A Modern State-Federal Framework for a Regulated US Cannabis Industry

Based on the regulatory situation for cannabis (Cannabis spp., Cannabaceae) in the United States, the premise of this proposed federal framework is to create a regulatory model specific to a plant-based end product that can be used for both social and therapeutic purposes. Cannabis products currently are being regulated at the state level, with the exception of the US Food and Drug Administration (FDA)-approved drug products such as Epidiolex® (GW Pharmaceuticals; Cambridge, UK).

The proposed framework, by design, defers to the existing state-regulated infrastructures by leaving state autonomy intact to the greatest degree possible, with minimal federal entanglement. Importantly, the framework also sets forth that the federal interface would be conducted via the US Department of Agriculture (USDA) and the cannabis plant would not be a federally scheduled substance. The full paper explains why this proposed dynamic is integral to the long-term success of the regulated cannabis market and addresses why commonly cited frameworks, such as the alcohol and tobacco models, are not appropriate for a modern cannabis market. The scope of the proposed framework does not include the production, manufacture, or regulation of no- or low-THC hemp* or any crop cultivated under the provisions of the Agriculture Improvement Act of 2018 (the 2018 Farm Bill).1

The cannabis plant has a long history of human use for different purposes and is one of the hundreds of botanicals with therapeutic properties supported by clinical data and traditional use. The proposed framework is a 21st-century pathway to market for plant-based products that respect the efforts of the states and balances an appropriate federal intersection with long-term market interests. This article is taken from a longer paper by the authors and has been revised for HerbalGram. The full paper, as referenced in this article, can be accessed at https://tinyurl.com/cannabisframework.

The public and political sentiment toward cannabis within the United States has changed dramatically over the past several years. The United States has a vibrant regulated cannabis industry that has been built on more than 46 intrastate markets. Today’s emergent regulated landscape is a new consideration when discussing how best to approach contemporary cannabis policy. Because the United States has a robust regulated intrastate cannabis market — where a majority of the country’s population now resides in a jurisdiction with some type of regulated market — the conversation is ripe to review federal cannabis policy.

Understanding the historic, albeit winding, road to 2019 provides useful guidance as to what the map to the future could look like. Similar to female hop (Humulus lupulus, Cannabaceae) flowers that are used in therapeutic products such as sleep aids and alcoholic beverages such as beer,2 the cannabis plant possesses various psychoactive, physiological, and therapeutic properties. Therefore, this paper sets forth the position that the plant should be subject to an appropriate regulatory framework rather than as a controlled substance under the Controlled Substances Act (CSA). The proposed framework also sets forth a limited federal interface to ensure minimal disruption to the existing state-regulated industry, with the states retaining a majority of control over their respective programs. The states should also remain active participants in developing the direction of US cannabis policy. The proposed framework is designed to advance both innovation and inclusion by incorporating forward-thinking principles to ensure the regulated industry is diverse and allows access to all interested stakeholders. Finally, the framework allows entry into the global market, fosters responsible use, and subjects the market to minimal federal standards and technical assistance (for crop quality assurance and export marketing support) as needed to support the long-term integrity of the regulated industry.

States Retain Autonomy

The proposed federal framework sets forth as a foundational premise that state interests must be protected and at the forefront. The stakeholders that faced the greatest risk by engaging in these state-authorized “laboratories of democracy” should reap the benefits from laying the foundation for a multi-billion dollar regulated industry that serves both patients and consumers.

The significant investments made by the individual states to enact their programs — coupled with the considerations that the state programs are comprehensive and have been generally successful — underscore the importance of a federal interface that causes minimal disruption to the existing regulated markets. As explained in Section IV of the authors’ full paper, the market vulnerabilities faced by the industry due to the design of the individual state programs are being addressed on the state level, and other market vulnerabilities (e.g., market stability, production, and marketing controls [referred to as “volume controls” in USDA guidelines], pesticide use, solvent use, etc.) could be resolved with technical assistance via the federal government. The federal interface would be less of a primary authoritative regulator and, instead, would provide the needed technical assistance for the state-regulated markets.

