Legal Archives - Green Market Report

StaffMarch 4, 2021

Editors Note: This is a guest post.

The booming USA cannabis industry has had to overcome many hurdles to reach the position it is in. With amendments to the Prevent All Cigarette Trafficking (PACT) Act it may have hit yet another setback. In the following article we explain what the PACT act is all about, how the amendments to the act will affect the industry and those who work within it, and what the answer may be going forward. We’ll begin by explaining the act itself and its origins.

What is the PACT Act?

The PACT Act was originally passed as law in 2008. However, it has its roots in an act drawn up 60 years earlier in 1949 called the Jenkins Act. The Jenkins Act was aimed at combatting contraband tobacco. It required all carriers who were shipping tobacco or tobacco products across state lines to report the sale of such products to the relevant tax authorities. Tobacco was, naturally, a much-traded product in terms of illicit deals, hence the requirement for the act to impede on tax avoidance.

In 2009 the PACT Act amended the Jenkins Act. Additions to the act included the prevention of the U.S Postal Service (USPS) from delivering cigarettes and tobacco products. This amendment also applied to smokeless tobacco products. The Act also requires sellers of tobacco products to adhere to strict regulations including registering with the ATF (Bureau of Alcohol, Tobacco, Firearms and Explosives) and the tax authorities in the state they are shipping to or, in fact, where an advertisement for such products is displayed.

In addition, they must use a carrier who checks the identification of the recipient, and records of sales must be kept for a number of years, among other specific requirements. Originally these regulations did not apply to vaping products. That is about to change, as we will explain.

How Will the PACT Act Affect the Cannabis Industry?

The recent amendment to the PACT Act – ‘Preventing Online Sales of E-Cigarettes to Children Act’ – brings vape products under the umbrella of the act. Within the wording, the definition of ‘cigarette’ has been amended to include ‘Electronic Nicotine Delivery Systems’ (ENDS). At first glance ENDS appears not to include cannabis products. However, the Act defines ENDS as follows:

“any electronic device that, through an aerosolized solution, delivers nicotine, flavor, or any other substance to the user inhaling from the device including an e-cigarette; an e-hookah; an e-cigar; a vape pen; an advanced refillable personal vaporizer; an electronic pipe; and any component, liquid, part, or accessory of a device described without regard to whether the component, liquid, part, or accessory is sold separately from the device.”

This means that USPS can no longer deliver vape products to consumers. There is some debate ongoing as to whether USPS can deliver business to business – such transactions were exempt from the original PACT Act where strict criteria were met – as the service has yet to publish its intentions.

There has been plenty of reaction within the industry, notably from online retailers and suppliers of vape products who face potential damage from the latest amendments. For example:

“The ban is going to affect cannabis industry also. We are working on a plan with alternative shippers to get our customers their weed vaporizer products, however, the shipping time and shipment fee may increase” the owner of vape4ever.com said. Vape4Ever is an established online supplier of quality vaporizer products at the leading edge of the market.

A worrying addition to the above is that two of the major US carriers – FedEx and United Parcel Service (UPS) – have announced they will no longer transport vaping products in the USA, with FedEx applying its rules from March 1st, 2021, and UPS enforcing the ban from April 5th. T

What Happens Next?

Whether the current cannabis industry growth projections – which are very healthy indeed – remain in place in the face of the PACT Act remains to be seen. The major concern is for smaller businesses in the vape and cannabis industry who face expensive upgrades to their computer systems as well as revisions to their working practices in the light of the USPS, FedEx and UPS transport bans that are coming into effect shortly.

The ACT requires the USPS to officially clarify the regulation on the carrying of ENDS by April 27th, 2021. At the time of writing there has been no such clarification, and businesses are advised to ensure compliance by that date at the latest. There will be a need for suppliers to find private logistics solutions in order to enact delivery of vape products, and many are currently investigating and organizing such solutions.

The PACT Act is a blow to a burgeoning industry that has given rise to many small outfits and provides many jobs, and it is hoped that the smaller players in the market can find a cost-effective solution to comply and enable delivery to continue.

StaffMarch 1, 2021

Editors Note: This article was submitted by Ashley Elsner Co-Founder and COO of Artery Pay.

On Friday, February 19, 2021, Jim Patterson, the former CEO of Eaze, was charged with and pled guilty to conspiracy to commit bank fraud in connection with credit card processing for cannabis products on the Eaze platform as part of an ongoing criminal trial against Hamid Akhavan and Ruben Weigand. In this article, I explain what is alleged, why it’s illegal, why you should care, and how to protect yourself and your business.

What did Mr. Patterson and his co-conspirators allegedly do?

On March 31, 2020, Hamid Akhavan and Ruben Weigand were charged with conspiracy to commit bank fraud in violation of 18 U.S.C. § 1349. The indictment alleges that, from 2016 through 2019, Akhavan, Weigand, and other, unnamed co-conspirators engaged in a conspiracy, the “Transaction Laundering Scheme,” to deceive banks into processing over $100 million of credit and debit card payments to marijuana retailers by disguising the transactions so as to create the false appearance that they were unrelated to the purchase of marijuana.

