The State of the Cannabis Union: a Brief History

April 20, 2016

Each year, April 20th marks an important date on cannabis fans’ calendars. The origin of “4/20” as the international day of pot smoking celebration is unclear. Several years ago, some users may have joined the smoke-filled festivities with an air of discretion. But as states continue to decriminalize the drug, legalize its use for medical reasons, and even establish frameworks for the sale of recreational cannabis products, the taboo against getting high may be going up in smoke.

Pro-Cannabis Celebrities Spark New Product Development

Bob Marley may be the most infamous cannabis-loving celebrity, but a number of other big names are hopping on the marijuana bandwagon. Musician and breast cancer survivor Melissa Ethridge is reportedly working on a cannabis infused wine. Long-standing pot enthusiast and film star Tommy Chong has developed a line of clothing wipes designed to eliminate the smell of marijuana from users’ clothing.

Rapper Snoop Dogg has created his own series of vaporizer products and even launched a cannabis-focused venture capital fund, Casa Verde Capital. Whoopi Goldberg also recently launched a women’s’ health-focused company called Whoopi & Maya that will offer cannabis products to help ease the side effects of menstruation.

Funding & Startup Info

It's time to invest in a more resilient food & ag industry.

Under today's unique circumstances, AgFunder is re-opening Fund III for a limited time to enable investors to join our mission and invest alongside us as LPs in a second close. Learn more here.

There are a growing number of startups innovating in the cannabis sector. During 2015, 33 cannabis companies raised $68.5 million in venture capital funding across 35 deals, according to AgFunder’s 2015 AgTech Investing Report. These startups are creating a variety of products and services to aid the budding cannabis industry, including everything from software to help users find local products to tracking sensors to biotech.

California startup Meadow began as an online delivery tool for cannabis users and his since developed a multi-faceted software-as-a-service for dispensaries, as well as a tool for consumers to get prescriptions over an online video chat with a doctor. Meadow Platform enables them to track deliveries, check legal requirements, and connect with customers via text messages. Some big name investors have backed Meadow, including ex-managing partner of SV Angels David Lee, Y Combinator partner Justin Kan, Reddit co-founder Steve Huffman, co-founder of analytics company Kissmetrics Hiten Shah, Facebook and Twitter investor Slow Ventures, SOMA Capital and a cannabis-focused VC Poseidon Asset Management.

Cannabis-focused research and development company ESEV Genetics is using genetic technologies to tinker with the many different strains of marijuana in existence. Some strains are particularly good at quelling pain while others are particularly adept at tackling anxiety and promoting relaxation.

Colorado-based Grownetics has developed software and hardware technologies for cannabis cultivators designed to help monitor indoor grow houses with an eye toward boosting yields. Backed by cannabis-focused venture capital fund Phyto Partners, the startup’s sensors and software can be used in any operation no matter the scale. The company won first place in the University of Colorado’s 2016 Venture Challenge Information Technology Competition.

Software developer MJ Freeway has created a seed-to-sale tracking service that provides inventory control and growth management services for cannabis growers. Some of its investors include Tao Capital Partners and Elevation Partners co-founder Roger McNamee.

Florida-based BioTrackTHC provides a similar tracking software service and received a $5 million investment from Greenfield Capital Partners, a Maryland-based private equity firm focused on cannabis.

PayPal founder Peter Thiel is also committed to the space through Privateer Holdings, another cannabis-focused PE fund.

The Criminalization of Cannabis

Cannabis wasn’t always persona non grata in the US narcotics scheme. In 1906, the Pure Food and Drug Act even provided instructions for the proper labeling of cannabis-based over-the-counter remedies. Some sources state that the close of the Mexican Revolution marked the beginning of recreational marijuana use in the US as Mexican immigrants entered the country.

It wasn’t until April 29, 1911 that Massachusetts became the first state in the nation to ban marijuana. When the Great Depression hit, public and government concern over marijuana escalated. By 1931, 29 states passed similar bans on cannabis.

In 1937, President Franklin Roosevelt signed a federal bill banning cannabis production, sale, and usage. And while the bill originally banned industrial hemp production, Roosevelt signed an executive order in 1941 allowing emergency hemp production to aid the war effort, leading to the production and overseas transport of rope, oil, cordage, canvas, and other products. Midwest states even received subsidies to produce the crop.

In 1943, cannabis-based medical products were eliminated from practice and when the war concluded in 1945, Roosevelt put industrial hemp back on the blacklist and cut off subsidies to producers.

The first anti-cannabis prohibition law protest took place in 1965, with poet Allen Ginsberg reportedly spearheading the effort. In 1968, appellate courts heard challenges to the anti-cannabis laws enacted in the 1930s. Two years later, Congress passed the Controlled Substances Act and authorized the establishment of the Drug Enforcement Agency (DEA). That same year, President Nixon’s blue ribbon commission — nicknamed the Shafer Commission — went to work reviewing the so-called 1930s “Reefer Madness” laws and the National Organization for the Reform of Marijuana Laws (NORML) opened its doors near Capitol Hill.

In 1972, the Shafer Commission completed its review and recommended that Congress decriminalize the personal use of marijuana while allowing personal cultivation and non-monetary limited-quantity exchanges. In 1989, President Bush launched his War on Drugs during a televised speech.

