Conflict of Interest Provisions in State Laws Governing Medical and Adult Use Cannabis

Abstract

Although the acceleration of cannabis legalization in the United States has spurred innovations in public administration and policymaking, there have been news accounts of public employees engaged in cannabis licensure or enforcement that constitute conflicts of interest (COIs).

After conducting 3 surveys in 50 states (including Washington, DC as a state), we found that COI provisions pertaining to cannabis-related public employment fell into 2 categories: subject matter general and cannabis specific. Only 20% (6/30) of the states that legalized medical cannabis had COI provisions in their medical cannabis codes, whereas the remaining 80% rely on subject matter general provisions relating to all areas of regulated subject matter, highlighting the need for thoughtful creation of COI rules in future policymaking. By contrast, 88% (7/8) of states that have legalized adult use cannabis put their COI provisions directly in their cannabis codes or regulations.

Governments should enact cannabis-specific COI policies applicable to broadly defined categories of public employees that are responsive to the unique context of bringing cannabis from the black market into the regulated market.

Government employees in states that have legalized medical or adult use cannabis have come under increasing scrutiny for holding private interests in the cannabis industry, highlighting the problem of conflicts of interest (COIs). In Colorado, a Marijuana Enforcement Division employee quit her job and immediately began working for Harmony & Green, a cannabis-cultivation company, as a compliance consultant, without observing Colorado’s required 6-month posttermination restrictive covenant period.¹ A Washington State cannabis licensing specialist leased 25 acres he owned to a cannabis entrepreneur.² An employee of the Massachusetts Department of Public Health, the agency that issues medical cannabis licenses, applied for a medical cannabis license while employed by the department.³ In Ohio, 6 unsuccessful cannabis license applicants sued the state, alleging that application reviewers inconsistently scored applications and hired scoring consultants that had COIs.⁴ In Arkansas, a court enjoined the state from issuing cultivation licenses in response to a similar lawsuit alleging inconsistent scoring of applications and COIs among commission members with personal relationships to successful applicants.⁵

These incidents demonstrate the need for robust regulation to prevent public employees from having COIs in the cannabis industry that recognize the current reality facing cannabis regulation arising from the fact that cannabis remains illegal under federal law and the legal market under state law exists side by side with a residual illicit market.

A COI is “a real or seeming incompatibility between one’s private interests and one’s public interests.”^6(p341) COI requirements in governance, including restrictions against public employees’ holding private interests that conflict with their public duties, aim to maintain public trust, stem misuse of government resources, and uphold the appearance of propriety in government processes. Lack of attention to ethical precepts may augment cynicism about the integrity and efficacy of governance among the citizenry.^7–9

On the basis of a case study of the California’s Bureau of Cannabis Control–proposed COI rules for public employees,^10,11 we collected comprehensive data on how states that legalized medical cannabis or that legalized adult use cannabis regulated public employees’ private commercial interaction with the cannabis markets. As of April 2018, only 20% (6/30) of states (including Washington, DC as a state) that legalized medical cannabis had COI provisions in their medical cannabis codes, whereas 88% (7/8) of states that legalized adult use cannabis had COI provisions in their cannabis codes.

METHODS

We collected and analyzed state codes to determine the nature of COI provisions applicable to government employees in all 30 states that adopted medical legalization, including the 8 states that adopted adult use cannabis legalization. We excluded the remaining 21 states (including Washington, DC as a state), which had made cannabis illegal, decriminalized it, or authorized the use of only low-tetrahydrocannabinol or high-cannabidiol cannabis.

We used snowball searches and Google to gather data from primary legal sources found on Westlaw, state-administered code Web sites, state agency Web sites, and state agency administrative and guidance documents.^12,13 We began with the following terms: medical cannabis; medical marijuana; marijuana or cannabis + state employee; state official, executive, employee, board member, member, commission, commissioner, appointee, or agency + conflict of interest; conflict; interest; improper influence; pecuniary; pecuniary interest; ownership; ownership interest; owner–operator; employment; employment restrictions; ethics; ethics commission, board; code of conduct + law enforcement or police. We began data collection in October 2017, capturing any medical or adult use cannabis laws and related policies adopted by US states as of April 30, 2018.

