RefWork:Past, Present, and Future of Cannabis Laboratory Testing and Regulation in the United States/Overview of the cannabis industry in the United States
Before getting directly into testing and regulations surrounding cannabis testing in the U.S., it's useful to review the past and current state of the cannabis industry in general. This chapter talks about the U.S.'s past with cannabis; how it's used medically and recreationally; how it's cultivated, tested, and distributed; and other industry aspects affected by the political and social climate in the U.S.
1. Overview of the cannabis industry in the United States
The following is a brief overview of the cannabis industry in the United States. It's meant to give a quick and concise review of where cannabis use, regulation, testing, and research have been and where they are now. Many of the topics touched upon here will be expanded upon later in this guide.
1.1 Brief history of cannabis in the U.S.
Cannabis is a rapid-growing, flowering plant that has been used for centuries for industrial, medicinal, and recreational purposes. The plant includes three species or subspecies: indica, ruderalis, and sativa. Broadly speaking, both "industrial hemp" and "recreational marijuana" are scientifically similar in that they both refer to the cannabis plant. The important difference between the two is how they've been bred by humans, particularly in regards to their biochemical composition. Hemp—which has historically been used to create clothing, food and feed, paper, textiles, and other industrial items—tends to be bred to have lower levels of the psychoactive component tetrahydrocannabinol (THC) and higher levels of the non-psychoactive component cannabidiol (CBD). However, some cannabis strains have intentionally been bred to maximize the psychoactive component THC; this is often referred to as marijuana (or the older term "marihuana"), a change arguably driven by newspaper reporters post-1900.
Cannabis cultivation began in England's Jamestown colony of America in earnest around 1611, via formal orders. Several years later those orders turned into a royal decree, enacted by the Virginia Company, asking colonists to each grow 100 hemp plants for export to England. Colonial America continued its growth, use, and exportation of hemp, even beyond the formal founding of the United States. During that time, growers undoubtedly were using the female plant (which flowers and has higher levels of THC) to treat aches and pains as well as enjoy it recreationally. By the time the U.S. Civil War arrived in the 1860s, however, the growth and use of industrial hemp declined as increased cotton and wood use took away much of the profitability of hemp. Around the same time, local governments began recognizing tonics, tinctures, and extracts from cannabis plants as potentially dangerous substances, labeling them as hypnotics, narcotics, or even poisons. In the early twentieth century, U.S. labeling and prescription laws—such as the the Pure Food and Drug Act of 1906 at the federal level, as well as various state laws—saw further restrictions put on cannabis, effectively culminating in the Marihuana Tax Act of 1937 and the Federal Food, Drug, and Cosmetic Act of 1938. With the passage of those acts, hemp and marijuana essentially became illegal, controlled substances.
State efforts to decriminalize marijuana were somewhat successful in the early 1970s, though progress towards that goal slowed again with the Reagan Administration's war on drugs. Progress picked up steam again in the late 1990s into the 2000s, particularly in states such as California, Massachusetts, Connecticut, Washington, and Colorado.
As of July 2021, thirty-seven U.S. states and the District of Columbia have approved broad legalization of medicinal marijuana, with 11 of those states also approving recreational marijuana. Additionally, neighboring Canada has legalized the purchase, growth, and consumption of marijuana in small amounts across the country, while Mexico's Supreme Court has legalized "all forms of non-commercial adult use" of the plant, though fully implementing the decision has been an ongoing process since 2019. Industrial hemp has also been addressed in a more serious fashion in the U.S., with 47 states having introduced some sort of hemp cultivation and production programs, and the federal government making certain concessions on it (Cannabis sativa containing no more than 0.3 percent THC, grown under a state-sanctioned agricultural pilot program). In December 2018, those concessions seemingly transformed into what became outright legalization of industrial hemp in the United States (with significant shared state-federal regulator restrictions) via the full passage and reconciliation of the 2018 Farm Bill. However, marijuana remains a Schedule I controlled substance, as determined by the U.S. Food and Drug Administration, including extracts and other derivatives such as CBD that come from cannabis. (However, the DEA moved CBD-based prescription drugs with a THC content below 0.01 percent to Schedule V classification in September 2018. The status of CBD extracted from industrial hemp appears to be in a legal quagmire with the passage of the 2018 Farm Bill; see The National Law Review from late 2018, the FDA's consumer update from late 2019, and it's most recent regulatory news for further details.) This federal classification continues to clash with changing state laws and regulations at an increasing pace, creating both opportunities and difficulties for involved citizens at all points along the industrial, economic, and social chain.
