What Employers Should Know About Cannabis and the Workplace

Marijuana, cannabis, weed, or whatever you want to call it is a growth industry. We know it’s still an illegal Schedule 1 drug under federal law; so how is it that we can grow, sell, or buy it in Massachusetts? And what effect does the regulatory minefield have on employers and the workplace?

Today’s article will explore the legal ins and outs of cannabis relative to Massachusetts workplaces. In addition, it will provide a brief overview of the current federal and state regulatory scheme.

Federal Stance and Future Legislation

Cannabis is still considered a Schedule 1 illicit substance under federal law. Most simply stated, this means that if one is found in possession of marijuana by a federal officer or border official, you’re in trouble. However, a growing number of states, like Massachusetts, have chosen to move forward and allow the sales and distribution of cannabis, either for medical or recreational use, within state borders. In fact, 24 states have legalized marijuana.

There have been several proposed bills in Congress to help move cannabis from its Schedule 1 classification (covering the most addictive and destructive substances, such as heroin) to Schedule 3 (defined as drugs with a moderate to low potential for physical or psychological dependence, such as anabolic steroids). See, for example, the Marijuana 1 to 3 Act of 2023.

Other than the obvious relaxation of legal impediments to cannabis use, the proposed federal bills have some amazing tax benefits for the cannabis industry as a whole. For starters, IRS enforcement action would be one less problem to worry about. Currently, cannabis businesses do not enjoy the same tax deductions as the average mom-and-pop or Fortune 500 company. This is due to Internal Revenue Code Section 280E, which does not allow certain standard business deductions due to the legal risks associated with the illegal ‘trafficking’ of a Schedule 1 drug. Cannabis businesses also face higher income-tax rates as a result of their business. Most of the proposed federal laws would remove those tax obstacles and categorize cannabis as just another product sold by just another business.

Additionally, placing cannabis into a Schedule 3 classification would allow for this industry to become regulated like any other Schedule 3 drug provider. While striving for more federal regulations may sound counterintuitive for a business, the current patchwork quilt of state regulations has not served consumers well.

As noted recently in the Boston Globe, the quality of lab test results relative to marijuana mold contamination and THC levels has raised consumer concerns in Massachusetts and may have negative repercussions relative to state cannabis businesses. More specifically, state cannabis businesses have been accused of circumventing health regulations by ‘shopping’ for laboratories with loose (or non-existent) standards in order to obtain favorable testing scores.

A straightforward, no-nonsense standard for regulation and testing, like the one the U.S. Food and Drug Administration has for Schedule 3 drugs, would give consumers confidence that the products they are purchasing are both safe for consumption and contain the product described on the label.

There are other pending bills that would favorably affect the cannabis industry. One of the eagerly watched bills is the SAFE Banking Act, which was meant to make banking services accessible to state-regulated cannabis businesses without the fear of federal penalties. Specifically, its provisions would allow for the profit from a state-regulated cannabis business to be considered just that, and not proceeds from an unlawful activity.

The banking industry is traditionally quite conservative when it comes to risk taking in the area of emerging or ‘unlawful’ industries. Without such banking legislation, it remains very difficult, if not impossible, for state-regulated cannabis businesses to get routine business loans and/or building or mortgage commitments. Insurance companies, also conservative entities, have begun to craft specific policies for the cannabis industry; however, much of such coverage is prohibitively expensive.

The States Reform Act is a pending bipartisan effort to change cannabis regulation by creating a permitting process on the federal level for cannabis-based businesses. This would allow federal oversight on products that cross state lines, thus allowing lawful interstate commerce.

Under current law, the states and federal government disagree on the legality of cannabis use, thus making its transportation across state lines a legally precarious task. Such product movement currently requires ‘creative’ transportation routes. Typically, it’s the smaller companies who suffer and lose out on increasing their business if they lack the resources to come up with those creative solutions.

Cannabis and the Massachusetts Workplace

A big question that arises regarding cannabis in the workplace is “how is drug testing affected by employee use of medical and/or recreational cannabis?” It is important to note that, if you require your applicants or employees to be drug-tested, you should have a company-wide policy that details specific scenarios that would require drug testing. After that, enforcement becomes a management issue.

A rule of thumb to follow is that employers should generally require their employees to refrain from using alcohol and/or other drugs while on the clock. Reporting for work while intoxicated, or under the influence of mind-altering drugs, should also be addressed.

The follow-up question that is often asked is “what if an employee uses marijuana for a medical purpose?” Medicinal use of marijuana is a very real and effective remedy for several conditions and must be treated seriously in the workplace to avoid any violations of the Americans with Disabilities Act.

It is not a business owner’s responsibility to probe every employee to see who has a disability and how they cope with it; they also are not required (as of yet) to accommodate the use of medical marijuana in the workplace. Employers are, however, required to have an interactive conversation with an employee to determine whether a reasonable accommodation is possible for an employee who uses medical marijuana to treat a disability.

Given the legal complexities, such situations need to be addressed on a case-by-case basis, and consulting with a business or employment lawyer well-versed in cannabis regulation is advisable.

The framework this act would establish would create federal regulations on interstate cannabis-based activities. The act would also impose a 3% federal cannabis excise-tax structure with a 10-year moratorium on increases to said tax. With the perennial federal budget shortages, this excise tax would be a welcome addition to the federal tax coffers.

Jason Ortiz and Elaine Reall are attorneys who specialize in labor and employment-law matters at the Royal Law Firm LLP, a woman-owned, women-managed corporate law firm certified as a women’s business enterprise with the Massachusetts Supplier Diversity Office, the National Assoc. of Minority and Women Owned Law Firms, and the Women’s Business Enterprise National Council.

Jason Ortiz and Elaine Reall co-authored this article which was featured in Businesswest. Click here to visit their website. Reall was a featured panelist on a panel providing insights into the legal and regulatory status of the cannabis industry at the 2024 annual meeting of the National Assoc. of Minority and Women Owned Law Firms, which took place Sept. 15-18.