jennifer Cabrera, Jen Flanagan
Jan 29, 2022
This piece was originally published as a LexisNexis Practical Guidance® Practice Note and appears on VS Insights with permission.
This practice note offers a greater understanding of the varied processes that impact the legalization of cannabis at the state level and discusses how evolving state statutes and regulatory structures impact the adult-use cannabis industry. Unlike almost any other industry, absent federal oversight or regulatory input, states truly can act independently as cannabis is legalized across the country.
Since the legalization of adult-use cannabis in Colorado in 2012 states across the country have seen increased activity through ballot questions, citizens petitions, and legislative bills. Subsequently, various polls have shown the increase in acceptance of adult-use legalized cannabis; however, until the federal government acts, states are forced to address the issue on their own. The increased activity surrounding legalization efforts has certainly brought the issue to the forefront in political circles; however, we have yet to see the comparable movement at the federal.
Attorneys seeking to work with clients in the cannabis space should understand the statutes and regulations of each state in which they operate. While legalized cannabis states look to each other for guidance, there are often clear variations between licensure, compliance, business operations, and permissible corporate structures. Command of state-by-state regulation and the process by which a state may change its regulations is necessary to effectively represent the cannabis client.
For more general information regarding cannabis, see Cannabis Resource Kit and Cannabis Law Practice Overview.
Adult-Use Cannabis Legalization
Cannabis is currently classified as a Schedule I drug under the U.S. Controlled Substances Act and, through provisions in 21 C.F.R. § 1308.49, the Secretary of Health and Human Services is permitted to add substances to this list. Generally, Schedule I substances are considered to have a high potential for abuse, no accepted medical treatment, and is deemed unsafe to be used under medical supervision. For any substance to be removed from this list, or be rescheduled, Congress may act through legislation, or the U.S. Attorney General is required to take administrative action.
Although there have been extensive efforts to reschedule cannabis through the legislative process and, under some administrations, written acknowledgment that law enforcement will not prioritize the prosecution of medical cannabis businesses, such efforts have been unsuccessful to date. Medical cannabis, in many states, is very prescriptive in that a patient must be diagnosed with qualifying conditions and patients must see a physician and then register with the agency overseeing the medical cannabis program.
As a basic premise, it is a critical public policy point to understand the difference between medical and adult-use cannabis legalization. Thirty-six states across the country have legalized medical cannabis, as well as the District of Columbia, the U.S. Virgin Islands, Guam, and Puerto Rico, although it currently remains illegal at the federal level. Medical cannabis programs require individuals to see a physician to certify that they maintain a need for medical cannabis and registering them as a patient at the state level. Medical patients are permitted to purchase products under different rules and regulations than the adult-use consumer and can, often, purchase products at a higher potency level.
The public perception of medical cannabis has advanced significantly as medical cannabis has been acknowledged as a legitimate treatment method. For many states, there is a list of qualifying diagnosed conditions a patient must have to be part of the medical program; however, it seems the list of qualifying conditions has begun to grow over the years. To emphasize the acceptance of medical cannabis into society, several states allow for reciprocity, thus recognizing out-of-state patients and allowing them to purchase medication while traveling outside their home state. Unfortunately, not all states have taken this step, and in not doing so have created an obstacle for some patients.
The path toward and acceptance of adult-use cannabis legalization has taken a vastly different path than medical use. As mentioned above, absent federal oversight or direction, adult-use legalization has occurred across the country on a state-by-state basis, with many states advancing legalization via ballot initiative, citizen’s petition, and in some cases legislation. States that were among the first to legalize adult-use cannabis have often been looked to for reference and best practices by newly legalized states seeking to address this issue, so while there are some similarities in the regulations, there are often very distinct differences as regulators decide what is best for their particular state.
For a medical and recreational marijuana state survey, see Medical and Recreational Marijuana State Law Survey.
Role of the Regulator
Once an adult-use statute is enacted by state lawmakers, the regulatory and licensing process begins.
Who Are the Regulators?
In some states, such as Oregon, Alaska, and Washington, cannabis governance is delegated to existing regulatory structures governing alcohol licensing and enforcement. In other states, such as Colorado, New York, and Massachusetts, a new regulatory board is created. Creating an independent agency allows regulators to be nimble and create processes that directly relate to the cannabis industry, but it is also labor-intensive, requiring a new agency to address drafting regulations while at the same time trying to staff an agency, often under tight timelines. Vermont, for example, opted to expend finances to allow for outside consultants to assist in the drafting of regulations; however, the Cannabis Control Board must also work with the legislature to determine the funding that will establish its staff levels and agency operation. These examples of how differently states handle the early days of legalized adult-use cannabis can often be considered a roadmap for its operations going forward.
