2021 CANNABIS REGULATORY LANDSCAPE - EMERGING TRENDS IN NORTH AMERICA & EUROPE - SŌRSE TECHNOLOGY
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2021 Cannabis
Regulatory Landscape
Emerging Trends in North America & Europe
Sponsored by:
© 2014-2021 New Frontier Data. All Rights Reserved.
Letter from the
Publisher
HAVING WITNESSED exponential expan- While U.S. Senate Majority Leader Chuck Schumer’s
sion of the global legal cannabis market the past introduction of the first major legislation to feder-
seven years, I find it unfortunate that its regu- ally legalize cannabis has initiated a Congressional
latory framework has failed to experience much debate, it will be interesting to observe how this newly
needed maturation, if not evolution, and remains revealed dynamic plays out, and how cannabis
highly fragmented and nuanced across national and consumer priorities impact creating standards for
state borders alike. As our team of researchers and safety, taxation, and access to financial services in
analysts have endeavored to understand why regu- our budding industry.
lations are evolving as they are, a particular finding
emerged as quite telling, and that is that cannabis As is the case with all of our reports, available
consumer sentiment and behavior are ‘the’ con- through New Frontier Data’s cannabis intelligence
sistent driving force behind regulatory evolution, platform Equio®, we trust you will benefit from this
maturation, and hopefully soon, standardization on fact-based, unbiased, and actionable assessment,
a regional, if not global, scale. and from our continued commitment to help you
best assess, understand, engage and transact with
In this first of its kind comparative study, 2021 Canna- the cannabis industry and its consumers, responsibly
bis Regulatory Landscape: Emerging Trends in North and knowledgeably.
America and Europe, we found that cannabis con-
sumers are in fact now demanding quality standards
that align with more mature consumer good sec-
tors, and as such, are bringing attention to emerging
opportunities across compliance, lab testing, pack-
aging, labeling and other ancillary verticals needed
to support higher and more standardized regulation.
Giadha A. DeCarcer
Founder, Publisher & Executive Chair
New Frontier Data
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About
New Frontier Data
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is the premier data, analytics and tech-
o Honesty
nology firm specializing in the global
cannabis industry, delivering solutions that o Respect
enable investors, operators, advertisers, o Understanding
brands, researchers and policy makers
to assess, understand, engage and trans-
act with the cannabis industry and its Vision
consumers. New Frontier Data’s global To be the nexus of data for the global cannabis industry.
reach and reputation is evidenced by re-
search and analysis citations in more
than 85 countries. Founded in 2014, Commitment to Our Clients
New Frontier Data is headquartered in The trusted one-stop shop for cannabis business intelligence,
Washington, D.C. with a presence in New Frontier Data provides individuals and organizations op-
Europe, Latin America and Africa. erating, researching, or investing in the cannabis industry with
unparalleled access to actionable industry intelligence and in-
sight, helping them leverage the power of big data to succeed
Mission in a fast-paced and dynamic market. We are committed to the
New Frontier Data’s mission is to highest standards and most rigorous protocols in data collection,
inform policy and commercial activity analysis, and reporting, protecting all IP and sources, as we con-
for the global legal cannabis industry. tinue to improve transparency into the global cannabis industry.
We maintain a neutral position on the
merits of cannabis legalization through
comprehensive and transparent data For more information about New Frontier Data,
analysis and projections that shape in- please visit: NewFrontierData.com.
dustry trends, dynamics, demand and
opportunity drivers.
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© New Frontier Data, All Rights Reserved.ABOUT NEW FRONTIER DATA
Report
Contributors Copyright
PUBLISHER
Copyright © 2014-2021 by Frontier Financial Group, Inc., dba/
New Frontier Data. All rights reserved. Photocopying or repro-
Giadha A. DeCarcer, Founder & ducing this report in any form, including electronic or facsimile
Executive Chair, New Frontier Data transmission, scanning or electronic storage, is a violation of fed-
eral copyright law and is strictly prohibited without the publisher’s
EDITOR
express written permission.
John Kagia, Chief Knowledge Officer,
New Frontier Data This report may not be resold. New Frontier Data only sells its
publication directly or through authorized resellers. Information
AU T H O R
concerning authorized resellers may be obtained from New Frontier
Josh Adams, PhD, Senior Industry Data, 1400 I Street NW, Suite 350, Washington D.C. 20005.
Analyst, New Frontier Data
While every effort has been made by New Frontier Data, Inc.
A D D I T I O N A L A N A LY S I S
to ensure the accuracy of information in this report, it accepts
Dr. Molly McCann, Director, no responsibility for errors or omissions. The report is sold as is,
Industry Analyst, New Frontier Data without warranty of any kind, either express or implied, respecting
its contents, including but not limited to implied warranties for the
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distributors shall be liable to the purchaser or any other person or
COPY EDITOR
entity with respect to any liability, loss, or damage caused or alleged
J.J. McCoy, Senior Managing Editor, to be caused directly or indirectly by this report.
