Illinois has a major supply shortage of legal cannabis. Could a pipeline to buy product from other states help?
The limited supply of recreational marijuana at the beginning of Illinois’ adult-use market was expected and anticipated. But it has frustrated consumers, who have voiced their displeasure to local dispensaries where operators' hands are tied by how fast cultivators can grow more product or expand operations.
One idea starting to gain momentum nationwide would help the supply shortage here in Illinois and elsewhere: interstate commerce.
For legal cannabis to move between states, it would either need legislation — bills have been introduced in the U.S. House and Senate — or an official stance from the U.S. Department of Justice to allow states to enter into deals.
In August 2013, then-U.S. Deputy Attorney General James Cole authored
a four-page memo that directed the DOJ and the U.S. Attorneys’ offices to focus their prosecutorial authority in specific areas of marijuana, such as interstate sales, sales to minors, impaired driving and criminal enterprise. It also relied on prosecutorial discretion.
The Cole memo allowed the budding medical marijuana industry to blossom, and while that memo was rescinded by U.S. President Donald Trump’s administration, the industry continues to operate under its principles.
Proponents of interstate commerce say since federal rails are under federal jurisdiction, product could be transported by railcars through states where recreational cannabis is illegal.
But it may still take years for cannabis to move freely between states.
“That’s not going to happen in the next four years, assuming (U.S. President Donald) Trump wins re-election,” said Matt Stern, owner and CEO of Nature’s Treatment of Illinois in Milan, the lone dispensary in the Quad-Cities that's been authorized to sell recreational cannabis since it was first legalized in Illinois Jan. 1. Illinois was the 11th state in the U.S. to legalize recreational cannabis.
“I would love to get product from any state, but there’s just no way … I would love nothing more, because we can’t get product right now from the 22 cultivators in the state.”
The idea
One of the main proponents of interstate commerce for legal cannabis is Adam Smith, who is starting to take his campaign across the country. Smith is the director of the Alliance for Sensible Markets, and the interstate effort stems from his work in Oregon, where a bill related to interstate commerce passed the state legislature and was signed by Oregon Gov. Kate Brown last year.
Smith advocates looking at the growing cannabis industry, both medical and adult-use recreational, through a rational lens. Instead of investing significant money into having each state grow its own product, what if the region that historically supplied the cannabis black market fueled the legal market?
That would lead to “one functioning U.S. cannabis industry, even if it’s just legal states that get to opt in. Even if we don’t end federal prohibition yet, allowing legal markets to set up a regulatory framework from where there is access capacity and excess demand is why we have markets,” he said.
But for Oregon’s effort to be successful, it needs somewhere to send its marijuana, which is why Smith and others are beginning to campaign in other states. Bills are being drafted in California and Colorado, two early adopters of legal marijuana. Smith recently attended a conference in the northeastern part of the country, where states are grappling with how to legalize.
If states can import legal marijuana, it makes allowing recreational cannabis sales easier, as they would not have to establish rules for growing. It can also help states like Illinois and Michigan, where marijuana was recently legalized but supply shortages have hampered sales.
“We can literally move millions of people in those states out of illicit markets years sooner, and get the industry actually up and running in a real way within a year if we could move product from state to state,” Smith said.
“If we don’t do that, and (we) end up with 25 or so state-siloed productions, the minute federal prohibition actually ends, you will no longer be able to discriminate against the products of other states. You can’t keep California oranges out of Florida.
“So when federal prohibition ends, all this West Coast cannabis is going to come into these markets, and if we’ve invested billions of dollars in the Midwest and East Coast on production capacity, virtually none of that is going to be competitive with what’s going to come in from the West Coast.”
For instance, demand is dwarfed by supply in Oregon, where the 2018 harvest netted about 2.3 million pounds of pot.
“Right now we’re looking at yearslong shortages in Illinois and Michigan, but also New York, New Jersey, Connecticut and Rhode Island; it’s going to take years. And so before that gets fully rolling, we need to talk about what’s rational, right? This is the rational path forward.”
Not so easy
Andrew Livingston is the director of economics and research at Vicente Sederberg LLP in Colorado, and also is co-host of the “Weed Wonks” podcast. He has worked in the cannabis industry for several years.
Livingston said interstate commerce for marijuana is likely still a few years out, mostly citing federal government inaction.
“I think we’re still pretty far away from the federal government passing a national cannabis law that essentially sets the U.S. Supreme Court up to strike down prohibitions that are currently preventing the states from selling cannabis to each other,” he said.
Another factor is if a state, such as Illinois, imports cannabis from outside its borders, it would likely mean fewer jobs in Illinois. It would no longer need cultivation centers, which offer jobs including investment and construction.
“I think a lot of business owners would say ‘Why do you want to give up the opportunity for new jobs and new tax revenue and empower another state?’ And if that was the way we thought of all sorts of business, we wouldn’t be the United States; we would be 50 different countries. That’s not how the U.S. works. But with cannabis, it is,” Livingston said.
Importing, Livingston said, could also lead to new jobs. He points to Smith’s proposal to grant social equity applicants preferred access to imported cannabis, which would “empower minorities, low-income operators who might be better realtors and may be able to access cheaper cannabis from the West Coast,” Livingston said.
While supply issues frustrate both dispensaries and consumers, Livingston said the slower rollout means less chaos and more control from a government perspective.
Chris Lindsey is the director of government affairs at the Marijuana Policy Project and has worked in the Illinois market for about seven years.
“Illinois decided to err on the side of caution,” he said. “At this point, there aren’t any glaring problems that would require lawmakers to rush in to make changes.”
Lindsey is familiar with Smith’s advocacy and the concept of interstate commerce for cannabis. He called it inevitable.
“I think it’s a good idea to start to consider the best framework for it. We probably have a little ways to go before we see policies in place that are functional, and it’s just because it’s a whole new area,” he said.
“It’s inevitable and good policy in the long run, but it’s going to take some time to sort through how states are going to regulate it … we really are just starting that conversation.”
Stern’s view
The supply shortage in Illinois is at least partially attributable to how the adult-use market was established. Cultivation centers, such as Green Thumb Industries and Cresco, which have national footprints, were allowed to also operate dispensaries — known in business circles as vertically integrated, where a business creates a product and also has the framework to market it and sell it.
"Independent dispensaries like ours are not getting any product on the adult-use side, and it's a big issue," Stern said.
That problem emerged early. A letter sent from the Illinois Department of Financial and Professional Regulation, which oversees licensing in Illinois, said on Jan. 10 it was aware some recreational dispensaries had an inventory from a single cultivator in excess of a 40% limit, against the state law.
The department said an investigation was underway.
Additionally, "it has been reported that many dispensaries are experiencing a shortage of cannabis products, including products for medical cannabis patients," it wrote. "The Department takes seriously the availability of product for medical patients, and dispensaries are required by law to prioritize providing products to medical cannabis patients."
Almost two months after that letter was sent, the issue persists.
"We're trying to resolve it internally within the state" through the cannabis business association, Stern said. "There are multiple (state) senators calling us and talking to the association, and now they're becoming aware of this issue. They believed in the program on the medical side, and they certainly don't want the Illinois program to have any hiccups, so there's a whole lot of people getting behind a legislative process to resolve this."
