While many U.S. states have issued guidance to address the COVID-19 pandemic, Dr. Anthony Fauci, the nation’s top infectious disease expert, told CNN last week that the governors who have not issued statewide stay-at-home orders “really should” take action to slow the spread of the virus.
President Donald Trump, on the other hand, has largely advocated for each state to take its own approach, but Fauci’s message could indicate the inevitability of a federal stay-at-home order as the public health crisis evolves.
Should federal guidance come into play, what would this mean for cannabis businesses operating in a federally illegal industry?
First and foremost is the question of whether the federal government can legally issue a stay-at-home order in the first place.
“I think there’s still a question [of] if the federal government has the authority to issue a shutdown order,” Karen O’Keefe, director of state policies for The Marijuana Policy Project (MPP) and the MPP Foundation, tells Cannabis Business Times. “I saw that there are some general classifications of what constitutes an essential service and what does not for the federal government, and at least one state that was relying on that used those definitions to include medical cannabis as something that could stay open because pharmaceutical and medical facilities can stay open. … Certainly, my hope and expectation would be … a general mandate to keep open businesses that provide medications, and then that would include medical cannabis.”
If the federal government is indeed authorized to issue stay-at-home guidance, the consensus among industry stakeholders seems to be that any federal order should leave flexibility for states to continue deeming certain businesses essential, as they see fit. This would mean that the cannabis industry should be safe in jurisdictions that already carved out exceptions for their cannabis businesses in the name of patient access.
Chris Lindsey, MPP’s director of government relations, says that while it is unlikely that the federal government would significantly increase requirements for states that have stay-at-home measures already in place, it could instruct states that have not yet adopted orders to do so, and would most likely defer to those states’ priorities as much as possible.
Harris Bricken attorney Hilary Bricken agrees.
“I think the federal stay-at-home would only address the basics and would leave it open as to whether or not these are essential businesses, and they would probably leave it up to the states,” she tells Cannabis Business Times. “If a fed order came down that said, ‘You must shutter if you’re a federally illegal business,’ that would be a different story. But even then, I think states would be in the same position that they are in now in that this is a state’s rights issue. There are lots of constituents that rely on this as medicine, so we’re going to remain open and basically continue the cycle of the federal-state conflict that’s already in place.”
Lindsey echoes this sentiment.
“States have been ignoring federal guidance on marijuana policy for some time, so even if the fed tells states to shut cannabis businesses down, it's not clear it would make much difference,” he says.
In states that have failed to carve out exceptions for the cannabis industry in their stay-at-home orders, many cities and counties have deemed cannabis businesses essential within their jurisdictions, and Bricken says these designations would also likely stand in the event of a federal order.
“I think the federal government has to be very careful here because states have determined what is best … for their communities and their states,” Rachel Gillette, chair of Greenspoon Marder’s Cannabis Law Practice, tells Cannabis Business Times. “It’s not like every state is the same, so I think it would be unwise to have a federal order that goes into the minutia of detail to … determine what is essential versus not, where there might be certain states that have special needs, circumstances or situations, like legalized cannabis, for example.”
The Consequences of a Shutdown
A federal shutdown of the cannabis industry—if actually put into practice—would undoubtedly have a dramatic impact on businesses, their employees and the customers they serve, particularly those in the medical market.
“There are hundreds of thousands of people working in the cannabis industry, and if you shut down their businesses, they’re most likely without jobs,” Brian Vicente, partner and founding member of Vicente Sederberg, tells Cannabis Business Times. “They have to apply for unemployment. And your supply chain, particularly for medical marijuana patients but also for all cannabis consumers, would be disrupted because if you can’t tend to your plants, they die. That could be real public health emergency for patients in and of itself.”
Federal guidance that shutters cannabis businesses could also cause a public panic like the recent situation in Colorado, Gillette adds. While Gov. Jared Polis deemed the industry essential in his stay-at-home order, the mayor of Denver unveiled a different plan, calling for the city’s adult-use cannabis dispensaries and liquor stores to shut down.
“Everybody dropped everything they were doing and ran out to the liquor store and the marijuana store, and it created this chaos because everybody freaked out, thinking they weren’t going to be able to get their marijuana or their booze for a number of weeks,” Gillette says. “The city of Denver ended up, within hours, amending that order, basically deeming liquor stores and recreational marijuana stores essential, similarly to the statewide order that the governor had issued.”
Closing cannabis retailers could also force consumers back to the illicit market, Gillette adds, which would create a separate set of public health issues.
“Obviously, people are buying marijuana, people are selling marijuana, and we want to make sure it’s being tested and we aren’t going back to [supporting] the black market environment and that there’s still safe product that is available,” she says. “I think we’ve made so much progress in at least having the federal government take a hands-off approach from a federal enforcement perspective that I would hate to take so many steps back and go back to supporting illegal operators instead.”
The other issue at play, Gillette says, is the fact that cannabis businesses cannot qualify for the federal COVID-19 economic relief programs that are being rolled out.
“They’re being denied the relief that other small businesses are being allowed, and so not only are you shutting them down, but you’re also saying, ‘You don’t get any of the benefits that every other business does that has been shut down,’” she says. “That’s just extra mean.”