Legal Medical Marijuana Laws Catch Fire

Groups like NORML continued to campaign for the decriminalization of cannabis, targeting their efforts on convincing states to legalize medical use. And Washington DC resident Robert Randall became the first patient to receive a legal medical marijuana prescription in 1975. Some states and local governments also enacted measures to decriminalize the use of cannabis, including New York, Colorado, California, Nebraska, North Carolina, Mississippi, and Ohio.

The next few decades saw the passage of various medical marijuana laws at the local and statewide levels, including the City of San Francisco’s passage of a medical marijuana access ordinance in 1991. In 1996, California became the first state to enact a statewide medical marijuana bill.

Today, nearly half of the states in the US along with Guam and DC have enacted comprehensive schemes authorizing medical marijuana usage, including Hawaii, Nevada, Montana, Colorado, Vermont, Montana, New Mexico, Michigan, Massachusetts, and Connecticut to name a few. Pennsylvania was the most recent state to join the pro-medical marijuana ranks, with the state governor signing legislation on April 17, 2016.

A smaller group of states, 17 in total, have passed laws allowing the use of products with low levels of THC and cannabidiol (CBD) — active ingredients in cannabis — for limited medical uses.

Recreational Use Statutes Are on the Rise

In November 2012, Colorado made history by being the first state to legalize cannabis products for recreational use. Colorado voters approved a ballot initiative amending the Colorado constitution to include a provision that instructed the Colorado Department of Revenue to create a legal framework for regulating a state-based retail cannabis sector.

That same month, Washington state residents passed a similar initiative known as I-502 decriminalizing the recreational use of marijuana. According to its provisions, state lawmakers got the green light to create a regulatory and licensing system for marijuana production, distribution, and sale in the state. The provisions mirrored the state’s scheme for regulating liquor.

In November 2014, Oregon became the third state to legalize recreational marijuana usage. Alaska and the District of Columbia also passed similar recreational use laws in November 2014.

Although these recreational use statutes are a big shift in the legal treatment of cannabis, they don’t constitute a free-for-all. In Washington, for example, recreational users are prohibited from smoking pot in general public view and must relegate their consumption to private property. The state still imposes limits on possession and restricts the legal buying age to 21 and older. Driving under the influence of marijuana remains illegal in the three recreational use states and there are limits on the number of plants residents can cultivate at home.

Some states have taken a different approach, decriminalizing marijuana possession and use and replacing hefty penalties like jail time with citations and modest fines. Delaware, for example, recently enacted a law decriminalizing the possession of an ounce or less of marijuana and replacing penalties with civil fines.

The high times may be rolling in certain states across the US, but deregulation doesn’t mean the industry is completely out of the weeds. Last month, the Colorado Department of Public Safety issued a report concluding that Colorado hospitals have seen an increase in marijuana-related hospitalizations since the recreational cannabis use became legal in January 2014.

Between 2001 and 2009, roughly 809 out of every 100,000 hospitalizations reported in the state were related to a patient’s marijuana use, states the report. Between 2014 and June 2015, that figure jumped to 2,413 reflecting a nearly threefold increase.

Emergency visits to hospitals also increased after the state launched its retail cannabis market, increasing from 739 out of every 100,000 visits between 2010 and 2013 to 956 incidents out of every 100,000 visits between January 2014 and June 2015.

At the Federal Level, It’s Still Illegal

At the federal level, cannabis products and marijuana are still Schedule 1 substances pursuant to the Controlled Substances Act. Drugs on this list are deemed to have a high potential for creating dependency and do not have recognized medical uses.

A 2009 memo from President Obama to the US Department of Justice sparked hope among cannabis advocates. In the memo, the President instructed federal prosecutors at the DOJ to limit the amount of time and resources spent pursuing criminal actions against individuals and alleged offenders who were “in clear and unambiguous compliance” with state medical marijuana laws. Commercial enterprises that unlawfully market and sell marijuana, however, remained fair game for DOJ prosecutors.

In 2015, Congress passed the Rohrabacher amendment medical marijuana amendment, which prevents the DEA from using funds to impede states from implementing medical marijuana laws.

Last October, a federal judge denied the DOJ’s request for a permanent injunction prohibiting one of California’s oldest dispensaries from conducting business. The DOJ appealed the ruling, stating that investigating and prosecuting dispensaries did not interfere with states’ abilities to implement medical marijuana laws. The court took a broad interpretation of the Rohrabacher-Farr amendment, concluding that enforcement proceedings disrupted states’ implementation. Before the Ninth Circuit Court of Appeals had a chance to hear the DOJ’s side of the story, the agency dropped its appeal and filed a motion to dismiss its own lawsuit. Pro-cannabis groups see this as a major victory.

Still, the Rohrabacher amendment only protects medical marijuana patients and dispensaries from federal prosecution, leaving recreational users and retailers exposed to criminal liability.

What do you think about legalizing cannabis for medical and/or recreational use? Should it be legalized at the federal level? Let me know:

Share on email
Share on twitter
Share on facebook
Share on linkedin
Share on reddit
Share on whatsapp
Share on skype

Sign up for AgFunderNews

Get the latest news and views on global food and agriculture technology startups and the investors behind them. Delivered to your inbox weekly.