A look back at some of this year's milestones for the turbulent marijuana trade.
A look back at some of this year's milestones for the turbulent marijuana trade.
The path cannabis has taken toward legalization is guiding psychedelics efforts.
The framework creates limits on possession amounts and product potency.
As Oregon sets up the first legal medical psilocybin program in the country, several other states are keeping an eye on the details.
The state's high court declined to order ballots printed with a still-pending recreational marijuana legalization ballot question on them.
In a court filing this week, the state's top law enforcement officer called the initiative "misleading."
We Americans pride ourselves on paving the way in new trends, business opportunities, and emerging industries. In cannabis, we were kind of first. California legalized medical marijuana, requiring a doctor’s prescription, back in 1996. Over the subsequent 12 years, another dozen states approved medical use. Now 39 states, plus some territories, have legalized medical cannabis, and 19 states, plus DC, have approved recreational or “adult use.” But all uses of cannabis (other than hemp) remain a crime under US federal law.
Alternatively, over 50 countries globally have federally legalized medical marijuana. It did take the world a little longer than California. Canada was first in 2001, Austria in 2008, and the more rapid adoption of others began around 2013. In addition, eight countries have approved adult use.
Advocates for federal legalization in the US have attempted three separate paths. One group seeks nothing less than full federal legalization of medical and adult use. Another seeks a piecemeal approach to first permit research, then safer banking, then use by veterans, then move on from there. The third has attempted, unsuccessfully, to convince the courts to declare cannabis illegality unconstitutional.
Why then has there been no real effort to federally legalize US medical cannabis like dozens of other countries? Polls are consistently overwhelming: 92% of Americans favor legalizing medical marijuana. Former Pres. Trump, in an interview during his 2016 campaign, said he is “100%” in favor of legalizing medical use, though Pres. Biden, who favors decriminalization, has not opined on legalizing medical cannabis. And three-quarters of the states, including some Republican-dominated ones, have approved medical weed. One assumes, therefore, that there would be strong bipartisan support for legalizing medical marijuana.
The benefits would seem obvious, with limited downside risk. First, companies growing and selling medical cannabis would enjoy interstate and global commerce. A patient in Ohio finally would be able to buy California weed. An import-export market could develop and likely would explode rather quickly. We could eliminate the 39 cannabis mini-economies with vastly different pricing, quality, regulation and competition.
Other benefits of legalizing medical cannabis include the likelihood that the national stock exchanges would list the stock of these companies, encouraging institutional investors to support these enterprises and stock clearing firms to permit the trades. Companies currently active in both medical and adult use markets could separately spin off their medical operations to Nasdaq or the NYSE.
In addition, the US Patent and Trademark Office presumably would at last allow medical marijuana brands to receive a federal trademark. Banks would no longer be concerned about opening accounts or providing loans to these companies. Operators could end the security and other concerns around running their business in cash. We would also end the “cannabis tax” that borrowers have been paying private lenders in the absence of traditional bank loans.
Merger and acquisition activity also could pick up as big alcohol, big tobacco and especially big pharma might move into the space if their target is federally legal. Legalization also allows the federal government to charge taxes on the product, helping reduce the federal deficit, and for the government to regulate important areas of the business including product testing and advertising.
Perhaps most importantly: medical marijuana companies would no longer face tax discrimination in the form of Internal Revenue Code Section 280E. This tax law prohibits cannabis companies from deducting their ordinary business expenses. As a result, the profitability of these companies has been dramatically reduced, causing some to close their doors simply because of their inability to pay taxes.
The main concern previously expressed by industry insiders about federally legalizing medical use is that there is too much risk in a step approach to fully legalizing weed. The argument is that legalizing medical marijuana would stall the momentum towards fully legal adult use in the US. Proponents also would need to convince lawmakers that legalizing medical cannabis would not result in a de facto adult-use legalization as was somewhat the case early on in California.
Another expressed concern over legalization is the potential violation of various global treaties, especially the 1961 UN Single Convention treaty. In 2020 the UN Commission on Narcotic Drugs adopted a recommendation from the World Health Organization to reschedule cannabis under the Single Convention from Schedule IV to Schedule I (unlike the US scheduling, this made it less subject to control), but this does still not permit adult use. Experts, however, generally agree that allowing cannabis for therapeutic or medical use does not violate the treaty. Legalizing adult use could violate the treaty, however, and a workaround or treaty change will likely be necessary for the US. In March 2022 several US Congresspeople submitted a proposed resolution to the UN to fully deschedule cannabis, but no action has been taken.
