Multiple news sources reported today that the DEA will be recommending rescheduling cannabis to a Schedule III drug. The recommendation will then lead to a public comment period and then a Final Rule will be issued, so the actual reclassification of cannabis is months away. However, as with recent moves toward rescheduling, such as the HHS recommendation and President Biden’s directive to study whether to reschedule, today’s news and the forthcoming recommendation will boost the cannabis market, as operators and investors look forward to a better performing industry resulting from the reclassification. The actual reclassification will have an immediate impact on operator profitability, as IRS Code 280E, which prevents cannabis operators from deducting normal business expenses, will no longer apply to cannabis businesses. This is just one of the very significant changes to the industry that will spur more capital and more growth. Banks and other sources of capital that have been reluctant to enter the space may finally get off the sidelines and join the game, which would obviously be the shot in the arm the industry has needed for some time.
In the Nov. 8 midterm elections, voters in both Maryland and Missouri approved legalization of cannabis for adult use, while voters in Arkansas, North Dakota and South Dakota voted no on legalization.
With the passage in Maryland and Missouri, 21 states as well as the District of Columbia have now legalized cannabis for adult use, and another 16 states permit cannabis for medical use.
Despite the fact that nearly half of all states have now legalized cannabis for adult use, it remains illegal under the federal Controlled Substances Act as a Schedule I drug, along with drugs like heroin and LSD. Such a classification means that cannabis has a high potential for abuse and has no acceptable medical use, despite research to the contrary.
To read the full text of this article by Duane Morris attorney Deanna Lucci, originally published in Law360, please visit the firm website.
Today, President Biden took executive action and pardoned those convicted of simple possession of marijuana under the federal Controlled Substances Act, and encouraged state governors to issue similar pardons to those convicted of simple marijuana possession under their state’s laws. In issuing the pardon, President Biden explained: “Criminal records for marijuana possession have also imposed needless barriers to employment, housing, and educational opportunities. And while white and Black and brown people use marijuana at similar rates, Black and brown people have been arrested, prosecuted, and convicted at disproportionate rates.” He also asks the Secretary of Health “to initiate the administrative process to review expeditiously how marijuana is scheduled under federal law,” noting that marijuana is scheduled higher than fentanyl and methamphetamine. The executive action could mark the real beginning of the ending of the federal prohibition on marijuana. As President Biden stated, “Too many lives have been upended because of our failed approach to marijuana. It’s time that we right these wrongs.”
With the explicit support of the American Banking Association, and after passing in the House during the last congress, the SAFE Banking Act was reintroduced in the House on March 18, and a companion Act is expected to be introduced in the Senate next week. The proposed legislation would allow financial institutions to provide their services to cannabis – marijuana and hemp – clients without fear of federal sanctions. The proposed legislation enjoys bi-partisan support, and is in “position A” for passing in 2021.
Given the billions of dollars of revenues, including tax dollars, generated by the industry, which are generated by cannabis companies and companies that provide services to the industry, cannabis banking is truly a public concern. The very laws that seek to create transparency as to the public fisc, such as the Bank Secrecy Act, have forced cannabis to be a cash business, which means not all of the cannabis dollars may be accounted for as in other industries, thereby undermining the objectives of those laws. The SAFE Banking Act would resolve those concerns by allowing core and ancillary companies to utilize all of the electronic banking, checking, payroll, and accounting functionality that businesses in all other industries enjoy. There is no question the passage of this legislation would provide a game-changing boost to the cannabis space.
Today, the House of Representatives passed the groundbreaking MORE Act – legalizing marijuana at the federal level. The bill passed by a vote of 228 to 164.
As we previously discussed in our November 10th and September 4th blog posts, the MORE Act (Marijuana Opportunity Reinvestment and Expungement Act of 2019 – H.R. 3884) legalizes marijuana and cannabis at the federal level, by removing them from the Controlled Substances Act and eliminates some cannabis criminal records.
While the bill represents a first step toward legalizing cannabis, states would need to adopt similar measures to fully decriminalize its use – currently, 15 states and the District of Columbia have legalized (or recently voted to legalize) cannabis for adult recreational use, and 35 states and the District of Columbia have legalized medical cannabis.
