After Prohibition

Without a doubt, U.S. federal law keeps the cannabis industry from living up to its potential. How might that change if Congress takes action to legalize the plant?


As of September 2022, thirty-seven states and the District of Columbia regulated medical cannabis sales; nineteen states housed recreational markets. More than two-thirds of adults supported some form of legalization, regulation, and taxation. In 2021, the legal United States market posted revenue of $24 billion, a figure that will continue to grow as more states launch new programs or expand the ones they already operate.

Cannabis isn’t going away. If anything, it’s becoming easier for consumers to obtain legally. With all of that being the case, does putting an end to federal prohibition even matter anymore?


For a whole host of reasons, it matters very much. Cultivators want to promote their crop as organic, a label beyond reach until the U.S. Department of Agriculture (USDA) approves the designation—which the agency can’t do while the plant is federally illegal. Wary potential consumers might be reassured about product safety with nationally standardized testing. Scientists want to research the plant’s medical applications, and large-scale funding won’t be available until the plant is legal. Incarcerated nonviolent offenders justifiably demand freedom and to have their convictions expunged. Veterans want access to the plant through Veterans Administration health care. Dispensary owners want to boost sales by letting customers pay with credit cards in addition to cash. And the industry needs access to traditional capital markets and financial services—not to mention relief from the Internal Revenue Service’s dogged enforcement of Section 280E—in order to remain robust.

Beyond those significant matters, a federally legal industry could create a massive number of new jobs, and new tax revenues could fund all manner of social programs and infrastructure needs.

“Legalization or decriminalization changes the world quickly in a really good way,” said Greg Butler, chief commercial officer for multistate operator (MSO) Cresco Labs. “At the end of the day, [federal legalization] will do more than just make it easier for shoppers, consumers, and patients.”

Federal legalization will make life easier for the industry in many ways, but the post-prohibition landscape won’t be all ice cream and Girl Scout Cookies. Legalization will not fix every problem or save every enterprise, and it surely will exacerbate some pain points.

For one thing, states probably will continue to regulate their own independent markets, so fragmentation will remain. In addition, the federal government could levy taxes ranging from 5 percent to 20 percent on top of those already feeding state and municipal coffers. A tidal wave of competition most likely would be followed by a period of unprecedented consolidation—a necessary and not unexpected development, but painful nonetheless. The majority of Americans say they support legalization or decriminalization but stigma will linger among those who don’t, potentially encouraging motivated social conservatives and grandstanding politicians to target cannabis the way they have other personal liberties like vaping, marriage equality, and abortion. Fiery rhetoric could add to already overheated cultural division.

Ultimately, full federal legalization is likely to be a process, not an event. Business owners, executives, and activists say incremental victories eventually will lead to so many federal protections that the final step will seem more like a sigh than a shout.

Here are some educated projections about ways in which the environment could change.

Taxes and regulations

Right now, taxes add as much as 50 percent to the cost of legal products, making the illicit market a formidable competitor to plant-touching legal businesses. State and municipal lawmakers are thrilled by the revenue, and after legalization the feds will be too. But the addition of even a small federal bite could be the straw that breaks the industry’s back.

Taxes are so high already that many entrepreneurs say they have one foot in bankruptcy and the other on a banana peel—particularly in California, where add-ons in excess of 40 percent have created widespread concern regulators will strangle the goose that lays golden eggs. Sacramento has collected more than $4 billion in cultivation and excise taxes since adult-use sales began in 2017. Most of that money has been earmarked for worthy causes like public safety, social-equity and -justice programs, and COVID relief.

But no owner of a licit business, large or small, thinks their tax burden is sustainable.

“Oh, please,” said Valentia Valentine, whose elegant dispensary on the California coast, Synchronicity Holistic, suffers from illegal competition. “[Lawmakers] are driving up my prices and driving customers away.” Adding another bureaucratic cash-grab would severely undercut the legal industry and send the black market into overdrive—undoing one of the primary reasons for legalizing in the first place.

Regulation is a more nuanced issue as, counterintuitively, many farmers and retailers wait impatiently for federal guidance. They say failure to impose universal safety standards and equitable license limits has dangerous implications for public health and their survival. National standards would level the playing field between stricter and more lenient states by applying an agreed-upon set of restrictions to everyone equally.

Sustainable growers also complain they are unable to capitalize on their most valuable asset: organic crops. The USDA maintains strict definitions about what constitutes an organic product, but without federal oversight, even the most rigorously grown cannabis cannot be called organic. For cultivators who practice natural, regenerative agriculture and biodynamic farming, this is agonizing.

