In the November election, voters in five states overwhelmingly approved establishing new cannabis regulatory regimes. With adult-use markets now imminent in Arizona, New Jersey, Montana and South Dakota, and medical markets on tap in Mississippi and South Dakota, potentially hundreds if not thousands of new cannabis businesses will be powering up their operations.
Businesses in each state will be entering unique regulatory environments and will need to stay aware of constantly evolving rules, including those that limit the cannabis industry’s energy and environmental impacts. While only a few states have specific provisions for cannabis businesses, it is a given that every legal cannabis company will have to abide by existing rules for all businesses while also possibly having to adapt to new ones.
While the prospect of additional regulations is sure to give many new business owners heartburn, there are ways you can prepare your operation to meet compliance standards and position your business for success.
TIP 1: Understand Your State’s Policymaking Context
States adopt regulations that comport with existing statewide goals, and it is helpful to have this context in mind as your state embarks on new rulemaking for the cannabis industry. Massachusetts officials, for example, seek to reduce the energy usage of cannabis cultivation as a direct response to its pre-existing statutory obligation to reduce economy-wide carbon emissions. Make sure key people on your team understand the regulatory environment and are able to weigh in as appropriate. If you are a member of your state’s cannabis industry association, be sure those representing you are plugged in. At the very least, familiarize yourself with the legislation to know what types of regulations to expect.
TIP 2: Engage Your Regulators
As we have seen in Massachusetts and Illinois, many cannabis businesses in states that first promulgated energy and environmental regulations were caught unprepared because they had not engaged in the process closely enough. For example, with very little industry input, Illinois enacted aggressive, yet somewhat perplexing, energy regulations, such as by calling out mini-split heat pumps as a preferred HVAC technology, even when that approach as a horticultural HVAC solution is unproven. Proactive engagement in the legislative and regulatory process would have given operators an opportunity to help shape those regulations.
California, in developing its updated indoor horticulture building energy codes that go into effect in 2023, has openly engaged stakeholders since July 2019.
As additional states start regulating cannabis marketplaces, regulators at both the state and local levels will probably be looking for input, and they need to hear perspectives from experts in the field.
TIP 3: Prepare Yourself
Energy regulations often contain jargon and an alphabet soup of acronyms that may not be part of cannabis cultivators’ everyday vocabulary: ASHRAE, IECC, LPD, QPL, MWh, RPS, Btu and PPE are just a few examples. Take time to understand these terms and how related regulations will affect your operation. Allocate bandwidth for your staff to study the rules, hire experts who have experience applying them to cannabis businesses, or better yet, do both. (Be aware that HVAC contractors and lighting engineers may not have the specific state-by-state expertise to provide overall energy guidance.)
TIP4: Stay Nimble
Keep an eye out for changes to regulations that may force you to adjust your assumptions. For example, in Massachusetts, regulators published a “frequently asked questions” document that included previously unpublished, re-defined essential terms necessary to comply with the state’s indoor horticultural lighting code. Many operators missed the changes, and now find themselves scrambling to meet the “clarified” code after they made decisions based on their prior interpretations of the rules.
TIP 5: Seize the Opportunity
Many existing energy regulations are designed to encourage cultivators to be thoughtful about their energy use and resource efficiency, and not necessarily force mandates upon them. For example, Massachusetts requires licensees to show in their applications that they are at least considering energy efficiency, energy demand reduction, and renewable energy opportunities. Some jurisdictions in Michigan require cultivators to share sustainability plans that demonstrate an understanding of their energy and environmental footprint.
Take advantage of these nudges. Because energy expenses can be up to half of a cultivator’s costs, it makes sense to seriously contemplate the benefits of available energy-savings opportunities. At the very least, your electric utility provider will probably offer rebates to purchase and install more efficient equipment. At best, by pursuing higher overall electric facility/equipment and electric production efficiencies, you will likely get better production with less energy input, saving you money.
Regardless whether your company prioritizes energy efficiencies, it will be subject to energy regulations one way or another. Treat these environmental regulations, and the prospect of future ones, as vital to your business, just like any other mandate where compliance is essential to your survival.