BUS 243 The Legal Environment of Business Assignment #1 (25 points)
“After Sweeping The Elections, What Comes Next For Cannabis?” by Ben Curren of Forbes
One winner of the 2020 elections is undisputed: cannabis. In every state where it was voted on – for adult use, medically, or both – Americans approved cannabis by sweeping margins. In some
shape or form, it was legalized in New Jersey, Arizona, Montana, South Dakota and Mississippi, bringing the current count to 36 states and the District of Columbia.
The cannabis landscape also changed at the federal level, starting with Joe Biden and Kamala Harris winning the White House and potentially in Georgia, where two Senate races will determine whether Republicans continue to control the chamber.
For clues about what will come next for cannabis in Congress, it’s helpful to consider the actions of the current Congress. Two primary bills for the industry have been the Secure and Fair Enforcement (SAFE) Banking Act and the Marijuana Opportunity Reinvestment and Expungement (MORE) Act. Both bills gained traction in the last year, but will it carry over into 2021? Here’s an analysis of those two bills and their prospects under the Congress and Biden administration.
The SAFE Banking Act
The SAFE Banking Act was introduced in 2017 by U.S. Rep. Ed Perlmutter (D-CO) and U.S. Sen. Jeff Merkley (D-OR), and it remains a primary legislative goal of the cannabis industry. Because cannabis is still illegal at the federal level, multi-state banks and financial institutions are prohibited from serving cannabis-related businesses, leaving the industry to be powered only by cash. The SAFE Banking Act would allow federally overseen financial institutions to serve cannabis-related businesses that comply with the laws in the states where they operate.
Attention is riveted on how this bill will fare, and there are signs it could progress, even with GOP control of the Senate. The legislation has enjoyed bipartisan appeal and already passed the House. In the Senate, Banking Committee Chairman Mike Crapo (D-ID) expressed concerns with the bill time and time again. But, when the new Congress convenes in January, Sen. Pat Toomey (R-PA) is expected to pick up the committee’s gavel, and, as a senator from a medical cannabis state, he has indicated potential support for the bill’s core objective. Will this be enough to pass it into law? Time will tell, but there’s cause for optimism.
The MORE Act
Less clear is the fate of the MORE Act, which would, among other things, federally decriminalize cannabis by removing it from the schedule of illegal drugs in the Controlled Substances Act and expunge certain federal cannabis-related convictions. Earlier this year, the House tried to pass it but delayed consideration to focus on COVID-19 relief, and it is set for a new vote this week. The Senate has not yet voted on it, and, even if it passes the House, we shouldn’t expect action in the Senate to advance it.
The likelihood of the MORE Act’s passage next year will depend on which party controls the Senate. When the SAFE Banking Act passed the House in 2019, 91 Republicans voted yes. In the run-up to the canceled vote on the MORE Act, only three Republicans committed to voting yes.
Should Democrats sweep the two Georgia special elections on January 5, 2021 and win the Senate, the calculus changes. The party divide in the Senate will be painfully close, but the bill
will have serious proponents in the White House. During the campaign, Joe Biden made cannabis decriminalization a pillar of his social justice agenda. More importantly perhaps, it was Kamala Harris who introduced the MORE Act in the Senate in 2019. If the Senate flips to Democrats in January, the MORE Act will have friends in high places.
Forging a Fresh Path
The next Congress will also consider other pieces of cannabis legislation. For example, some hope to see reintroduced the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, which would protect individuals and businesses complying with state laws and regulations from federal prosecution for offenses under the Controlled Substances Act. The bill also features bipartisan support.
The SAFE Banking Act aims to correct the financial system for cannabis, and the MORE Act aims to right the social wrongs of the War on Drugs. Their objectives are not mutually exclusive, as the industry needs both to reach its full potential. With the roadblock of an anti-cannabis president soon to be removed, and with the cannabis industry’s footprint growing too large to ignore, it will be up to Congress in the new year to start down a new path.
“SAFE Banking Act Passes the House in a Landslide -- Here's What Happens Next” by Sean Williams of The Motley Fool
For the past three years, marijuana has taken Wall Street by storm. Even with cannabis stocks in a six-month funk, the biggest names in the industry are many multiples higher than they were three years ago on the expectation that legal weed sales will grow somewhere between five and 18 times the $10.9 billion in worldwide sales recorded in 2018 by the end of the next decade.
The one major uncertainty in these growth projections continues to be the United States. Despite being the most lucrative cannabis market in the world, the U.S. federal government has remained firm on its classification of marijuana as a Schedule I substance. This classification means marijuana is on par with heroin and LSD as being entirely illegal, prone to abuse, and isn't recognized as having any medical benefits.
In spite of being labeled a Schedule I drug, it hasn't stopped 33 states from legalizing medical marijuana since 1996, 11 states of which have also legalized adult-use consumption. These 33 states are currently running circles around Canada, the only fully legal industrialized country in the world, in terms of sales, thanks in part of the federal government taking a hands-off approach to regulation.
Nevertheless, there are clearly defined consequences to Congress holding pat on cannabis as a Schedule I substance.
As an example, profitable businesses that operate in the U.S. marijuana space are subjected to Section 280E of the tax code, which was implemented in the early 1980s to keep drug smugglers from writing off "business expenses" on their taxes. In layman's terms, marijuana companies aren't able to take any deductions on their federal income taxes, save for cost of goods sold. If profitable, this can mean paying an effective tax rate of 70% to 90%, which leaves little income left over for reinvestment and hiring.
U.S. pot companies also have minimal access to basic banking services, including loans, lines of credit, and even checking accounts. Since financial institutions report to the Federal Deposit Insurance Corporation (FDIC), and the FDIC is a federally created agency, banks and credit unions fear possible financial and/or criminal repercussions for aiding cannabis companies. This has made marijuana an industry dominated by cash, which is both a security concern and an expansionary constraint.
However, certain members of Congress believe they have a solution to this latter problem. The Secure and Fair Enforcement (SAFE) Banking Act was introduced earlier this year in the
House of Representative as a means of permanently protecting financial institutions in legalized
states that want to offer basic banking services to marijuana businesses.
Since 2014, protections have existed for cannabis businesses in legalized states via riders that have needed to be passed with each successive fiscal year. However, the SAFE Banking Act represents the first piece of stand-alone cannabis legislation to be voted on in Congress. Were it to become law, Congress would no longer need to pass annual riders, since the Act itself would protect banks and credit unions from being targeted by the federal government for providing services to the marijuana industry.
On September 25, 2019, members of the House voted overwhelmingly to pass the SAFE Banking Act: 321 in favor, to 103 opposed. A majority vote was certainly expected with the bill having 206 cosponsors heading into its historic vote. However, 321 yay votes are above and beyond expectations and demonstrate that cannabis banking reform has become a bipartisan issue.
The big question is: Now what?
Now that the SAFE Banking Act has passed the lower house of Congress, it'll move on to the Republican-controlled Senate. The problem is, the GOP has historically had a more negative view on marijuana than members of the Democratic or Independent party, making it less likely that banking reform legislation will have the votes needed for passage in the Senate.
Even Senate Democrats may push back on the SAFE Banking Act. Similar to the minority opposition in the House, some Senate Democrats believe that it's not prudent to consider reforming cannabis banking laws before broader marijuana reforms are tackled at the federal level. While industry enthusiasts and investors remain cautiously optimistic, signs continue to point to no resolution on banking reform anytime soon.
List of Works Cited
Williams, Sean. “SAFE Banking Act Passes the House in a Landslide -- Here's What Happens Next.” The Motley Fool, 28 Sept. 2019. www.fool.com/investing/2019/09/28/the-safe-