Jul 23, 2019

Three Cannabis Bills in Congress Now—How Will They Affect The Legal Marijuana Industry

If you’ve been paying attention at all, you’ve seen how cannabis legalization is spreading state-by-state—there are currently 11 states, plus Washington D.C., that have legalized adult use of marijuana and more than half the country allows medical use. Still, federal pot legalization has not happened and the future of cannabis in the U.S. is not entirely clear.

The uncertainty has clearly not stopped a legal-ish industry from developing and even thriving.

One of the biggest problems for the industry, though, has been the lack of access to banking. Because of the current legal status, very few banks are willing to work with a federally-illegal industry. Fortunately, the federal government is paying attention and it’s apparent that there will be some form of federal marijuana reform in the near future; what exactly that will look like is as-of-yet unclear.

There are currently several bills in congress that hope to change the laws regarding weed, each treating the matter somewhat differently. We’ll look at three of the most attractive bills and discuss how they are likely to impact cannabis businesses.

H.R.420 – Regulate Marijuana Like Alcohol Act

Filed by Congressman Earl Blumenauer (D-OR), if this bill passes it will completely remove cannabis from the Controlled Substances Act. That means it would no longer be regulated by the Drug Enforcement Agency. Instead, regulation would shift to the bureau now known as the Bureau of Alcohol, Tobacco, Firearms, and Explosives (ATF) and that bureau would get a name change to include “Marijuana” in that list. At the same time, the bill would allow the Food and Drug Administration the same level of control that it currently has over alcohol.

How would H.R.420 affect the industry?

De-scheduling marijuana would certainly be a positive and would completely eliminate the banking problem. It isn’t exactly a complete legalization bill, though. Transporting cannabis to jurisdictions that haven’t legalized it would remain illegal. More important is that the bill does not specify exactly how permitting would work. Instead, it leaves that to the Secretary of the Treasury to decide. Potentially there could be different types of permits depending on the type of activity (growing, wholesale distribution, retail, etc.).

It isn’t clear what that would mean for those cannabis businesses that hold permits with their respective states. Would they need additional federal permits? If the permitting requirements are similar to their states’, would they be granted federal permits by default? These are but a few questions that remain unanswered.

How likely is it to pass?

Currently, it’s not looking very likely. It has an estimated 3% chance according to Skopos Labs. It was introduced to the House in January and most recently was referred to the Subcommittee on Conservation and Forestry.

Secure and Fair Enforcement (SAFE) Banking Act

This act won’t actually change federal marijuana law, but it would get rid of the banking problem in the states that have legalized. Basically, its intent is to allow banks to work with cannabis-related businesses without fear of punishment by federal banking regulators. As long as the businesses are following the laws in their states, there will be no repercussions on banks that choose to do business with them.

How will the SAFE Banking Act affect marijuana businesses?

As things stand, many legal businesses—70% of marijuana businesses, according to estimates—are not using banks at all. Individual states have been working to solve this problem, but at best they are creating temporary solutions—Band Aids for a problem that must be addressed federally.

Lack of access to banks means that the cannabis industry, particularly at the retail level, is almost entirely cash-based. Aside from the obvious problems of handling large amounts of cash, these businesses face a huge challenge when it comes to paying taxes. Without a bank, these businesses must pay their taxes in cash. That’s a problem for the businesses and for the IRS, as it’s necessary to make an appointment, go to the local IRS office, and have the money counted. That requires two IRS employees. Until 2014, a 10% penalty was also assessed for companies paying their taxes in cash.

If the SAFE Banking Act passes, it will allow those weed businesses to operate like any other legal business, at least in terms of handling money. This will somewhat reduce the need for security since they’ll no longer have to hold large amounts of cash. Even if customers still prefer to pay in cash, as might be the case since the drug will remain federally illegal, the businesses will be able to deposit that cash in federally-insured banks.

This act is making some progress; by the time you have read this article,  it appears that the act will have gotten a Senate hearing, moving it closer to a vote. 

Strengthening the Tenth Amendment Through Entrusting States (STATES) Act

This bill, like the SAFE Banking Act, will not exactly make marijuana legal federally. Rather than changing the federal law, it will instead recognize pot’s legal status within the states that allow it. It allows states the authority to regulate the drug themselves, without federal interference if they choose to make it legal.

The act was originally introduced in June of 2018 as S.3032 and was re-introduced as H.R.2093 on April 4 of 2019. The original bill included a banking provision that is not part of H.R.2093; instead, that provision was re-introduced as the SAFE Banking Act.

The STATES Act’s likely impact on the marijuana industry

Should it pass, the biggest impact will be to remove the current uncertainty. While the feds are now taking a hands-off approach to marijuana in states that have legalized it, there is nothing official since the Cole Memorandum was rescinded. Hypothetically, things could change at any moment. Passing of the STATES Act makes the current policy official, and businesses operating according to the laws of their states will no longer have to fear a sudden shift.

Another potentially significant impact will be to reduce the businesses operating outside their states’ laws. It is hardly surprising that in many legal states a sort of “grey market” exists for cannabis. There are a number of businesses operating mostly according to the laws, but perhaps without the required permits or maybe bending a few of the rules. In California, for example, the law leaves individual municipalities to decide whether or not to allow dispensaries. In those that do not allow them, many “hide in plain sight” as delivery services, often claiming (falsely) that they are operating legally as medical dispensaries.

This act will very likely eliminate much of the grey market—a boon to those businesses operating completely above-board and those who hope to rise to the top of the cannabis industry.

Whatever happens with these individual bills, it’s clear that there will be changes in the near future. Support for outright legalization is well over 50% of the American public, cutting across party lines. The market for marijuana has always been substantial, and the federal government seems to be on its way to reaping some of its financial rewards.

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