Quarterly Cannabis Report

Quarterly Cannabis Report

Apr 22, 2021

Client Alert

Brownstein Client Alert, April 22, 2021

The 117th Congress is shaping up to be the year for cannabis reform. As of April 2021, 47 states, four U.S. territories and the District of Columbia have legalized medical cannabis, recreational cannabis or both. Many of these efforts can be contributed to Steve Fox, a true pioneer of the legalization movement. Fox, managing partner of VS Strategies, and godfather of the industry, paved the path for nationwide legalization efforts and was instrumental in cannabis reform throughout the country for decades. He was one of the first to politically advocate on behalf of medical and recreational cannabis legalization, advance decriminalization measures and promote reform and social justice. As an educator and leader, Fox will be remembered for his wisdom, knowledge and kindness, and his voice, perspective and presence will be dearly missed.

VS Strategies welcome the celebration of Fox’s life through the sharing of thoughts and memories, and asks for respect and privacy for his family, friends and co-workers who are still reeling from this loss. VS Strategies also started a GoFundMe page to support Fox’s wife and daughters as they navigate their way through this extremely difficult time—https://www.gofundme.com/f/support-the-family-of-steve-fox.

FEDERAL CANNABIS PROPOSALS

The SAFE Banking Act: On March 18, Rep. Ed Perlmutter (D-CO) reintroduced the Secure and Fair Enforcement (SAFE) Banking Act. H.R.1996 that creates a safe harbor for financial institutions to provide traditional banking services to cannabis and cannabis-related businesses in states that have legalized the drug and allows cannabis and cannabis-related businesses to access traditional banking services like lines of credit, loans and wealth management. The 2021 version of the bill is almost identical to the text introduced in the previous congressional session; however, the new legislation includes provisions that extend to the hemp industry. Although federally legal, the hemp industry struggles with regulatory guidance and financial challenges, similar to the cannabis sector. Additional changes to the text include requiring the Financial Crimes Enforcement Network (“FinCEN”) to update its guidance for financial institutions seeking to provide services to cannabis and cannabis-related businesses and ensuring that such changes align with the SAFE Banking Act. The bill also includes modified language on state-regulated insurance and redefines the term “financial service.” Lastly, the new legislation clarifies that a service provider and a cannabis business do not need to reside in the same state to engage in legal business activity. The newly introduced bipartisan bill is co-led by Reps. Nydia Velázquez (D-NY), Steve Stivers (R-OH) and Warren Davidson (R-OH), and has more than 100 co-sponsors. Additionally, the bill is supported by 33 different financial associations, credit unions, trade groups and nonprofits.

The bill was originally introduced during the 116th Congress and obtained strong bipartisan support in both chambers. With 206 co-sponsors, 180 Democrats and 26 Republicans, the measure quickly moved through the House. In March 2019, the bill was referred to the House Financial Services Committee. The committee held a markup for the bill, and in a 45-15 vote, the measure was ordered to be reported favorably. Then in June, the SAFE Banking Act was referred to the House Judiciary Committee, where Rep. Perlmutter moved to suspend the rules and pass the bill as amended. The House held a floor debate on the legislation, and on a motion to suspend the rules, the bill passed in a 321 to 103 vote, with 91 Republicans and one Independent voting to support the measure. The legislation was shortly after referred to the then Republican-majority Senate, where it stalled. Additionally, the SAFE Banking language has been included, and passed, in two separate House relief packages. The latest COVID-19 package, the HEROES Act, which passed in a 214-207 vote, had language that would protect financial institutions that provided services to state-legal cannabis and cannabis-related businesses from being penalized by federal regulators.

The Senate’s then lack of interest in the bill could have been highly anticipated. In July 2019, the Senate Banking Committee held a hearing titled, “Challenges for Cannabis and Banking: Outside Perspectives.” The hearing discussed the industry’s lack of access to banking services and considered the SAFE Banking Act. Aside from former Sen. Cory Gardner (R-CO), a longstanding cannabis advocate and GOP-led sponsor for the Senate companion bill, who testified before the committee, the only present Republican member was the committee chair, Sen. Mike Crapo (R-ID).

