Governments don’t always give us what we want. Sometimes they explicitly give us laws that we really want to get around. And a lot of times, we do. The marijuana gifting loophole is a great example of a workaround to a legal provision, and one that is costing governments plenty of money. Read on to find out more about it.

What is marijuana gifting and the attached loophole?

The first thing to know about marijuana gifting, is that it doesn’t apply to everyone. Gifting comes with some form of regulatory measure, related to a legalization. When marijuana gifting is enabled in a law, it means a person or company has the legal ability to give cannabis to another person, so long as it doesn’t exceed whatever legal limit is in place. These limits, and the exact regulations, vary between locations.

So what does this really mean? It refers to the ability for a person of legal age to give free weed to another person of legal age. But it also refers to the ability for companies to give out complimentary weed. So think of it this way, you go into a store and make a purchase for a shirt. You get a free weed gift for making the purchase, making for a form of payment, outside of a regular payment structure. Technically you’re just paying for the shirt, you’re not paying for the weed. But of course, you’re paying for the weed, just under the cover of a shirt.

Obviously, none of this exists in places where weed is uniformly illegal. And generally, its not a part of medical markets, though Washington, DC shows us that it can be. There are plenty of locations legal for recreational use with open sales markets, that have an issue with gifting. However, the issue seems to come into being more through the lack of regulated markets.

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The marijuana gifting loophole is pretty obvious. Rather than have a person go into a dispensary and order their weed, they can go into a place not associated with buying weed, and get their weed without ordering weed at all. They can pay for it by means of paying for another item. For all intents and purposes, a weed sale went down, and yet there is no weed sale on the books for the transaction.

As you can imagine, this messes with things from a government perspective. Cannabis regulatory laws are in place to keep track of literally everything, with sales being a pretty important part of it. Gifting gets in the way of oversight, but it also gets in the way of taxation.

Sure, the weed is still paid for through the marijuana gifting loophole, but not in a taxable way for the government. If you bought a shirt, the government will collect whatever taxes are related, but weed has much higher tax rates, and selling it outside of regulation, means those taxes are not paid. As you might imagine, governments are not happy with this loophole, and the gifting economies it created.

Examples of gifting economies

Michigan is a state that instituted a gifting policy along with its regular cannabis legalization. According to section 5.1 of the Michigan Regulation and Taxation of Marihuana Act, you can transfer up to 2.5 ounces of weed without a formal payment for it. As per the law:

[T]he following acts by a person 21 years of age or older are not unlawful….  

(d) giving away or otherwise transferring without remuneration up to 2.5 ounces of marihuana, except that not more than 15 grams of marihuana may be in the form of marihuana concentrate, to a person 21 years of age or older, as long as the transfer is not advertised or promoted to the public.

This isn’t a super new thing though, and has been going on for years. Reports came out of Boston in 2018 talking about how products were being sold at high prices, and coupled with weed. In fact, these reports started before the sales market opened in Massachusetts.

According to an article by CBS News, “The legal language makes it permissible to pass a joint at a party or drop a bud in your brother’s Christmas stocking, but some entrepreneurs see it as an opportunity to get ahead of the regulated market, planting an early stake in what could become a crowded and lucrative industry.”

It continues, “In places where legal pot shops exist, gifting operations undercut the licensed retailers, because they don’t face the same oversight or pay marijuana sales taxes. And they complicate things in places like Vermont, Maine and Washington, D.C., which have legalized pot but have no firm plans to open regulated storefronts.”

While people like Roger Katz, a Maine republican state senator, claimed this at the time: “Under any fair reading of the law, these businesses are illegal. If it walks like a duck, quacks like a duck, it is a duck,” the issue certainly hasn’t gone away, and has led to different locations instituting new policies to try to stop this gifting economy.

The thing is, people like their workarounds. Think about it, we’ve waited a long time for unnecessary, classist, and racist laws to be removed, and some places are still waiting. Maybe people don’t want to give up what they’ve waited so long for. This was demonstrated in Connecticut last year during a 420 rally, in which residents protested outside the state capital building about lawmakers trying to close the gifting gap.

Often called High Bazaars in that state, the practice of gifting in Connecticut has not been without issue, and the government has closed down some sites. This is done by stating that the law didn’t intend such actions. Obviously, this is an issue as the law also doesn’t ban the practice, meaning lawmakers are still tasked with finding an actual legal answer, if they really want to stop it.

New York is another place attempting ways to reduce the gifting industry in the state. In that state, the practice also started in earnest before actual dispensaries opened. New York’s response at the time was to send out cease and desist letters through the Office of Cannabis Management. However, it’s not actually clear if these letters went out at all, as the government agency was not willing to release specific information.

The Washington, DC example

Washington, DC is interesting on this topic. As a legalized city without a state, that sits as the location for the federal government, it has both local governing bodies, and Congress; the latter of which exerts control through the Home Rule Act. This law gives the federal body the ability to review and nix any legislation that the local government passes, within the first 30 days.

As the seat to the federal government, it will not allow a regulated recreational market, and as such, a gifting market under the medical laws took over. It got so bad, that last summer the mayor instituted emergency legislation to drop the need for a doctor’s referral to get medical weed, a move meant to increase medical sales by essentially backhandedly opening up a recreational sales market.

Congress must understand the need for this, because the legislation, which was signed off on by the mayor, was not denied by Congress. In fact, the mayor recently signed off on new updates which would open the market more; including provisions for legalized delivery, uncapped dispensary numbers, and some form of social smoking. All that needs to happen for these new updates to get instituted, is for Congress to continue doing nothing. And all of this is happening, because of the marijuana gifting loophole.

Washington is a great example of how governments can shoot themselves in the foot with bad legislation, especially when they can’t admit they’re wrong. If Congress could get over itself and allow a regulated recreational market instead of implementing workarounds to get around its own ban, it might have more success in general.

As an example of a state trying to avoid this issue specifically, Virginia passed a recreational legalization measure in 2021. According to regulation Virginia Code §18.2-248.1, unless a person has express permission, gifting cannabis is unauthorized and illegal. I expect any further state to legalize, will include a provision like this.

Conclusion

The marijuana gifting loophole allows the backhanded sale of weed through a system of trading, which essentially keeps sales off the books. So far, states have had a hard time criminalizing the act, but are working hard to close the gaps. And though governments hate this kind of activity, it sure shows a lot of resourcefulness, and personally, I respect that.

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