How do current state and federal laws on cannabis differ?
Federal law has classified hemp, a subtype of cannabis, as a legal agricultural commodity since the passage of the Agricultural Improvement Act of 2018 (the 2018 Farm Bill). According to the 2018 Farm Bill, the federal definition of industrial hemp stipulates that it must not contain more than 0.3% concentration of delta-9 tetrahydrocannabinol (delta-9 THC) on a dry weight basis.
If this classification is met, hemp-related entities are no longer subject to Section 280E of the U.S. Internal Revenue Code, which forbids businesses that traffic in illegal substances from claiming normal business operating deductions other than for the cost of goods sold. In addition, funding sources such as federally chartered banks no longer need worry about hypothetical money laundering charges.
[Read our practitioners’ guide on key factors businesses should consider if they operate in the cannabis space or engage with marijuana-related businesses.]
Though these relaxed restrictions significantly impact hemp production, federal law continues to classify marijuana, typically used as a psychotropic drug, as a Schedule I drug – the same category as LSD and heroin. As a result, cannabis-related businesses face potential legal complications related to financing, production, transport, and sale of cannabis products, even in states with legal recreational marijuana use.
In contrast with federal marijuana laws, state-level regulation has grown increasingly permissive. In many states, possession and use of marijuana in certain amounts no longer constitutes a criminal offense. These states include Alaska, Arizona, California, Colorado, Connecticut, Delaware, District of Columbia, Hawaii, Illinois, Maine, Maryland, Massachusetts, Michigan, Mississippi, Michigan, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, New York, Oregon, Rhode Island, Vermont, Virginia, and Washington.
[Subscribers only: For more on state laws and regulations related to cannabis, consult our detailed chart of medical and recreational cannabis laws by state.]