In the United States, under federal law, the use and possession of cannabis is illegal. However, policies vary depending on the state and commonly contradict federal law. As the use, possession and harvesting of cannabis becomes legal in more states, but remains illegal under federal law, logistics operations are becoming increasingly more complex.
Cannabis legalisation map
In accordance with federal law it is legal to ship CBD oil and other products derived from hemp that contains less than 0.3% THC – substances that have no hallucinogenic effects. However, any substance with higher THC levels is federally deemed illegal. Federally regulated companies like FedEx, UPS and USPS are therefore unable to play a part in the trade of the fast-growing market of recreational and medical cannabis. Canada Post, on the other hand, has been delivering medical cannabis bought online in Canada since 2013.
What seems illogical, is state law doesn’t ban interstate transportation, but federal law does. In June 2019, Oregon House passed a bill that makes it legal to transport cannabis to neighbouring states i.e. California and Nevada. Though this is legal on a state level, it is important for distributors to respect federal law. The gap in the market left by the major express providers is being filled by start-ups. Since there are many regulations and licences required in order to distribute cannabis legally, suppliers must have their own logistics operations or use a licensed third-party.
An example of a company that has grown out of the legal shipping and distribution is Eaze, a licensed online marketplace and technology platform that legally ships CBD to 45 states and the District of Columbia as well as offering on-demand delivery of cannabis products in California and Oregon. Weed Hero is another example, whereby customers can place online orders with the company which can also deliver the goods, although some products require collection by the customer.
The absence of the large players has enabled start-ups to flourish in this nascent industry. Since no precedent has been set, companies such as Eaze and Weed Hero have been able to be innovative in the way they conduct business, consequently the market is heavily based on technology.
Due the stringent nature of the licencing process, transportation vehicles must adhere to specific regulations. According to QZ some US-based cannabis businesses have taken to converting and using Ford Transit vans. As they weigh under five tonnes they do not register as commercial vehicles and are therefore rarely observed by the federal government as long as they do not cross state lines. They are often fitted with bullet proof glass, blast-proof doors, and digital safes, and in California each vehicle is required to have GPS technology.
It is not just the cannabis industry that comes up against the obscurity of federal law. Earlier this year, FedEx sued the US government after receiving fines for unintentionally shipping a Huawei phone. FedEx argued that it shouldn’t be liable for and shouldn’t be the organisation enforcing the law. In another situation, FedEx agreed to pay $35m and receive annual training on tobacco distribution according to each state, to resolve a lawsuit over the illegal delivery of untaxed cigarettes. FedEx was prohibited from transporting tobacco through its network according to federal law but not state law. These two instances show the difficulty surrounding the shipping of controversial products and how the federal law makes interstate trade difficult because of its incoherent system.
The complexity remains as the US federal law and state laws contradict one another. This is likely to remain a problem for FedEx, UPS and USPS. Where one party’s problem begins is where another party finds an opportunity. Suppliers and distributors will need to continue to be vigilant and abide by all laws but as the use of cannabis becomes more widespread, lawmakers should keep pace, in the end making the logistics operations surrounding cannabis more straightforward.
It is thought that by 2024 at least 20 states will have legalised the use of cannabis fully. The market size in 2018 was valued at $11.3bn following the so called ‘green gold rush’ which is predicted to be worth nearly six times that in 2025, according to Grand View Research. The possible further legalisation has a part to play in the projected growth as demand is set to rise across the country. Federal legalisation looks to be imminent as well. This will likely mean that the federally governed companies will be legally able to enter this supply chain but on the back foot no less.
Source: Transport Intelligence, September 26, 2019
Author: Holly Stewart
GLOBAL SUPPLY CHAIN INTELLIGENCE (GSCi)