-United States v. Akhavan, S3 20-cr-188(JSR), (S.D.N.Y. May. 20, 2020)

Jim Patterson has pleaded guilty to his part in the above criminal indictment. For your reference, below are the definitions of the crimes alleged in the indictment.

18 U.S.C. § 1349 states:

Any person who attempts or conspires to commit any offense under this chapter shall be subject to the same penalties as those prescribed for the offense, the commission of which was the object of the attempt or conspiracy.

The underlying offense here is bank fraud defined in 18 U.S.C. § 1344, which states:

Whoever knowingly executes, or attempts to execute, a scheme or artifice—

(1) to defraud a financial institution; or

(2) to obtain any of the money, funds, credits, assets, securities, or other property owned by, or under the custody or control of, a financial institution, by means of false or fraudulent pretenses, representations, or promises;

shall be fined not more than $1,000,000 or imprisoned not more than 30 years, or both.

In essence, Akhavan, Weigand, and Patterson are charged with lying to financial institutions about what the transactions on the Eaze platform were for to trick them into processing transactions for cannabis products in the US.

Why is this illegal?

First, a little background in how card processing works. There are a number of financial institutions that are involved in the processing and clearing of card-based transactions. Each one has to consent to process and clear the transactions. To do this, card networks like Visa, Mastercard, American Express, and Discover, that provide transaction systems, have created specific network rules and category codes that apply to card processing. Card issuing banks, such as Bank of America, Chase, Wells Fargo, Citigroup, and Capital One, underwrite the consumer transactions that the card networks feed them according to those same rules and category codes that they developed in collaboration with one another. Both the card networks and the card-issuing banks have to agree to support transactions for specific products and services so that those specific products and services get a category code. The category code is transmitted at the time of transaction and lets the underwriting bank determine if that transaction can be accepted for the specific consumer for the specific products and services.

Why is this important? Because neither card networks, that provide the systems, nor card-issuing banks, that provide consumers with the cards that are presently in their wallets, have agreed to process cannabis transactions until federal legalization of cannabis products at the earliest. Large national financial institutions, the card networks, and card-issuing banks included, have taken the position that as defined in their network and institutional rules, the US federal prohibition makes cannabis products illegal, and therefore, they will not process and clear those transactions via their systems and institutions.

To that end, the card networks have not provided a category code for US cannabis products. In order to trick card networks and card-issuing banks into processing and clearing cannabis product transactions, someone would have to miscode those transactions as an accepted category code. Miscoding financial transactions to a bank in any way is bank fraud. In this case, it is also money laundering because it deliberately hides the true source of the transaction.

But why should I, a cannabis business owner, care what happened to Jim Patterson from Eaze?

The simple answer is that bank fraud and money laundering cases get prosecuted. To that point, Judge Rakoff, the federal judge hearing the case, refused to grant dismissal against Weigand and Akhavan for 2 arguments that I hear from industry professionals all the time.

First, and I admit this argument (and it’s inverse that everything is federally illegal so who cares) always makes me laugh, Weigand and Akhavan’s attorneys argued that the Rohrbacher-Farr Amendment to the 2014 congressional spending bill prevents federal prosecutors from going after marijuana operations that comply with state law. Judge Rakoff’s response was that they are accused of bank fraud, not engaging in state-licensed cannabis business. “The Rohrbacher-Farr Amendment does not condone bank fraud by a medical marijuana dispensary any more than it condones murder, robbery, or assault.” I don’t think I can say that any more clearly but I’ll try. Cannabis protections from federal prosecution do not extend to other crimes.

Second, “no harm, no foul”. That is just not true. Financial crime laws are instrumental in protecting the US and its citizens from all kinds of criminal and terrorist organizations. It was money crimes that took down the mafia and made it possible to prove criminal organization. It is money crimes that allow law enforcement to track, monitor, and dismantle terrorist organizations, gangs, and cartels now. Money laws are paramount to public safety so money crimes are not “no harm crimes”.

I will add that the stability of the US economy and our financial markets is due in large part to the expectation of legal enforcement against fraudulent behavior. Fraud is a crime that does hurt people and businesses. I don’t like to make slippery slope arguments, but this is one of the rare cases where it actually applies. If you let some people get away with fraud, others see that fraud laws are not enforced and start committing fraud too. Then no one can trust anyone anymore and it becomes impossible to engage in free enterprise. Fraud breaks capitalism which relies on legitimate information and intention.