It is important to understand the history of the state agency tasked with regulating adult-use cannabis, as it will provide insight into the timeliness of the regulatory process being effectuated and obstacles that may need to be overcome in the early days. In some adult-use cannabis statutes, tight timelines are created by which the regulations must be filed, and licensing begins. While the timelines are often created by the legislature, it doesn’t usually account for the physical time it takes to staff a newly created agency, while at the same time drafting the initial set of regulations. These delays are then criticized by the general public, as well as entrepreneurs seeking to enter the industry because they are seen as delay tactics when, in fact, there is a lack of understanding as to how government process works.
Regulators are individuals appointed to direct the administration of the laws overseeing cannabis licensing and enforcement in their respective states. Each state determines, through statute, which appointing authority will choose the regulators, how those regulators will be approved, and if there are limits to the number of terms the regulators may serve.
For instance, according to statute in Massachusetts, each regulator must have a specific background—public health, public safety, finance, regulatory, and social justice—as determined by three appointing authorities: the governor, attorney general, and treasurer. The Governor, Treasurer, and Attorney General all have one appointment and then, collectively, they choose two regulators. In New Jersey, the governor makes all five appointments, with one recommendation from the senate president and one recommendation from the assembly speaker. In some markets, regulators are existing state employees working within a state agency, with little fanfare from the public.
Implementing the Statute
Once the regulators are seated, the work begins on implementing the statute. In the early days of the regulatory process, regulators must envision what values they want the adult-use cannabis market to reflect and structure the regulations to support that vision, while at the same time upholding the statute. The lack of federal regulatory support makes this process more difficult, especially in areas such as banking and transportation.
Some regulators may wish to engage stakeholders as they create the initial version of the regulations, holding public hearings, roundtable meetings, and soliciting testimony through email and snail mail. This is the time where anyone who has an interest in adult-use cannabis should make their thoughts known, realizing that any testimony they provide will become part of the public record. Other regulators may rely primarily on expert testimony from regulators in other states or their knowledge and expertise.
During the public comment period, practitioners may use the opportunity to advocate for policy areas their clients have an interest in; however, focusing in on a topic specific to that one business may not be appropriate. While regulators are drafting the initial regulations or moving through subsequent regulatory proceedings, they must think of the overall cannabis structure within their state.
As the regulators take steps to implement the adult-use cannabis legalization statute, various issues may arise that require legislative attention. Historically, there has been confusion as to the authority of regulators versus legislators. Legislators, of course, pass laws at the state level, and regulators must implement those laws while at the same time writing the rules by which the industry must comply. At times, a plain reading of the letter of the law and the desires of the regulators are at odds, so regulators must determine how to artfully adapt the intent of the statute or request a legislative fix. The regulators do not have the authority to change laws; therefore, the separate and distinct authority of legislators and regulators must be understood.
Key Documents within Regulatory Agency
Regulations are the most identifiable and critical document borne from a regulatory agency, though an agency can utilize other methods to disseminate information to the public, prospective applicants, and attorneys. Information is crucial to the regulatory process, and it behooves an agency to provide as much information as possible to ensure clear procedures and compliance.
Guidance documents, FAQs, forms, and templates are all ways in which regulatory boards can direct policy without embedding language in the regulations. These documents are a straightforward way to convey statements for policy or practice that applies to the work of the regulatory board, and they can be easily amended should the need arise, unlike the regulations which require a more in-depth process to make changes. Guidance documents and FAQs are often created because there is a general concern among a group of people or a lack of understanding as to a particular process or policy, so in an effort to be forthcoming, the agency will take it upon themselves to streamline the information and present the document for reference.
There are a variety of variables that determine how a state chooses to legalize and regulate medical and adult-use cannabis, and as additional states choose to regulate adult-use cannabis, a best practice may emerge or states may continue to be creative in their regulatory process.
Regulation in Massachusetts
Massachusetts legalized adult-use cannabis through a citizen’s ballot question in 2016, and ultimately, the legislature passed their version of the law in July 2017. Through that law, St. 2017 c. 55, the Cannabis Control Commission was created, and the five inaugural commissioners were appointed and sworn in to be seated on September 1, 2017.