1.2 Medical and recreational use
In its 2021 World Drug Report, the United Nations Office on Drugs and Crime estimated that 3.98 percent of the global population—roughly 200 million people—used cannabis in 2019. Focusing in on the United States, the Substance Abuse and Mental Health Services Administration (SAMHSA) estimated that in 2019 the country had 48.2 million past-year marijuana users. It's not clear if that total includes legal medical marijuana users, which numbered roughly 2.1 million in May 2018 according to non-profit ProCon.org. When compared to SAMHSA's estimate of 11.1 million users in 1997, it becomes clear that reported marijuana use has increased in the United States over the past few decades, whether it's through legalization efforts or otherwise. Some have pointed to the expansion of medical marijuana laws acting as gateways for increased adolescent use; however, multiple studies have tried but failed to find such a cause and effect relationship. Regardless, with 37 U.S. states and D.C. now having some type of legalization law on the books, the number of marijuana users isn't likely to decrease any time soon in the U.S.
1.3 Cultivation and distribution
At the federal level, marijuana is considered a Schedule I drug and remains illegal. (Federal regulation of cannabis is discussed in detail later under "Regulation and standardization.") This doesn't leave a lot of options for researchers and the like. In fact, the only federally-granted grow operation (grow-op) as of this writing is the University of Mississippi, contracted by the National Institute on Drug Abuse (NIDA) to grow marijuana for approved research studies., and promises to expand grow-ops for research have fallen flat. And while the passage of the 2018 Farm Bill legalized hemp cultivation with certain restrictions, this does little to help researchers who need marijuana for study.
On the state level, the growth, testing, and distribution of cannabis depends on state law, which can vary from state to state. This topic is discussed further in the "Regulation and standardization" section, but here are the key points:
- Federal law allows for hemp production but still makes it illegal to cultivate and distribute marijuana, even in a state that has legalized such activity. However, while there's no legally binding guarantee cultivators and distributors won't be pursued by federal law enforcement, they can limit their chances of such federal enforcement by precisely following state and local law.
- Despite some of the variances among state laws, one aspect largely remains consistent: it's illegal to distribute marijuana over state lines, even when distributing between two states with similar laws. Hemp (which must contain 0.3 percent or less THC) can be transferred across state lines.
- Regulations on the personal and commercial cultivation and distribution of marijuana vary significantly from state to state. Some states make a limited pool of available licenses available; others don't offer them or instead have specific alternative treatment or non-profit centers that handle growth and distribution. As for hemp, cultivation and hemp may similarly be regulated slightly differently depending on whether or not the state developed its own USDA-approved regulatory program.
1.4 Testing and research
One area that continues to expand—while taking advantage of new scientific research and techniques—is the laboratory sphere, particularly in research, regulation, and standardization activities. According to July 2016 testimony from Susan R.B. Weiss, Division Director at NIDA, the National Institutes of Health (NIH) alone supported 281 cannabinoid research projects totaling more than $111 million in 2015.
While the research, analysis, and processing of cannabis has been ongoing for centuries, it wasn't until 1896 that Wood et al. conducted one of the first documented chemical experiments to determine the constituents of cannabis. Several years later, the researchers were able to correctly identify the extracted and isolated cannabinol from the exuded resin of Indian hemp as C21H26O2. As of mid-2018, somewhere between 104 upwards to more than 140 of the more than 750 constituents of Cannabis sativa have been identified as cannabinoids, "a class of diverse chemical compounds that act on cannabinoid receptors in cells that modulate neurotransmitter release in the brain."
Yet in the United States, when it comes to 1. enacting the broad level of testing required to ensure public safety—whether it be medical, recreational, or industrial use of cannabis—and 2. researching and better understanding the pharmacokinetics and pharmacodynamics (medical use and benefit) of cannabinoids in the human population, many have argued that laboratory testing of cannabis is still in its infancy and evidence-based research of marijuana continues to be slow and bogged down in regulation. In regards to the first issue, as some form of legalization continues to sweep across states, regulators, users, and industry are recognizing the need for improved standardization of the production and testing of medical and recreational marijuana; the current state of improper labeling and potentially harmful contaminants will only serve to hinder the industry. To the second issue, in 2016 some within the federal government seemed to recognize the roadblocks to improved evidence-based research and began working to slowly improve how researchers can legally acquire and test marijuana in the U.S., though those attempts have since been rebuffed by the Justice Department.