After preliminary research in 5 states, we refined our queries into 8 legal issues:

1. general prohibitions directed toward state public officials and state employees,

2. general prohibitions directed toward state public officials only,

3. general prohibitions directed toward state public employees only,

4. cannabis-specific prohibitions directed toward state public officials and employees,

5. cannabis-specific prohibitions directed toward state public officials only,

6. cannabis-specific prohibitions directed toward state public employees only,

7. specific preclusion of law enforcement from licensure in medical cannabis commerce, and

8. specific allowance for law enforcement to be licensed in medical cannabis commerce.

We included state laws that implicated any of these 8 issues.

We verified the contents of state laws found in Westlaw in state code databases. (The appendix [available as a supplement to the online version of this article at http://www.ajph.org] includes the full list of laws.) We included only states with laws enacted by April 30, 2018 and excluded proposed bills or legal text. We excluded Washington, DC and Vermont from the adult use portion of the study because their adult use cannabis laws did not establish a licensure scheme but just allowed possession, personal use, and personal cultivation.

RESULTS

COI provisions in state laws governing private commercial behavior of public employees in cannabis regulation and enforcement fell into 2 categories: subject matter general provisions applying to all regulatory areas and subject matter–specific provisions applying directly to the regulation of medical or adult use cannabis commerce. We grouped COI provisions on the basis of who they covered: all public employees, high-level decision-makers only (appointed officials, board and commission members), or law enforcement officers only. States without COI provisions in their medical or adult use cannabis codes would logically rely on subject matter general COI provisions in states’ ethics codes to structure the commercial relationships of state personnel to the cannabis markets (Table A [available as a supplement to the online version of this article at http://www.ajph.org]).

Medical Cannabis

Only 6 of the 30 (20%) states with legal medical cannabis had COI rules constraining private engagement with commercial medical cannabis licensure by public employees (Table 1). The medical cannabis codes of 7 of 30 states (Arkansas, Arizona, California, Colorado, Nevada, Pennsylvania, and West Virginia) had cannabis-specific COI provisions prohibiting public employees from holding cannabis licenses in medical cannabis markets. Of these 7 states, Arkansas’s and West Virginia’s medical cannabis codes contained COI prohibitions that were applicable only to high-level decision-makers; however, both states also had general COI provisions governing all regulatory categories that applied to all state employees, including law enforcement officers and state agency employees. Pennsylvania’s COI provision prohibited state employees from carrying financial interests in a medical cannabis establishment and a 1-year posttermination restrictive covenant on employment in the medical cannabis industry.

TABLE 1—

Conflict of Interest Provisions in Cannabis Laws: United States, April 2018

State	Medical Cannabis Code (n = 6)			Adult Use Cannabis Code (n = 7)
	Decision-Makers	Executive Branch Agency Employees	Employees of Licensing Agencies	Decision-Makers	Executive Branch Agency Employees	Employees of Licensing Agencies
Alaskaa				✔
Arizona	✔		✔
Arkansasb	✔
California			✔			✔
Colorado			✔			✔
Maine						✔
Massachusettsa				✔
Nevada	✔		✔		✔
Washingtona				✔
West Virginiab			✔

Note. COI = conflict of interest. The following states had adopted medical legalization but did not have COI provisions: CT, DE, FL, HI, IL, MD, MI, MN, MT, NH, NJ, NM, NY, ND, OH, OR, PA, RI, VT, Washington, DC.

^aArkansas’s and West Virginia’s medical cannabis COI provisions apply only to high-level decision-makers, but both states have subject matter general ethics codes that would apply to all state employees and that would sweep in employees of licensing agencies and law enforcement personnel.