My take? If the industry can show the naysayers that federal legalization of medical cannabis will not lead to the destruction of society as we know it, and may actually help reduce opioid and other addictive drug use, reduce teen drug use, reduce alcohol addiction and reduce the influence of foreign cartels, subsequent legalization of adult use becomes more likely, not less. Shall we try it?
David N. Feldman, a prominent strategic advisor and attorney in the cannabis industry, is CEO and Co-Founder of Skip Intro Advisors, Inc. and Managing Partner of Feldman Legal Advisors, PLLC.
©Copyright David N. Feldman 2022. All rights reserved.
This week Washington D.C. has brought cannabis back for more discussion. There are two different hearings and both could center around social equity issues that have proven difficult to tackle even at the state level.
First up, Congressional lawmakers will look to discuss social equity provisions within marijuana legalization at a Senate Judiciary subcommittee – chaired by U.S. Senator Cory Booker (D-NJ) – at 2:30 p.m. Tuesday.
While details are scarce, the hearing – titled “Decriminalizing Cannabis at the Federal Level: Necessary Steps to Address Past Harms.” – will presumably hash out social equity initiatives in the newly filed Cannabis Administration and Opportunity Act (CAOA) before it hits the Senate floor. The hearing announcement came only a day before Booker, Senate Majority Leader Chuck Schumer, (D-NY), and Senate Finance Committee Chair Ron Wyden, (D-OR) filed their comprehensive pot package. HELP Committee Chair Patty Murray (D-WA) and HSGAC Committee Chairman Gary Peters (D-MI) also co-sponsored the legislation.
The bill is a revised update to the draft version Schumer unveiled last year, with provisions to remove cannabis from the federal list of controlled substances and empower states to implement their own cannabis laws. And since the draft’s introduction last year, a wide range of constituencies – including lawmakers on both aisles, advocates and stakeholders – have actively provided input to the terms of the package.
“Last September, we shared detailed comments on the public draft of the CAO Act, including our specific concerns about key aspects of the legislation,” said U.S. Cannabis Council CEO Steven Hawkin. “The U.S. Cannabis Council still shares those concerns and believes it is critical to get the details right on America’s transition to legal, fully regulated cannabis. We welcome robust hearings in the coming days that fully consider key concerns around regulation, taxation, equity and responsible use.
“The detailed policy conversations happening around the CAO Act should not distract us from its historic nature. At the same time, the ambitious and sweeping nature of the bill should not distract Congress from advancing limited yet critical reforms, such as expungement and the SAFE Banking Act, that are immediately within reach.”
According to Booker, the legislation establishes a federal regulatory framework to protect public health and safety, prioritizes restorative and economic justice to help undo the decades of harm caused by the failed War on Drugs, ends discrimination in the provision of federal benefits based on cannabis use, provides major investments for cannabis research and strengthens worker protections. And by decriminalizing cannabis at the federal level, the CAOA also ensures that state-legal cannabis businesses or those in adjacent industries will no longer be denied access to bank accounts or financial services simply because of their ties to cannabis, the release said.
Also in the pipeline this week, members of a House Agriculture Subcommittee on Biotechnology, Horticulture, and Research will meet on Thursday to further discuss federal hemp regulation in a hearing, titled, “An Examination of the USDA Hemp Production Program.”
The specifics are not clear, though House Agriculture Committee chairman, Rep. David Scott (D-GA) said in February that he believes the next Farm Bill should act beyond the scope of hemp to include social equity provisions related to marijuana itself, such as removing industry barriers for Black entrepreneurs and small operators.
“We’ve got to address this issue,” Scott told Roll Call at the time. “We can no longer hide it.”
Additionally, Marijuana Moment reported that House Appropriations Committee leaders recently released spending legislation for the U.S. Department of Agriculture (USDA) calling for multiagency coordination to create guidance on hemp manufacturing. The legislation also recommends that the USDA partners with the Drug Enforcement Administration (DEA) to resolve concerns about enforcement actions for hemp that exceeds the 0.3% THC limit during extract processing.
The Congressional Research Service (CRS) also said in a March report that Congress should address industry concerns about the lack of Food and Drug Administration (FDA) regulations for hemp-derived CBD products in the food supply.
Industry leaders have historically taken the position of supporting social equity in marijuana decriminalization. Here’s what one said in response to the bill introduction:
Mark Lozzi, CEO of Confia said, “We are hopeful about the newly introduced legalization bill, which includes social equity provisions. Until we have a solid system in place through legalization, including non-predatory banking opportunities, we will continue to see distrust of our industry, while compounding the challenges of transparency, regulation, and oversight. Social equity is a crucial part of cannabis legalization, and no business or individual deserves to be left behind.