Regardless, an excerpt from the previously mentioned testimony of NIDA's Dr. Weiss illustrates the sentiment still felt by many researchers today:
The current state of the research on marijuana and its constituent cannabinoids suggests the potential for therapeutic value for a number of conditions; however, more evidence is needed before marijuana or cannabinoid products (beyond those already approved through the FDA) are ready for medical use. Promising preclinical findings do not always prove to be clinically relevant, and even fewer lead to new treatments. Moreover, clinical studies of sufficient quality to meet FDA standards for drug approval are currently lacking for most conditions. Among the factors that impact this research are the specific statutory requirements and treaty obligations that govern research on marijuana. NIH is working closely with the Office of National Drug Control Policy (ONDCP), the Drug Enforcement Administration (DEA), and FDA to explore ways to streamline these processes to facilitate research.
In the meantime, government entities such as the NIH and non-profits such as jCanna push forward with scientific conferences, summits, and roundtables that bring scientists and interested parties together to share existing knowledge and testing techniques. And at least some U.S. lawmakers are further talking about the issue of cannabis research, with an official hearing in January 2020 providing an opportunity to discuss the "catch-22" of regulation and medical research: "Research is restricted because cannabis is currently considered a Schedule I drug under the Controlled Substances Act, yet more research would better determine if marijuana should be rescheduled or descheduled."
1.5 Other areas of concern
When examining the current state of the U.S. cannabis industry, it's important to note a few additional areas of concern that impact it, again tightly linked to federal regulations (which are discussed extensively in the next section): banking, advertising, and data management. Issues related to these topics continue to limit how state-based grow-ops, dispensaries, and testing laboratories are funded and operated.
Since the U.S. federal government still considers marijuana to be illegal, by extension banks and credit unions—which are regulated by a patchwork collection of federal (and state) laws—put themselves into potentially dangerous territory by accepting money from depositors engaging in federally illegal activities; the bank can be punished by federal institutions such as the Federal Deposit Insurance Corporation (FDIC). In an attempt to ease the concerns of industry players as well as banks in states that had implemented legalization efforts, the Treasury Department's Financial Crimes Enforcement Network (FinCEN) released a guidance document in February 2014 that "does not grant immunity from prosecution or civil penalties to banks that serve legal marijuana businesses" but rather "directs prosecutors and regulators to give priority to cases only where financial institutions have failed to adhere to the guidance." However, the guidance has remained just that: guidance; it doesn't prevent federal law enforcement or regulating agencies from taking action. An August 2016 attempt to reclassify marijuana into a lower classification than Schedule I failed, keeping the FinCEN guidance in place as a recommendation for how federal authorities should enforce existing law.
According to an Associated Press report in April 2016, the guidance has had some sort of impact, with banks and credit unions willing to handle any money associated with marijuana increasing from 51 in March 2014 to 301 in March 2016, and up again to 411 in March 2018. However, this hasn't prevented those in states with newly minted medical and recreational marijuana legalization laws from being worried about how cannabis money will be handled, particularly with the Trump administration's wavering stance. California, which in November 2016 legalized recreational use of marijuana beginning in 2018, petitioned the administration to clarify its policy early on. "We have a year to develop a system that works in California and which addresses the many issues that exist as a result of the federal-state legal conflict," wrote California Treasurer John Chiang to Trump. "Uncertainty about the position of your administration creates even more of a challenge." An attempt by the state in the summer of 2018 (Senate Bill 930) to "license privately financed banks that would issue checks to [cannabis-related] businesses to pay rent and state and local taxes and fees" was rejected, complicating the matter further. However, California's Department of Business Oversight offered some minor respite in the fall of 2019 in the form of its Cannabis Banking Guidance, which "offers a comprehensive compliance framework for [California's] financial institutions and demonstrates that there is momentum around finding a workable solution to effectively provide banking services to cannabis-related businesses."
Similar legalization changes in Massachusetts prompted its senator, Elizabeth Warren, along with nine other senators, to write to FinCEN in early 2017 requesting even clearer, more friendly guidance for marijuana vendors. Yet it remains to be seen if entities outside of grow-ops and dispensaries will see banking relief. In particular, testing laboratories continue to struggle with managing cash flow and acquiring bank lending for their operations, causing some to believe consolidation of such labs will occur before the industry can really even take off. In early 2018, one of three testing laboratories in Alaska was forced to suspend its operations after Wells Fargo said it would foreclose on their space if they did not move out, demonstrating the continued difficulties and tensions laboratories are facing with banks.