The Federal-State Dichotomy
For Vicente, the federal-state tension has never been more apparent in the cannabis industry than it is now.
“We have this federal-state dichotomy where you have states—many states—that have declared marijuana as an essential business, same as grocery stores or gas stations,” he says. “Then, you have the federal government, where of course marijuana is federally illegal, but then they’ve passed very generous stimulus packages with trillions of dollars and they’ve specifically outlawed cannabis businesses or even businesses that service cannabis businesses from qualifying for that bailout money. The federal government has not been good to this industry historically.”
“I think we could see an explosion of new marijuana markets in six months or a year as bankrupt governments around our country look for new sources of revenue.” - Brian Vicente, Partner & Founding Member, Vicente Sederberg
Vicente Sederberg is part of a larger lobbying effort to get cannabis businesses deemed essential at the federal level during the COVID-19 crisis, and while advocates have not been successful to date, Vicente is hopeful that their efforts might at least get ancillary businesses included in subsequent stimulus packages.
In addition, Vicente says there have been discussions at the state level regarding certain states launching stimulus programs, which would be supported either through federal money or states’ rainy-day funds.
“I would certainly imagine that money that’s doled out by states would treat cannabis businesses the same as other state-level businesses, but all of that is perspective,” he says. “The current state of affairs is we don’t qualify. Though we’re essential in certain states, at the federal level, we’re still treated as second-class businesses.”
Advocating for Change
While the federal landscape remains uncertain, Gillette says that cannabis business owners can reach out to the governors in their states, as well as their congresspeople, to push for the cannabis industry to be deemed essential during this crisis.
MPP has signed an open letter alongside other industry organizations to urge the governors of various states to declare cannabis businesses essential, both in the medical and adult-use markets.
“We have two versions of the open letter,” O’Keefe says. “One was to medical cannabis states only, and one was to both medical cannabis and adult-use states. It had a number of recommendations for regulators. The first, foremost, was to ensure that the businesses are considered essential and remain open, so that would be relevant to the federal government, too. The other ones were more about easing access and ensuring continued safe access in times of social distancing, so that was things like allowing telemedicine for recommendations for medical cannabis and allowing home delivery if states didn't already do so.”
O’Keefe is encouraged by the fact that no state has shut down its medical cannabis program during its COVID-19 response, although she is disappointed that Massachusetts has discontinued adult-use sales.
“Other than that, all of the states with shutdown orders have ordered the businesses to remain open, and a lot of them have taken additional steps, such as allowing delivery, allowing curbside pickup, allowing telemedicine and easing hiring practices,” she says. “In many of those states, we'd worked to pass the laws. We were in touch with regulators and state lawmakers from past years and have big networks of supporters in each of the states that we can mobilize to call on continued access for patients.”
A Business in Flux
Businesses should be following any emergency guidance at the state level during this time to ensure employee and customer safety, and to simply be a responsible business during this crisis.
“The feedback that we’ve gotten from not only federal representatives, but also state and local representatives, is that a lot of the concern about cannabis businesses comes from the idea that there are going to be big lines [at dispensaries], and there’s a public health hazard associated with that,” Vicente says. “We work with hundreds of dispensaries, and we’ve been working with them to develop best practices around sanitation, line spacing, online ordering and curbside delivery. I think that the idea is that if these businesses can continue to be good actors, they won’t be in the crosshairs of the federal government.”
While most cannabis businesses are already accustomed to everchanging regulations, Joseph Bedwick, co-chair of Cozen O’Connor’s Cannabis Industry Team, tells Cannabis Business Times that flexibility is key as states respond to the COVID-19 crisis.
For example, dispensaries must be able to quickly adapt their business models to support curbside pickup and delivery as states increasingly allow retailers to provide these services to their customers to maintain social distancing.
“A theme in the cannabis industry since its inception, really, is you have to be able to evolve,” Bedwick says. “You have to be able to adjust to changing situations, changing regulations and a federal landscape that is at odds with the majority of states’ laws. Now, add to all of that this once-in-a-century crisis that we are currently experiencing, … and it just creates even greater uncertainty. The cannabis companies that will thrive are likely the ones that will be able to review, digest and comply with the new regulations as quickly as possible.”
Looking ahead, Bedwick is hopeful that broader policy reform awaits the cannabis industry on the other side of the COVID-19 pandemic.
“I think you’ll see a desire to push through some of the regulations and legislation that have been put on hold now,” he says. “Everything’s kind of stalled, [but] I think you will see some recognition [of the industry] and hopefully a change in policy on the other side.”
Given the budget constraints many states are facing due to the COVID-19 pandemic, many state and local regulators have expressed a dire need for tax revenue, which Vicente says could also work in the cannabis industry’s favor.
“I think we could see an explosion of new marijuana markets in six months or a year as bankrupt governments around our country look for new sources of revenue,” he says.
Gillette is also optimistic about the cannabis industry’s resilience during this uncertain time. “My hope is that we’re going to get through this and we’re going to eventually be reopened for business, and that we can continue to have a robust business environment in my state, but hopefully many other states.”
Senior Editors Brian MacIver and Patrick Williams contributed to this report.