Despite the forward progress of having some new cannabis legislation, industry insiders and top executives seem less than thrilled with the Cannabis Administration and Opportunity Act or (CAOA). Yesterday, U.S. Senator Cory Booker (D-NJ), Senate Majority Leader Chuck Schumer, (D-NY), and Senate Finance Committee Chair Ron Wyden, (D-OR) today introduced comprehensive legislation that would end the harmful and out-of-touch federal prohibition on cannabis by removing cannabis from the federal list of controlled substances and empowering states to implement their own cannabis laws. HELP Committee Chair Patty Murray (D-WA) and HSGAC Committee Chairman Gary Peters (D-MI) also co-sponsored the legislation.
According to Senator Booker, the legislation establishes a federal regulatory framework to protect public health and safety, prioritizes restorative and economic justice to help undo the decades of harm caused by the failed War on Drugs, ends discrimination in the provision of federal benefits on the basis of cannabis use, provides major investments for cannabis research, and strengthens worker protections. By decriminalizing cannabis at the federal level, the CAOA also ensures that state-legal cannabis businesses or those in adjacent industries will no longer be denied access to bank accounts or financial services simply because of their ties to cannabis.
However, many expressed skepticism about it. Here are their comments:
Matt Hawkins, Founder and Managing Partner, Entourage Effect Capital
“Although we see the long-awaited introduction of CAOA as another positive sign for eventual federal cannabis reform, the Democrat-proposed bill will have a tough time passing the Senate. It is perhaps most important to take stock of its language, as we could see portions of CAOA added to future bills that have a better chance of passing. Democrats are likely to lose the House in November’s midterms, so we expect the party to fight extra hard to pass a cannabis bill before they lose the opportunity, especially given the current administration’s perceived shortcomings in progressing other federal priorities.”
Troy Datcher, CEO, The Parent Company:
“The Senate’s historic introduction of a bill decriminalizing cannabis on the federal level marks the beginning of a new direction after nearly a century of the failed policy of cannabis prohibition in the United States. In the coming weeks, we look forward to a robust debate on The Cannabis Administration and Opportunity Act and will be watching closely to see whether the bill appears likely to obtain the support necessary for passage in the Senate.
While engaged in this important and necessary debate about the best policy framework for cannabis legalization, we urge the Senate to not lose sight of those reforms that have broad bipartisan support, such as the SAFE Banking Act, expungement of cannabis convictions and efforts to lower the barriers to entry for minority cannabis operators. These reforms are urgently needed to create the equitable and thriving cannabis industry we are hoping to build in the United States.”
Morgan Paxhia, Co-founder & Managing Director, Poseidon Asset Management
“We see the CAOA is a nonstarter. The cannabis industry could be thankful, excluding the harm caused by lack/adverse Federal action, for the little to no work done on this bill as it helps demonstrate the validity of SAFE. We still see little to no probability of Federal progress but the odds of SAFE happening in 2022 went up today post the release of CAOA.”
Ryan G. Smith, Co-Founder and CEO, LeafLink
“With $33 billion in retail sales and more than half a million jobs created, the cannabis industry is an important economic engine. Yet for too long, the absence of federal action has disadvantaged state-regulated cannabis companies and has led to a patchwork of state regulations to try to support these markets and achieve important goals around equity and entrepreneurship.
“LeafLink is committed to fostering healthy and equitable cannabis markets, and we’re pleased to see the Senate take an important step toward aligning federal and state law. As a New York-based company, we applaud Majority Leader Schumer’s prioritization and championing of federal cannabis reform and encourage legislators to take thoughtful action to support the industry’s future.”
Joseph Dowling, CEO of CV Sciences
“For far too long, cannabis and CBD regulations across the United States have been a patchwork of rules with no true federal guidance, making it difficult to make approved claims on products and ensure standardized consumer safety protocols. I am thrilled to finally see a bill reach Congress that will affect cannabis on the national level, potentially paving the way for federal regulation of cannabis, CBD and hemp products and enhancing consumer safety.”
Kyle Kazan, CEO Glass House Brands
“While we continue to build a multi-billion dollar cannabis industry and debate the details of legalization, many thousands of people are wasting away behind bars. Within this bill are the keys to their cells, and that’s the reason to support it. The time for discussion is over, and we must act as though it is our loved ones who are watching precious moments of their lives tick away. Pass this bill.”