Finally, I’m going to add one more argument that wasn’t put forward but I hear all the time: “I didn’t set up the bank fraud so I’m not responsible for it.” Unfortunately, that’s not true; RICO is why. “RICO” stands for Racketeer Influenced and Corrupt Organizations Act (18 U.S.C. §1961 – §1968.) It is an extremely important tool for law enforcement for dismantling criminal organizations. RICO allows criminal liability for predicate offenses, like bank fraud and money laundering, to be extended to executives that control and order predicate offenses in furtherance of an enterprise. That means that criminal liability for these types of scams can extend to you, the business owner, just for using the scam, and sadly, it doesn’t matter if you know it’s a scam or not. You can still face prosecution. And, RICO requires forfeiture of “ill-gotten gains.” That means that by using the scam, you made legitimate transactions into illegal ones that can be subject to being frozen and seized.

How can I protect myself and my business from getting into similar trouble?

Never lie to a financial institution about what you do. When you fib, financial institutions always eventually catch you and account shutdowns are substantial disruptions to your business and annoy your customers. If you are a licensed cannabis business that follows your applicable regulations and you don’t take products or money across state or international lines, you are not doing anything wrong. If the bank or processor chooses not to work with you because you are a cannabis business, that is their right. There are other banks and payment systems that will work with you as long as you haven’t fibbed to other banks in the past. It’s not necessarily easy or cheap but getting legitimate, open cannabis banking and cannabis payment platforms is the best thing for you and your business. It’s legal, reliable, and sustainable.
Due diligence your financial providers and their offerings. You should be able to find out who they are, if they actually have appropriate experience, be able to contact and confirm with their backing banks that they have approved working with cannabis and that they know that your payment platforms are working with cannabis. If you find this to be too difficult, ask your lawyers and accountants to help you. They are your fiduciaries and have legal and moral obligations to make sure that you and your business are protected.
Don’t use “workarounds”. There are no “workarounds” in finance. Attempts to “workaround” getting direct, verifiable consent from banks, card networks, other financial institutions are a bad idea. Not only can you be held personally criminally liable for misrepresenting your business and your transactions, like what happened to Mr. Patterson, your assets under these scams are freezable and seizable. Using “workarounds” can expose you to other threats to your business as well. For example, when your bank catches you, they can shut down your bank account and will submit your information to the terminated merchant file (TMF). The TMF is used by banks, payment processors, other financial institutions to determine if you are a “bad actor. This status can kill your ability to obtain any financial support in the US, think insurance, lending, banking, payments, listing on stock exchanges, etc. Also, this reputation will follow you and the rest of your executive team to future businesses. It’s not limited to your present company.

Don’t play games with your money.

Ashley Elsner is a financial lawyer and the Co-Founder and COO of Artery Pay, a payments company making payments and banking easy for cannabis businesses. Artery Pay unifies payments and banking compliance into a single system so that merchants and the banks and credit unions that support them are able to work with each other easily, effectively, and transparently. Whether you want non-cash payments or need help with your cash, Artery Pay can manage all of your transaction needs. Artery Pay is easy, fun, cheap, and legal – the way cannabis should be. For more information, visit www.arterypay.com or contact Ashley directly at ashley@arterypay.com.

StaffFebruary 22, 2021

On Monday, New Jersey’s Democratic Governor Phil Murphy signed legislation that legalizes adult-use marijuana possession and licenses retail marijuana sales.

“The enactment of these laws is long overdue,” said NORML State Policies Manager Carly Wolf — who emphasized that state and local police have made over 6,000 arrests for marijuana-related violations in the months since New Jersey voters overwhelmingly decided at the ballot box. “Now, going forward, tens of thousands of otherwise law-abiding New Jerseyans will no longer be subject to arrest and a criminal record for their personal use of marijuana, and the commercial market will be regulated in a fair and inclusive manner.”

NORMAL stated that three bills were signed by the Governor. A21/S21 licenses the commercial production and retail sale of cannabis to adults. Under the new law, adults may legally purchase and possess up to one ounce of cannabis. Retail sales are subject to state sales tax. Seventy percent of the revenue derived from sales taxes on retail marijuana purchases will be directed toward reinvestment in designated, lower-income communities. Sales are expected to begin this summer. The legislation also calls for the creation of a five-member Cannabis Regulatory Commission that will be tasked with issuing detailed regulations by June 2021 that will govern virtually every aspect of the adult-use cannabis industry.

The new law caps the number of state-licensed cultivators at 37 for the first two years. Existing state-licensed medical cannabis producers will be among those eligible to provide to the retail market. It has been estimated that adult-use retailers may be operational within six months. Applications for adult-use cannabis business licenses will begin to be accepted 30 days after the regulations are issued.

Murphy also signed A1897, which removes criminal and civil penalties for the private possession of up to six ounces of cannabis by those ages 21 and older, as well as for the possession of personal use amounts of hashish (up to 170 grams). It also depenalizes activities involving the transfer of up to one ounce of cannabis, and reduces criminal penalties for activities involving larger quantities (distribution of more than one ounce but less than five pounds) of the substance.