^bAlaska’s, Massachusetts’s, and Washington’s subject matter–specific cannabis COI provisions only apply to high-level decision-makers; these states have subject matter general COI provisions that apply to all public employees, subsuming adult use cannabis licensing agency employees and law enforcement.

Twenty-four states with legalized medical cannabis had COI provisions applicable to public employees in their generalized ethics codes. Alaska’s and Oregon’s COI provisions applied only to high-level decision-makers.

Adult Use Cannabis

Seven of 8 states (87%) in the adult use cannabis study had subject matter–specific COI provisions that prohibited different classes of public employees from having private interests in the adult use cannabis industry (Table 1). Of the states where adult use and medical cannabis were both legalized and regulated, only California and Colorado had subject matter–specific COI provisions pertaining to public employees’ private financial interests in the adult use and medical cannabis markets.

California, Colorado, and Maine had subject matter–specific COI provisions prohibiting individuals tasked with licensure and enforcement of the adult use code from having private interests in the adult use cannabis industry. Some states had adult use cannabis COI provisions that applied to high-level decision-makers only, but we found subject matter general COI provisions applicable to agency employees or law enforcement in their general codes of governmental employee conduct. Nevada did not have an adult use cannabis–specific COI provision in its code or regulations, although its Permanent Adult Use Regulations (RO92-17§78(d)(2)(IX)-(X)) required applicants to disclose whether they were members of law enforcement or revenue department employees or contractors. It is unclear whether this provision constituted an absolute prohibition; however, the fact that it is a mandatory disclosure pursuant to the license application process may signal a sensitivity to COI concerns.¹⁴ The cannabis regulatory agencies in some states may have internal, unpublished COI provisions applicable to law enforcement or agency personnel.

Of the 8 states that had legalized both medical and adult use cannabis, Alaska, Maine, Massachusetts, and Washington State had cannabis-specific COI prohibitions applicable to state employees in their adult use cannabis code but not in their medical cannabis codes. A possible explanation for this difference is that the regulation of adult use cannabis stands to overtake the medical market, and the difference may indicate a recognition by state governments that the regulation and enforcement of adult use cannabis presents challenges and concerns that are categorically distinct from the regulation of medical cannabis. Oregon and Nevada had cannabis-specific COI provisions in their medical cannabis codes but not in their adult use cannabis codes. The Nevada finding may be explained by the state’s race to implement legalization in the summer of 2017, leaving little time for drafting and implementing regulations that had yet to be put into place as of April 2018. Colorado and California had cannabis-specific COI provisions in both their medical and adult use cannabis laws that suggest a forward-thinking sensitivity to the ethical issues surrounding the governance of cannabis legalization and that could serve as model language for future law or rule making in other jurisdictions.

DISCUSSION

Public faith in regulatory systems and in the regulators themselves justifies the implementation of cannabis-specific COI rules to allow the government to focus on efficient policymaking, efficient service provision, and moving the cannabis trade from the illicit to licit market, rather than on the ethical failings of public employees.¹⁵ The current federal skepticism of de facto legalization in the states militates in favor of adopting cannabis-specific COI laws that seek to uphold the law without jeopardizing the resources expended to legitimate governmental implementation of cannabis legalization. Because of the idiosyncratic way cannabis legalization has developed in the United States without federal endorsement or oversight mechanisms, general COI provisions are not likely to have been written specifically enough to effectively address the unique features of how cannabis is grown, tested, licensed, marketed, sold, and consumed.

