"Legal Strategy During Legal Uncertainty: The Case of Cannabis Regulation"

The title of this post is the title of this paper recently posted to SSRN authored by W. Michael Schuster and Robert C. Bird. Here is its abstract:

Overcoming its checkered past and stringent regulation, cannabis is quickly becoming a highly lucrative consumer product.  Accompanying this rapid decriminalization is crippling legal uncertainty, as vague statutory language, sporadic backsliding, presidential indecision, and inconsistent enforcement have introduced substantial and unnecessary legal and compliance risks.  This combination of a novel industry and its ambiguous legal environment is not only ripe for reform, but also illuminates how firms can respond strategically to high levels of legal uncertainty.

After a review of the controversial history of cannabis and the legal uncertainty that pervades the industry, the manuscript shows how uncertainty drives firms to pursue risky legal strategies.  This manuscript shows that firms under the stress of uncertainty respond by either aggressively leveraging their legal knowledge to capture value or attempting to circumvent the legal environment altogether.  Both pathways of legal strategy impose unnecessary volatility on cannabis firms.

The manuscript then highlights how legal uncertainty drives legal strategy in a discrete legal environment – the federal government’s refusal to register marks for goods that are illegal under federal law—including most cannabis goods.  We uncover five distinct legal strategies used by cannabis firms, with each strategy responding to a different combination of legal uncertainties.  Finally, eschewing an unrealistic proposal for immediate uniformity, we propose pragmatic and achievable reforms that would significantly reduce legal uncertainty for firms while not upsetting further the already chaotic legal environment of cannabis regulation.