Gov. Murphy also signed a third piece of legislation into law, A5342. It provides for a series of written warnings, rather than the imposition of either criminal penalties or fines for those under the age of 21 who are caught with cannabis. The Governor lobbied for the measure, which was passed by lawmakers this morning. Under the measure, third-time juvenile offenders could receive community service. Provisions in the law also restrict police from conducting searches of juveniles based solely on the odor of marijuana.

“This is a major milestone on the path to ending cannabis prohibition in New Jersey,” said Jennifer Cabrera of Vicente Sederberg LLP, a national cannabis law firm that helps shape and implement cannabis laws and regulations across the U.S. Based in Union County, she co-manages the firm’s New Jersey and New York offices and works closely with state lawmakers and regulators on cannabis policy issues.

“The legislation was intended to promote small locally owned businesses and should foster a vibrant craft cannabis industry in the state,” Cabrera said. “It reserves licenses for microbusinesses and offers them a streamlined application process that will reduce barriers to entry and help them get a footing in this growing industry. There are some additional steps we would like to see policymakers take to make it easier to operate these microbusinesses, and we look forward to working with them as they fine-tune the system. Still, this is a great starting point and opens the door to a lot of exciting opportunity for local entrepreneurs.”

Vicente also stated that the law also includes several provisions aimed at promoting social equity in the cannabis industry and repairing damage caused by prohibition. For example, it specifies that 30% of licenses must be allocated to businesses owned by women, minorities, or disabled veterans, and at least 25% should be allocated to residents of impact zones, which are defined as municipalities with more than 120,000 residents that rank in the top 40% of municipalities in the state for cannabis-related arrests; have a crime index of 825 or higher, and have a local average annual unemployment rate that ranks in the top 15% of municipalities.

“New Jersey has adopted some of the strongest social equity provisions we’ve seen,” Cabrera said. “Contemplating these issues at the outset of the process will likely prove to be a big advantage for the state. It is much easier to build these considerations into the system than it is to go back and incorporate them later.”

Kaitlin DomangueFebruary 10, 2021

On February 5th, state lawmakers voted to legalize cannabis in Virginia and establish a recreational market. Both chambers’ initiative would legalize possession of an ounce of marijuana or less, and begin the process of expunging certain cannabis-related misdemeanors on July 1st. Retail sales are predicted to start in 2024, per the plans of both the House and Senate.

Virginia already has a medical marijuana program, but it’s limited compared to most states. Even so, the medical program is expected to be valued at $50 million in sales by 2024, and the adult-use market is poised to grow even bigger.

Here’s what you need to know about the newly introduced adult-use legislation in Virginia:

The vote passed through the Virginia General Assembly on February 5th

Both chambers passed the bill to legalize cannabis for adult use at the beginning of February. The bill was introduced by Senator Adam Ebbin, who said “I think that Virginia is on a path to an equitable legalization plan for marijuana. There have been a few bumps, but I’m hopeful that we’ll have a polished bill we can agree upon in the next few weeks,” said Sen. Adam Ebbin.

The House passed the bill 55-42

House Democrats were in favor of the bill, while Republicans were opposing it. The House’s version of the bill would maintain all cannabis criminal penalties until January 1st, 2024, when the first adult-use retail sale is set to take place.

The Senate advanced its modified version 23-15

One of the Senate’s changes include allowing Virginia jurisdictions to opt out of retail stores, and will require a second vote by state lawmakers next year. The House and Senate need to agree on these changes before Gov. Ralph Northam signs the proposal. The governor has already voiced his support for the bill, and is expected to sign it.

The biggest portion of tax revenue from cannabis sales will be invested in at-risk children

One of the most exciting things about both versions of the bill is where the tax revenue is going. The biggest portion of the revenue is set to fund Pre-K for at-risk children in the state of Virginia. “Reforming our marijuana laws is one way to ensure that Virginia is a more just state that works better for everyone. It also will eventually bring in tax revenue that can be used to further make sure we are providing equitable access to opportunity. For example, just half of the potential annual revenue could pay for two years of quality Pre-K to every one of Virginia’s most vulnerable three- and four-year-olds—children who deserve the best start in life,” said Gov. Ralph Northam.

One of the bill’s chief patrons is a Black woman

Louise Lucas has been representing Virginia’s 18th district since 1992. She is one of the chief patrons of this historical bill, along with fellow Virginia Senator Adam Ebbin. She is the floor leader of her Democrat colleagues in the state Senate, and because Democrats won a majority of seats in the 2019 Virginia senate election, Lucas succeeded Republican Stephen Newman as the Virgina Senate’s President pro tempore. This makes her the first woman and the first African-American to hold this position.

The future of Virginia’s adult-use market

According to a recent study conducted by the Joint Legislative Audit and Review Commission, legalizing and taxing commercial cannabis sales in Virginia could generate between $154 and $308 million by the fifth year of sales.