The bill also makes other changes, including:
Replaces statutory references to marijuana and marihuana with cannabis,
Requires the Bureau of Labor Statistics to regularly publish demographic data on cannabis business owners and employees,
Establishes a trust fund to support various programs and services for individuals and businesses in communities impacted by the war on drugs,
Imposes a 5% tax on cannabis products and requires revenues to be deposited into the trust fund,
Makes Small Business Administration loans and services available to entities that are cannabis-related legitimate businesses or service providers,
Prohibits the denial of federal public benefits to a person on the basis of certain cannabis-related conduct or convictions,
Prohibits the denial of benefits and protections under immigration laws on the basis of a cannabis-related event (e.g., conduct or a conviction), and
Establishes a process to expunge convictions and conduct sentencing review hearings related to federal cannabis offenses.
While Sen. Kamala D. Harris (D-CA), the Vice President-Elect, introduced a counterpart bill (S.2227) in the U.S. Senate, its passage in the chamber is unlikely this Congress as Senate Majority Leader Mitch McConnell (R-KY) has declined to endorse the bill.
While this legislation is unlikely to pass the Senate this Congress, proponents of cannabis legalization have hailed the House vote as historic, and an important first step toward generating the momentum and support needed to favorably position the measure for future congressional consideration. And whether the measure would be approved by the next Congress likely depends on the outcome of the two Georgia Senate runoff elections scheduled for January 5, 2021. If both Democratic Senate candidates, Jon Ossoff and Rev. Raphael Warnock, win the runoffs, then the Democrats will control both the House and Senate, with Vice President-Elect Kamala Harris casting the tie-breaking vote.
However, it is unclear if President-Elect Joe Biden would sign the bill since he has proposed rescheduling cannabis as a schedule II drug so researchers can study its positive and negative impacts as opposed to removing it entirely from the list of scheduled substances. While Biden has expressed support for decriminalization of marijuana, expungement of prior cannabis use convictions, and legalizing cannabis use for medical purposes – he has said he wants to leave decisions regarding adult recreational use to the individual states. Nonetheless, marijuana legalization advocates believe this symbolic vote on the legislation could send a strong signal to the Biden administration that this is a Democratic priority.
Even though federal legalization may not be on the immediate horizon, the passage of the MORE Act in the House, and the legalization of adult-use and/or medical marijuana in five more states on November 3, 2020, could influence a Biden-appointed attorney general’s views on enforcement of marijuana related activities. While AG Sessions attempted to reverse the liberal Obama administration marijuana policies set forth in the Cole Memorandum, and AG Barr has reluctantly acknowledged that the Cole priorities have been relied on and should thus be followed, an AG appointed by Biden, given the current pro-legalization wave, Biden’s favoring of state’s rights on this issue, and Kamala Harris’s favoring of decriminalization, might endorse an approach consistent with, if not even more liberal than, the Cole priorities. Thus, while the appointment of AG Sessions sent shockwaves through the cannabis industry, market participants and those who have been standing on the sidelines eager to get on the field seem to have a lot to look forward to.
For the first time ever, the U.S. House of Representatives will vote this month on legislation that if enacted would legalize marijuana and cannabis at the federal level, by removing them from the Controlled Substances Act and eliminate some cannabis criminal records.
The MORE Act (Marijuana Opportunity Reinvestment and Expungement Act of 2019 – H.R. 3884) would decriminalize marijuana at the federal level by removing it from the list of scheduled substances under the federal Controlled Substances Act, and would further eliminate criminal penalties for an individual who manufactures, distributes, or possesses marijuana. While the bill represents a first step toward legalizing cannabis, states would need to adopt similar measures to fully decriminalize its use – currently, 11 states and the District of Columbia have legalized cannabis for adult recreational use, and 33 states and the District of Columbia have legalized medical cannabis.