New Frontier Data
DAT E P U B L I S H E D
July 2021
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@sorsetech 206.428.37952021 Cannabis Regulatory Landscape
Emerging Trends in North America & Europe
T HE G LO B A L C A NN A B IS The European Union
industry has been experiencing
explosive growth throughout the Amid the tumult caused by the United Kingdom’s
last decade. Yet, as more markets exit from the European Union (EU) were numer-
ous clashes and cries concerning the supply and
come online, years of prohibition
regulation of food post-Brexit. Meanwhile, CBD
and an international illicit market was enjoying growing attention from consumers
have presented distinct challenges in the EU.
for establishing, standardizing,
CBD has been commonly present in the UK market
and regulating legal markets. As
since at least 2018. Many products claimed that
the industry continues to mature, the cannabinoid offered potential health bene-
disparate and often contradictory fits. Indeed, New Frontier Data identified the four
regulations will continue to have
outsized impacts on the trajectory
of the global cannabis industry. CBD Consumers
by Primary Reason for Use
Understanding and navigating
General
these complexities will be integral Unwinding Wellness
to the success not only of those
31% 22%
who seek to enter the industry, but
for state and national institutions
looking for guidance in building and 23%
maintaining a thriving industry. 23%
Medical
Treatment
Pain
Management
New Frontier Data: 2019-2020 European CBD Survey
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© New Frontier Data, All Rights Reserved.2021 CANNABIS REGUL ATORY L ANDSCAPE: THE EUROPEAN UNION
primary reasons consumers chose to use CBD: For marketers of full-spectrum and broad-spectrum
Unwinding (31%), medical treatment (23%), pain products, that proved to be particularly challeng-
management (23%), and general wellness (22%). ing. To complete their applications, producers had
While there was a great deal of diversity within those to provide research on minor cannabinoids — those
primary groups when it came to frequency and in- with comparatively little formal research — as well
tensity of CBD use (as well as in people’s orientation as their products’ primary ingredients.
to products and applications of the cannabinoid),
most consumers claimed that CBD had positively Awareness about the more popular cannabinoids
affected their respective quality of life. (i.e., CBD and THC) was relatively high among con-
sumers. However, minor cannabinoids had more
Largely unregulated, there was limited oversight on limited recognition among the general population.
product quality and safety. Among consumers, the Thus, while some companies worked to prove their
quality of CBD products was one of the primary products’ safety and keep them on the shelves, con-
concerns, regardless of one’s primary reason for sumers likely lacked a deeper understanding as to
use. Those concerns — along with fears regarding why they were under scrutiny.
potential contaminants and levels of controlled can-
nabinoids such as THC — led the U.K. government Applications could take 14-24 months, and costs
to believe that regulatory oversight was necessary. could range between €20,000 EUR ($23,700
USD) and €200,000 EUR ($237,000 USD) for
The novel food status of CBD in the U.K. was complex products. The European Industrial Hemp
confirmed in January 2019, requiring formal autho- Association (EIHA) estimated that an individual
rization for CBD extracts and isolates. Given that company registering a single product under novel
CBD products were already part of an established foods authorization guidelines might have to invest
market in the U.K., banning products until they were between €350,000 EUR ($414,600 USD) and
authorized would have had major consequences for €500,000 EUR ($592,300 USD), sums out of
the overall trajectory of the industry nationwide. reach for most small operators.
Instead, producers with products already available At the time, the CBD market in the EU was rela-
were allowed to remain in business, contingent on tively nascent. Among European users, per capita
submission of a validated application by March 2021. spending on CBD varied widely by country, ranging
The application’s requirements include details of from €7 to €57 EUR (between $8-$68 USD), or
ingredients, production process, composition of an average of €21 EUR ($25 USD). However, total
the food, stability data, history of use, proposed spending surpassed common expectations in both
uses, use levels and anticipated intake, details of Germany (€1.83 billion EUR/$2.17 billion USD)
absorption, distribution, metabolism and excretion, and the U.K. (€1.71 billion EUR/$2.03 billion USD).
nutritional information, toxicological and clinical
data, and allergenicity.
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2020 Estimated CBD Spending
Mid-Range Estimates, in €Billions
21€
1.83€
1.71€
AV E R A G E P E R
0.86€ 0.84€ C A P I TA A N N U A L
0.79€
SPENDING ON CBD
A M O N G E U I N 2020
0.51€
0.41€
0.18€
SWE/DEN France SP/PORT Italy BENELUX UK/IRE Germany CH/AUS
As with other industries, Brexit compounded the Despite the ubiquity of CBD (product type not-
practical complexities regulating CBD. Novel foods withstanding) around Europe, legal variability about
applications would previously have been handled by the the amount of THC allowed in low-THC products
European Food Safety Authority (EFSA), but came presents a challenge for those actively seeking to
instead under the purview of the U.K.’s Food Standards market their products throughout the continent:
Agency (FSA). The volume of submitted applications Switzerland allows for up to 1.0% of THC in its CBD
caused additional complications, which remain bur- products, while France mandates that CBD prod-
densome for regulators and producers alike. ucts sold within its borders be THC-free.
Inconsistent regulations have allowed a patchwork Differences in respective countries’ allowable THC
landscape for CBD products to spread across Europe. levels require producers seeking region-wide distri-
A recent report from the European Monitoring bution to either customize formulations accordingly,
Centre for Drugs and Drug Addiction (EMCDDA) or to develop products compliant with the most
on low-THC products found that many European stringent regulations. Such inconsistencies will likely
nations had low-THC products being advertised for continue to vex suppliers and marketers of CBD
sale as early as February 2019. The U.K. had herbs, products for years to come
oils, e-liquids, and edible low-THC products, though
they lacked resin and crystal products available in
some other European nations.
