So you want to legalize cannabis? Some dos and don’ts from the experts

New York Governor Andrew Cuomo says this will be the year that his state legalizes recreational cannabis. If those efforts prove successful, New York would become the 12th state to put cannabis laws in place and could quickly become home to the second-biggest cannabis industry in the nation.

The good news for New York and other states weighing cannabis legalization is they’ll have the benefit of hindsight. By contrast, regulators in Colorado and other early adopters of recreational cannabis laws described the process as “making the plane as we fly it.”

“I think that we’re positioned better than anyone else in the country, making sure we’re not just a regional but a national leader in the best way to do this,” said Norman Birenbaum, who was appointed by Cuomo to serve as New York’s director of cannabis programs.

Several current and former regulators as well as industry experts spoke with CNN Business to share some lessons learned from four key adult-use cannabis markets.

The first state

It’s been six years since Colorado became the first state to have legal, regulated cannabis sales for adults 21 and older.

“I think, even now, it is early to say what best practices are,” said Andrew Freedman, who headed cannabis policy under then Governor John Hickenlooper’s office. Freedman was widely regarded as the first “marijuana czar.”

Colorado’s trailblazing path had its share of missteps, Freedman said.

Developing first-of-its-kind regulations for a federally illicit substance is a choppy process. Colorado learned to quickly adapt regulations to ensure public health and safety. This included pesticide tests, limitations on the number of plants that can be grown at home, and modifying how edibles are crafted and packaged to prevent over-consumption and access by children.

An aspect Colorado got right early on, Freedman said, was a tiered cultivation and production management system that forced companies to grow wisely in conjunction with demand.

“Everybody wants to be the biggest grow overnight, but when everybody does that, they just go bust,” he said.

Those disproportionately affected by the War on Drugs — mostly minorities and those in disadvantaged communities — have not had the means and access to participate in the legalization of cannabis, said Chris Lindsey, director of government relations for Marijuana Policy Project, an organization that lobbies to pass cannabis laws.

Freedman said he regrets that Colorado didn’t implement automatic expungements or allocated tax revenue to flow into the state’s minority and economically disadvantaged communities most affected by the illegality of cannabis.

“If 50 cents on the dollar were small minority business loans, there’s so much more we could have done,” he said.

The takeaway for New York: Keep a close eye on demand and use tax revenue to fund minority communities.

A national approach

Canadian cannabis revenues totaled $1.2 billion in 2019 and “fell far below expectations,” according to a report released Monday by the Brightfield Group, a cannabis market research firm. An insufficient number of dispensaries, limited products for sale initially, advertising restrictions, and high product cost, contributed to Canada not hitting anticipated goals, the report said.

The fragmented roll-out has kept consumers in the illicit market, but the expectations are for that to change as product forms diversify and provinces’ regulations mature, she said.

“Legalization is a process, not a moment,” said Jo Vos, managing director of cannabis website Leafly in Canada.

When Canada sought to legalize cannabis, a feat it accomplished in 2018, among the stated goals were a desire to eliminate the illicit market; to stop criminalizing populations, notably young people of color; and to have a regulated framework that prevents youth access, said Omar Yar Khan, a former chief of staff to the Ontario Minister of Health.

“It’s all well and good to say that you want to achieve those three public policy objectives; but if you bring in too much of a restrictive environment, to put a box around the legal industry, you’re just creating a vacuum that the illicit industry will fill,”said Khan, who now serves as the national cannabis sector lead with Hill + Knowlton Strategies, a public relations consulting firm.

The move to allow for, in most provinces, online sales and same-day delivery is worth emulating — especially in New York City, he said.

The takeaway for New York: Manage expectations while ensuring the rollout is tailored to your market by building in delivery regulations from the start and bringing in institutional businesses into the regulated industry from the get-go.

The biggest state

It didn’t take long at all for California to become the world’s largest cannabis market. Despite its prominence, the state’s recreational cannabis program has been fraught with challenges.

The state’s licensed cannabis businesses are clamoring for the state to address an entrenched and lucrative illicit market, modify laws to allow for cannabis operations in more jurisdictions, and ratchet down taxes and fees.

“There’s a lot of the stuff we’re struggling with, we didn’t have a lot of control over,” said Lori Ajax, chief of California’s Bureau of Cannabis Control.

Following the passage of cannabis legalization measure Proposition 64 in November of 2016, California officials were crafting regulations in the shadow of an uncertain federal environment, she said.

Ajax credits open communication with industry members as a key aspect for states that choose to legalize and ensure that the processes in place allow for regulators to react quickly as needed.

California is in the process of merging the BCC, the Department of Food and Agriculture and the Department of Public Health to create a Department of Cannabis Control. The consolidation is expected to be complete in July 2021 and is expected to make cannabis streamlined

The takeaway for New York: Be nimble, allow the regulations to adapt in a fluid manner as needs develop.

The latest state

A suitable blueprint for New York could be Illinois, which legalized cannabis via legislative process and established a regulatory regime that launched January 1, said Bethany Gomez, managing director for the Brightfield Group, which is based in Chicago.

“The likenesses between the Illinois and New York markets are really striking,” she said.

While some of the early adopters of Colorado, Washington, Oregon and California had “very large, very vibrant” medical cannabis markets, it’s just the opposite in Illinois and New York, with the latter having only 10 licensed entities that grow, manufacture and sell medical cannabis.

In Illinois’ multi-phased launch, the medical cannabis dispensaries were the first to obtain recreational licenses. The limited number of dispensaries and restrictions on aspects such as cultivation size have led to severe supply shortages, she said.

“We absolutely expect to see a similar scenario in New York,” she said.

The next phase of licenses to come online will be for individuals and businesses that were “disproportionately impacted” by the criminalization of cannabis.

“Illinois really has done an admirable job in taking a lead and baking social equity into the cannabis legalization process,” Gomez said.

The state established a licensing scoring system that awards bonus points to individuals with minor cannabis offenses eligible to have their criminal records expunged for minor infractions like cannabis possession under the new law and for people who live in areas most negatively affected by the war on drugs. In addition to the scoring system for the licensing process, Illinois established a $20 million low-interest loan program, and created provisions to reduce fees and barriers to entry.

The takeaway for New York: Build on Illinois’ social equity efforts; and if there’s a phased roll-out try to best prepare for demand to outpace supply.