Five cannabis trends to watch in 2022 – Reuters

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January 13, 2022 – In many ways, 2021 was a banner year for the U.S. cannabis industry, largely thanks to continued legalization of adult-use cannabis at the state level. While the industry will face some of the same headwinds it did last year related to continued federal prohibition, 2022 promises to be another exciting year for cannabis. In this article we will look at five trends we will continue to watch in the new year.

The cannabis industry is no longer ‘budding,’ but it will continue to grow

Despite federal prohibition, the U.S. cannabis industry has experienced dramatic growth in recent years. By some estimates, total U.S. cannabis sales was expected to surpass $24 billion in 2021, representing 38% growth over 2020 sales. In considering the industry’s broader effects on the economy, a recent analysis published by MJBizFactbook projected that the cannabis industry is expected to add $92 billion to the U.S. economy in 2021.

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There is no sign that this growth will slow down in 2022 and beyond — driven largely by continued growth in mature markets, such as California, and the expansion of new and emerging markets that are developing as more states legalize recreational cannabis. Research firm BDSA, for example, projects legal cannabis sales to hit $30 billion in 2022, and $47.6 billion by 2026, surpassing the craft beer industry.

Cannabis will continue to be ‘a tale of two cities’

Last year was also a banner year for M&A activity in the cannabis space. According to analysis published by Viridian Capital (which closely tracks the industry), 2021 saw nearly 300 M&A deals in the global cannabis space, compared to slightly over 70 last year, with public companies accounting for 85% of the buyers. A major reason for this sustained M&A activity is the fact that cannabis is a two-tier industry, where only a handful of companies have massive valuations (and war chests). That trend is not expected to reverse in 2022.

Many of these companies are multistate operators (MSOs) that are able to both rationalize their costs and raise money in ways that smaller players simply can’t. These MSOs were early players in the medical cannabis industry and are now setting their sights on the growing adult-use market.

While some states, like New York, have tried to give “social equity” applicants and smaller players a leg up, by setting aside licenses and more recently announcing initiatives to provide much needed startup capital in the form of a $200 million public-private fund, continued federal prohibition makes it hard to succeed without serious outside investment.

Public support for legalization will remain high, and corporate support will grow

According to a Gallup poll released in November 2021, two in three Americans support legalizing cannabis. And, according to a survey conducted by Pew Research Center in April 2021, roughly 60% of U.S. adults say cannabis should be legal for medical and recreational use.

This public support has trickled down into the corporate world, with Amazon announcing that it would be lobbying on behalf of federal cannabis reform legislation. With the proverbial dam broken by one of the largest employers in the nation, the trend is expected to accelerate in 2022.

States will continue to lead the way on legalization and reform

According to a recent report released by the National Organization for the Reform of Marijuana Laws, lawmakers enacted more than 50 new cannabis-related reform laws in at least 27 states in 2021.

On the adult-use front, five states — Connecticut, New Jersey, New Mexico, New York, and Virginia — enacted laws legalizing and regulating the market. As things stand today, nearly half of the U.S. population lives in states where adult-use cannabis is legal (or will be legal) in 2022. The trend is expected to continue in the coming year, with Delaware and Oklahoma poised to pass their own adult-use laws, and with momentum building in Maryland, Ohio, Pennsylvania and Rhode Island toward the same goal.

On the medical side, Mississippi is likely to pass legalization a second time (after its Supreme Court overturned a 2020 voter-approved ballot initiative), and advocates in Nebraska and Wyoming are renewing their own efforts. In addition, a number of other states such as Arkansas, Florida, Idaho, Missouri and Ohio all have cannabis-related initiatives on their 2022 ballots to expand their existing laws.

These laws may well be tested in court. In particular we continue to watch challenges to laws and regulations that favor in-state residents. Opponents argue that these laws violate the Dormant Commerce Clause of the U.S. Constitution, which generally prohibits states from passing laws that interfere with the free flow of commerce. Here, by discriminating against out-of-state residents.

The 1st U.S. Circuit Court of Appeals, in Northeast Patients Group v. Figueroa, is likely to issue the first precedential opinion on the issue in the coming year, which could have widespread ramifications for the cannabis industry.Northeast Patients Grp. v. Me. Dep’t of Admin. & Fin. Servs., No. 1:20-cv-00468-NT, (D. Me. Aug. 11, 2021).

Some federal legalization bills will be re-introduced but likely won’t make it past the finish line

As in previous years, Congress failed to pass meaningful cannabis reform legislation in 2021. The glass half-full view of this is that more aggressive bills were introduced last year than in previous years, which probably advances the ball on non-controversial bills continuing to garner industry support.

From the latter group, the most well-known is the Secure and Fair Enforcement (“SAFE”) Banking Act, which has been passed by the House five times (although it has never made it through the Senate). The SAFE Banking Act would provide protections to financial institutions and various other professional service firms doing business with state-legal cannabis businesses, shielding them from any associated federal liability.

Despite broad industry support and significant bipartisan efforts to pass the SAFE Banking Act as part of the 2022 defense budget authorization, the Senate removed the Act from the defense spending bill in December. The SAFE Banking Act is likely to pass in some form — if not in 2022, then perhaps in 2023 or 2024 — given broad industry and bipartisan support for the bill.

Congressional Democrats introduced two considerably more ambitious cannabis reform proposals in 2021. The first is the Marijuana Opportunity Reinvestment and Expungement (“MORE”) Act of 2021, which was re-introduced in the House in May 2021 — a previous version of the bill passed the House in 2020 during the lame duck session. The second is the Cannabis Administration Opportunity Act (“CAOA”), which was introduce in the Senate in July 2021. Both bills would, among other things, end the federal prohibition on cannabis and include a number of social equity provisions.

While Republicans did not support the two acts, and they never made much headway, there are some hopeful signs that legalization is becoming a bipartisan issue. In November, South Carolina Republican Representative Nancy Mace introduced the States Reform Act (“SRA”). The SRA represents the first GOP-led effort on Capitol Hill to end the federal prohibition on cannabis. This may signal cannabis reform is more likely in 2022 and beyond.

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Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. Westlaw Today is owned by Thomson Reuters and operates independently of Reuters News.

Alex Malyshev is a partner at Carter Ledyard & Milburn LLP, and the chair of its Cannabis, Hemp & CBD Industry Group. He contributed the chapter, “Banking and Investment Considerations for Cannabis Businesses” in “Health Care and the Business of Cannabis: Legal Questions and Answers,” (American Health Law Association 2021). He is based in New York and can be reached at malyshev@clm.com.

Sarah Ganley is an associate in the Litigation Department of Carter Ledyard & Milburn LLP and can be reached at ganley@clm.com. She is based in New York.

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