Earlier this month, the two largest cannabis markets in the country, Colorado and California, underwent some pretty significant regulatory changes. Colorado adopted an entirely new set of packaging and labeling requirements (again!) late last year and expected compliance on July 1, 2018. California required its cannabis products to be tested, packaged, and labeled immediately following its new regulations.
These types of transitions can be incredibly disruptive for businesses and markets while creating significant compliance challenges. For now, they are merely a fact of life in the cannabis industry. “Change is the only constant in life,” is more true in cannabis regulation than just about any other area of law. As the industry evolves, regulators are continually tweaking– or in some cases even overhauling– regulations. Businesses then develop best practices to catch up with the new rules only to see them change again.
The History of Colorado’s Packaging and Labeling Regulations
In the category of “It’d be funny if it weren’t so costly,” Colorado has changed its packaging and labeling regulations practically every year since 2013. I experienced this firsthand while I worked at the state Department of Revenue, drafting up the initial rules. During these first stages of regulation, the state set hard deadlines that left nearly everyone in the industry scrambling to comply. By now, Colorado has a tremendous amount of experience executing these changes. Even state regulators have improved their handling of them and have become increasingly more accommodating. As a result, the latest major changes to packaging and labeling in Colorado have occurred with little disruption to the industry.
Colorado Gives the Industry Enough Time for Packaging and Labeling Changes
Colorado regulators have created a more flexible two-phase implementation plan. Doing this allows the cannabis industry to adapt to the new requirements over a period of almost two years. These two years give ample time for the industry to change their compliance requests.
On January 1, 2018, the state of Colorado kicked off its first transition period. A new regulation change was specifically for packaging and labeling. All license holders were allowed to produce and sell products accurately packaged and labeled according to either:
1. The pre-November 2017 regulations (the “Old Regs”); or
2. The post-July 1, 2018 regulations (the “New Regs”).
Starting July 1, 2018, regulators prohibited cultivators and manufacturers from distributing products packaged and labeled under the Old Regs. Retailers, on the other hand, were given more leeway. Regulators extended the date an additional year (until July 1, 2019) to sell off any inventory packaged and labeled under the Old Regs. Essentially, cultivators and manufacturers had eight months to bring their products into compliance. Retailers still have a year to replace their stock with compliant products.
California’s Contrasting Packaging and Labeling Regulations
In contrast, the California cannabis industry was expected to transition from the state’s old system to the new one in an insufficient amount of time. The new system introduced much more complex regulatory changes in a more abrupt fashion than in Colorado. While California did have a “transition period,” it introduced virtually no flexibility for businesses. It also lacked in helping stage the changes between procedures and retailers. To make matters worse, regulators have changed their compliance expectations several times since the initial publishing. All of these variables combined have resulted in significant market disruption.
Prior to California’s mandatory regulation changes on July 1, there were massive sales in California with nearly every retailer selling cannabis for huge discounts. Since then, there have been reports about the industry potentially needing to destroy “hundreds of millions of dollars” in products because of the change. Shelves were looking barren and prices increased to reflect the lack of supply.
These types of problems are not exactly hallmarks of a well-regulated industry. They are, however, especially challenging for the new cannabis industry. An industry that is still fighting for legitimacy and competing against the illegal market.
Looking to Colorado as an Example for Future Regulation Transitions
As cannabis regulatory aficionados, we’ve seen this all before. We even predicted these issues would arise in California. We hope California regulators will create a smoother on-ramp for their next set of changes. They should look to states like Colorado that have already gone through these growing pains. Colorado has learned from its mistakes and developed processes to avoid these market disruptions.
If there’s one thing that’s for certain in the cannabis industry, it’s that more changes are sure to come.