Even though the General Assembly leadership is attempting to put brakes on the legalization of recreational marijuana in Rhode Island, it’s just a matter of time when it happens.
That conclusion emerged from panelists at PBN’s The Business of Cannabis Summit held Feb. 26 at the Omni Providence Hotel in Providence.
While panelists were certain that legalization would occur at some point, the timing remains up in the air. The General Assembly and Gov. Gina M. Raimondo have been wrangling over regulations for medical marijuana, which is already legal in Rhode Island. At the same time, legislative leadership has been unenthused about making recreational cannabis legal, with Senate President Dominick J. Ruggerio saying he will not support it in the 2020 legislative session.
At the PBN summit on Feb. 26, panelist Mitzi Hollenbeck, a certified public accountant with Citrin Cooperman & Co. LLP’s Cannabis Advisory Services practice, said Rhode Island missed an opportunity to be the first state out of the gate to legalize marijuana. “Now it doesn’t even know where the gate is,” she said.
Several panelists suggested a ballot referendum will be necessary to move the issue forward in Rhode Island. Hollenbeck pointed out that in New Jersey, state legislators and Gov. Phil Murphy don’t see eye to eye on marijuana legalization. Murphy, a Democrat, supports marijuana legalization, while many lawmakers cited concerns with proposed legislation. The referendum question will now go before voters in November.
Besides Hollenbeck, panelists at the summit were attorney Benjamin L. Rackliffe, partner at Pannone Lopes Devereaux & O’Gara LLC; Kristyn Glennon, BayCoast Bank vice president; and Karyn Rhodes, vice president at Complete HR Solutions. The keynote speaker, and fifth panelist, was Steven J. Hoffman, chairman of the Cannabis Control Commission in Massachusetts.
‘Local officials … don’t have much connection to the current cannabis industry.’
Mitzi Hollenbeck, Citrin Cooperman & Co. LLP accountant
Hoffman, as well as the other panelists, pointed out the many issues that confront Rhode Island when it comes to legalizing recreational marijuana.
Glennon said that because Rhode Island is so close to Massachusetts, where recreational marijuana is already for sale, there probably will not be a lot of out-of-state income coming to Rhode Island if the state does legalize cannabis.
“If you think this [legalization] will be the salvation for all your monetary woes, you’re probably mistaken,” she said.
And Rackliffe said there are “social costs” to legalizing marijuana, such as a need for more drug education and increased demand for law enforcement that will need to be offset by cannabis revenue.
Many of the problems with the marijuana industry start from a basic contradiction: a state may declare marijuana legal, but the federal government continues to classify it as an illegal controlled substance, technically the same as heroin.
Among other things, said Hollenbeck, that means a cannabis business cannot deduct its business expenses on its federal taxes, even in a state where marijuana sales are legal. Many companies have tried various maneuvers to get around this prohibition, she said, but the IRS is usually one step ahead.
With 33 states now permitting either medical or recreational marijuana, panelists felt it’s inevitable that the federal government will, at the very least, reclassify marijuana so it is no longer a Schedule 1 drug along with heroin, LSD and ecstasy. Once again, none of the panelists were sure when that will happen.
Businesses dislike uncertainty, and because of the divide between state and federal governments, the cannabis sector is rife with regulatory questions.
Banks, for example, are wary of getting involved with cannabis businesses since they could technically be charged with money laundering. The U.S. House of Representatives passed a law to protect banks – the SAFE (Secure and Fair Enforcement) Banking Act – last year, but the Senate has not yet taken up the bill.
“A lot of people who want to be in the cannabis business don’t understand the regulatory issues, the tax issues, the economic issues,” Hollenbeck said. For many cannabis startups, she said, the last person hired is the chief financial officer, if they have one at all. Hollenbeck said the CFO should probably be the first employee hired.
From a human resource perspective, Rhodes said that as more states legalize marijuana use, some companies are dropping marijuana from preemployment drug testing.
But employers are also fearful that employees are going to show up to work under the influence of marijuana. “It’s a concern everywhere,” she said.
But with caution and proper training for managers, she added, it doesn’t have to happen. Alcohol is legal, and there are already strong anti-alcohol protocols in place.
A key issue, said panelists, is the question of local control, with each city and town having a say in the regulation of cannabis establishments – whether medical or recreational – within their borders.
“Local officials have a lot of power, and often they don’t have much connection to the current cannabis industry,” said Hollenbeck, who added that there needs to be better coordination between state and local government.
In Rhode Island, Rackliffe said, communities have also set up municipal barriers to medical marijuana centers, restricting them to certain zones. Other municipalities, such as Richmond, have zoned them out entirely.
In addition to zoning, he said, some towns in Rhode Island require “distance buffers” to keep marijuana businesses away from schools, houses of worship, youth centers and so on.
The result is that it can be difficult to find a suitable property to locate a cannabis business of any kind. “If you’re considering investing in a cannabis enterprise, real estate is going to be a gating issue,” he said.