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North America
One of the key roles of government regulators of con-
sumer products is to set and enforce standards which The Alcohol and Tobacco Tax and Trade Bureau
broadly guarantee minimum quality requirements (T TB) is a federal agency responsible for the
while protecting the public’s safety. Given the current regulation and taxation of alcohol, tobacco, and
state of federal prohibition of cannabis, the industry is firearms in the U.S. The TTB’s most recent guid-
broadly excluded from such regulatory frameworks, ance on cannabis from April 2019 is that "it will
resulting in a dearth of consistent regulatory guidance not approve any formulas for alcohol beverages
and a practical inability to participate in all the re- that contain ingredients that are controlled sub-
spective government-backed certification programs. stances under the CSA". In tandem with the FDA’s
position that neither CBD nor THC is GRAS, the
The U.S. Food and Drug Administration (FDA) cites introduction of either compound into alcoholic
THC-containing cannabis as a controlled substance beverages is effectively prohibited.
under the Controlled Substances Act, noting that
the agency "has not approved a marketing applica-
tion for cannabis for the treatment of any disease
or condition and thus has not determined that can-
nabis is safe and effective for any particular disease
or condition." Additionally, the FDA oversees the
Given the current state
Generally Recognized As Safe (GRAS) designation of federal prohibition of
for substances used as food additives. Aside from a cannabis, the industry is
few hemp-seed ingredients, the agency’s position
broadly excluded from such
is that "no other cannabis or cannabis-derived in-
gredients have been the subject of a food additive regulatory frameworks,
petition, an evaluated GRAS notification, or have resulting in a dearth of
otherwise been approved for use in food by FDA." consistent regulatory guidance
Similarly, under the auspices of the 2018 Farm and a practical inability to
Bill, legally produced hemp, as well as CBD, can participate in all the respective
be certified as organic via the USDA National Or- government-backed
ganic Program; THC-containing cannabis products
remain excluded from the organic certification. As
certification programs.
a result, high THC cannabis grown under organic
practices cannot be labeled as such when sold.
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© New Frontier Data, All Rights Reserved.2021 CANNABIS REGUL ATORY L ANDSCAPE: NORTH AMERICA
As a result of its broad exclusion from the govern- the USDA. As such, the industry has established al-
ment’s certification criteria, the cannabis industry ternative organic-certifying programs for cannabis.
has been working to create its own standards for
product quality and purity. Pending cannabis being One organization, the Cannabis Certification
federally legalized, most government agencies will Council (CCC), has established standards for or-
remain removed from certification and standard- ganically grown cannabis that are broadly aligned
ization processes within the cannabis industry. While with the USDA’s bar for organic certification. In
the scenario presents some hurdles for the indus- part, the CCC’s standards are designed with ad-
try, it does create opportunities to establish a set herence to traditional organic production criteria
of standards that align with other consumer goods to parallel other agricultural products in the U.S.
while providing a head start for compliance mea- Additionally, consumers have come to understand
sures as legalization take place. organic certification as a shorthand for sustainably
produced agricultural products, most commonly
One such method is to apply for Self-Affirmed associated with limited use of chemically treated
GRAS Status, a process by which an organization soils or pesticides. Within an industry that has his-
conducts a scientifically sound investigation and torically been unregulated, the application of such
affirms to the FDA that an ingredient is safe for standards is designed to assure consumers that or-
human consumption via a GRAS Notification. For ganic certified products are safer for consumption
the FDA to consider an organization’s GRAS claims, and have been subject to third-party oversight in
the applicant must present "the scientific data and the production process.
information about the use of a substance must be
widely known and there must be a consensus among
qualified experts that those data and information The Challenge of Delta-8 THC
establish that the substance is safe under the con-
ditions of its intended use." As the FDA is currently New challenges are presented wherever there is a
resistant to acknowledging that any consumption lack of regulatory clarity and an absence of estab-
of cannabis or cannabis-derived products is safe, lished standards, particularly as the cannabis market
this is a key mechanism for the industry to collect continues to expand and innovate. The meteoric
and present scientifically sound data supporting the popularity of delta-8 THC in the U.S. is a prime ex-
case for consumption of cannabis both alone and as ample of an innovative product filling a void within a
a food additive. regulatory loophole.
Similarly, many producers are pursuing organic The 2018 Farm Bill legalized hemp and its byprod-
certification for their cannabis products, though at ucts in the U.S. The ensuing wave of enthusiasm
present they must do so without the approval of the among producers resulted in a glut of biomass and
USDA. It is illustrative of some of the disconnects dramatic downward price pressure, with wholesale
of the current federal landscape, since hemp prod- prices for both biomass and CBD falling more than
ucts (including CBD) can be certified organic via 50% within the first two years of the legal market.
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With the CBD retail market unable to absorb the surging inven- In August 2020, the DEA released its
tory, processors found that they could earn significantly higher Interim Final Rule, stating that syn-
returns by converting CBD isolate into delta-8 THC (a slightly thetically derived tetrahydrocannabinols
less potent psychoactive compound than delta-9 THC) through remain Schedule I controlled substances.
a relatively simple chemical process. But that rule is open for review until Oc-
tober 2021. In the interim, the delta-8
The 2018 Farm Bill defines hemp as "all derivatives, extracts, THC market continues to surge, as con-
cannabinoids, isomers, acids, salts, and salts of isomers, whether sumers embrace the less psychoactive
growing or not, with a delta-9 tetrahydrocannabinol concentration alternative to delta-9 THC. Neverthe-
of not more than 0.3 percent." Based on that language, delta-8 less, with the absence of real guidance,
THC is legal by virtue of its not containing any delta-9 THC. many states have been moving to reg-
ulate delta-8 THC on their own, with
For states which mimicked the language used in federal regu- many choosing to ban the cannabinoid
lations, delta-8, a psychoactive product — derived from CBD outright. Even some in the cannabis in-
extracted from federally legal hemp — entered the marketplace dustry are pushing for regulations on the
with scant restriction concerning its use or availability. production and sale of delta-8 THC. The
growth of the market for it, and the chal-
lenges which regulators have continued
to face in trying to determine how to
Delta-8 Legality by State regulate it, illustrate the challenges that
As of July 18, 2021 policymakers face as they try to govern
a delta-8 THC market experiencing un-
precedented growth.
