This review article assays the scholarly and popular press literature on the opportunities and challenges the growing legalized cannabis industry offers U.S. local governments and communities. Localities are an important focus because in many states with legalized cannabis, local jurisdictions have authority to prevent or condition its cultivation, sale, and use. Opportunities potentially flowing to localities from legalization include increased tax revenues and land values, business expansion, and increased employment; public health and safety benefits; and the potential for legalization to advance social and racial inclusion. Challenges include the possibility that economic benefits will be more limited than anticipated; complex regulatory environments facing local governments and cannabis businesses, possible increases in pollution, blight, and public health and safety concerns; and less advancement of social and racial equity than hoped by advocates. We offer recommendations for scholars investigating cannabis governance concerns and practitioners directly grappling with them.

Purpose Despite 2016 legalization of recreational cannabis cultivation and sale in California with the passage of Proposition 64, many cannabis businesses operate without licenses. Furthermore, federal regulations disincentivize financial institutions from banking and lending to licensed cannabis businesses. The authors explore the impact of legal cannabis business activity on California financial institutions, the barriers to banking faced by cannabis businesses, and the nontraditional sources of financing used by the industry.Design/methodology/approach The authors use a mixed methods approach. The authors utilize call data for banks and credit unions headquartered in California and state cannabis licensing data to estimate the impact of the extensive and intensive margins of licensed cannabis activity on key banking indicators using difference-and-difference and fixed effects regressions. The qualitative data come from interviews with industry stakeholders in northern California's “Emerald Triangle” and add important context.Findings The quantitative results show economically and statistically significant impacts of licensed cannabis activity on banking indicators, suggesting both direct and spillover effects from cannabis activity to the financial sector. However, cannabis businesses report substantial barriers to accessing basic financial services and credit, leading to nontraditional financing arrangements.Practical implications The results suggest opportunities for cannabis businesses and financial institutions if regulations are eased and important avenues for further study.Originality/value The authors contribute to the nascent literature on cannabis economics and the literature on banking regulation and nontraditional finance.

The 2016 passage of California’s Proposition 64, legalizing recreational (adult-use) cannabis, was justified ex ante in part for its potential to encourage restorative justice and positive local and state economic outcomes. But are the local institutions administering Proposition 64 achieving these aims? We address this question via a two-year case study of Mendocino County’s polycentric cannabis governance system using a mixed methods approach including archival analysis, cannabis industry and governance system interviews, and participant observation. Evidence from our case study suggests that Mendocino’s ability to achieve these goals is hampered by three quasi-market failures: interjurisdictional conflict, coproduction deficits, and devolution without adequate fiscal decentralization. A major driver in these quasi-market failures is the substantial regulatory and enforcement responsibility this governance system places on local government. We conclude by discussing some institutional structures that may address these failures.