“I buy predator insects to take care of harmful insects, and the guy down the road uses pesticides and fungicides,” said Staci Jenkins, founder of Oregon’s Meraki Gardens. “If I’m spending ten times as much on nutrients as a farmer with chemicals, how is that fair?” The weight of a “USDA organic” designation in her marketing efforts could make an enormous difference in the price she can command for her products.

Even the biggest names in the business admit federal standards would be a boon. “This is a product consumed by millions and millions and millions of Americans, and the government doesn’t regulate it?” Cresco’s Butler asked rhetorically. “If you believe federal agencies should have oversight of health and safety, this isn’t characteristic.” Federal oversight of the same sort endured by similar agricultural and CPG products would muffle at least some of the loudest anti-cannabis arguments and convince some consumers reluctant to engage with unregulated products to give plant medicine a try.

Steve Merritt, founder of Southern Sky Brands in Canton, Missouri, is a member of the Foundation of Cannabis Unified Standards (FOCUS), a nonprofit advisory group that works with government agencies to develop laws and programs that improve public safety, protect the environment, and “promote integrity” in the cannabis community. The volunteer organization is drafting proposed rules for consideration by the Food and Drug Administration. “As an industry, it’s important to have uniformity in the regulations, because it’s a hassle to work from state to state,” Merritt said. “Fire inspectors, loan officers, everybody. We need consistency, and we need a level playing field.” FOCUS wants the draft rules ready to present even before federal legalization so there are no excuses for delays or confusion when the agency finally steps in to regulate consumables and topicals under the Food, Drug, and Cosmetic Act.

Interstate commerce

Today, the industry is forbidden from selling or transporting products across state lines, a restriction that both stifles growth and protects companies that are not ready to take on challengers of every size and circumstance.

After federal legalization, that wall will fall, at least partially. Removing cannabis from the Controlled Substances Act most likely would open the plant to the same sort of interstate commerce opportunities enjoyed by alcohol and tobacco products. No state will be able to interfere with interstate transportation, although all states will maintain regulatory autonomy—and some will choose to limit or prohibit commerce within their borders.

In the most liberal vision of a post-prohibition future, Big Bud will blow across state lines, expanding rapidly with detailed plans and abundant resources. Big Everything Else is already in position, impatiently waiting to add THC to beverages, snacks, and other consumable product lines. Such a scenario could whip up a whirlpool of regulation and competition capable of drowning all but the strongest and most proactive players.

As might be expected, some states worry their tax revenues will plunge if cultivators and product manufacturers can serve retailers nationwide from anywhere they please. MSOs likely would consolidate their production operations in the locations with the most beneficial tax and regulatory structures, depriving other jurisdictions of funds they’ve grown accustomed to receiving. There’s evidence, albeit scant, some states already are planning for this potential future. In August, WM Technology Chief Executive Officer Chris Beals told mg’s Danny Reed, “We’re seeing an acceleration of states revising their laws so there’s little synergy with neighboring states, perhaps in an attempt to thwart interstate commerce once federal legalization does come.”

It is an anxious time for the nation’s more ambitious plant-touching business owners, many of whom are deeply frustrated by an inability to access markets thirsty for their wares. This pressure has increased as the wholesale price of concentrates plummeted 11 percent in 2021 and the price of a pound of flower dropped as much as 80 percent in states with an abundance of cultivation licenses.

Cresco Labs, which claims to be the largest cannabis company in the U.S. by revenue, already is commercially active in ten states but will have much to gain from interstate commerce. “This will change our business quite a bit,” said Butler. “When we can operate freely, we can optimize where we grow and how we move [product] from harvest to extraction, manufacturing, distribution, and sales.” Like other vertically integrated companies, Cresco has built greenhouses, warehouses, and stores in each of the states where it operates. This duplicates infrastructure and drives up the price of finished goods. Butler said consolidating operations will streamline the company’s pipeline and allow it to right-size as needed.

“Indoor grows are extremely expensive,” he said. “We have them in every state, and we are over or under capacity. We just can’t equalize it this way.” Building greenhouses where they are most economical will allow the MSO to grow the same biomass with less investment. At the same time, processing facilities can be relocated to areas where there is a ready labor pool, while distribution centers can be built along trade routes. “Shipping is crucial,” Butler said. “You’ve got to get the flower to the consumer while it’s fresh.”

