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Did California Authorize Interstate Cannabis Commerce?

Interstate cannabis commerce could reduce oversupply, minimize illicit markets, and benefit consumers if authorized. Whether it will ever go into effect, however, remains to be seen.

In September of this year, Governor Gavin Newsom signed several bills that could have a big impact on the state of cannabis in California. However, one bill in particular won’t take effect without a specific set of circumstances.

Senate Bill No. 1326 essentially allows the Governor to sign cannabis trade agreements between California and other states with legal cannabis. This would, in theory, override the current prohibition of transportation and distribution of cannabis across state lines.

The bill’s author, Senator Anna Caballero, stated, “SB 1326 provides a relief valve for the oversupply of cannabis, an opportunity to grow California’s brand and market share, support job creation, and gives the state a competitive advantage as federal policy develops.”

Read on and learn why interstate cannabis commerce is important, who it benefits, and what circumstances are necessary for it to go into effect.

Reading Time - 4 min

Interstate Cannabis Commerce May Reduce Oversupply

The oversupply of cannabis products was a pivotal factor when Oregon passed a similar bill in 2019. Unfortunately, interstate commerce still has yet to go into effect for Oregon, and the oversupply issue has only grown for some states.

Many companies expanded capacity in 2021 in anticipation of loosening federal cannabis restrictions. Unfortunately, that never ended up happening. Politico adds that the extra spending, “...led to a glut of product and plunging prices in many of the largest state markets like California, Colorado, Michigan and Massachusetts. Those struggles are being compounded by inflation and an illicit marijuana market that remains robust in many states.”

Since states that have legalized recreational and/or medicinal cannabis haven’t been able to transport across state borders, an oversupply of cannabis products means a retail bottleneck that has driven prices down and cut into profits for already struggling businesses. Interstate cannabis commerce, however, would help alleviate this issue.

SB 1326 Could Minimize Illegal Cannabis Sales

At the end of 2021, the Leafly Cannabis Harvest Report showed that Americans consume somewhere between 10,000 to 13,000 metric tons of cannabis each year. However, it’s estimated that only a quarter of that is supplied through legal means.

In a letter to Gov. Newsom in regard to the bill, the RCRC said

Many cannabis businesses, particularly in rural producing regions of California, are struggling to survive, and market expansion through interstate commerce is part of the solution to stabilize the legal industry and incentivize participation in the regulated market. Without considerable market expansion California risks the collapse of portions of the legal industry, devastating many rural communities, which could lead to significant expansion of the illicit market and dire economic impacts on local economies.

On top of reductions to the illicit market and promoting a healthier cannabis industry, interstate commerce can directly benefit consumers as well.

How Does Interstate Cannabis Commerce Benefit Consumers?

The idea of interstate commerce in the cannabis industry is nothing new. For years, advocacy groups have been spreading awareness about the potential benefits of such authorization. Specifically, the benefits for consumers.

In 2020, the NCIA even said, “Interstate commerce could provide not only safer products but also a greater variety of quality and highly competitive offerings. For medical patients and wellness-oriented consumers, interstate commerce may be the only viable means of access for certain formulated cannabis products or cultivars, especially in smaller state markets.”

As well as providing consumers with different prices and product selections, the topic of public safety can’t be overlooked. Consumers who purchase cannabis from illegal markets risk exposing themselves to harmful substances. Illegal products aren’t subject to the tracking and regulations surrounding pesticides and other chemicals.

Even in states with legal cannabis, illicit markets are still thriving in areas where a lack of licensed retail options means consumer demand can’t be fully addressed. When adult-use sales began in Illinois and other states, the NCIA still anticipated issues, “...it is frankly a bit difficult to envision how total consumer demand will be able to be fulfilled in any near term by relying on licensed cannabis cultivated in-state alone.”

Interstate commerce, however, could provide more supply for consumer demand while helping to push out illegal markets.

When Will Interstate Cannabis Commerce Go Into Effect?

Since cannabis is still federally illegal and considered a schedule 1 drug, interstate cannabis commerce isn’t currently happening despite SB 1326.

Even though Oregon passed a similar law in 2019, the federal government must either legalize cannabis or the Justice Department could allow it after implementing an administrative policy. At the moment, it’s unclear when that might happen.

Aside from that, some states may not relish the idea of interstate commerce. Cannabis operations on the east coast, for example, often require expensive indoor growing operations. Companies in those states won’t want to compete with California farmers who are able to grow outdoors at a significantly lower cost.

What SB 1326 does accomplish, however, is the groundwork for California to participate in a multi-state legal cannabis market the moment a legal pathway is implemented.

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