The strong likelihood that delta-8 THC
will ultimately be classified as an analog
of delta-9 THC (and thereby subject
to the same restrictions), underscores
the importance of closely monitoring
the regulatory environment and prepar-
ing one’s business for policy changes. In
the case of delta-8 THC, producers will
enjoy a brief period of limited regula-
tion, high prices, and strong consumer
demand. However, once fully regulat-
ed, opportunities will likely be limited if
not prohibitive, with significantly higher
z Illegal or Restricted z Pending Review z Unrestricted barriers to entry.
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Potency Caps Without set national standards or a unified reg-
ulatory structure, debate around potency caps is
As legal cannabis markets expand across the U.S., happening on a state-by-state basis. An overview
demand for higher-THC products has grown. of recent developments include:
Further, high-THC cannabis demands a premium
Connecticut’s recently passed legislation
price, incentivizing producers and retailers to make
caps edible products (including beverages)
the products available. Because of the increased
at 5 milligrams THC per serving; all other
availability of high-THC products, states with legal
products are capped at "not more than
cannabis markets have begun evaluating whether to
5 milligrams of THC per unit of sale."
impose upper limits on the potency of cannabis and
cannabis-derived products. Though the push to fed- In New York, State Assembly Bill A8123
erally legalize cannabis across the U.S. is currently proposes to limit cannabis flower at 15%
at a standstill, there is a strong likelihood that future THC while infused products and cannabis
legislation will similarly include limits on THC. concentrates would be limited to 60% THC.
Some lawmakers in Colorado have advocated
In part, the movement to implement potency caps
for a 15% THC limit on all cannabis products.
has stemmed not just from the broad availability of
While overarching limits on THC were not
high-THC flower, but also an array of new THC-
included in the current regulation, HB21-1317
infused products coming to market, ranging from
would limit purchases to "2 ounces of medical
concentrates and oils to edibles and beverages. The
marijuana flower, 8 grams of medical marijuana
diversity of product forms (along with ever-increas-
concentrate, or medical marijuana products
ing availability) has led critics to assert that there are
containing a combined total of 20,000
not sufficient measures in place to protect vulner-
milligrams to a patient in a single business
able populations — namely younger, inexperienced
day." Retail establishments are restricted to
consumers and minor children.
selling no more than 8 grams of concentrate
to a single consumer in a single day.
Industry advocates have countered that imposing
arbitrary potency caps on cannabis will negatively Texas House Bill 1535 raised the potency
impact the growth of the industry and hamper in- for THC in medical cannabis products
novation. Others have argued that potency caps will from 0.5% to 1%; an initial draft of the
disproportionately impact medical consumers, some bill had proposed an increase to 5%.
of who rely on higher-THC products for symptom A Florida House Bill proposing to limit
management. Finally, some view potency caps as the THC in medical cannabis to 10% by
prohibitionist measures meant to undermine legal volume failed to pass in April 2021.
access to cannabis products while also serving to
bolster the illicit market.
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Consumer Perspectives: Consumer concerns about cannabis also mirror
Regulations & Purchasing Practices those for other products, such as food and bev-
erages. For example, more than two-thirds (69%)
of consumers reported being at least "moderate-
As consumer awareness of product quality and ly" concerned about contamination (such as mold
state-level regulations increases, so do public ex- or pesticides) in cannabis they consume, with 42%
pectations for the cannabis products available for either "very" or "extremely" concerned. Without
purchase. Indeed, the regulatory aspects of legal the oversight of federal agencies, those consumer
cannabis markets appear to be influencing con- concerns speak to the importance of the industry’s
sumer sentiment, and are an attractive feature applying aggressive standards for self-regulation.
for consumers seeking high-quality products. In a As noted above, working to apply the standards of
September 2020 survey of U.S. cannabis consum- organic certifications or self-affirmed GRAS status
ers, New Frontier Data found two-thirds (66%) elevates both the industry at-large as well as the
of current cannabis consumers agreeing that legal profile of those brands pursuing certifications. As
cannabis is safer than illegal cannabis. the industry continues to expand, it is reasonable to
How concerned are you about contamination (such as pesticides and mold) in the cannabis you consume?
69%
are at least moderately concerned
42%
are very or extremely concerned 27%
23%
19%
16% 15%
Extremely Very Moderately Slightly Not at all
Among current consumers.
New Frontier Data: 2020-2021 Cannabis Consumer Survey
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© New Frontier Data, All Rights Reserved.2021 CANNABIS REGUL ATORY L ANDSCAPE: NORTH AMERICA
expect that consumers will increasingly
desire products that adhere to rigorous Purchase Decision Factors
Level of Importance to Current Customers
quality and safety protocols.
Cannabis consumers’ concerns with Potency / THC levels 43% 34% 16%
issues of quality are not consigned to
the abstract; they also impact individual Price 36% 37% 17%
purchasing decisions. Over half (54%)
of cannabis consumers indicated that Ailment it is intended
to treat 27% 29% 19%
testing for pesticides, mold, and fungus
is either a "very" or "extremely" import- Pesticide, mold,
28% 26% 16%
ant part of their respective purchasing fungus test
decisions. Consumers were slightly less Total chemical profile
/ cannabinoids & 25% 28% 22%
concerned whether a product is organ- terpenes
ic, with 40% describing that as either a
Recommendations
"very" or "extremely" important part of from friends 21% 30% 26%
their purchasing decision.