The legalization will hopefully bring much-needed social change, too. The study also found that Black Virginians makeup a disproportionately high number of cannabis-related offenses, and with this bill – that can be resolved.

StaffJanuary 11, 2021

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Governor Andrew Cuomo confidently stated that New York will legalize adult-use marijuana in his state of the state address on Monday.

“We will legalize adult-use recreational cannabis, joining 15 other states who’ve already done so,” Cuomo said in the speech. “This will raise revenue and will end the over-criminalization of this product that has left so many communities of color over-policed and over-incarcerated.”

This statement follows last week’s announcement that he would pursue legislation in 2021 to establish a legal market for marijuana in New York, which would effectively end marijuana prohibition in New York State and create a system to tax and regulate marijuana in a manner similar to alcohol for adults over the age of 21.

New York lawmakers pre-filed a bill to legalize marijuana last week. The legislation was introduced in the Senate by Sen. Liz Krueger (D) and 18 other lawmakers. The new legislation is identical to a version she filed last year which never went further than being filed.

Melissa Moore, New York State Director of the Drug Policy Alliance and member of Start SMART NY Coalition (Sensible Marijuana Access through Regulated Trade) said, “By including marijuana reform in today’s State of the State address, Gov. Cuomo has signaled that this is a top priority in this year’s legislative session. When it comes to responsibly regulating marijuana, it’s critical that we don’t just get this done, but we get it right. Equity must be the guiding force, and we will continue to work with the Governor’s administration and legislative leaders to ensure any new law comprehensively addresses the harms to communities wrought by the war on drugs through dedicated community reinvestment. New Yorkers are more ready than ever to create a new paradigm for marijuana reform. Let’s make 2021 the year for marijuana justice.”

Under the Governor’s proposal, a new Office of Cannabis Management would be created to oversee the new adult-use program, as well as the State’s existing medical and cannabinoid hemp programs. Additionally, an equitable structure for the adult-use market will be created by offering licensing opportunities and assistance to entrepreneurs in communities of color who have been disproportionately impacted by the war on drugs. Once fully implemented, legalization is expected to generate more than $300 million in tax revenue.

Debra BorchardtJanuary 6, 2021

New York’s Governor Cuomo announced he will pursue legislation in 2021 to establish a legal market for marijuana in New York, which would effectively end marijuana prohibition in New York State and create a system to tax and regulate marijuana in a manner similar to alcohol for adults over the age of 21.

“Despite the many challenges New York has faced amidst the COVID-19 pandemic, it has also created a number of opportunities to correct longstanding wrongs and build New York back better than ever before,” Governor Cuomo said. “Not only will legalizing and regulating the adult-use cannabis market provides the opportunity to generate much-needed revenue, but it also allows us to directly support the individuals and communities that have been most harmed by decades of cannabis prohibition.”

Melissa Moore, New York State Director of the Drug Policy Alliance and member of Start SMART NY Coalition (Sensible Marijuana Access through Regulated Trade) said, “New York still has the opportunity to lead the country on cannabis legalization by establishing the most ambitious and progressive legalization program in the U.S. and implementing cannabis legalization from a social justice lens where other states have fallen short. 2021 is the right time for marijuana justice in New York and the budget period is a crucial time for advancing legalization, which can be an economic engine driving wealth and equity in marginalized communities and providing space for alternative economic systems—if we work intentionally.”

She went on to say, “Governor Cuomo and the legislature can cement New York as the national model for marijuana legalization by centering community reinvestment, equity, and justice within our comprehensive reform. We can do this by making our legalization effort one that benefits those who have been harmed by prohibition and focusing on creating equitable jobs and small businesses across the state as New York looks to recover from the pandemic. Given New York’s appalling history with racially-biased marijuana enforcement, we must be bold and innovative in creating justice and equity.”

Cresco Labs’ (OTC: CRLBF) CEO Charlie Bachtell said, “We applaud Governor Cuomo for calling for the legalization of adult-use cannabis in the State of New York. We support his equity-centric approach to legalization as it will have a transformational impact on the state’s constituents, creating opportunities for those impacted by the War on Drugs and ensuring that cannabis develops into a responsible and respectable industry in New York.”

StaffDecember 8, 2020

The Congressional Budget Office and the staff of the Joint Committee on Taxation estimate in a new report that H.R. 3884, otherwise known as the MORE Act would increase revenues, on net, by about $13.7 billion over the 2021-2030 period by creating business income, compliance, and occupational taxes; those increases would be partially offset by allowing certain deductions for business expenses associated with trafficking controlled substances.

The MORE Act would also federally decriminalize cannabis (marijuana), expunge the records of people convicted of federal cannabis offenses, and require resentencing of some federal prisoners. As a result, CBO estimates, thousands of current inmates would be released earlier than under current law. In the future, decriminalization also would reduce the number of people in federal prisons and the amount of time federal inmates serve. In total the report said that over the 2021-2030 period, CBO estimates that H.R. 3884 would reduce time served by 73,000 person-years, among existing and future inmates. CBO’s analysis accounts for time served by offenders convicted of cannabis-only crimes and by those convicted of another crime in addition to a cannabis offense.