Nick Kovacevich, CEO Greenlane
“Everyone knows that the current Democratic leadership is eager to legalize cannabis, but the fear is that they won’t be able to find a path through Republican resistance. The fact that a Republican is dropping a legalization bill is very encouraging because it will display a middle ground toward accomplishing this ever-important goal — the legalization of cannabis. Furthermore, this is a smart move by the GOP since they are gaining momentum into the midterms and cannabis is such a popular issue with the voters. If successful with cannabis legalization, it could result in broad election success come a year from now.”
Rob Sechrist, President Pelorus Equity Group
“At a time when the cannabis industry has added hundreds of thousands of jobs, millions in tax dollars, and large-scale infrastructure projects without government handouts, this measure would be a meaningful step forward towards continuing the economic growth that cannabis has created. A more targeted approach is the most likely to get the bipartisan support necessary to get the 60 votes required in the Senate. We look forward to seeing State laws being deconflicted from Federal law as soon as possible.”
While the CAOA was getting all the attention, several executives preferred to switch the attention to the legislation offered by Republican Nancy Mace called the States Reform Act.
Kim Rivers, CEO Trulieve
“The States Reform Act is a consequential step in the right direction for common sense cannabis reform at the federal level. Our current piecemeal approach to legalization is not only unnecessarily cumbersome from a compliance perspective, but ultimately stymies the long-term growth of the legal industry. Allowing our existing federal structure to regulate cannabis businesses will allow legal companies to operate by a set of standardized guidelines, which ultimately bolsters consumer trust and minimizes risk for investors. Until the bill is passed, Trulieve believes Congress must still prioritize passing the SAFE Banking Act to ensure cannabis companies can fully access the financial resources they need to scale.”
Joe Bayern, CEO Curaleaf
“We’re incredibly encouraged by this proposed bill, which is a thoughtful approach to decriminalization and includes common sense parameters for existing state markets, regulation, taxation, safe harbor, criminal justice reform, age-appropriate restrictions, hiring practices and veterans’ access. We are grateful to Representative Nancy Mace for blazing another trail in the quest to destigmatize this plant and unlock the economic and job creation opportunities of our emerging industry, along with the health and wellness possibilities for millions of Americans who have already demanded an alternative to traditional routes of medication and relaxation.”
Jon Sandelman, CEO Ayr Wellness
This bill represents the latest step towards the mainstreaming of the U.S. cannabis sector. This industry has thrived despite federal illegality, delivering results and experiencing incredible growth despite headwinds of all types. The industry and its participants of all sizes deserve the opportunities that federal reform will provide.
We applaud the courage we’ve seen on both sides of the aisle in addressing this important issue, most recently Rep. Mace who added a new Republican voice to the discussion of common-sense cannabis legalization. While this discussion is still in its early phases, we believe it is important that both sides of the aisle are actively engaging in conversation to create a fair, safe and regulated cannabis industry that benefits all stakeholders, including local communities and those disproportionately impacted by the War on Drugs.”
Abner Kurtin, CEO Ascend Wellness
“U.S. Representative Nancy Mace (D-SC) has introduced a strong middle-ground solution to federal cannabis legalization with the States Reform Act —[it’s not as ambitious as the CAOA but is more productive than the STATES Act, and thus more likely to see the 60 votes needed to pass the Senate. The presentation of a Republican-led cannabis reform bill is a huge milestone for cannabis, proving that leaders on both sides of the fence recognize the major importance of our industry in terms of public health, local and state tax growth and the creation of hundreds of thousands of U.S. jobs. Although we would have liked more emphasis on social equity initiatives, we’re glad to see measures in the bill support increased access to the legal market, small businesses and re-entry into society for those with nonviolent cannabis offenses.”
Jim Cacioppo, Chief Executive Officer, Chairman and Founder Jushi Holdings
“Jushi commends U.S. Representative Nancy Mace, D-SC, for her interest in responsibly bringing an end to federal cannabis prohibition and her excellent work in preparing the States Reform Act. Representative Mace’s States Reform Act is a comprehensive, thoughtful measure that strikes a commonsense balance between supporting important public health, safety, and welfare priorities on the one hand, and ensuring disproportionate enforcement of minor, non-violent cannabis possession crimes cannot continue to harm communities across our country on the other.
Given the critical mass of U.S. jurisdictions that have legalized cannabis for at least one purpose, it is especially noteworthy that the States Reform Act acknowledges and protects states’ rights. Representative Mace’s bill proposes a model that would ensure the will of the people in each state is reflected through the scope and character of their legal cannabis program, if any. And, with respect to public safety, the federal tax structure proposed in the bill is smartly fixed so legal cannabis products can be price-competitive with illicit market cannabis products – which will help stamp out the organized criminal enterprises presently supplying the bulk of illicit cannabis in the U.S. from our neighborhoods. Further, by removing federal barriers to cannabis-related medical research and access to ordinary business services, U.S. doctors and scientists could begin much-needed clinical studies in earnest, and states could spur economic development, create new business ownership opportunities, and job creation in urban, suburban, and rural communities alike on the people’s terms.