Legal interstate commerce also will help companies that don’t care so much about freshness. Some growers produce fast, cheap, good-enough industrial cannabis that becomes the oil used in edibles and vapes. The biomass won’t win any Emerald Cup or Cannabis Cup awards, but as manufacturing and retailing become more competitive, “oil field” flower that can be grown at rock-bottom cost will gain value.


If today’s experts have a handle on the future, their message is “hang on!” Desperately needed legislative and financial relief is on the way … eventually.

Many in the cannasphere, from Emerald Triangle gardeners to Big Bud executives, have lobbied Congress for access to financial markets and banking services—to little avail thus far. The U.S. House of Representatives has passed the Secure and Fair Enforcement (SAFE) Banking Act seven times, but the Senate has yet to act on the bill despite bipartisan support.

That could change soon. If partisan knives don’t derail support, the bill stands a good chance of being taken up in the Senate after the midterm election. The Marijuana Opportunity Reinvestment and Expungement (MORE) Act seems promising as well, although it faces stronger headwinds. The comprehensive bill, which passed the House in 2020 and was reintroduced in 2021, would remove cannabis from the Controlled Substances Act and automatically expunge some arrests and convictions, as well as establish and fund social-equity provisions at a cost of 5-8 percent in federal excise taxes.

Financial analyst and business consultant Emily Fata is eager for the whole package, but she believes the SAFE Act is a crucial first step. “It would be huge for the industry to have access to loans and investment,” she said. “There are so many problems right now. We need safe harbor [from ills like] predatory lending and really high interest rates on loans from the entities willing to do business with the cannabis industry.”

Indeed, financial reforms could have a wide-ranging impact on the industry. With access to financial services and tax breaks, companies would be able to fortify their positions for merging, acquiring, or striking strategic alliances that could strengthen the market as a whole.

Legalization will encourage venture capitalists to invest in promising businesses’ earliest stages, as well. “This will provide the capital to develop data analysis, cannabinoid research, and dosing for individuals with arthritis or those undergoing chemo,” said Fata. Startups with good ideas also would be able to afford crucial technology.

Hedge funds and institutional investors reportedly are eager to engage—in fact, some like BlackRock have dabbled—but the banking custodians that manage their transactions will keep them from major involvement until federal financial industry rules change.

But while legislation like the SAFE Banking and MORE acts undoubtedly would liberate the industry from some of its more limiting shackles, there’s darkness on the flipside of the coin. The same federal strictures that hamstring the industry keep Big Pharma, Big Tobacco, and Big Alcohol at bay. Well capitalized, well organized, and with 100 years of experience operating at scale under strict regulatory schemes, major players in those industries plan to own the cannabis space before it can own them. Already infused dietary supplements, smoking materials, and beverages impinge on their profits. Despite a 2019 report from the Distilled Spirits Council saying “there is no evidence legalization has had any impact on spirits sales, nor is there any evidence it has impacted total alcohol sales,” a 2021 study published in the Journal of Cannabis Research showed a decline of 13 percent in monthly per-capita alcoholic beverage purchases in Colorado alone since the state legalized adult use.

Beverage alcohol brands, in particular, have made bold moves into the cannabis space, beginning in Canada and gradually inching into the U.S. Constellation Brands broke the ice in 2017 by buying a 10-percent stake in Canopy Growth Corp.; the Corona brewer now owns 39 percent of the Canadian giant and may increase its stake despite the hit its balance sheet took when the green markets soured this year. Great North Distributors, a Canadian subsidiary of American distributor Southern Glazer’s Wine & Spirits, began distributing Aphria products in 2018. Since then, the American parent company has signed CBD distribution deals with Tilray, Cann, and Charlotte’s Web.

Other beverage alcohol brands have gone even further, throwing previous risk aversion out the window and launching THC-infused products. Molson Coors launched Truss, an infused sparkling water, in partnership with Canada’s HEXO. Classic beer brand Pabst Blue Ribbon and Heineken-owned Lagunitas both offer THC-infused beverages in the U.S.

Tobacco and pharma have not been as aggressive, but they, too, have made inroads. Marlboro parent Altria Group owns 42 percent of Canada’s Cronos Group, with warrants that could increase Altria’s stake to 55 percent. Tilray Brands Inc. has a longstanding partnership with Sandoz AG, a subsidiary of Swiss-American pharmaceutical conglomerate Novartis AG.

Alcohol, tobacco, and pharma won’t be the only ones attempting to muscle in post-prohibition, according to Tilray Chief Executive Officer Irwin Simon. “The U.S. is a $100-billion opportunity in cannabis,” he told Yahoo Finance in August. “What will happen once the U.S. legalizes, the big companies like Diageo, Brown-Forman, ABI, even I think the Nestles and the Unilevers will want to be into the cannabis business because they know Gen-Z, millennials, that’s very much what they want.”