As noted above, Massachusetts has the most prescriptive commission in the country, requiring each of its five commissioners to come from a specific background:
- Public health
- Public safety
- Finance
- Social equity
- Regulatory
When initially implemented, the Cannabis Control Commission did not have support staff to assist in standing up the new agency, therefore the newly appointed commissioners authored the initial regulations with limited contracted staff or researchers. Further, the Cannabis Control Commission is required to operate under the Open Meeting Law, limiting the ability of the commissioners to contemplate policy options outside of public meetings. These obstacles weighed into the timing of standing up and staffing the agency, as well as the availability of license applications. However, with five commissioners coming from very different backgrounds, robust deliberations occurred that addressed public health, public safety, social equity, environment, and business.
As with many other states, regulators in Massachusetts relied on the expertise of states that had previously legalized adult-use cannabis. There was no playbook to be used, so networking and communication with states such as Oregon, Colorado, Washington, and California was critical in shaping what form legalized cannabis would take in Massachusetts. Outside input wasn’t as easily accommodated in the early days of the process in Massachusetts due to the tight timeline the regulators were working under; however, perspectives from both the public and industry are important to create policy and regulations that would sustain a strong industry.
Additionally, the Massachusetts Cannabis Control Commission was required to take control of the medical cannabis program, which, until that point, had been housed under the Department of Public Health (DPH). As the commission and DPH worked to move the program, additional action was taken to assist patients using cannabis. The commission removed the yearly fee for medical patients, allowed for telehealth once COVID-19 interfered in the requirement to see a physician yearly, and additional staff members were added to assist patients with applications and renewals.
Due to the extensive legwork required by commission staff, initial licensure timelines were steep. Applicants reported waiting, in some instances, over a year for licensure. However, because the enabling statute created a new agency solely dedicated to cannabis, the agency was able to dedicate expansive and robust resources for applicants to advance other policy priorities, including a comprehensive public awareness campaign about marijuana laws and regulations, a social equity program to provide wraparound business services to individuals disproportionately impacted by drug law enforcement, a comprehensive series of environmental requirements, and a laser focus on enforcement and protection of public health.
Regulation in Rhode Island
Rhode Island’s Office of Cannabis Regulation is housed under the Department of Business Regulation, which is an established state agency that is responsible for implementing laws that require regulatory oversight, including, gaming, banking, commercial licensing, and insurance. This structure falls in line with other states which embed their cannabis departments within existing agencies and utilize established staff and financial resources to implement the law. In this instance, it was reasonably believed that the timeliness of implementation would be more efficient than other states that created new agencies.
In the time between the veto override to establish medical cannabis in 2006 and the passage of the law in 2009 to allow compassion centers, Rhode Island operated solely under a caregiver system. This allowed patients and caregivers to cultivate cannabis while requiring them to register the location of the cultivation with the Department of Business Regulation. Patients were eligible for the medical program once a physician certified that the patient had been diagnosed with chronic pain or one of the qualifying conditions allowed by the state.
Under the caregiver model, there were limitations on access to medical cannabis. It wasn’t until the Rhode Island Department of Health authorized the licensure of compassion centers to sell medical cannabis in 2009 that patients were expecting greater access. Due to obstacles and political battles, compassion centers were not able to serve patients until 2013.
Regulation in California
California became the first state to allow medical cannabis when voters approved the Compassionate Use Act in 1996. Twenty years later, voters approved the Adult Use of Marijuana Act to legalize adult-use cannabis in California.
Various state regulatory agencies held authority over cannabis until July of 2021 when all licensing and regulatory authority was consolidated into the Department of Cannabis Control (DCC), housed under the Business, Consumer Services, and Housing Agency. DCC has regulatory authority over:
- Cultivation of cannabis plants
- Manufacture of cannabis products
- Transportation and tracking of cannabis goods throughout the state
- Sale of cannabis goods
- Events where cannabis is sold or used
- Labeling of goods sold at retail
DCC may also create, issue, deny, renew, discipline, condition, suspend, or revoke cannabis licenses and collect fees relating to the foregoing.
DCC has the authority to issue guidance regarding cannabis, including advertising and marketing of products. In May of 2021, DCC issued guidance prohibiting advertisements and marketing on billboards or similar advertising devices on or near an interstate or state highway which crosses the California border. Other recent rulemaking addressed the release of applicant information to financial institutions and the requirement of a QR code certification on all premises.