The proposed federal model allows individual states to decide if a regulated cannabis market is appropriate for their state. The only federal override of this measure is that a state must recognize a valid prescription for medical cannabis regardless if such state has implemented a regulated medical cannabis program. This mandate is included to resolve the issue of “patient refugees,” where patients seeking medical cannabis have relocated from their home jurisdiction that does not have a regulated medical program to a jurisdiction that does.

Thus, the individual state frameworks would largely remain intact, with the additional administrative responsibility of engagement with the federal interface and the advisory committee, both as defined below.

Federal Interface

This proposed framework delegates primary federal oversight of the regulated cannabis market to the USDA. After reviewing the strengths and vulnerabilities of the intrastate markets, the authors of this article found that the most common need was technical assistance, which is a service already provided through USDA programs for other crops (e.g., hops).

Concerning cash commodity crops (e.g., food, cosmetics, fiber, and medicine), the USDA has the technical expertise to work with plant material and help create market stability for plant-based products. Because of this expertise, and that the USDA currently operates in all 50 states and US territories, it is the best-suited federal agency to work in collaboration with the relevant state regulatory agencies and the individual state stakeholders in the cannabis industry. Furthermore, the USDA has Cooperative Extension System offices situated in each land-grant university (LGU; there are one or more LGUs in each state and territory that provide a network of scientists, extension staff, and volunteers to carry out USDA programs) as well as Farm Service Agency offices operating in each state.3 The Agriculture Marketing Service (AMS) within the USDA is particularly well-suited to serve as the proposed federal interface.

The AMS was created in the late 1930s to facilitate “the efficient, fair marketing of US agricultural products, including food, fiber, and specialty crops.”4 The AMS engages with industry-driven initiatives that support particular agricultural sectors with technical assistance. The reach of the expertise within AMS is vast and extends to both domestic and global markets. AMS is versed in specialty crops that are experiencing rapid growth, as is the case with cannabis. This growing sector would benefit from technical assistance to help stabilize the market. As noted by AMS on the role and value of its services:

  • AMS quality standards, grading, certification, auditing, and inspection are voluntary tools and services that industry can use to help promote and communicate quality and wholesomeness to consumers. These services assist businesses in differentiating themselves from their competition.
  • Examples of USDA grades include USDA Prime, USDA Grade A, and US No. 1. Annually, AMS grades, audits, certifies and/or inspects over $150 billion worth of agricultural products, ensuring the quality of domestic goods and helping American farms and businesses export goods.5

The services provided by AMS include:

  • Establishing data collection practices
  • Collecting production and price data
  • Distributing statistical data
  • Inspection services
  • Establishing standards and quality grading systems
  • Calculating supply and demand levels
  • Marketing and branding efforts
  • Research efforts
  • Enforcement measures with impact
  • Establishing good agricultural and collection practices (GACPs) for an industry
  • Monitoring and facilitating import/export transactions
  • Providing scientific and analytical support
  • Monitoring pesticide use (the Environmental Protection Agency approves crop-specific pesticides for human and/or animal food crops)

One attractive consideration for the state-regulated cannabis industry to work with AMS is the expertise of AMS on how to position unique crops as regional specialties. This branding ability is highly desirable as a means to establish a single recognizable grading system and secure the place of US cannabis-based products in a rapidly developing global market. This type of branding, marketing, and development of standards will drive interest from investors and buyers for US products and, ideally, when the United States enters the global market, demand for US products will already exist. AMS possesses the requisite expertise in international market intelligence for export crops, which should help US farmers secure market share prior to the United States’ entering the global market. AMS could facilitate the positioning of state-branded products (e.g., “California-grown”) from the US-regulated market as high-value regional specialty crops.

Another appealing trait of the AMS is its existing expertise to navigate multiple pathways to market for finished products. The regulated cannabis industry is composed of products for medical use and patient populations, adult-use and social consumers, and veterinary use for pets and livestock.6 The USDA understands plant material and is able to develop programs that are tailored to the specific plant and end-user(s).