Familiarity with
product / strain name 23% 26% 25%
Potency remains the leading factor in-
fluencing cannabis consumers’ decisions Whether a company
is ethical 20% 29% 18%
about which products to purchase, even
ahead of price. A strong majority (77%) Product reviews 21% 21% 24%
of consumers indicated THC-levels/po-
tency of cannabis as either a "very" or Whether a product
20% 20% 21%
was organic
"extremely" important driver for pur-
chasing. As previously noted, producers Whether a product
was on sale 17% 23% 24%
remain inclined to respond to consumer
demand for higher-THC products. That Other
(non-cannabis)
12% 24% 22%
introduces complications for regulators ingredients (such as
for edibles)
seeking to ensure that products are safe
Branding &
13% 17% 20%
for consumption without engaging in pa- packaging
ternalistic overreach, unfairly restricting Endorsement /
the market, or limiting consumer choice. affiliation with a 11% 13% 11%
celebrity
z Extremely z Very z Moderately
Among current consumers.
New Frontier Data: 2020-2021 Cannabis Consumer Survey
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Social Equity Programs Broad questions of eligibility for SEPs have been
an ongoing issue in crafting the programs. While
individuals who have been incarcerated have clear
W H AT A R E S O C I A L E Q U I T Y P R O G R A M S ?
claims for the harms incurred, the children, spouses,
Decades of cannabis prohibition have done im- and immediate family members of those incarcer-
measurable harm to individuals, families, and ated might be less obvious as eligible participants.
communities, while disproportionately affecting Similarly, members of a community subjected to
people and communities of color. Beyond the decades of aggressive drug enforcement and over-
immediate harms and costs of arrests and incarcer- policing are included as potential beneficiaries of
ation, criminal convictions often mean permanent SEPs. There is no singular approach to SEPs: As
loss of individual rights, which might affect access to with other aspects of variously regulated canna-
housing, employment, education, or more. Beyond bis markets, respective state and local markets are
those are still larger effects — intangible trauma for testing fields for fundamentally new approaches for
individuals and their families, and large-scale dis- assistance programs.
ruption of communities, perpetuating long-term
economic disparities.
ELIGIBILIT Y CRITERIA
Social Equity Programs (SEPs) represent a rela- If the objective of SEPs is to assist those harmed by
tively new element of legalization frameworks in the cannabis prohibition and the War on Drugs, programs
legal cannabis industry, created in response to social must first identify who qualifies as social equity ap-
harms as an attempt to undo some of the long-term plicants. Though programs vary, some of the criteria
damage perpetuated by the War on Drugs. used to determine program eligibility include:
The definition of a SEP continues to evolve along- Prior Cannabis Convictions:
side the programs as they are developed in regulated The most direct indication of harm caused by
markets across the country. SEPs are defined cannabis prohibition is an individual’s cannabis con-
broadly as "programs that seek to remediate and victions, as those entail both immediate punishment
help individuals, families, and communities harmed and often permanent loss of civil rights. Many pro-
by the War on Drugs". Similarly, "equity" often refers grams also consider individuals having an immediate
both to share of ownership in a business and to goals family member with a cannabis conviction.
for creating a fair and just industry. In recent years,
as conversations around legalization have matured, Residency in Disproportionately
advocates are pushing for strong social equity pro- Impacted Areas (DIAs):
visions beyond creating opportunities for ownership, Certain geographic areas have disproportionately
and focusing on broader economic development. high rates of cannabis enforcement, arrests, and
However, implementation of such programs has incarceration, which serve as reliable predictors of
proven to be extremely challenging. less tangible traumatic effects of the War on Drugs.
Many programs consider residency or history of
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© New Frontier Data, All Rights Reserved.2021 CANNABIS REGUL ATORY L ANDSCAPE: NORTH AMERICA
residency in such areas to determine eligibility as in Ohio, Maryland, Michigan, and elsewhere. The
a social equity applicant. In some states and mu- first successful constitutional challenge of a race-
nicipalities, DIAs may be defined by measures of conscious SEP was in Ohio, where a program had
economic hardship (i.e., unemployment rates or el- initially specified that at least 15% of licenses should
igibility for food assistance programs) as opposed to be awarded to racial/ethnic minorities. The judge
policing or crime statistics. determined that there was not adequate evidence
presented to demonstrate that all racial/ethnic
Income: minorities listed had been systematically disadvan-
An applicant’s income may be considered alongside taged by prohibition.
other criteria to determine eligibility.
Crucially, the constitutional challenges do not mean
Share of Equity in a Business: that policies and regulations cannot be conscious of
Several programs allow social equity applicants to race, but rather that evidence is needed to estab-
partner with general applicants in pursuit of a social lish a pattern of discrimination, after which steps
equity license, but require that the social equity ap- can and must be taken to remediate harm. Having
plicant own a defined share in the proposed business. learned from the challenges to other race-conscious
SEPs which lacked adequate supporting evidence,
Varying combinations of the above criteria are used Virginia commissioned an extensive study of impact
to determine social equity eligibility in different mar- of cannabis prohibition and disparity in arrests, pre-
kets, and sometimes to distinguish different tiers of emptively avoiding a constitutional challenge and
eligibility within a single program. allowing for race-conscious regulations.