Although successful in gaining traction in the House, cannabis advocates voiced their concerns with the bill, claiming it did not address the social equity and criminal justice and racial reform policies. Before the House voted on the measure, the American Civil Liberties Union (ACLU), the Center for American Progress (CAP), the Drug Policy Alliance, the Human Rights Watch, the JustLeadershipUSA (JLUSA) and The Leadership Conference on Civil and Human Rights sent a letter to Congress expressing their concerns with the bill. The letter said the legislation “Undermine[s] broader and more inclusive efforts to reform our country’s marijuana laws” and does not “Address marijuana reform holistically. Instead, it narrowly addresses the issues of banking and improved access to financial services, measures that would benefit the marijuana industry, not communities who have felt the brunt of prohibition.”

However, advocates like the American Banking Association (ABA) have applauded Congress’ efforts in addressing the industry’s financial challenges. In 2019, the ABA published a press release sharing their support for the bill and sent a letter, in conjunction with the American Land & Title Association (ALTA), the Americans for Prosperity, the Council of Insurance Agents and Brokers (CIAB), the Credit Union National Association (CUNA), the Electronic Transactions Association (ETA), the International Council of Shopping Centers (ICSC), the National Association of Mutual Insurance Companies (NAMIC), the National Association of Professional Employer Organizations (NAPEO), the National Association of REALTORS (NAR), R Street and the Wholesale & Specialty Insurance Association (WSIA), to Sens. Mike Crapo (R-ID) and Sherrod Brown (D-OH), the ranking member of the Senate Banking Committee. The letter said, “We understand that creating a true federal regulatory framework for cannabis is a multi-step process. However, we strongly believe that the SAFE Banking Act is a critical first step to ensure that legal cannabis marketplaces are safe, legal, and transparent.” In 2020, the ABA, alongside all 50 state bankers associations, sent a letter to the chair and ranking member again encouraging the committee to markup and advance the SAFE Banking Act. The letter said, “Although we do not take a position on the legalization of marijuana, our members are committed to serving the financial needs of their communities—including those that have voted to legalize cannabis.” The letter also said, “The SAFE Banking Act is a banking-specific solution that would address the reality of the current marketplace and allow banks to serve cannabis-related businesses in states where the activity is legal.”

Before the SAFE Banking Act was reintroduced this year, ABA sent another letter to Congress expressing their support for new legislative efforts to address cannabis banking concerns. The letter said, “ABA does not take a position on the legalization of cannabis. Nevertheless, our member banks find themselves in a difficult situation due to the conflict between state and federal law, with local communities encouraging them to bank cannabis businesses and federal law prohibiting it. Congress must act to resolve this conflict between state and federal law” and concluded that “ABA is pleased to support the SAFE Banking Act and urges the House Financial Services Committee to approve this legislation and for the full House of Representatives to quickly consider this important measure.”

On March 23, the Senate reintroduced the measure as well. Led by Sens. Jeff Merkley (D-OR) and Steve Daines (R-MT), S.910 has 32 co-sponsors, 23 Democrats, two Independents and seven Republicans, Sens. Daines, Kevin Cramer (ND), Dan Sullivan (AK), Paul Rand (KY), Bill Cassidy (LA), Cynthia Lummis (WY) and Lisa Murkowski (AK). Sen. Merkley tweeted, “Most legal cannabis businesses operate entirely in cash, because of a nonsensical rule barring them from the financial services they need—leaving them open to robbery and money laundering. The SAFE Banking Act would correct that. I’m working on this bill with [Steve Daines] to remove the barriers to capital and ensure that all communities can operate legal cannabis businesses.” In a press release, the senator also highlighted the significance of the SAFE Banking Act saying, “No one working in a store or behind a register should have to worry about experiencing a traumatic robbery at any moment. That means we cannot keep forcing legal cannabis businesses to operate entirely in cash—a nonsensical rule that is an open invitation to robbery and money laundering.” Daines also tweeted, “Our bipartisan bill will help increase public safety, reduce crime, support Montana small businesses, create jobs and boost local economies. A big win for our communities.”

On April 16, House Majority Leader Steny Hoyer (D-MD) announced the bipartisan measure would get a floor vote the week of April 19. On April 19, the bill passed the House with a 321-101 vote margin.