Major Canadian cannabis players, too, have their sights set on the U.S. market. Tilray, the most aggressive of the bunch, acquired a brewer and a distiller in 2021, both of which it plans to leverage to enter the burgeoning infused beverages space. The company also owns enough of MedMen’s debt to claim a significant foothold in the retail sector. Canopy has deals in place to acquire Wana Brands, Jetty Extracts, and MSO Acreage Holdings once Congress flips the legalization switch. Canadian investment firm RIV Capital bought Etain Health early this year, snagging one of the ten original licenses in New York state, and dispensary chain Fire & Flower has an American division. New acquisitions and options-to-acquire crop up almost weekly.

None of this is bad news for operators who have established a viable exit strategy (and documented the financial performance to support it) but—as automakers will attest—foreign ownership on a massive scale could fundamentally change the complexion of an industry born in the U.S.

Size matters

Every autumn, the National Cannabis Industry Association (NCIA) organizes a lobbying day on Capitol Hill, attended by about 100 of its members. These business owners and activists urge lawmakers to support the MORE Act, the SAFE Banking Act and, most recently the Senate’s Cannabis Administration and Opportunity Act (CAOA). Eventually, they believe—buoyed by the SAFE Banking Act’s repeated passage in the House—their efforts will bear fruit.

In 2021, NCIA’s volunteer lobbyists were matched in number by paid lobbyists working on behalf of clients like Altria, Canopy Growth, and several industry associations, according to campaign finance database Open Secrets. The paid lobbyists spent $4.2 million to build support for the same bills.

The NCIA breaks the industry into two categories: the small and medium-sized businesses on Main Street and the corporations of Wall Street. The Colorado- and Washington-based interest group produces lobbying days, research, op-eds, and a trade show in an effort to ensure Main Street’s concerns aren’t drowned out by larger, better-funded voices.

Smaller cannabis businesses will benefit from most of the laws negotiated by their more powerful counterparts, but the competition is far from fair. “There are Fortune 500 brands that are getting ready to bring cannabis-infused products to market,” warned Dan Wittmers, vice president of marketing at Big Oil Co. and a self-described “cannabis futurist.” “They’re waiting in the wings. Think about what all the edibles companies face when Mars brings out a product with the brand advertising they’ve got.” To compete, small and midsize businesses (SMBs) will need to lean into whatever makes them special. That could be hard-to-source strains, handcrafted products, or pushing the limits of emerging technology.

Innovation will be important, but so will marketing, Wittmers said. “Even the very small brands need to think of themselves as data-driven and digital-first,” he said. This means collecting and owning information about customers, potential customers, and strangers who check all the demographic boxes. The competition will be ferocious.

Because they’re often more nimble than their larger counterparts, SMBs may have an advantage in some circumstances. Consider, for example, what happened in Minnesota in July, when—after years of failed attempts to legalize recreational sales—lawmakers neglected to read a bill carefully and, some of them claim, accidentally expanded the definition of hemp products to include THC-microdosed edibles and beverages for adult use. Even industry insiders were surprised by the turn of events, but Minny Grown, a small, family-owned hemp cultivator and producer of CBD gummies, capitalized on the change right away by retooling part of its licensed operation to extract and infuse THC oil. David beat Goliath to the lucrative, if somewhat limited, adult-use market.

The American cannabis industry has nearly limitless potential if the feds will sever the chains of prohibition born of overt early-twentieth-century racism. Yes, the landscape will change in ways both profound and mundane, but evolution is unavoidable—and the alternative is unacceptable.

Agents of change … or not

Given the relative strengths and durabilities of United States law, it matters how we will make our way into the inevitable future. Laws may be passed in Congress, dictated by the president, or invalidated by the Supreme Court—the constitutional checks and balances that keep a government stable and responsive to the people.

legislature building The legislature

Certain members of Congress have been struggling mightily for years to overcome prohibition, but now the expanding Congressional Cannabis Caucus is moving over and around obstacles. At the moment, three of the most significant pieces of cannabis legislation are making their way through the arduous process. Inch by inch, decriminalization and other laws are starting to gain traction, perhaps because congresspeople feel growing compassion or economic awareness. Or maybe it’s just too awkward to oppose out of habit something their constituents passed by popular referendum.