T H E C O M P L I C AT E D R O L E O F R AC E T H E E VO L U T I O N O F S O C I A L E Q U I T Y
IN DETERMINING ELIGIBILIT Y IN LEGAL CANNABIS
Although Black and Brown individuals and com- Many early SEPs faced criticism for not meeting
munities have been disproportionately harmed by expectations. Though some were poorly managed
cannabis prohibition and the War on Drugs, de- or flawed in design from the outset, others simply
termining eligibility for SEPs based on race or failed in their aims to create an equitable indus-
ethnicity — without extensive research establishing try — an arguably insurmountable challenge given
the need to do so — has faced constitutional chal- their narrow purview. New programs are evolv-
lenges around the country. ing, informed by ongoing experiments around the
country, and boosted by a political groundswell and
The Equal Protection Clause of the 14th Amend- transformation since 2020 with an increased focus
ment prohibits discrimination on the basis of race, on social equity and justice.
and therefore has been used to challenge SEPs
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E A R LY L E G A L I Z E D M A R K E T S the market grew and legalization spread, large and
There has been an element of social justice across well-capitalized companies lobbied for more protec-
adult-use cannabis legalization. Different legalization tionist regulatory frameworks, strengthening their
frameworks have varied in the extents to which they positions in the new industry, and making business
have gone to restore the rights of the individuals harder not only for social equity applicants, but
harmed, such as by expunging criminal records or virtually any small operations.
releasing those imprisoned whose crimes were no
longer considered as such. A DVO C AT E S R E S P O N D T O E A R LY S E P S
Beyond criminal justice reforms, many early le- As the limitations of early SEPs became apparent in
galization programs continued to exclude those practice, advocates pushed for stronger and more
most harmed by prohibition from participating in expansive social equity measures, with legislation in
the industry. Sometimes the exclusion was direct states like New York and Illinois being delayed by ad-
— such as prohibiting those with cannabis con- vocates insisting on having robust equity measures
victions from owning cannabis businesses. Often from the inception of their legal markets.
exclusion was indirect — such as by mandating
potential licensees to meet costly legal, regula- Some measures meant to offer more extensive
tory, and property requirements for which only support to social equity businesses included:
well-resourced and well-connected applicants
Training and technical assistance, such as
were sufficiently positioned.
with business planning, operations, legal &
compliance, and the licensing process;
As a response to the widespread exclusion of
disadvantaged would-be operators from the legal Industry investment funds offering
industry, many markets saw SEPs established to grants or low-interest loans to provide
address some of the apparent hurdles to participa- social equity businesses capital to start,
tion. Some offered equity applicants benefits like operate, or grow their businesses;
preferential licensing (e.g., awarding of extra points
Tax benefits for companies supporting
in the application process or competing for a pool
the SEP; i.e., through stocking social
of licenses set aside for social equity applicants), or
equity brands or employing workers who
reduced application and/or licensing fees.
meet social equity eligibility criteria;
Often, early measures were simplistic and insulated Incubators where larger companies
from the broader cannabis regulatory framework. help social equity businesses and
While the measures helped social equity applicants brands to become established; and
to acquire licenses, many licensees subsequent- Community reinvestment of revenue
ly found themselves with inadequate resources to from the legal cannabis industry.
operate — or even open — their businesses due
to high property, legal, and compliance costs. As
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© New Frontier Data, All Rights Reserved.2021 CANNABIS REGUL ATORY L ANDSCAPE: NORTH AMERICA
HOLISTIC APPRAISAL OF SYSTEMS cannabis industry limits options for accessing capital
IN THE INDUSTRY
to self-funding, private investment, or grants/loans
The expanded measures described above have seen from SEP programs.
varying degrees of success, but challenges remain
for economically and socially disadvantaged For communities having experienced economic
would-be operators. The new era of social equity decline, overpolicing, or other structural disadvan-
takes a holistic look at the systems at play — not just tages via discriminatory redlining practices, there
within SEPs, but across all aspects of a regulatory is generally found a dearth of surplus capital or
framework, and even beyond regulations to a given generational wealth to fund an expensive, highly
broader market and business-funding environment. regulated business. A 2016 study by the Urban In-
stitute found that median family wealth of White
Starting up and operating a cannabis business families in America was 8x greater than that of
requires a large amount of capital, and tightly re- Hispanic families, and 10x that of Black families.
stricted access to traditional banking across the
Median Family Wealth by Race/Ethnicity, 1963-2016
1983: 2016: 1983: 2016:
$200K
White families held 10x more $200K
White families held 8x more
8x more 11x more
wealth than wealth than
Black families Hispanic families
$150K $150K
$100K $100K
TE TE
HI HI
W W
$50K $50K
BLACK HISPANIC
HITE HITE
NON-W NON-W
$0 $0
1963 1983 2016 1963 1983 2016
Note: 2016 dollars. No comparable data are available between 1963 and 1983. Black/Hispanic
distinction within Non-White population available only in 1983 and later.
