Be Careful What You Wish For….

After reviewing the above, it certainly seems that there were many hidden benefits to running a criminal enterprise. It was much simpler than trying to run a legal business. The only government involvement was whether or not you got arrested, and if you got arrested you’d still get your day in court. You might not be convicted and even if you got convicted you might not go to jail and you might get to keep your ill gotten gains. As a criminal, you also enjoyed many legal rights and protections based on standards for the activities of law enforcement personnel.

As we enter the arena of lawful activities, we find that so many aspects of being involved in the Cannabis Industry will be subject to regulation by Federal, state, local and Tribal governments. Certainly a new experience, and not necessarily a better one, for those who have been involved in marijuana related businesses for many years.

Will We Take Advantage of Other Industries’ Experiences?

The next 5-10 years is critical in the formation of a thriving, legal Cannabis Industry. During this time, a major challenge is whether the industry can present a united front in relation to legalization and regulation. An important aspect of this is for the industry to demonstrate that it can regulate itself not just in terms of the targets listed above, but in how the industry handles B2B conflicts, how it protects private investors, consumers and the public.

One example to consider is securities regulation in the United States. It is usually understood to include both Federal- and state-level regulation by purely governmental regulatory agencies (e.g., Securities and Exchange Commission). The reality, however, is that it also encompasses the requirements of non-governmental exchanges (e.g., New York Stock Exchange) and rules of self-regulatory organizations like the Financial Industry Regulatory Authority (FINRA).

FINRA is a self-regulatory organization that promulgates rules that govern broker-dealers and other professionals in the securities industry. It is the first level of protection for individual investors. It was formed by the merger of the enforcement divisions of the National Association of Securities Dealers (NASD) and the New York Stock Exchange. FINRA, like the exchanges and the Securities Investor Protection Corporation (SIPC), is overseen by the SEC, and in general FINRA's rules are subject to SEC approval.

At this point in time there is no single Federal governmental agency charged with regulating the Cannabis Industry. So we are looking at highly fragmented regulatory efforts as State and local statutes that legalize cannabis always involve some degree of state or local government regulation. This doesn’t mean that the industry itself can’t act.

Brokers and dealers that are registered with the SEC are required to be members of FINRA. They are required to follow FINRA’s rules to arbitrate and mediate disputes involving brokers, dealers, employees and private investors.

FINRA’s dispute resolution program is highly regarded as it has proven to be effective in resolving disputes between investors and brokers. As seen in FINRA’s arbitration rules, secrecy and privacy are of paramount import to all involved. Four significant benefits are that this approach:

1. Minimizes adverse publicity for the brokerage industry;
2. Keeps confidential information out of public view;
3. Ensures that an industry expert is part of the panel, and
4. Is both faster and less expensive than litigation.

Additional considerations include:

1. There is and will continue to be a boom in the number of new businesses entering the marketplace.
2. Being in an “illegal” or “quasi” legal business provides added incentive to avoid interaction with governmental authorities.
3. Similarly, there is a real incentive to classifying privately held information as “confidential” or “trade secret” or “proprietary” in regard to competitors and government regulators.
4. There is no question but that disputes between and among cannabis businesses and investors will continue to rise.
5. Equally important will be employer-employee relations that are also subject to government regulation, especially discrimination claims that are a major factor for Human Resource departments.
6. As with disputes in other industry sectors, dispute resolution too frequently forces the parties into lawsuits.
7. Lawsuits involve “discovery” and frequently open a company’s business practices to scrutiny by other businesses in the same space (e.g., competitors), the press, the public and governmental entities.

It’s Not Just Dispute Resolution 

Empowering an industry-wide entity is not just about resolving disputes. It also provides the focal point for addressing public perceptions, proposed legislation, proposed regulations, and enforcement of regulations. Leadership of the currently fragmented Cannabis Industry needs to find ways to present a relatively unified front to deal with these activities or opposition voices will exert influence that will be detrimental to the Cannabis Industry.

It may be difficult to get industry agreement on an entity, such as the National Cannabis Industry Association, or a coalition of entities, that could enact rules for its membership. Failure to unify, however, serves only to make the industry vulnerable to political opponents and B2B infighting. Legislators and governmental regulators have the power to adversely affect the Cannabis Industry to a far greater extent than the criminal laws have affected it.

For decades the industry has seen extensive lobbying for legalization of marijuana. But it is critical to recognize that lobbying concerns do not stop with legalization. Post legalization, industry interests will be just as important when legislation is implemented and regulations are promulgated and enforced. The following is just a small sample of targets that will generate controversy and that are likely to be the focus of opposition attacks:

1. Products: definitions, attributes, chemical compositions, genetics, reliability (consistency), medical efficacy, safety, dosing, usage guidelines, etc.
2. Damages: personal injury resulting from “under the influence” behavior, compounded by “underage” usage.
3. Marketing: branding and marketing cannabis products to appeal to “at risk” targets (e.g., school children).
4. Medical vs. Recreational Usage: call for clinical trials comparable to other prescription medications.
5. Housing Rules: The US Dept of Housing and Urban Development (HUD) has stated that local housing authorities can determine their own policies regarding medical marijuana use in HUD housing.

Conclusion

When cannabis was illegal, opponents, law enforcement and judges had to follow a strict set of criminal laws. Essentially marijuana supporters were only vulnerable to attack on the criminal front. With the legalization of cannabis, marijuana supporters will now find themselves vulnerable to attack on many new fronts – most significantly, from governmental regulators at all levels of government all across the country.

We started with the Department of Justice (Criminal priorities), moved to the Treasury Department (banking), the Department of Health and Human Services (HIPAA), the Food and Drug Administration and even the Federal Trade Commission – all major Federal government players. Moreover, to some extent these types of government agencies will be duplicated at the state and local level. These types of governmental processes provide openings for opponents to exert their influence. The Cannabis Industry needs to be able to exert its influence as a counter balance.

Prepared by Ken Tapman, a Canopy mentor, an attorney, a FINRA Arbitrator and a Civil Mediator.