The Hemp Economic Mobilization Plan Act: On March 30, Sen. Rand Paul (R-KY) reintroduced the Hemp Economic Mobilization Plan Act. In an effort to address the concerns state regulators and industry advocates, farmers and processors have long clamored about, Rand introduced S. 1005. The legislation seeks to increase the THC potency cap in hemp from 0.3% to 1%. Additionally, the bill aims to ease testing burdens by requiring hemp products to be tested for THC levels rather than the plants and sets a testing margin of error at 0.075%. Lastly, the bill calls for hemp shipments to include a copy of the producer’s license and lab THC threshold certification and for the U.S. Department of Agriculture (USDA) to update regulations within 90 days of enactment. The American Farm Bureau Federation and the National Association of State Departments of Agriculture support Rand’s bill.

The Claim Act: In March, Rep. Nydia Velazquez (D-NY), and Sen. Bob Menendez (D-NJ) introduced H.R.2068/S.862, the CLAIM Act. The identical bills create a safe harbor for insurers who provide insurance to cannabis and cannabis-related legitimate businesses. The House measure, co-led by Rep. Steve Stivers (R-OH), was referred to the House Financial Services Committee. The Senate companion bill was referred to the Senate Banking, Housing and Urban Affairs Committee and has three co-sponsors, Sens. Rand Paul (R-KY), Jeff Merkley (D-OR) and Steve Daines (R-MT).

Marijuana 1-to-3 Act: On Jan. 19, Rep. Greg Steube (R-FL) introduced H.R. 365, the Marijuana 1-to-3 Act. The bill moves cannabis to a lower schedule, Schedule III, on the Controlled Substance Act (CSA). The legislation was referred to the House Energy and Commerce Committee, the House Judiciary Committee, the House Energy and Commerce Health Subcommittee and the House Judiciary Crime, Terrorism and Homeland Security Subcommittee.

Veterans Cannabis Use for Safe Healing Act: Rep. Greg Steube (R-FL) also introduced H.R.430, the Veterans Cannabis Use for Safe Healing Act. H.R. 430 ensures veterans who participate in state-approved cannabis programs are not denied VA benefits by the Department of Veterans Affairs (VA). Additionally, the bill requires for the VA to permit cannabis-use discussion between providers and veterans, and for providers to adjust treatment plans accordingly and record usage in medical records. Lastly, the legislation requires the VA to authorize physicians and other VA health care providers to provide recommendations to veterans who are residents of states with approved programs. Rep. Ro Khanna (D-CA) has co-led the measure, and it has been referred the House Veterans’ Affairs Committee and the House Veterans’ Affairs Health Subcommittee.

To Amend the Immigration and Nationality Act: Rep. Brendan Boyle (D-PA) introduced a bill to amend the Immigration and Nationality Act to ensure that marijuana use, possession and distribution may not be considered for determinations of whether a person is a person of good moral character, and for other purposes (H.R. 1614). The bill has two co-sponsors, Rep. Earl Blumenauer (D-OR) and Barbara Lee (D-CA) and was referred to the House Judiciary Committee.

The U.S. Citizenship Act: Rep. Linda Sanchez (D-CA) has included cannabis reform language in her bill, H.R. 1177, the U.S. Citizenship Act. The legislation aims to provide a path to citizenship and reform the immigration visa system, while addressing the root causes of migration and responsibly managing the southern border. Found in the “Grounds for Ineligibility” section, the measure states a noncitizen shall be ineligible for status if the noncitizen “has been convicted of 3 or more misdemeanor offenses (excluding simple possession of cannabis or cannabis-related paraphernalia, any offense involving cannabis or cannabis-related paraphernalia that is no longer prosecutable in the State in which the conviction was entered, any offense under State law for which an essential element is the noncitizen’s immigration status, any offense involving civil disobedience without violence, and any minor traffic offense) not occurring on the same date, and not arising out of the same act, omission, or scheme of misconduct.” The legislation was introduced to the House on Feb. 18 and has 136 Democratic co-sponsors.

Click here for a full breakdown of state by state cannabis policy updates. 

 

This document is intended to provide you with general information regarding cannabis policy. The contents of this document are not intended to provide specific legal advice. If you have any questions about the contents of this document or if you need legal advice as to an issue, please contact the attorneys listed or your regular Brownstein Hyatt Farber Schreck, LLP attorney. This communication may be considered advertising in some jurisdictions.

Meet The Team

Melissa Kuipers Blake Shareholder T 303.223.1164 mkblake@bhfs.com
Osiris Morel Policy Analyst T 202.383.4705 omorel@bhfs.com
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