Cannabis Industry and South Dakota: Off to the Races?

On November 3, 2020 more than 225,000 South Dakotans voted for the legalization of both medical and recreational marijuana. Constitutional Amendment legalized the recreational use of marijuana for individuals 21 years old and older. Under the measure, individuals are allowed to possess or distribute up to one ounce of marijuana. The amendment requires the legislature to pass laws providing for a program for medical marijuana and the sale of hemp by April 1, 2022. Voters also passed Initiated Measure 26, which establishes a medical marijuana program in South Dakota for individuals who have a debilitating medical condition as certified by a physician. In passing both, South Dakota became the first state to pass recreational and medical marijuana on the same day.

Does this mean everyone can now possess and use marijuana? Hold your horses. The legislature has until April 1, 2022, which means that as long as the current marijuana laws are on the books, it’s illegal. Remember also, of course, that marijuana is still a federally controlled substance. That means that possession on federal lands, such as National Parks or VA grounds, is illegal.

This schism between state and federal law also creates myriad issues for people in the cannabis business. Federal taxes significantly affect marijuana sales, which results in a much larger revenue cost than many sellers might anticipate. Also, most marijuana, even in California (where I also practice), is a cash business because of the limitations of FDIC-insured banks and institutions.

Also, the measure provides that marijuana sales in the state will be taxed at 15%. That is also going to be a significant cost for would-be growers, distributors and retailers. The measure requires the Department of Revenue to create four licenses types for:

  • commercial cultivators;
  • testing facilities;
  • wholesalers to package, process, and distribute marijuana to retail sales outlets; and
  • retail stores to sell marijuana.

The Department is to issue “enough licenses to substantially reduce the illicit production and sale of marijuana throughout the state” and, if necessary, limit licenses “to prevent an undue concentration of licenses in any one municipality.” What that exactly means is still to be seen.

The legal landscape going forward is murky at best. However, we can easily look to other states such as Colorado and California and learn from their experiences with the cannabis industry. For now, I am closely following the law that the legislature will pass and keeping close contact with my counterparts in the cannabis industry for any immediate developments.