Finally, several of the current state-regulated cannabis markets already include the state counterpart to USDA. Examples include the Utah Department of Agriculture and Food (“the agency responsible for implementing and enforcing many of the new cannabis-related laws”7) and the Oregon Department of Agriculture, which works with two other state agencies that are the lead regulators for Oregon’s medical and adult-use programs.8 State departments of agriculture commonly address issues such as pesticide limits, fertilizer use, and cultivation practices.9-11 The AMS is the obvious complement to state regulatory agencies.

The range of industries with which AMS engages is extensive and includes various fruits, cotton (Gossypium spp., Malvaceae), dairy products, eggs, lumber, plant oils, specialty crops (e.g., medicinal herbs), and vegetables. The relationship between AMS and the American ginseng (Panax quinquefolius, Araliaceae) root and spearmint (Mentha spicata, Lamiaceae) essential oil industries are prime examples of the inherent value that AMS can bring to an industry.

The American ginseng plant is used both in culinary and medicinal applications, and the marketplace is highly competitive to the point that federal legislation was introduced in 2002 that banned the use of the name “ginseng” in US commerce unless the plant material is from the genus Panax.12-14 The AMS currently works with ginseng producers in Wisconsin and has developed grading standards for American ginseng and Asian ginseng (P. ginseng). The US standards for quality grades of cultivated ginseng roots developed by AMS are fit for purpose15 and have helped create a dynamic marketplace. The net result is that ginseng marketed with a “Wisconsin Ginseng Seal®” fetches a premium in foreign markets, particularly in the People’s Republic of China. The Ginseng Board of Wisconsin is managed by an elected board of seven Wisconsin ginseng producers. The board functions under a marketing order managed by the Wisconsin Department of Agriculture, Trade & Consumer Protection.16

Spearmint is another popular plant with culinary and therapeutic applications that is cultivated in various regions of the United States. AMS has engaged with producers of spearmint in Idaho, Oregon, Nevada, Utah, and Washington. The producers are organized under the Far West Spearmint Oil Administrative Committee, and AMS is authorized to support research and promotion programs, and volume control (supply and demand). Accounting for more than 50% of total global production of spearmint oil, the northwestern United States (the “Far West”) is the premier spearmint-producing area in the world.17

The previous two examples provide a preview of the potential benefits for a single-crop industry. The regulated cannabis industry would benefit greatly from a defined grading structure, and possible marketing order volume controls,18,19 among the other services offered by AMS.

Additionally, the illicit market will continue to thrive until the price point within the regulated cannabis market is approachable. Access to a quality product in a regulated market is critical for reducing (and ultimately eliminating) the illicit market.

It is also relevant that USDA has played a supportive role for industrial hemp farmers in different states in the past. The Yearbook of the United States Department of Agriculture 1895, for example, provide guidance to farmers on agricultural methods for the Cannabis sativa crop.20 It is worth noting that the state of Kentucky was the predominant industrial hemp-farming state in the 19th century and, in the summer of 2018, US Senate Majority Leader Mitch McConnell of Kentucky pushed to allow more US farmers to grow hemp legally, which could play a role in meeting the production demands for high-value cannabidiol (CBD). Most Kentucky growers are already geared toward CBD production as opposed to growing hemp as a fiber crop.21 The USDA understands and has the plant expertise for both industrial hemp and the cannabis plant. AMS will reengage with hemp farmers in 2019, as the 2018 Farm Bill (Section 10113) directs the USDA to issue regulations and guidance for a commercial hemp production program.

Logistically, under AMS guidelines, the cannabis plant would be considered a specialty crop, and the cost for states to partner with AMS would be absorbed by the state regulatory agencies and stakeholders. The AMS is currently structured to engage with industry on a voluntary basis; however, under the proposed framework, engagement with AMS by the states that have regulated markets would be a mandate.†

The eight-decade-long evolution of US cannabis regulation largely has been defined by the unjustified treatment and a lack of willingness by federal authorities to either correct course or objectively review evidence on the plant. Due to this history, the authors sought viable alternatives outside the FDA to take the lead as the federal interface. However, the key deciding factor to structure the proposed framework within the USDA was the department’s breadth of expertise, specifically within the AMS, in working with plants and crops. The state programs have existing infrastructures, and the AMS is equipped to engage with these existing state markets via regulatory agencies and individual stakeholders to create long-term market stability while continuing to drive innovation without over-commercialization.