Senate Majority Leader Chuck Schumer (D-NY), Senate Finance Committee Chairman Ron Wyden (D-OR) and Sen. Cory Booker (D-NJ) formally filed the Cannabis Administration and Opportunity Act (CAOA) today. The long-anticipated legislation was met with cheers by the beleaguered cannabis stocks, which mostly jumped in value on the news.
The 296-page legalization bill looks very similar to an earlier version, which was a mere 163 pages. The new language better defines hemp to address situations where more THC ends up in the final product than currently allowed. According to Marijuana Moment, the bill also has revisions concerning cannabis industry workers’ rights, a federal responsibility to set an impaired driving standard, banking access, expungements and penalties for possessing or distributing large quantities of marijuana without a federal permit.
“For far too long, the federal prohibition on cannabis and the War on Drugs has been a war on people, and particularly people of color,” Schumer said in a press release, adding that CAOA “will be a catalyst for change by removing cannabis from the federal list of controlled substances, protecting public health and safety, and expunging the criminal records of those with low-level cannabis offenses, providing millions with a new lease on life.”
News of the CAOA filing had been trickling out causing the MSOS ETF to rise more than 20% since bottoming on June 30 at 10.08. Of course this is way below the ETF’s top of 55 in February 2021.
Pablo Zuanic of Cantor Fitzgerald wrote a report released today, “We think the revised CAOA is bullish for cannabis stocks (all else equal), especially in the context of depressed valuations, the recent rally notwithstanding. If Senator Schumer’s cannabis reform bill (as filed this morning) were to be passed by Congress, it would be a watershed (read bullish) event for U.S. cannabis stocks. But we are doubtful it will have 60 votes in the Senate, so we will closely monitor his comments and those of Republicans in the coming days – i.e., the bill sponsors’ willingness to compromise.”
He went on to say, “Not coincidentally, Sen Booker begins committee hearings on Tue 7/26 on decriminalizing cannabis at the federal level. All that said, the revised CAOA bill (Cannabis Administration and Opportunity Act) seems to have taken input from a wide range of constituencies since the draft was first filed in mid-July last year (with some new business-friendly provisions), and this makes us think the sponsors could (?) consider a narrower (incremental) piece of legislation later this year (even in the lame duck). So, at this stage, we would not rule out any scenarios and think investment risks are to the upside.”
“Two initial thoughts: the revised bill seems to pass the buck on de-scheduling to the DOJ (why not just legislate? does this help get more votes?), but on the other hand calls for FinCEN to allow banks to service licensed cannabis businesses (we think this would be enough for US exchanges together with de-scheduling). We have said all along, the reform news tape is binary, and tough to predict, but we remain buyers of the top MSOs,” he wrote.
Zuanic did note that the bill has again been attached to the Defense Bill (NDAA). “We remain skeptical Sen. Schumer will allow SAFE without broader social equity provisions, but it cannot be ruled out (especially given increased lobbying by a number of parties, including Treasury Secretary Yellen, leading Senators, state AGs). But even if passed, SAFE would not lead to de-scheduling and hence there would be no exchange uplisting for US cannabis stocks. Of course, it would help the industry in terms of access to borrowing and to a broader set of banking services. SAFE does not provide a framework to regulate cannabis,” he said.
The Financial Crimes Enforcement Network (FinCEN) he said would need to update or issue new guidance clarifying to banks and credit unions that the policy change means that they can lawfully service legitimate cannabis businesses.
The SBA would also get into the act with a 10-year pilot program through the federal Small Business Administration “for intermediary lending” to provide “direct loans to eligible intermediaries that in turn make small business loans to startups, businesses owned by individuals adversely impacted by the War on Drugs, and socially and economically disadvantaged small businesses.”
Mark Lozzi, CEO of Confia said, “We are hopeful about the newly introduced legalization bill, which includes social equity provisions. Until we have a solid system in place through legalization, including non-predatory banking opportunities, we will continue to see distrust of our industry, while compounding the challenges of transparency, regulation, and oversight. Social equity is a crucial part of cannabis legalization, and no business or individual deserves to be left behind. Confia has developed a social equity program as an actionable way for us to impact and contribute toward creating equality for all in the industry. We hope the new bill will receive support, and ultimately become law. As we are in the early stages of the cannabis industry’s legitimacy, we recognize it will take collaborative action and engagement in order to make a long-term sustainable impact.”
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