The Door Opens. The Door Closes. 🚪

Welcome to Advance Genie, the newsletter that helps operators in high-friction industries find smarter paths to capital.

The CFTC formally withdrew all restrictions on prediction markets on February 4.

Three days earlier, Massachusetts became the first state to force a prediction market platform to shut down.

Same industry. Same week. Different governments.

CFTC Chairman Michael Selig called the Biden-era proposed ban a "frolic into merit regulation" and directed staff to write new rules supporting "lawful innovation."

Massachusetts Judge Christopher Barry-Smith ruled the opposite. Federal regulation "does not strip states of their authority to regulate gambling."

The federal government is opening doors. States are slamming them shut.

For operators in stigmatized industries, this is the defining regulatory pattern of 2026. The question is no longer whether you can operate. It's which government you're asking..

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The CFTC Opens the Door

Chairman Selig's January 29 announcement was unambiguous.

"It is time for clear rules and a clear understanding that the CFTC supports lawful innovation in these markets."

He directed staff to withdraw both the 2024 proposed rule that would have prohibited political and sports-related event contracts and the 2025 staff advisory warning platforms about ongoing litigation.

On February 4, the CFTC formally withdrew both.

The 2024 proposal would have treated prediction markets like terrorism or assassination contracts. Prohibited entirely. Now it's gone.

The 2025 advisory told platforms to prepare for "all foreseeable conditions" from state lawsuits. Selig said it "inadvertently created confusion and uncertainty." Also gone.

In their place: a commitment to write new rules that establish "clear standards for event contracts that provide certainty to market participants."

Here's the part that matters most for the state battles.

Selig directed staff to "reassess the Commission's participation in matters currently pending before the federal district and circuit courts." Where jurisdictional questions are at issue, he said, "the Commission has the expertise and responsibility to defend its exclusive jurisdiction over commodity derivatives."

The CFTC may intervene in lawsuits to support prediction markets against state regulators.

The Coalition for Prediction Markets called it "a key step to foster market clarity, responsible innovation, and trust in American markets."

State gaming commissions see it differently.

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States Strike Back

The Massachusetts Attorney General secured a preliminary injunction against Kalshi in January.

"The Court has made clear that any company that wants to be in the sports gaming business in Massachusetts must play by our rules. No exceptions."

The judge rejected Kalshi's federal preemption argument directly. Congress did not intend to bar states from regulating sports betting, he ruled. Requiring Kalshi to obtain a state license would not displace federal derivatives regulations.

The injunction was the first of its kind. Until Massachusetts, prediction markets had repeatedly persuaded courts to let them keep operating while cases played out.

Not anymore.

On February 9, Judge Barry-Smith denied Kalshi's emergency stay. The company has 30 days to implement geofencing technology blocking Massachusetts residents from sports contracts.

"Economic loss alone does not usually rise to the level of irreparable harm," the judge wrote.

Kalshi will appeal. But the precedent is set.

The Cascade Effect

Other states moved immediately.

Gaming lawyer Daniel Wallach documented the pattern: within days, Ohio, Nevada, New Jersey, New York, and Tennessee all filed the Massachusetts ruling as supplemental authority in their own cases.

Prediction markets have now suffered six consecutive adverse outcomes in state-level litigation.

Nevada's Gaming Control Board filed a civil action against Polymarket on January 16. Not a response to a Polymarket lawsuit. This is an offensive action to stop the platform from operating in Nevada.

Connecticut scheduled oral arguments for February 11 and 12 in cases against both Kalshi and Coinbase.

On February 10, Polymarket filed its own federal lawsuit against Massachusetts, seeking to invalidate the Kalshi injunction before it applies to them.

"That injunction demonstrates the Commonwealth's willingness to use state law to shut down federally authorized markets despite clear federal preemption," Polymarket's complaint states.

The question now goes to federal courts: does CFTC regulation preempt state gambling laws, or can states treat event contracts as unlicensed sportsbooks?

The numbers explain why states are fighting.

• Kalshi's weekly trading volume exceeded $1.7 billion in the final week of December 2025. 

• Daily volumes hit $291 million by January 1. 

• Total 2025 notional volume reached $23.8 billion, representing 1,100% year-over-year growth.

Sports contracts now account for over 80% of Kalshi's business.

According to Massachusetts, Kalshi users wagered more than $1 billion on 3.4 million sports wagers in the first half of 2025 alone.

That's revenue flowing through CFTC-regulated channels rather than state-taxed sportsbooks.

State gaming commissions exist to protect tax revenue. 

When a billion dollars moves through a federal loophole, they notice.

The Extraction Pattern

Once an industry proves viability, extraction follows. The form varies. The outcome doesn't.

Chicago's 10.25% local tax on sports betting took effect January 1. Stacked on Illinois' 20-40% state tax plus per-wager fees, combined rates now exceed 52% for large operators.

Texas proposed hemp license fees of $20,000-$25,000 annually per location. Previous fees were as low as $250. That's a 10,000% increase.

The U.S. Court of Federal Claims bars cannabis businesses from claiming the Employee Retention Credit. A California dispensary's $322,016 claim was dismissed. Pending ERC claims face near-certain denial.

Even within the federal government, contradictions persist. The FDA wanted to fast-track Compass Pathways' psilocybin treatment. HHS and the White House blocked it hours before the announcement. Of 10 drugs proposed for priority vouchers, only Compass was removed.

The math is consistent across industries. 

Prove you work. 

Get taxed, fee'd, or blocked. 

Build alternative infrastructure or get squeezed.

Trulieve just demonstrated what building ahead looks like. The company raised $200 million at 10.5% through specialized lenders and fully exited the 2026 debt wall. 

JP Morgan still says it's "too early" for cannabis. Trulieve didn't wait.

The Infrastructure Imperative

The federal-state fracture won't resolve satisfactorily anytime soon.

The CFTC supports prediction markets. Massachusetts blocks them. FDA wanted to fast-track psilocybin. HHS rejected it. Congress banned hemp. Bipartisan legislators are trying to delay it.

Which answer you get depends on which door you knock on.

For operators, the strategic question has changed. It's no longer whether regulators will support your industry. It's whether your infrastructure works regardless of which regulator shows up.

Geofencing technology. Specialized lenders. State-specific banking relationships. Payment processors built for high-friction industries. Stablecoin rails. Protective refund claims.

The operators who thrive in 2026 won't be those who predict which government wins.

They'll be those who built systems that work no matter which government answers.