Regulation in Colorado
After legalizing medical cannabis in 2000, voters in Colorado passed Amendment 64 in 2012, legalizing adult-use cannabis. Both markets are governed at the state level by the Marijuana Enforcement Division (MED) within the Department of Revenue.
Recently, the MED has adopted rules implementing a social equity plan, something that is at the heart of other states’ markets. Most significantly, Colorado’s social equity plan includes an accelerator program for social equity applicants, and, as of January 1, 2021, special consideration was given to licensure for these social equity applicants.
Even more recently, emergency rules were adopted establishing new fees for applications, renewals, license fees, permits, and other fees accompanying all applications and submissions to the MED. The MED has the authority to establish these fees, rules, and regulations for the control of cannabis, as well as the process for licensure to operate a cannabis business, among other things. While Colorado was one of the first adult-use markets to come online, the MED is ever-changing and adopting rules to grow with the industry.
Regulation in New Jersey
After legalizing medical cannabis in 2010, New Jersey had a small medical cannabis program overseen by the Department of Health, with six vertically integrated Alternative Treatment Centers (ATCs) serving a small pool of patients with qualifying conditions. In 2018, six new ATCs were licensed and, in 2019, the state approved a new medical cannabis law that further expanded access to the medical program.
In November 2020, New Jersey’s voters approved a referendum on adult-use cannabis legalization with 67% approval. The New Jersey Cannabis Regulatory, Enforcement Assistance, and Marketplace Modernization Act was passed in February 2021. N.J. Rev. Stat. § 24:6I-1.
Following legalization, oversight of the state’s medical and adult-use cannabis programs transferred from the Department of Health to a five-member Cannabis Regulatory Commission (CRC). The governor is tasked with appointing three members of the CRC (including the Chair) directly, while the remaining members are appointed on the recommendation of the senate and assembly.
The statute set a six-month statutory deadline for the CRC to issue regulations and further instructed the CRC to begin processing license applications within 30 days thereafter. The CRC is required to consult with the Attorney General, State Treasurer, Commissioner of Health, and Commissioner of Banking and Insurance on draft regulations.
The CRC must establish an Office of Minority, Disabled Veterans, and Women Cannabis Business Development (Office) to establish business certifications for minorities, women, and disabled veterans. The CRC must incorporate licensing measures established by the Office to promote licensing of persons from socially and economically disadvantaged communities, and minority businesses, women’s businesses, and disabled veterans’ businesses. The effectiveness of the Office’s measures will be assessed by considering whether the measures have resulted in the at least 15% of the total number of licenses being issued to certified minority businesses and at least 15% of total licenses being issued to certified women’s and disabled veterans’ businesses.
Regulation in New York
New York legalized medical cannabis in 2014, overseen by the State Department of Health. The Department licensed 10 vertically integrated Registered Organizations (ROs) to serve the patient population. Adult use was legalized in March 2021 with the Marijuana Regulation and Taxation Act. While New York’s statute does not set deadlines for the appointment of regulators, the issuance of regulations, or the availability of applications, it does create a blueprint for the regulatory framework.
An independent Office of Cannabis Management (OCM) has been established within the state’s Division of Alcoholic Beverage Control with exclusive jurisdiction over all medical and adult-use cannabis and hemp activities in the State of New York. A five-member Cannabis Control Board (CCB) has been established to license and regulate medical and adult-use cannabis and hemp businesses. The CCB has sole discretion to limit the number of registrations, licenses, and permits of each class to be issued within the state or any political subdivision, in a manner that:
- Prioritizes social and economic equity applicants with the goal of 50% awarded to such applicants
- Considers small business opportunities and concerns
- Avoids market dominance
- Reflects state demographics
An executive director nominated by the governor and confirmed by the Senate has authority for OCM administration, recordkeeping, facility inspection, and creation of license applications and guidance.
A Cannabis Advisory Board, consisting of 13 voting members and 8 representatives from various state departments, is established to work with the CCB and executive director to advise and issue recommendations. A chief equity officer appointed by the CCB has the authority to develop, implement, and ensure compliance with the required social and economic equity plan.
The authors, Jen Flanagan and Jennifer Cabrera, would like to thank Ms. Bridgette Nikisher for her invaluable assistance in the preparation of this practice note.