Source: Urban Institute calculations from Survey of Financial Characteristics of Consumers 1962 (December
31), Survey of Changes in Family Finances 1963, and Survey of Consumer Finances 1983-2016
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© New Frontier Data, All Rights Reserved.2021 CANNABIS REGUL ATORY L ANDSCAPE: NORTH AMERICA
Economically disadvantaged groups are also less of cannabis cafes and lounges. For consumers, such
likely than are other prospective business opera- establishments provide safe and welcoming environ-
tors to be connected with wealthy private investors ments to consume cannabis. For individual cities,
through their networks, though some cannabis busi- social spaces become features not just for locals but
nesses and investment groups are making efforts to also tourists (enhancing their becoming additional
match social equity applicants and licensees with drivers of employment). Coming out of a pandem-
well-resourced and experienced investors. ic-induced economic downturn, social consumption
spaces represent another element for economic re-
Some SEPs establish funds which can offer social vival, and state-level regulations are evolving rapidly
equity applicants and licensees low- or no-interest to take advantage of the opportunities.
loans. The funds can offer critical capital to business-
es, but the timing of lending is a key determinant of The decline of workplace cannabis testing as a step
success: Funding dependent on the awarding of a toward further societal normalization of cannabis. In
license may exclude those who do not have the cap- June 2021, online retail giant Amazon announced
ital to complete the application, and disbursement that it would cease cannabis drug testing for job ap-
of funds only after collecting them from a market’s plicants. As the second-largest employer in the U.S,
legal sales revenue may be too late, as competitors will the news signaled a shift in how large corporations
have benefited from being first to market. view employees’ use of cannabis on personal time.
Given the scale of Amazon’s operations as well as
its dominance across a range of markets, it is ex-
Future Trends pected that its policy change will encourage other
companies to follow suit. Similarly, some divisions of
The growth of social consumption spaces. While the the United Auto Workers have called for an end to
legalization of cannabis has been gaining momentum workplace drug testing.
across the U.S. throughout the past decade, states
have been more circumspect in allowing for con- Outside of employers taking the initiative to end
sumption in public or in shared social spaces. While testing for cannabis use, some states (e.g., New
the first cannabis café in the U.S. opened in Los An- York and California) and large cities like Philadel-
geles in 2019, other states and municipalities have phia are proposing legislation to end most workplace
been slow to embrace the notion of onsite cannabis cannabis testing, particularly as a prerequisite for
consumption venues. employment. The departures from more restrictive
policies not only represent protection of the rights
Perhaps drawn to the potential for tourist dollars and of workers to use personal time as they wish, but also
attendant tax revenue, many localities are rethinking growing acceptance and normalization of cannabis
their approaches to social consumption of cannabis. consumption. As more states legalize cannabis and
States as diverse as Arizona, Nevada, Illinois, and consumers become increasingly open about their
Massachusetts have all begun to liberalize their pol- use, lingering stigma about cannabis will continue
icies on social consumption, leading to the opening to decline.
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© New Frontier Data, All Rights Reserved.2021 CANNABIS REGUL ATORY L ANDSCAPE: NORTH AMERICA
Nevertheless, as workplace policies continue to future, as part of a broader debate about the degree
evolve, some employers will retain more conser- of control which employers can exert over the life-
vative approaches to cannabis use. The Society for styles of employees.
Human Resource Management recently published
an article outlining approaches for drug testing Testing standards will continue to be refined, and
remote employees. While many employers, partic- themselves face regulatory standardization. As the
ularly in states where cannabis is legal, are loosening legal cannabis industry has expanded throughout
their policies on cannabis use, workers’ rights will the U.S., the range of products available to con-
remain a point of contention for the foreseeable sumers has expanded dramatically. Traditional flower
The Emerald Test™
Proficiency Tests Offered
Spring Fall Spring Fall Spring Fall Spring Fall Spring Fall
2014 2015 2016 2016 2017 2017 2018 2018 2019 2019 2020 2020
Potency
(Solvent)
Residual Solvents
Pesticides
Microbials
(1 & 2)
Heavy Metals
Terpenes
Potency
(Hemp Oil)
Microbials
(3 & 4)
Mycotoxins
Potency
(Hemp Bud)
Microbials
(5 & 6)
Water Activity
Microbials
(7, 8, 9)
Foreign Materials
Potency
(Gummy, Beverage)
Potency
(Hard Candy)
CBD Potency
(Topical Cream)
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© New Frontier Data, All Rights Reserved.2021 CANNABIS REGUL ATORY L ANDSCAPE: NORTH AMERICA
products have been joined by more sophisticated for- Consumers, of course, want reassurances that the
mulations (e.g., infused beverages), and the broader products which they purchase are sufficiently potent
variety of products are likely to lower barriers for curi- and free from contaminants. At the same time, cul-
ous consumers by reducing onset time and mitigating tivators can expect higher prices for higher-quality
the pungent flavors and odors often associated with products. Conversely, failing quality assurance tests
cannabis. At the same time, infused products intro- might necessitate a producer’s destroying a batch
duce increasing complexity into a market still in need or entire crop (thus, by being disingenuously selec-
of quality assurance and testing standards. tive with samples sent to testing facilities, shopping
around for a facility selected to provide better re-
Even without such complications, challenges remain sults, or simply manipulating the numbers directly,
for testing cannabis flower. While THC content was unscrupulous producers can protect or improve
initially the primary consideration in testing canna- their bottom lines at customers’ risks).
bis, other factors such as minor cannabinoids and
terpenes are of increasing interest to those who The challenges for market maturity are exacerbated
aim to craft a specific experience for consumers. by introduction of new ingestible products requiring
On the health and safety fronts, testing for pesti- their own safety considerations, tests, or packaging;
cides, microbials, and heavy metals help to reduce the lack of uniform standards and quality controls
potential harms to consumers. Some labs have had presents additional complications. Addressing
to regularly expand the number and range of tests evolving imperatives for testing standards will remain
which they conduct on cannabis products, express- key among concerns as markets and the industry at
ly to cater to an increasingly sophisticated market. large continue to grow.