All of these released prisoners though could impact federal programs. Federal prisoners generally are not eligible for federal benefit programs. By reducing the prison population, CBO estimated that the MORE Act would increase the number of federal beneficiaries, compared with current law, and thus increase direct spending for federal benefit programs by $636 million over the 2021-2030 period.

The legislation, if passed, would also impose an excise tax on cannabis products manufactured or imported into the United States, which would be deposited into the Opportunity Trust Fund established by the act. CBO estimated that the Department of Justice would spend about $3.0 billion from the fund over the same period to provide job training and legal aid, among other services, to people harmed by the “war on drugs.” The Small Business Administration would spend about $2.7 billion over the ten-year period for state and local grants to make loans to cannabis-related small businesses that operate in the cannabis industry and help governments develop cannabis-licensing rules.

Tee CorleyDecember 4, 2020

Today, the U.S. House of Representatives voted in favor on this first-of-its-kind federal cannabis decriminalization bill. It was a partisan vote despite marijuana being a bipartisan issue. Democrats voted 213 YES and 6 NO, while Republicans voted 5 YES 156 NO.

Just after an election that saw four states legalize marijuana and two states legalize medical marijuana, it’s become clear that most Americans have a progressive view on marijuana. In fact, Pew Research reports that 67% of Americans support marijuana legalization.

As Steven Hawkins, executive director at the Marijuana Policy Project purports, “The prohibition and criminalization of marijuana has led to decades of injustice and devastating consequences, and it’s clear that a strong majority of Americans do not support the status quo.”

And the issue is bipartisan, with two of the legalizing states being Montana and South Dakota. But it’ll take a progressive Senate to pass such a progressive policy. And that’s where the MORE Act may run into trouble.

What is the MORE Act?

The MORE Act is the Marijuana Opportunity, Reinvestment and Expungement Act, a historic bill that was approved by the House Judiciary Committee for a floor vote by the U.S. House of Representatives on Wednesday, Dec 2, 2020.

The bill will accomplish three main objectives, plus several smaller provisions.

First, the MORE Act would remove cannabis from the Controlled Substances Act. Currently, marijuana is a Schedule I drug, a categorization that designates the drug as having no medical purpose. Schedule I drugs also tend to carry with them hefty criminal charges and fines for possession and distribution.

Second, the Act would require federal courts to expunge prior cannabis-related convictions and provide for resentencing at no charge to the individual. This measure aims to restore unnecessary damage done to the individuals’ life by the War on Drugs. Why? Because fines and convictions make it difficult to get a job, for starters.

Third, the Act would require a 5% tax on cannabis sales, the proceeds of which would go to funding grants and resources for communities adversely affected by the War on Drugs.

Key provisions of the MORE Act

The MORE Act does indeed demand more. In addition to the above legislation, the MORE Act would:

Lift barriers to licensing and employment in the cannabis industry.
Allow VA doctors to prescribe medical marijuana to veterans.
End the criminalization of cannabis at the federal level, both going forward and retroactively.
Removes the conflict between state and federal cannabis laws.
Automatically expunge federal cannabis arrests, charges, and convictions at no cost to the individual.
Create the Office of Cannabis Justice to oversee the social equity provisions in the law.
Ensure the federal government could not discriminate against people because of cannabis use.
Protect immigrants from being denied citizenship over cannabis.
Open the door to research, better banking and tax laws, and help fuel economic growth as states are looking for financial resources.

Interestingly, the Act would also change the legislative language from marijuana or marihuana to cannabis. Read all the provisions in detail here.

Debra BorchardtDecember 3, 2020

Tomorrow, the U.S. House of Representatives is scheduled to vote on the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act, H.R. 3884. The bill would descedule and decriminalize cannabis. It would also address several social equity and criminal justice issues, allow the government to tax sales at 5%, give cannabis businesses access to Small Business Association loans and allow veterans to receive medical cannabis prescriptions.

The vote is expected to pass the House, but face obstacles in the Senate. Regardless, many industry insiders point out that the vote is historic since it represents the first time a bill repealing cannabis prohibition will be heard before an entire chamber of Congress. Erich Mauff, President, Board Member, and Founder of Jushi Holdings put the vote into context.

“With the latest Gallup poll for legalization at 68%, big ballot wins for adult use in South Dakota, New Jersey, Montana, and Arizona, and therapeutic cannabis deemed essential throughout the COVID-19 crisis, we are heralding a new era in the cannabis industry,” says Mauff. “Cannabis legalization will result in billions of dollars in infrastructure investment, create thousands of service level jobs, and add billions of dollars in tax revenues. This groundbreaking legislation will generate and encourage unprecedented economic stimulus for an America that wants to move past the unconstitutional injustices of its past.”

