By Todd Davis, CEO of Endexx Corp.
Now that Washington D.C., Alaska and Oregon have voted to legalize recreational marijuana, joining the states of Colorado and Washington and the 23 states that have already adopted medical marijuana legislations, the conflict between states and the federal government is once again being highlighted, exposing anomalies and contradictions created by the schedule 1 classification that categorizes marijuana as an illegal substance under federal law and hinders federal funding for research and clinical trials on the medical benefits of cannabis.
In their efforts to remain compliant, legislators and industry participants need to navigate complex challenges and hurdles arising from restrictions on banking, credit card processing, insurance and a provision of the tax code that imposes effective tax rates of 50 to 80 percent.
States and local governments up to now have taken the lead in funding research programs following the momentum shift in popular perception, support and acceptance of cannabis as a viable medical option in treating a wide range of conditions.
In August 2013, following Colorado and Washington states’ adoption of regulations to legalize marijuana for recreational use, the DOJ issued eight guidelines to federal prosecutors in what became known as the Cole Memo on how to handle the distribution of state-regulated marijuana but it failed to provide specific metrics by which state laws could be evaluated, leaving the entire industry vulnerable to federal intervention.
Eric Holder, preparing to step down as Attorney General, stated in September that decriminalization of marijuana at the federal level was for “Congress to decide”. Until Congress acts, the only protection for states’ regulatory agencies is to create and manage traceability systems that strictly meet those guidelines and also to maintain comprehensive administrative oversight over the entire industry and the supply chain in order to create a conducive environment in which business participants have the opportunity to operate without the risk of federal interference and/or of losing the right to be in this burgeoning and lucrative market.
The burden of compliance and enforcement rests now squarely with the states’ regulatory bodies that increasingly rely on the functionality and reliability of their tracking and program management systems to create transparency and full accountability while gathering meaningful data to monitor the efficacy of the program, make necessary improvements and give enforcement personnel the tools to perform their tasks with added efficiency.
While compliance metrics are being formulated state by state and by local jurisdictions to meet federal guidelines through rules and regulations, technology companies have been put to the test to deliver the necessary framework and infrastructure that can help the respective agencies standardize their compliance processes and remain fully adaptive in an ever-changing legal environment.
For Congress to act and the DOJ to adopt a more lenient stance on the classification of cannabis, existing laws will need to go through a fundamental standardization process. This will take time and technology companies providing the tools for compliance to all stakeholders will play a critical role in bridging the regulatory gap and bringing a fragmented market into an integrated, unified and standardized industry.
The right to be a participant in the cannabis industry will come at the cost of compliance. As barriers to entry become more elevated, so do the rewards. License holders have the unique opportunity to make a lot of money, provided that they invest in traceability and compliance. Industry participants and state regulations must collaborate together to set the standards and self regulate. If not, the Federal Government will seize control.
Editor's Note / Todd Davis Bio: Education: Northern Arizona University Bachelor of Science - Administrative Communications. CEO Endexx Corporation 1993-present. Investment Banker/Stock Broker 1990-2000. CEO/Consultant for multiple Small Cap companies 2000-Present. Developer/ Analyst Pro17 market and stock forecast model 2008-Present. As a Broker, Consultant and CEO Todd has participated in and managed/structured over 100 IPO’s, private placements and convertible debentures raising in excess of 100 million in the Small and Micro Cap arena over the last 22 years.
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