The bill also makes other changes, including:
Replaces statutory references to marijuana and marihuana with cannabis,
Requires the Bureau of Labor Statistics to regularly publish demographic data on cannabis business owners and employees,
Establishes a trust fund to support various programs and services for individuals and businesses in communities impacted by the war on drugs,
Imposes a 5% tax on cannabis products and requires revenues to be deposited into the trust fund,
Makes Small Business Administration loans and services available to entities that are cannabis-related legitimate businesses or service providers,
Prohibits the denial of federal public benefits to a person on the basis of certain cannabis-related conduct or convictions,
Prohibits the denial of benefits and protections under immigration laws on the basis of a cannabis-related event (e.g., conduct or a conviction), and
Establishes a process to expunge convictions and conduct sentencing review hearings related to federal cannabis offenses.
The bill, which is expected to be brought to the floor for a vote and pass sometime this month, was originally introduced last year by Rep. Jerrold Nadler, D-N.Y. and approved by the House Judiciary Committee in November. While a counterpart bill (S.2227) has been introduced in the U.S. Senate by Sen. Kamala D. Harris (D-CA) – the Democratic Vice Presidential nominee – its passage in the chamber is unlikely as Senate Majority Leader Mitch McConnell (R-KY) has declined to endorse the bill, making its chances of successfully moving through committee and to the Senate floor for a vote virtually impossible. Without action in the Senate, the bill will die this Congress. However, proponents of cannabis legalization – as well as civil rights and civil liberties organizations, and criminal justice reform advocates – are still hailing the House vote as historic, and an important first step toward generating the momentum and support needed to favorably position the measure for future congressional consideration.
Prospects for the successful consideration and approval of the measure by the next Congress will likely hinge on the outcome of the November election.
Vice President Joe Biden, the Democratic presidential nominee, has proposed rescheduling cannabis as a schedule II drug so researchers can study its positive and negative impacts. Biden has expressed support for decriminalization of marijuana, expungement of prior cannabis use convictions, and legalizing cannabis use for medical purposes – but wants to leave decisions regarding adult recreational use to the individual states. If elected, Biden and Harris would likely seek to decriminalize cannabis but stop short of advocating for federal adult use legalization, allowing the individual states to decide.
“Credit unions may provide the customary range of financial services for business accounts, including loans, to lawfully operating hemp related businesses within their fields of membership,” says the National Credit Union Administration (NCRU) in its recently released guidance 19-RA-02.
While this is a significant step for hemp businesses seeking banking outlets, it is far from the relief proposed by Secure and Fair Enforcement Act (“SAFE Banking Act”) and does not represent a blanket permission. Still, the NCRU Guidance signals a recognition of the growing Cannabis industry and the practical need to provide financial services to businesses in the industry. Here are some key takeaways.
First, the guidance only applies to Federally Insured Credit Unions, not national banks.
Second, the guidance explicitly relates to credit unions serving “hemp” businesses as defined in the Agricultural Improvement Act of 2018 (2018 Farm Bill), which removed hemp from Schedule I of the Controlled Substances Act.[1] Marijuana remains a Schedule I drug, which restricts banking access of marijuana businesses.
Third, because the USDA has yet to promulgate regulations and guidelines to implement the hemp production provisions of the 2018 Farm Bill, credit unions must ensure members in hemp-related business are operating under the industrial hemp pilot provisions of the Agricultural Act of 2014 (2014 Farm Bill).
Fourth, credit unions that elect to bank hemp-related businesses must maintain robust Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance programs. This includes:
Maintaining appropriate due diligence procedures for hemp-related accounts and complying with BSA and AML requirements to file Suspicious Activity Reports (SARs) for any activity that appears to involve potential money laundering or illegal or suspicious activity.
Remaining alert to any indication an account owner is involved in illicit activity or engaging in activity that is unusual for the business.
Staying on top of state and tribal laws, regulations, and agreements under which each member that is a hemp-related business operates.
Verifying that the member is part of the pilot program created in the 2014 Farm Bill.
Adapting ongoing due diligence and reporting approaches to any risks specific to participants in the pilot program.
Being familiar with any other federal and state laws and regulations that prohibit, restrict, or otherwise govern these businesses and their activity.
In sum, banking hemp-related businesses is permissible for credit unions. But they must be diligent in crafting BSA/AML policies. This is not a complete solution to the existing banking problems facing the Cannabis industry, but it does evidence a growing regulatory desire to provide access for the industry, which could sway policy makers down the road.
