Cannabis: In Focus

  • New York City Attempts to Crack Down on Illicit Cannabis Market
  • Connecticut Launches Recreational Cannabis Sales, With More States Expected to Follow in 2023
  • Psilocybin State Updates
  • FDA Issues Three New Warning Letters to CBD Product Manufacturers Alleging COVID-19 Benefits
  • Congressional Research Service: Cannabis Banking and the Federal Reserve

New York City Attempts to Crack Down on Illicit Cannabis Market

During a council hearing on Jan. 18, 2023, New York City lawmakers and law enforcement officials discussed the need for tackling the city’s illicit cannabis market, expressing concerns about product safety, marketing to children, and unfair competition with licensed dispensaries.

New York legalized recreational cannabis for adults 21 and over in March 2021; the state’s first (and so far, only) licensed dispensary opened in December 2022. A booming market of unlicensed dealers threatens the success of the legal industry, a challenge that other states are still struggling to overcome. The issue is particularly challenging to address in New York, where cannabis products are sold not only from brick-and-mortar shops that can appear legitimate to unassuming consumers, but also more brazenly from pop-up shops in public parks and even ice cream trucks. Illegal home delivery has also been ubiquitous for years.

Late last year, Mayor Eric Adams launched a two-week interagency pilot task force, whose enforcement efforts against the illicit market resulted in the seizure of more than $4 million in illegal cannabis products, plus the issuance of 500 civil violations and 66 criminal summonses. In December, Governor Kathy Hochul announced a plan to differentiate cannabis licensees from illicit operators via measures such as QR code verification. Further developments are likely as the state continues to address these issues. The cannabis industry is watching with bated breath as the country’s second-largest state-legal market challenges the legacy market.

Connecticut Launches Recreational Cannabis Sales, With More States Expected to Follow in 2023

Connecticut’s legal recreational cannabis industry opened for business on January 10, 2023, two years after Governor Ned Lamont signed legislation legalizing retail sales. All 13 dispensaries in the state are operated by multistate operators, with many also serving as medical-use dispensaries. For now, the state has fewer licensed retailers than others in its region, but up to 40 dispensaries are expected to open by the end of the year. 

After last year’s midterm elections, 21 states and Washington, D.C., have legalized recreational use of cannabis for adults 21 and older, while 37 states have legal medical cannabis programs.

Last year, Maryland voters legalized cannabis for adult use, which goes into full effect in July 2023. Regulators and legislators are still working to establish the framework to which the market will need to adhere, meaning that the state is in competition with neighboring Virginia to see which will be the first to launch recreational sales.

Governors of Kentucky and North Carolina have expressed support for medical legalization in their respective states, as have the governors of Hawaii and Minnesota regarding recreational use. Meanwhile, lawmakers are working on medical cannabis bills in Wisconsin, South Carolina, and Indiana. Oklahoma voters will have their say on recreational legalization during a special election in March, and, depending on whether Ohio lawmakers take up the issue, it could become a ballot measure in that state in November.

Psilocybin State Updates

On January 1, 2023, Oregon became the first state to legalize adult use of psilocybin; more states may follow suit in the coming years. Lawmakers in nearly a dozen states, including New York, Arizona, and New Hampshire, have filed or pre-filed bills to legalize and/or study psychedelics.

Colorado voters decriminalized psilocybin via ballot proposition in 2022. The state’s Natural Medicine Health Act allows for a regulated program to access psilocybin and provides for limited personal use. The state is currently forming an advisory board to, among other things, recommend regulations for approved centers that will govern the state’s forthcoming program.

In California, a bill to legalize possession of psilocybin and certain other psychedelics was recently filed. The bill, SB 58, would legalize possession and transport of specified quantities of psilocyn, dimethyltryptamine, ibogaine, and mescaline for individuals 21 years of age or older, but would not legalize synthetic psychedelics such as 3,4-methyl​enedioxy​methamphetamine (MDMA) and lysergic acid diethylamide (LSD).

Arizona’s legislature is also entering the field, with bipartisan support for a bill, HB 2486, that would provide a $30 million grant for psilocybin research. This research would focus on clinical trials involving psilocybin to address conditions including (but not limited to): post-traumatic stress disorder (PTSD), depression, symptoms associated with long Covid, and chronic pain.

FDA Issues Three New Warning Letters to CBD Product Manufacturers Alleging COVID-19 Benefits

So far this month, the U.S. Food and Drug Administration (FDA) has issued three warning letters  co-signed by the Federal Trade Commission (FTC), regarding cannabidiol (CBD) products whose manufacturers claimed  that the products could treat or prevent COVID-19.

As we have previously reported, the agencies have repeatedly cautioned manufacturers of products containing CBD against making unsupported health claims, especially regarding COVID-19. This most recent batch of warning letters issued in January 2023 addressed unsupported marketing claims that CBD products were safe and effective in the treatment or prevention of COVID-19 and required the companies to respond with proposed corrective actions within 48 hours.

Congressional Research Service: Cannabis Banking and the Federal Reserve

In a new report, the Congressional Research Service (CRS) identified cannabis banking as one of the top policy issues facing the Federal Reserve as a new Congress convenes. Dated January 6, 2023, the report Federal Reserve: Policy Issues in the 118th Congress highlights the Federal Reserve’s role in regulating the nation’s banks.

To guide congressional oversight of the Federal Reserve, and in turn, its regulatory activity, the CRS noted that the federal illegality of cannabis creates issues for cannabis banking and cannabis businesses: “If cannabis businesses are unable to access traditional financial services, they may face higher borrowing costs and may be heavily reliant on cash transactions, making them a target for theft.” The CRS went on to discuss the SAFE Banking Act, which was passed (repeatedly) in the prior House only to fail to be voted on by the Senate. The bill would have offered protection to the Federal Reserve and to banks in providing financial services, such as banking, payment processing, and insurance, to cannabis businesses that complied with state law. However, hopes for its passage in 2023 are dim, given that it’s unlikely that cannabis reform will be a significant part of House Republicans’ agenda.