Industry Optimistic

Many industry leaders shared Mauff’s sentiment. High Life Farms Vice President Jim LaPorte believes that momentum and popular opinion is on their side.

“With the legalization of medical and/or adult-use cannabis in more than two-thirds of the country, it is apparent that the people of America have spoken,” LaPorte pointed out. “Cannabis is legal in most states, but we still lack federal legalization, resulting in huge impacts on legitimate cannabis businesses.”

LaPorte outlined those concerns, ranging from a lack of access to banking which leaves cannabis companies reliant on cash, to an unfair tax burden stemming from 280E which prohibits companies from taking business write-offs to the serious threat of federal seizure and prosecution.

Keith Cich, President of Sunderstorm, feels that the passage of the MORE Act would inject both capital and confidence into the sector.

“While the MORE Act will not federally legalize cannabis, it will likely open up banking for the industry and give investment funds the confidence to open up their checkbooks,” he said.

Cich hoped that a far-ranging consequence could be the opening for American cannabis companies to list on the U.S. securities exchanges. He also pointed out that with so many states passing cannabis legalization, moderate Republicans should give the MORE Act special consideration.

“It’s about State rights, a key conservative tenet,” he emphasized.

Besides creating a better business environment, the MORE Act would also begin to address some of the damage done by the War on Drugs. If passed, it would eliminate criminal penalties for manufacturing, distribution, and possession; expunge low-level marijuana convictions; and establish a Cannabis Justice Office to oversee funds and grants to support individuals impacted by the War on Drugs, including an Opportunity Trust Fund and a Community Reinvestment Grant Program.

Ganja Goddess CEO Zachary Pitts strongly-worded his support for the legislation, giving voice to the frustration many have felt with the federal government.

“While it is exciting that the MORE Act has made more progress than previous cannabis legalization attempts, it shouldn’t take this long and be this difficult to pass legislation that the vast majority of US voters want regardless of their political affiliation,” says Pitts. “Cannabis should be legal and acting otherwise is a mixture of cruelty and indifference that perfectly captures why Americans are so frustrated with our politicians.”

Debra BorchardtNovember 3, 2020

As the election quickly approaches, cannabis investors are keenly aware of the landscape and how it could play out for the industry. Looking at the Democratic party platform, candidates former Vice President Joe Biden and Senator Kamala Harris have taken the position of decriminalization and rescheduling (from DEA Schedule I) through executive action on the federal level.

They have said that they support legalization of medical marijuana nationwide and believe states should be able to make their own decisions about recreational use. In addition to that, their approach is a combination of the previously proposed legislation known as the STATES ACT and the MORE ACT. Their position is that the Justice Department should not launch federal prosecutions of conduct that is legal at the state level, as well as that all past criminal convictions for cannabis use should be automatically expunged.

Many in the cannabis industry believed over the past four years that President Trump would pull a surprise maneuver and legalize marijuana to capture that voting bloc. However, it never happened and in fact the President recently asked red states to remove cannabis from state ballots to keep Democrats away. If he won, it isn’t really seen as a negative towards the industry. States have continued to legalize during his presidency and sales have risen accordingly. Despite this, the Uniform Crime Report from the FBI reported that more people were arrested for cannabis in 2019 than for all violent crimes put together. The hard data from the FBI’s report clearly showed that police arrested 545,602 people for cannabis-related crimes in 2019. “That arrest rate is 9% higher than the 495,871 people arrested for violent crimes the same year.” Expungement is rarely mentioned by Trump even though he has made a big deal of commuting some high-profile criminal sentences.

One comparison could be Franklin D. Roosevelt’s 1932 presidential campaign when the repeal of alcohol Prohibition was a key part of his Democrat party platform. Soon after he won the election, Congress proposed the 21st Amendment to end Prohibition. This ironically sparked the beginning of the war on cannabis as the government agency had no desire to dissolve itself.

Dan Ahrens, Chief Operating Officer and portfolio manager of the AdvisorShares Pure Cannabis ETF (YOLO), AdvisorShares Pure US Cannabis ETF (MSOS), and the AdvisorShares Vice ETF (ACT) said, “Regardless of who wins the White House, U.S. cannabis expansion is expected to continue past November.” He noted that Arizona and New Jersey each have ballot proposals for voters to decide on legalizing adult-use cannabis. Both states currently have existing medical marijuana programs.

Other states including South Dakota, Montana, and Mississippi also have recreational and/or medical marijuana proposals up for a vote. This week, the Montana Supreme Court denied and dismissed a lawsuit seeking to remove CI-118 and I-190, the complementary marijuana legalization initiatives, from the November ballot. “This was an easy decision for the Montana Supreme Court,” said Dave Lewis, policy advisor to New Approach Montana, the campaign working to pass CI-118 and I-190. “At best, this lawsuit was a frivolous longshot. At worst, it was an intentional effort to create confusion right before the election.”