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© New Frontier Data, All Rights Reserved.Key Takeaways
Conflict between consumers and regulators. edibles and beverages – some regulators and legis-
Cannabis consumers represent a diverse group lators have argued that better controls should be in
with an equally diverse range of needs, preferenc- place to mitigate risks, particularly for young chil-
es, and expectations. As such, consumers demand dren and inexperienced cannabis consumers. The
a broad array of product forms, modes of con- arguments often overstate risk and ignore the
sumption, THC and CBD content, and variety in needs and preferences of those consumers who
choices. For medical consumers (particularly those desire high-THC products. The need for, and pur-
with chronic or other serious conditions), high- suit of, potency caps by regulators will continue to
er-THC dosages might be necessary to provide evolve as the industry matures and more research
relief from symptoms. Their consumer expecta- is made available relative to the efficacy and safety
tions stand in conflict with initiatives that often of high-THC cannabis.
endeavor to establish a one-size-fits-all approach
to regulated cannabis markets. As the U.S. legal
cannabis industry continues to grow, and individual Federal legalization looms large yet remains
markets mature, it is reasonable to expect that elusive. While the legal cannabis industry continues
consumers will exert greater influence over regu- to grow at the state level throughout the U.S.,
latory decision-making via purchasing behaviors continued federal prohibition of cannabis presents
and electoral participation. a range of obstacles for the industry. While there
has been bipartisan support for cannabis banking
reforms as well as vocal commitment to federal
Potency caps will be an ongoing issue. As legalization (or more minimally to decriminalization)
with all consumer products, particularly those that of cannabis, there has been little to no tangible
can have an intoxicating effect, regulators aim to progress from the Biden administration or the
balance the demands of the market with consumer current Congress. However, as the legal industry
protections. Potency caps limiting the percentage continues to grow and state governments carve out
of THC in cannabis products have emerged as key their own paths forward, the federal government will
mode of industry regulation under the guise of eventually be forced to act. Indeed, New Frontier
consumer protection. Citing the availability of high- Data estimates that in the second quarter of 2021,
THC products – from flower and concentrates to the U.S. legal cannabis industry will generate more
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© New Frontier Data, All Rights Reserved.KEY TAKEAWAYS
than $6 billion in sales. Furthermore, Supreme Continued skepticism from the interna-
Court Justice Clarence Thomas recently charac- tional community. In late 2021, the United Nations
terized the federal government’s paradoxical (U.N.) Commission on Narcotic Drugs approved
stance of prohibiting cannabis while tolerating the a recommendation from the World Health Orga-
operation of state markets as "contradictory" and nization (WHO) to remove cannabis and cannabis
suggested that it has ceded its authority to maintain resin from its Schedule IV classification. That re-
blanket prohibition. moved cannabis from the same classification
category of drugs such as heroin and other opiates
In light of growing social and economic pressure, which are formally considered to be highly addic-
the U.S. government will be forced to move to tive, subject to abuse, broadly harmful, and of "little
concede its position, if only because most states to no therapeutic purpose". The move was hailed
will have chosen to move forward without it. The as a historic development representing interna-
patchwork arrangement of current state-by-state tional recognition of the medical utility of cannabis,
regulations does not support a sustainable nation- and thus a measure of its growing acceptance.
al marketplace, nor does it effectively create and
maintain standards for health and safety, taxation, Nonetheless, cannabis remains federally prohibited
or access to financial services. in the U.S. as a Schedule I drug, defined as having
"addictive properties presenting a serious risk of
abuse." The U.N. has also taken a more conservative
perspective on cannabis with the release of its 2021
As the legal World Drug Report. Among some of the concerns
cited in the report was the decreasing perception
cannabis industry of cannabis as a harmful drug, particularly among
adolescents and the increased potency of cannabis
continues to grow and product on the market. Indeed, the release of the
state governments U.N. report made headlines based on its recom-
mendations that there should be campaigns to use
carve out their own "fact-based information to raise awareness of the
potential harm from nonmedical use of cannabis",
paths forward, the and that there should be a prioritization of "public
federal government health over private business through a compre-
hensive ban on advertising." While the U.N. appears
will eventually be to be shifting its position at least as regards its
forced to act. recognition of the medicinal benefits of canna-
bis, its attitude toward adult-use cannabis remains
thoroughly antiquated.
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© New Frontier Data, All Rights Reserved.KEY TAKEAWAYS
The evolution of cannabis regulations will Industry self-regulation will set the founda-
continue to be a complex and often chaotic under- tion for future standards and regulatory guidelines.
taking. Consumer demand will continue to drive The federal prohibition of cannabis finds the in-
innovation among cannabis products, creating dustry broadly excluded from traditional regulatory
new opportunities for producers as well as new frameworks, resulting in a dearth of regulatory
regulatory responses among state and national guidance and frequent inability to participate in
governments and international intergovernmental various government-backed certification pro-
organizations. The introduction of popular hemp- grams. As the FDA will not award GRAS status to
derived products such as CBD and delta-8 THC high-THC cannabis products, and the USDA will
have demonstrated evolving, complex, and often currently not certify cannabis (outside of federally
confusing or conflicting regulatory frameworks. As legal CBD products) as organic, the industry has
high-THC cannabis products similarly become established alternative certification programs.
more prevalent, and regulators further differentiate Within an industry that has historically been un-
between product types based on THC and other regulated, and still excluded from more traditional
cannabinoid content, rule- making processes will modes of centralized governmental oversight, the
only become more complicated. Presently, regula- application of such standards works to help assure
tions are inconsistent across markets even where consumers that products awarded a self-affirmed
some general agreement might be expected, such GRAS or organic certification are safer for con-
as in the U.S. or the EU. It is likely that such incon- sumption and have been subject to third-party
sistencies will persist for the foreseeable future as oversight in the production process.
markets continue to evolve.
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