Pennsylvania Senate Committee Weighs Cannabis Mistakes, Successes Elsewhere
Pennsylvania state Sen. Mike Regan discusses keys points of focus for the state's forthcoming adult-use cannabis legislation during a committee hearing Feb. 28.
Adobe Stock; Pennsylvania Senate

Pennsylvania Senate Committee Weighs Cannabis Mistakes, Successes Elsewhere

Lawmakers looked outside their state’s borders while considering the best path toward implementing an adult-use program during a recent hearing.

March 1, 2022

If other states already made mistakes, then Pennsylvania does not have to repeat them. 

That was the tone among state lawmakers during a Senate Law & Justice Committee hearing Feb. 28 to discuss implementing an adult-use cannabis program in Pennsylvania.

The hearing was the second in a series on the issue that kicked off last month, when the committee became the first legislative body in Pennsylvania’s General Assembly to begin planning for legalization beyond the state’s current medical program.

RELATED: Pennsylvania Lawmakers Take First Step Toward Adult-Use Cannabis Legalization

This week’s hearing included testimonies from individuals who played active roles in legalization efforts elsewhere, such as California, Illinois, Massachusetts and New York.

Sen. Mike Regan, the committee’s chair and a former law enforcement officer who represents part of Cumberland and York counties, said Monday that there has been demand from many of his colleagues in both the Senate and the House that any adult-use legislation needs to be comprehensive and include best practices from other states.

“Since first announcing my intention of introducing legislation to legalize adult-use marijuana, I have expressed my desire to learn from those states who have taken that step,” Regan said. “I want to fully understand which states are models of success, which ones we should look at for guidance on specific aspects of establishing an adult-use cannabis program in Pennsylvania, and which states have failed in one way or another.”

Regan added, “It is not necessary for us to go about this blindly when 18 other states have navigated the process already.”

Regan laid out key points for the committee to focus on and address in forthcoming legislation: driving under the influence; workplace safety; tax rates that are low enough to provide necessary revenue while forcing out drug cartels and the illicit market; and a transition to adult use that ensures the continued success for the medical cannabis industry while providing opportunities to smaller and disadvantaged entities.

Brandon Nemec, the government and regulatory affairs associate counsel with Chicago-based vertically integrated cannabis company PharmaCann Inc., zeroed in on the taxes and revenue aspects of legalization during his testimony. PharmaCann is a multistate operator.

“There’s a substantial opportunity here for the commonwealth to generate new and sustained and meaningful revenue to benefit the citizens through the legalization of adult use,” he said. “However, the commonwealth should be mindful of setting an adult-use tax rate that will allow it to compete with the illicit market and bring adult-use consumers into the regulated market as quickly and effectively as possible.”

Providing examples of competitive tax rates, Nemec pointed to Michigan, which has a combined effective tax rate of 16%, including a 10% cannabis excise tax and a 6% state sales tax.

In 2021, Michigan’s regulated market sold more than $1.3 billion in adult-use cannabis sales, according to monthly reports from the state’s Marijuana Regulatory Agency. Those sales generated approximately $250 million in tax revenue for the year, Nemec said.

And providing examples of what he called non-competitive tax rates, Nemec point to California, where he said the tax rate hovers between 40% and 50% when considering the state’s excise tax, retail tax, cultivation tax, and local and county municipal taxes.

“When those are all compiled on top of each other, it makes it very difficult for the legal operators to compete with the illicit market,” he said. “I’ve seen projections in California that they’ve only now [after four full years] in their adult-use market, they’ve only now cut into about 25% of the legal market, and about 75% of the illicit market is still operational, is still thriving.”

Municipality opt-outs have also allowed the illicit market to remain widely available in California, he said.

Others who testified also highlighted the importance of regulations that take the illicit market into consideration while moving toward full legalization.

Jesse Alderman, co-chair and co-founder of Foley Hoag’s nationwide Cannabis Practice, said the speed to establishing adult-use framework is paramount, as the illicit market loves a “vacuum of authority.”

While Monday’s hearing featured testimonies of those with expertise in already established markets, the committee members heard from law enforcement officials during their first hearing on Feb. 7. At least one more hearing is planned.

“This would be historical legislation in the state of Pennsylvania,” said Sen. James Brewster, the minority chair of the Law & Justice Committee. “[Adult-use legalization] would be very critical to what we do going forward from a revenue perspective. And, for folks like me, I’m always concerned about the impact of enforcement and control of the product going forward.”