There are several possible reasons for the low prevalence (20% [6/30]) of cannabis-specific COI provisions in medical cannabis laws. The relatively recent advent of cannabis legalization may be progressing faster than regulators can anticipate legal and policy issues and implement thoughtful regulation. It could also result from a lack of institutional knowledge on the newly regulated subject matter.^16,17 The presence of cover-all COI provisions applicable to employees in all categories of regulated state action may provide policymakers with a false sense of security in preexisting general COI provisions, as opposed to cannabis-specific COI provisions directly appurtenant to cannabis codes and regulations. The lack of cannabis-specific COI rules may be the result of the comparisons between distinct medical cannabis statutory and regulatory licensure systems that have been in place for differing amounts of time and so reflect varying degrees of policy maturation. By contrast, the presence of cannabis-specific COI provisions in adult use cannabis codes in most adult use states may be attributable to an appreciation by drafters that the advent of adult use cannabis legalization poses a different urgency for the imposition of COI provisions than does the development of medical cannabis policy because of the larger markets and amounts of money involved.

Relying on general COI laws to delineate relationships that public employees may have with private markets and business interests may not be adequate in the rapidly developing new cannabis market because of the distinct challenges facing the regulation of cannabis. Governmental ethics codes are often perceived to be little more than symbolic, lacking buy-in, strong enforcement mechanisms, funding, and administrative priority.¹⁵ There are specific aspects of the cannabis market that need to be explicitly recognized when preparing COI rules, particularly the fact that the cannabis business is de facto required to be a cash-based business because of continuing illegality under federal law and that the legal cannabis market exists side by side with a substantial illegal market.

To the best of our knowledge there are no analogous commodities or markets whose previously illicit, quasilegal state-level status precludes them from availing themselves of traditional banking mechanisms because of federal prohibition. This situation contrasts with that of alcohol, for which monetary transactions in the licit liquor trade are easier to trace because liquor establishment licensees can use traditional banking services and instruments (such as loans) not widely available to cannabis licensees.² In addition, 2018 was a period of policy fluidity, with initial policies being established that will likely remain in force for a long time. All these factors create special pressures to cut ethical corners.

Cannabis-specific COI provisions provide clarity and are capable of being more responsive to specific ethical voids exposed in this precarious state of quasilegalization at the state level. Moreover, cannabis-specific COI language could be easier to implement and enforce by explicitly spelling out processes surrounding categorical prohibitions, reporting, recusal, and penalties for nondisclosure of COIs rather than expecting these issues to be covered by general COI statutes that were developed in the context of less fluid and less controversial economic and policy environments. Although many states do not impose cannabis-specific COI legal language on public employees, codifying explicit COI rights, obligations, and prohibitions serves to put employees and the citizens they serve on notice that the state has specific prescriptive concerns surrounding the ethical regulation of the specific topics that are conveyed to the public in edicts imposing accountability.¹⁵

The model language in the appendix (available as a supplement to the online version of this article at http://www.ajph.org) explicitly codifies penalties for nondisclosure, self-dealing, or malfeasance. This ties the bad action to an explicit civil, criminal, or administrative penalty, thus easing the identification of specific violations and enforcement of COI rules. This language is modeled on the robust provisions that we observed in state medical, adult use, and general conflict of interest laws and rules.

Limitations

Although we captured cannabis laws and related policies as of April 30, 2018, our study is limited because the development of cannabis law in the United States is in flux.

Conclusions

Because the legal cannabis trade is largely cash based owing to federal prohibition and static banking laws, cannabis-specific COI provisions requiring disclosure of interests, relationships, and assets in conjunction with COI prohibitions constraining public employees’ ability to become licensed in the cannabis industry are particularly important.² Many states without cannabis-specific COI provisions have general COI provisions that would subsume cannabis governance and private engagement with the cannabis industry by public employees. A bright-line proscription of COIs located in cannabis codes (or by amending existing codes to incorporate similar provisions) would better guide regulators in the emerging field of cannabis governance. Although much of the policy focus of agencies and governments will be dictated by budgetary and administrative pressures, governments should enact cannabis-specific COI provisions applicable to broadly defined categories of public employees as part of crafting policies that bring cannabis from the black market into the regulated market.