[1] The 2018 Farm Bill defines “hemp” as: “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”
USDA has issued its first guidance since the passage of the 2018 Farm Bill. Because the Farm Bill removed hemp from the Controlled Substances Act, the importation of hemp seeds will now be regulated by USDA as an agricultural product, not DEA. USDA stated that by removing hemp from the CSA, the Act “removed hemp and hemp seeds from DEA authority for products containing THC levels not greater than 0.3 percent. Therefore, DEA no longer has authority to require hemp seed permits for import purposes.” Importation of hemp seeds from international sources will now be permitted if accompanied by the appropriate phytosanitary certification and will be subject to inspection by Customs and Border Patrol.
The reference to DEA authority is significant and confirms that DEA no longer has jurisdiction over hemp or products derived from hemp such as CBD oil. DEA needs to update its own guidance documents in light of the 2018 Farm Bill. USDA is working on regulations to implement the state cultivation program provisions of the Farm Bill. They are expected to be in place in time for the 2020 growing season.
Gov. Phil Murphy and legislative leaders reached agreement on key provisions to legalize marijuana for adult recreational use, including how to tax and regulate it, and expunging past low-level marijuana offenses for certain users as a step toward social reform per reporting from Dan Munoz.
Per a press release issued by key Assembly Senate and the Governor’s office, we should expect to see the introduction of a cannabis bill within days.
Under the terms of the agreement:
• Adult-use marijuana would be subject to an excise tax of $42 per ounce, which will be imposed when marijuana is cultivated.
• Municipalities that are home to a cultivator or manufacturer would receive the revenue from a 2 percent tax on the product within their jurisdiction.
• Municipalities that are home to a wholesaler would receive the revenue from a 1 percent tax on the product within their jurisdiction.
• Municipalities that are home to a retailer would receive the revenue from a 3 percent tax on the product within their jurisdiction.
To start to address social equity concerns, the revised legislation will likely provide an expedited expungement process for individuals convicted of low-level marijuana offenses, and a separate expungement process that would automatically prevent certain marijuana offenses from being taken into account in particular areas such as education, housing and occupational licensing.
Additionally, there are a number of provisions that aim to ensure broad-based participation for women owned and minority owned businesses, low and middle-income individuals, and disadvantaged communities.
Under the proposed legislation, adult-use marijuana would be governed by a Cannabis Regulatory Commission, composed of 5 members—three appointed directly by the Governor to serve terms of at least 4 years, and 2 appointed by the Governor upon the recommendations of the speaker and Senate president.
The commission would be tasked with promulgating all regulations to govern the industry and overseeing applications for licensing of adult-use marijuana dispensaries.
On 1-9-19, Rep. Earl Blumenauer (D-OR) introduced H.R. 420, the “Regulate Marijuana Like Alcohol Act.” Blumenauer, the co-sponsor of the Rohrabacher–Blumenauer amendment, better known as the on-going appropriations provision that prohibits the Justice Department from spending federal funds to enforce federal law that is in conflict with state medical cannabis laws.
Proposed Bill 420 is a total overhaul of the federal government’s treatment of marijuana. Among other things, the bill:
1. Decriminalizes marijuana by removing it from the Controlled Substances Act;
2. Amends the Federal Alcohol Administration Act to enable the Secretary of the Treasury to issue permits to those who want to to manufacture, distribute, or sell marijuana;
3. Transfers jurisdiction from the DEA to the Bureau of Alcohol, Tobacco, Firearms and Explosives;
4. Prohibits widespread advertising for marijuana; and
5. Grants to the FDA the same authority for marijuana as it has for alcohol.
Rep. Blumenauer noted: “Congress cannot continue to be out of touch with a movement that a growing majority of Americans support. It’s time to end this senseless prohibition.” In this vein, per a Pew Research Center study released last fall, nearly 66% of Americans support legalization at the federal level.
The new co-chairs of the 2019 bipartisan Congressional Cannabis Conference are Rep. Barbara Lee (D-CA) and Dave Joyce (R-OH), Rep. Earl Blumenauer (D-OR) and Don Young (R-AK).