Advisory Committee

An elected advisory committee (AC) is envisaged to act as the authoritative intermediary between the states and the federal interface. It is further proposed that the AC should consist of nine individuals, with seven representatives from the state perspective (including industry stakeholders) and two from the federal perspective, at least one of whom must be from the AMS. The AC would serve as experts of the regulated cannabis industry and field inquiries and concerns from state and federal stakeholders.

The AC would be responsible for:

  • adopting or establishing baseline quality and laboratory standards, scientifically valid analytical methods — possibly in collaboration with the United States Pharmacopeia (USP),** American Herbal Pharmacopoeia (AHP), AOAC International, NSF International, or ASTM International — and minimum labeling requirements;
  • creating a national educational message/tagline/symbol (e.g., “Smart Colorado”); and
  • establishing social equity measures that merge innovation and inclusion (e.g., gender analysis on each policy issued).

The execution of the above three items will be instrumental in maintaining integrity in the regulated industry. Most importantly, an impactful educational campaign is critical for the responsible use of cannabis-based products and to thwart potential societal harms from uninformed consumption and misuse. Education is central to all industries and product categories; however, in light of the decades of misinformation about cannabis, a clear and sound educational message is all the more important.

Other areas of interest and concern that may be addressed by the AC include targeted research efforts, community re-investment measures, diversity and inclusion measures, and other social justice issues. The latter two have been addressed to varying degrees by local and state authorities; however, at a minimum, these matters could be referenced as part of the AC’s charter. The AC must include the appropriate expertise and balance of perspectives to ensure the US-regulated cannabis market is as robust as possible while continuing to honor and support the existing state platforms.

Diversity and Small Business Provision

The regulated industry was built by individual efforts that over time joined forces in garnering support for a reasonable path forward. Today, the domestic and global regulated cannabis industry is experiencing hyper-growth.

With such growth, promises of high returns on investments are rampant, which in turn has attracted larger players to seize the potential benefits. However, the efforts that built the industry must be considered when developing the path forward.

As a measure to ensure the industry maintains diversity and a range of business sizes, the proposed federal framework will include a section to protect and secure an opportunity for these interests to remain competitive in the regulated market. Furthermore, the inclusion of a provision to protect the roles of diversity and small businesses in the regulated industry is another means of honoring the existing individual state structures and the participating stakeholders and acknowledging the impact from the historic treatment of the plant.

Some municipalities, like Oakland, California, are experimenting with cannabis licensing scenarios that aim to address racial inequity and take into consideration the failed war on drugs that disproportionately incarcerated the impoverished and minority communities. As reported in USA Today, Oakland’s “Equity Applicant” system “aims to help poor, longtime Oakland residents — including those with convictions for illegally selling marijuana — get started in a business that otherwise has remained stubbornly white, male and middle class across the USA.”22

As such, the city of Oakland now requires that at least half of all cannabis permits for cultivators, delivery-only dispensaries, distributors, testing laboratories, manufacturers, and transporters must be issued to Equity applicants:

  • Equity — Applicants who qualify for fee waivers plus technical and financial assistance based on income level and residential location or cannabis conviction.
  • General — All other applicants. A General applicant who incubates an Equity applicant by providing them with three years of free rent and security measures has priority over other General applicants.23 The success of these types of licensing scenarios†† has yet to be fully realized; however, the Oakland program has met challenges in the early days of its program.24,25 The advantage of local jurisdictions’ retaining autonomy over the marketplace within their border is that experiments with different types of social equity models can be undertaken to find the most appropriate and effective path forward. A requirement in the federal framework that acknowledges the importance of these measures bolsters local and state efforts, which is the intended design of the federal framework.