The Secure and Fair Enforcement (SAFE) Banking Act, which permits banks and other financial institutions to do business with plant-touching companies, has passed in the House seven times, only to founder in the Senate. The Marijuana Opportunity Reinvestment and Expungement (MORE) Act, which in September had 114 co-sponsors in the House, would decriminalize cannabis and expunge most low-level convictions. It has the proverbial snowball’s chance in the upper house.

In July 2022, Senate Majority Leader Chuck Schumer and senators Ron Wyden (D-OR) and Cory Booker (D-NJ) introduced the omnibus Cannabis Administration and Opportunity Act (CAOA). The bill would legalize cannabis federally, expunge low-level convictions, and open the industry to government oversight and taxes.

The CAOA will require a minimum of sixty votes to pass, an uphill slog that could take years. But with every effort, the Senate exhibits a little more support for reform. The body just passed without drama the Cannabidiol and Marihuana Research Expansion Act. Introduced by former cannabis foe Senator Dianne Feinstein (D-CA) and two others, the bill is narrowly written to permit specific medical research and faces little opposition on the hill. It is expected to sail to President Joe Biden’s desk, where he is expected to affix his signature. If that happens, the bill will be the first cannabis-related legislation to cross his desk.

executive building The executive

The U.S. President has broad latitude with regard to cannabis, just short of rescheduling or descheduling the plant. However, the President may “issue general amnesty to a class of people,” according to the November 2021 report of the nonpartisan Congressional Research Service. He may also direct the Justice Department to deemphasize enforcement.

Biden has deemphasized cannabis enforcement among federal agencies, as did President Barack Obama before him. But Biden rarely spoke about cannabis on the campaign trail, saying only that people should not be in jail for nonviolent cannabis offenses. In early October, he announced a historic executive action pardoning all individuals federally convicted of simple possession. The Department of Justice (DOJ) was expected to begin delivering certificates of pardon within days to about 6,500 impacted individuals and “thousands more” convicted in the District of Columbia between 1992 and 2021.

Biden’s proclamation also tasked the DOJ and the Department of Health and Human Services with reviewing the plant’s status under federal law. Although he said cannabis’s status as a Schedule I drug “makes no sense,” he did not set a deadline for completion of the review.

Additionally, the President urged governors to follow his lead and pardon low-level offenders at the state level, where the vast majority of possession convictions have occurred.

judicial building The judiciary

The Supreme Court could take up cannabis legalization but so far has not even glanced in that direction. Given the majority’s ruling on Roe v. Wade and presumed stand on other personal liberties, this isn’t a bad thing. A handful of cannabis cases have come before a less politicized Supreme Court, where justices essentially upheld all forms of cannabis prohibition under the Fourteenth Amendment, interpreting the interstate commerce clause as applying even to neighborly gifting.

In June 2021, the high court declined to hear Standing Akimbo LLC v. United States, in which a Colorado dispensary sued the Internal Revenue Service over perceived injustice in the agency’s collection of taxes under Internal Revenue Code Section 280E. The notorious tax code section labels state-legal cannabis businesses drug traffickers and prohibits them from claiming most routine business-related deductions. Despite the brush-off, Associate Justice Clarence Thomas provided the industry with a modicum of hope the court might hear a case if it focused on “inconsistencies” between state and federal law. In a separate statement, Thomas noted federal prohibition “may no longer be necessary or proper.” Instead, he wrote, “The federal government’s current approach is a half-in, half-out regime that simultaneously tolerates and forbids local use of marijuana. . . . This contradictory and unstable state of affairs strains basic principles of federalism and conceals traps for the unwary.”

When will prohibition end?

Many industry insiders project three to five years.

“I don’t see it for a while. Maybe three to five years, but definitely in our lifetime.”

—Greg Butler, chief commercial officer, Cresco Labs

“My personal bet is we are six years away. At the very best four, but the most practical bet would be eight years from this year’s midterms.”

—Steve Merritt, founder, Southern Sky Brands

“I think three to five [years] is an educated guess. That’s what I tell people.”

—Shanita Penny, senior advisor, Coalition for Cannabis Policy, Education, and Regulation; founder, Budding Solutions

“Back in 2014 I might have said three to five years, but I don’t know anymore.”

—Bethany Moore, communications director, National Cannabis Industry Association

“I’ve been saying three to five years for ten years, so I’ll stick with that. But until we are at the point where you can get cannabis the way you buy Two-Buck Chuck or a really expensive wine, we are not done.”

—Dan Wittmers, vice president of marketing, Big Oil Co.



  1. […] also are realities in which the United States Congress quit playing around and ended prohibition—and there are a bunch of those realities, because a new one formed at every point Congress could […]