If New Jersey votes in favor of legalization, it is believed that Pennsylvania and New York could follow suit and legalize adult-use cannabis by legislative action, rather than ballot measure, which was how Illinois approved recreational use last year.

Ahrens said, “It’s important to note that neither party calls for full U.S. federal cannabis legalization. This means that Canadian LPs – companies such as Canopy Growth (CGC), Aurora Cannabis (ACB), Cronos Group (CRON), and Tilray (TLRY) – are expected to remain to do business in Canada and precluded from expanding into the U.S. U.S. multi-state operators (MSOs) – those companies directly involved in the legal production and distribution of cannabis in states where approved – while not yet allowed to list on the NYSE or NASDAQ, are only expected to be strengthened through the continued state by state expansion and widely anticipated federal cannabis reform measures.” He believes U.S. companies like Curaleaf (CURLF), Green Thumb Industries (GTBIF), and Cresco Labs (CRLBF) become more attractive with their upside potential.

Joe Caltabiano, co-founder and former president of Cresco Labs said, “If Biden wins, we’ll certainly see more capital coming into the space. Biden has gone on record promising decriminalization if he wins, which generally kicks off the chain reaction towards full legalization. On the other hand, if Trump wins, then we’ll basically maintain the status quo for the next four years. It keeps the barrier to entry into the industry very high and keeps the MSOs even more entrenched. There won’t be any substantial program improvement and the amount of money that comes into the space will be significantly less than if Biden was in office.”

Cannabis investment firm Mazakali provided this easy to understand breakdown of the pending legislation

Adult Use Ballot Initiatives:

MONTANA – Montana CI-118, Legal Age for Marijuana Amendment (2020); Montana I-190, Marijuana Legalization Initiative (2020)

Montana CI-118: would allow the legislature or a citizen initiative to establish the legal age for purchasing, consuming, or possessing non-hemp cannabis (similar to alcohol).
Montana I-190: would legalize the possession of use of 1oz or less of non-hemp cannabis or 8 grams of less of non-hemp cannabis concentrate by persons over the age of 21 in Montana. MT residents would also be allowed to possess, use, and grow non-hemp cannabis starting January 1, 2021.
The most recent poll conducted by the University of Montana (Feb 12-22, 2020) asking if non-hemp cannabis should be legalized resulted in 54% of respondents in favor, while 37% opposed.

ARIZONA – Arizona 207, Marijuana Legalization Initiative

Proposition 207: would legalize the possession and use of non-hemp cannabis for adults (age 21 and older) in Arizona.
The latest poll from Monmouth University (Sept 11-15, 2020) reflects a close call, with 51% supporting, 41% opposing, and 9% undecided.

NEW JERSEY – New Jersey Public Question 1, Marijuana Legalization Amendment (2020)

Question 1: would add an amendment to the state’s constitution that legalizes the recreational use of non-hemp cannabis for persons 21+. It would also permit possession, cultivation and sales of retail non-hemp cannabis. If passed, this constitutional amendment would take effect on January 21, 2020.
The last poll from Brach Eichler Cannabis Polls (collected July 7-12, 2020) suggested passage is likely with 68% supporting, 27% opposing, and 6% undecided.

Medical Use Ballot Initiative

MISSISSIPPI – Mississippi Ballot Measure 1, Initiative 65 and Alternative 65A, Medical Marijuana Amendment (2020)

Initiative 65: would allow medical non-hemp cannabis treatment for over 20 specified qualifying conditions, allow individuals to possess up to 2.5 ounces of non-hemp cannabis at one time, and tax non-hemp cannabis sales at the current state sales tax rate of 7%.
Alternative 65A: would restrict smoking non-hemp cannabis to terminally ill patients; require pharmaceutical grade non-hemp cannabis products and treatment oversight by licensed physicians, nurses, and pharmacists. The vote was 72-49 in the House (March 10, 2020) and 34-17 in the Senate two days later.
According to Politico, over 80% of MS voters favor medical non-hemp cannabis legalization of some degree.

Adult and Medical Use Ballot Initiative

SOUTH DAKOTA – South Dakota Constitutional Amendment A, Marijuana Legalization Initiative (2020)

South Dakota is the first state to put both adult use and medical use initiative on the ballot. Currently, it has no legal cannabis policy.
The adult-use initiative is constitutional (proposed by citizens) – meaning the legislature could not repeal it if it passes in November. The medical initiative, however, is statutory – the legislative would have the power to repeal or amend that law.
Amendment A: would legalize the recreational use of non-hemp cannabis for individuals 21 years of age and older. If passed, the state legislature would plan to pass laws by April 1, 2022.
Initiated Measure 26, Medical Marijuana: would require the establishment of a MMJ program for individuals who have a debilitating medical condition as certified by a physician. The measure would require the Department of Health to enact rules related to implementing South Dakota’s new medical program no later than 120 days after the measure goes into effect.

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