In September 2019, what was thought to the be the best chance to update cannabis banking regulation—in the form of the Secure and Fair Enforcement (SAFE) Banking Act—saw overwhelming approval in the U.S. House of Representatives. The SAFE Banking Act would prevent federal banking regulators from cancelling deposit insurance, penalizing banking institutions, and incentivizing a bank to not do business with cannabis businesses, among other actions. This would mean banks wouldn't see federal retaliation for complying with state-mandated cannabis law. However, the proposed legislation was inevitably held up in the Senate in early 2020, primarily due to the efforts of Senate Banking Committee Chair Mike Crapo, and the support of 12 other lawmakers. However, in February 2020, Senators noted they were "close to finding common ground to getting everyone signed off to move this forward." Ultimately, the SAFE provisions made their way into the HEROES Act COVID-19 relief bill, which passed in the U.S. House in May 2020, as well as another bill in October. Those attempts failed with the Senate, and an additional push to include the SAFE Banking Act provisions in the 2020 end-of-year COVID-19 stimulus failed; however, it may be reintroduced in 2021.
Advertising of marijuana products is another area of concern, though the regulations and laws regarding it are less clear. When it comes to television and radio broadcasting and its associated advertising, a federally granted broadcasting license stands to be lost, care of the Federal Communications Commission (FCC). The trouble is, it's not clear if the FCC would act against broadcasters; the FCC hasn't issued guidance in the same way FinCEN has. "I don’t think anybody knows, and that’s the problem," said California Broadcasters Association President Joe Berry in an August 2016 report published by the The Sacramento Bee. "Without a clear indication [from the FCC on marijuana advertising], the vast majority of broadcasters are going to stay away from this issue." California, of course, made recreational marijuana legal, and its proposed law sought to address the issue of advertising, including "a provision restricting TV and radio ads so they are not targeted to minors," while also addressing the authority of the FCC to enforce regardless. Additional changes occurred in California in the form of Assembly Bill 2899, updating how licensees can and can not advertise cannabis and cannabis products.
Other forms of advertising also remain problematic. In late November 2015, the United States Postal Service (USPS) out of Portland, Oregon published its interpretation of federal law regarding "mailpieces containing advertisements about marijuana," regarding it illegal to distribute certain forms of marijuana advertisement while citing 21 U.S. Code § 843(c). The U.S. Patent and Trademark Office (PTO) has, controversially, also gotten involved, stating that trademarking of a "brand controlled substances or related paraphernalia that are illegal to possess or sell" legally doesn't fit within a trademark's commercial viability because at the federal level marijuana is not legal for commerce. (Legal experts such as Dariush Adli suggest "creative ways" of getting around this, from registering trademarks in multiple states to registering "non-cannabis merchandise in order to generate some federal protection for their mark.") Even billboards are an issue, with California's state lawmakers proposing new regulations on billboard-based marijuana advertising weeks after the state passed its recreational legalization laws. And state laws, such as those found in Alaska, can create their own set of challenges in staying legal with marijuana advertising. Even Canada, which legalized recreational use of marijuana in the fall of 2018, has strict advertising rules laid out by Health Canada, with harsh penalties for violators. This has resulted in some cannabis businesses seeking advertising loopholes; one such example can be found in the U.S. state of Colorado, where cannabis companies have taken to sponsoring highways through the state's Clean Colorado program.
Despite all this, at least one financial consultant believes marijuana marketing will become more prevalent: GreenWave Advisors' Matthew Karnes estimates spending will jump to $75 million by 2021.
Insurance needs for cannabis businesses are being discussed more as the legalization effort continues to expand across the U.S. and other countries. In the U.S. at least, a number of factors have slowed these discussions given the plant's illegal federal status, including limited data on its health impacts, the losses associated with running such businesses, and a lack of understanding the appropriate claims milestones to use. This lack of data and initial hesitance has resulted in overall caution by the insurance industry, issuing mostly basic policies with insufficient coverage. These fears—including the fear of prosecution for providing services to cannabis businesses—aren't limited to the U.S. either, with, for example, concerns that the Proceeds of Crime Act (POCA) in the U.K. will expose financial and insurance businesses to prosecution. Other issues and risks viewed by the industry include:
- With health risks not fully understood, extensive litigation including class action lawsuits may ensue should cannabis users become unexpectedly ill or disabled due to unstated risks by the vendor.
