How the State-by-State Approach Has Influenced the Cannabis Industry

In recent years, the legal cannabis industry in the United States has shifted dramatically. More and more states have moved toward legalization of marijuana and related substances, but the specifics of the process have varied considerably from place to place. Some states have moved to legalize marijuana for both recreational and medicinal use; others have only opted to legalize certain quantities of pot for medical purposes. Still, other states have so far not addressed the question of whether to legalize marijuana at all, even as analysts tout the economic benefits of legalization. As a result, the U.S. currently has a patchwork of different regulatory systems and laws governing the legal marijuana space. States like Pennsylvania, Maryland, and New York are all relative newcomers to the world of legal pot, and they have helped to form a coalition of sorts on the east coast. Florida currently stands alone in the south-eastern part of the country. Below, we'll explore some of the ways that the state-by-state process of marijuana legalization has impacted this industry.

Companies focused on the legal cannabis sphere have experienced challenges beyond what they might have otherwise faced thanks to the uneven path toward legalization. A recent report by Cannabis Business Times quotes Smoke Wallin, president of Vertical Companies, operator of the largest outdoor cannabis grow site in California. Wallin explains that, as a result of the patchwork legalization process, "Vertical has participated in both the limited licensing approach as well as the open market approach...we are supportive of a go-slow approach state by state as appropriate in each of those markets." For companies like Vertical, the process of completing the licensing process for each new state to legalization marijuana is time-consuming and costly.

Some states have regulations over the marijuana industry that are so strict that they have actually discouraged companies from conducting operations entirely. Many of the more recent additions to the list of states allowing for legal marijuana sales have substantial prerequisites involved in the licensing process. Companies may need to have access to hundreds of thousands of dollars or more, as well as seasoned professionals experienced in the licensing process. Companies interested in becoming licensed are then faced with a choice: they can either focus their efforts in early adopter states, which tend to have less strict licensing requirements, or they can make the substantial investment necessary to become licensed in a new state, or, in many cases, they may choose to abandon their prospects entirely.

Any business looking to get involved in the legal marijuana industry must be prepared to dedicate adequate resources towards the ever-shifting regulatory status across the country. For companies operating in multiple states, the process becomes even more difficult. Some states, like Oklahoma, offer a rolling application process for companies looking to become licensed. Others, like Ohio, have a stricter system in place which limits the number of licenses available.

Early adopter states in the western part of the country have tended to offer more licenses to interested businesses than states in other parts of the country. The result has been that businesses operating in the marijuana industry in the west have tended to expand more often than their counterparts in other regions. In other states, it's more likely to find a local business with connections to other industries or sources of financing.

Finally, the state-by-state approach in the U.S. has been in stark contrast to recent developments to the north in Canada, where movements are in place to legalize cannabis for adult use. For this reason, many more Canadian cannabis companies have gone through the IPO process as compared with U.S. companies; it's likely that these businesses, which have had fewer barriers to growth than their U.S. counterparts, will eventually expand into the U.S. as well, drawing attention from U.S. investors.