Also of interest, the term “small business” does not have a universal, accepted definition and has been in large part defined by individual industries. For example, the US Small Business Administration (SBA) develops size standards per economic activity sector or industry.26 In addition to the number of employees and average annual receipts, the SBA requires a small business to meet several other criteria, including:

  • being organized for profit,
  • having a place of business in the United States,
  • operating primarily in the US market or making a significant contribution to the US economy,
  • being independently owned/operated, and
  • not being dominant within one’s industry on a national level.

Depending on the industry, the SBA defines a small business as having no more than 1,500 employees and less than $38 million in average annual receipts.

Another example of how small businesses can be defined is identified in regulations from a modern piece of legislation regarding food safety standards. Under the Food Safety Modernization Act (FSMA),27 categories for “small businesses” and “very small businesses” were established to account for businesses with typically smaller budgets, fewer employees and resources, and limited bandwidth. Under FSMA, generally, a small business is defined as a business with fewer than 500 employees.28

The primary point is that the term “small business” can go beyond a sole proprietor operating a business from her or his home. The range of parameters on how to define a small business is vast, and appropriate criteria to reflect the regulated cannabis industry will need to be identified by the AC. Possible measures for the AC to consider as a means to protect small businesses include a reduced tax rate or additional tax credits for meeting the defined criteria of a small business. Measures that call for the reduction of or exemption from quality control standards should only be allowed if product integrity and safety are not compromised. The critical consideration is that small business interests are protected and that barriers to entering the market for smaller entities are not excessive.

Eligibility for Insurance Coverage

Of great relevance is that data from the US-regulated programs support the eligibility of medical cannabis for insurance coverage. The 46-plus medical cannabis programs currently serve more than two million patients,29 and the cost for the medicines received via the state programs has been absorbed 100% out-of-pocket by the patient. The individual patient has been paying out of pocket for her or his medical cannabis since 1996 when California enacted a medical program.

Since that time, data have suggested that regulated cannabis markets correlate with positive health outcomes and reduced health care costs:

  • States with medical cannabis programs have a 25% lower opioid mortality rate.30
  • Availability of medical cannabis has correlated with reductions in Medicare Part D spending.31
  • Medical cannabis laws are associated with significant reductions in opioid prescribing in the Medicare Part D population.32

An example of data generated from a state-specific program with notable effect comes from the Minnesota medical cannabis program. Minnesota enacted a medical cannabis program in 2014 and is considered a fairly conservative program. Recently released data from the Minnesota Department of Health, the agency that oversees Minnesota’s medical cannabis program, demonstrated that patients with “difficult-to-control pain of moderate and high levels reported medical cannabis provided significant relief.”33,34 The data also indicated a reduction or elimination of opioid use by half of the participants after six months of use of medical cannabis.

Opioids are commonly prescribed for pain35 and, in light of the opioid crisis faced by the United States right now,36 the promising early data on the use of medical cannabis for the treatment of pain are quite notable. This is even truer considering that more than 25 of the US medical cannabis programs list “pain” (with varying types of pain including moderate-to-severe, severe, chronic, intractable, and debilitating) as a qualifying condition. The use of medical cannabis instead of opioids for the treatment of pain continues to gain momentum on the state level as certain states even have enacted legislation as a means to reduce the use of opioids37 or have expanded their existing medical cannabis programs to include qualifying conditions that could be treated with an opioid.38

Hence, medical cannabis programs appear to correlate with improved health outcomes and decreased health care costs. The above is one example that demonstrates the potential role of medical cannabis in the opioid crisis. The state programs have several qualifying conditions and there is a confidence among the scientific and medical community that other conditions can successfully be treated with cannabis. To date, medical cannabis has been established as a safe and effective treatment for certain conditions and thus should be eligible for insurance coverage.39,40

Scheduled Status of Cannabis

With the implementation of a federal framework to interface with the existing state-regulated markets, the cannabis plant should be removed from the CSA. This proposed federal framework is not a legalization measure. Individual states retain the autonomy to determine what type of regulated market is appropriate for their individual state, and the proposed federal framework is structured to defer to the state-led initiatives. Both AMS and the AC will ensure that the state programs provide adequate instruction and oversight of cannabis-based products.