- Transportation of cannabis and related equipment across various borders where it's legal in some places but not others may result in the risk of seizures and losses.
- Uncertainty remains about intellectual property law and banking, making it more difficult to produce relevant policies that help protect against theft and loss of proprietary information, product, and cash.
- Hemp-derived CBD and its legality is still a gray area, at least in the U.S., though hemp is legal, making it more difficult to separate out related risks in cannabis insurance policies.
- Vape pens and e-cigarettes used for cannabis consumption have so far carried some health hazards and risks with them, forcing many insurance carriers to exclude coverage for such products.
- Outdoor crop coverage is scarce and multi-state distribution coverage policies don't exist.
- Professional liability insurance for testing laboratories and dispensaries is still a growing area that requires more data and risk consideration, with some specific coverage such as "slip and fall" protection not able to be honored due to Schedule I substance exclusions in general liability policies.
1.5.4 Data management
In the fall of 2018, Canada legalized the purchase, growth, and consumption of marijuana in small amounts across the country. Ahead of and after the official date of legalization, concerns were being raised about the protection of Canadian cannabis consumers' personally identifiable information (PII), particularly in regards to data processed and stored in the United States. In truth, comparisons of Canada's privacy laws with those of the United States existed well before the vote, with resources such as FindLaw detailing risks to any Canadian data transferred to the United States. However, concerns grew that Ontario's mandated use of the e-commerce platform Shopify (until private retail outlets opened in April 2019) would put Canadian cannabis consumers' data at risk. In particular, Canadian consumers remain worried that if their purchase history becomes available to United States government officials, who function in an environment of criminalization of cannabis use, they will not be allowed entry into the U.S. at minimum, or be treated as criminals upon attempting entry at worst. As such, some developers of cannabis data management software—such as Cova Software—have publicly acknowledged that any cannabis retail data for Canadian customers will remain in Canada "over and above the current legal requirements." Yet even with data providers' intentions to follow Canadian privacy rules and recommendations, data breaches still occur, as happened with the Canada Post in November 2018., further emphasizing the need for strict protocols and protections for cannabis consumer data.
In the United States, despite cannabis' federal prohibition, many states have been taking on various levels of legalization of cannabis. As Rachel Hutchinson of Foley Hoag LLP noted in March 2017, much like Canada, "[l]egalization has led to increased oversight and monitoring, as well as to the collection and storage of personally identifiable information ... [and the] threat of a federal crackdown leaves most customers resistant to creating any sort of paper trail." In this sort of environment, where federal threats still exist, a patchwork collection of state-based laws have sprung up, including Oregon's Senate Bill 863, which prevents retailers of recreational cannabis from collecting and sharing customers' PII. California has also implemented a variation of this type of protection for both recreational and medical cannabis consumers. Of note is California's classification of medical marijuana identification cards as "medical information," which lends additional credence to the idea that medical marijuana consumers' PII held in dispensaries should be protected by U.S. Health Insurance Portability and Accountability Act (HIPAA) regulations. However, without a unified policy and legal framework for cannabis use and its associated data, its difficult to foresee what future data collection and privacy regulations will look like in the United States. Despite this, some software development companies are betting on further demand for privacy of PII with the development of "personal privacy and HIPAA complaint cannabis consumer transaction solution[s]."
Additionally, like Canada, concerns still abound concerning data privacy in the United States. Companies such as THSuite, LLC have already been found to inadvertently expose sensitive personal data—and possible even protected health information (PHI)—from multiple U.S. cannabis dispensaries, potentially violating HIPAA regulations. As the anonymous author of the original report concerning THSuite points out, "most legal experts agree that dispensaries must follow HIPAA regulations just like any other health care provider," and even in a realm without legal risk, exposed data could mean "individuals may suffer backlash if their families, friends, and colleagues find out that they use cannabis." Again, these issues firmly fall at the feet of the main problem of not having unified cannabis legislation, let alone not having a federally recognized legalized status of cannabis. With the unclear and mismatched state of law regarding cannabis user data protection, the onus still remain firmly with software developers and data managers in regards to thoroughly testing software and implementing (as well as enforcing) stricter controls such as encryption, intrusion detection, and authentication mechanisms.
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Citation information for this chapter
Chapter: 1. Overview of the cannabis industry in the United States
Edition: Third edition
Title: Past, Present, and Future of Cannabis Laboratory Testing and Regulation in the United States
Author for citation: Shawn E. Douglas
License for content: Creative Commons Attribution-ShareAlike 4.0 International
Publication date: March 2020