If a state does not have a regulatory framework that provides a pathway to bring a cannabis-based product to market, then such product would not be allowed in that jurisdiction but for the mandate to recognize a medical cannabis product that was obtained via a valid prescription in a jurisdiction with a regulated medical program.

Each of the five schedules of the CSA has certain criteria that must be met before a substance is placed in a schedule, and each schedule is based on the premise that there is a need to regulate a substance. As this article sets forth a proposed federal framework specific to cannabis-based products that are also subject to state regulatory models, there is no need for the cannabis plant to remain in any schedule of the CSA.

Even without a specific federal framework for cannabis-based products, the plant should not be included in Schedule I of the CSA. This is in part due to the lack of proper review of the plant before the plant was scheduled in 1970,41 and, more importantly, the well-established medicinal value and safety profile of the plant. The criteria for a substance to be placed in Schedule I and II are:

(1) Schedule I. —

(A) The drug or other substance has a high potential for abuse.

(B) The drug or other substance has no currently accepted medical use in treatment in the United States.

(C) There is a lack of accepted safety for use of the drug or other substance under medical supervision.

(2) Schedule II. —

(A) The drug or other substance has a high potential for abuse.

(B) The drug or other substance has a currently accepted medical use in treatment in the United States or a currently accepted medical use with severe restrictions.

(C) Abuse of the drug or other substances may lead to severe psychological or physical dependence.42

As explained in the full paper under the section titled “Evidence and Science of the Plant,” there is ample evidence to support the medical applications of the plant, and it has an acceptable safety profile. The remaining schedules of the CSA are less restrictive than Schedules I and II, but they are still based on the premise that the substances need to be controlled. As stated, with a federal framework designed for cannabis-based products there is not a need for the plant to be scheduled.

The pathway to market for cannabis-based products in the United States will be determined by the individual state frameworks, which are subject to the standards developed by the AC and the requirements identified by the AMS. The state-regulated pathway to market for cannabis-based products will coexist with the drug pathways under the FDA.

Funding Mechanism

Funding for the federal interface with AMS (and the AC, if needed) will be absorbed by the individual state programs.

Use of Technology

As is practical, both the AMS and the AC are encouraged to use modern technology platforms to facilitate the tracking, collection, and analysis of data. Public health trends and additional therapeutic uses of cannabis can be determined with methodical monitoring and collection of data from the state-regulated markets. Blockchain is one example of modern technology that may facilitate the review of real-time data. The concept of big data to better inform health research and patient outcomes are gaining momentum. Other types of analytic data are driving innovation to meet patient and consumer demands. The use of modern technologies to understand consumer and patient uses of the plant along with any impacts on society will be instrumental in keeping pace with burgeoning market influences (e.g., consumer demands, investment opportunities, global interests, and overall market growth).

In sum, the guardrails for the proposed framework are not overly prescriptive, yet are intended to provide adequate structure and substance to the federal interface to ensure the long-term vitality of the regulated cannabis industry.

Tami Wahl is a regulatory and policy advisor in Washington, DC, working toward securing legal market access for clients involved in the production and marketing of hemp products, medicinal and adult-use cannabis, cosmetics, and pharmacy compounding.

Josef Brinckmann, a research fellow at Traditional Medicinals in Sebastopol, California, also serves as a member of the Botanical Dietary Supplements and Herbal Medicines Expert Committee of the United States Pharmacopeia and an Advisory Board member of the American Botanical Council.

* The 2018 Farm Bill defines the term “hemp” as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”1

† At a minimum, a state’s engagement with AMS would be a mandate prior to global entry.

** As discussed in the full paper, the United States Pharmacopeia (USP) is developing a quality standards monograph for the verification of the composition, identity, quality, purity, and strength of cannabis flower and preparations made from it for its Herbal Medicines Compendium. The USP is an authoritative standards-setting organization whose compendia are incorporated into regulations in many countries.

†† San Francisco is another example of a local jurisdiction with a social equity program.

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  42. US Drug Enforcement Administration. 21 USC. 812 – Schedules of controlled substances. In: United States Code. Washington, DC: US Government Printing Office; 2012.
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