In January, then-Attorney General Jeff Sessions rescinded the “Cole Memo” policy of relaxed federal enforcement, which created more confusion about the future of cannabis-related banking. As a result, many financial institutions have been cautious to work with the cannabis industry. However, there is legislation pending before Congress that would resolve most of the current uncertainty that surrounds the cannabis industry in America.
On June 7, 2018, Sens. Elizabeth Warren (D-MA) and Cory Gardner (R-CO) proposed the “Strengthening the Tenth Amendment Through Entrusting States Act” (STATES Act). The STATES Act would authorize states to make and enforce their own laws related to the possession, production and sale of recreational marijuana.
This bipartisan legislation was also introduced in the House by Reps. David Joyce (R-OH) and Earl Blumenauer (D-OR) and seems to have the support of President Donald Trump. When asked about the proposed legislation, the president stated, “I support Sen. Gardner. I know exactly what he’s doing. We’re looking at it. But I probably will end up supporting that, yes.”
Specifically, the STATES Act would solve three issues underlying current cannabis regulation. First, the STATES Act would solve the discrepancy that exists between state and federal law related to marijuana. Identifying that “46 states have laws permitting or decriminalizing marijuana or marijuana-based products,” the STATES Act would exempt any person acting in compliance with state cannabis laws from a “trafficking” charge under the federal Controlled Substances Act (CSA). In other words, the STATES Act would protect any person in full compliance with the applicable state cannabis laws and regulations from the threat of federal prosecution. Therefore, it would no longer be possible to be acting in compliance with state law, but at the same time, violating federal law.
Second, financial institutions would be legally free to conduct business with the cannabis industry. Currently, marijuana is classified as a “Schedule I” drug under the CSA. As a result, financial institutions may risk sanction when dealing with marijuana or the proceeds that come from it. This is because banks that handle money derived from the cannabis industry can be charged with money laundering, among other crimes. Therefore, cannabis businesses are, for the most part, strictly cash enterprises. This causes many issues. For example, because banks are not willing to take these businesses’ money, many marijuana dispensaries have to resort to keeping large quantities of cash in back offices or storage units. In turn, the businesses become sitting targets for robberies and assaults, causing public safety concerns. Law enforcement and Federal Reserve officials have expressed concern over the crime that has accompanied un-bankable cash.
Under the STATES Act, cannabis transactions compliant with state law would no longer be considered “trafficking” under the CSA. Therefore, cannabis transactions would no longer yield illegal proceeds in states that have legalized or decriminalized marijuana. Financial institutions could then transact with individuals and businesses in the cannabis industry without the fear of money laundering prosecution, civil forfeiture, or other criminal violations that could lead to a charter revocation. Moreover, cannabis businesses would no longer have to worry about being sitting targets with duffle bags full of cash because their money would be in bank accounts.
Third, the United States enterprise could flourish as it has in Canada, which supports a multi-billion dollar cannabis industry. Canadian cannabis firms continue to raise billions of dollars from institutional investors and the public capital markets. For example, Canopy Growth currently has a valuation of approximately $11.5 billion and Tilray is valued at approximately $13.8 billion. Conversely, U.S. cannabis companies continue to look for capital, as they are unable to trade on the major American exchanges. Derek Peterson, CEO of Terra Tech, a California-based cannabis firm said, “what this ultimately does is create a very uneven playing field, especially from a capital market perspective. A lot of U.S. companies are underfunded and are in talks with Canadian companies that want to buy their way into the United States.” Moreover, the lack of access to institutional investments has led some U.S. cannabis firms to list on the Canadian Securities Exchange. Peterson went on to say his business is thinking about following suit but says he would “rather keep the business here in the U.S. and be able to do business with Morgan Stanley or Goldman Sachs.”
Peterson actually took out a full page advertisement in the Wall Street Journal addressing this issue. The ad read in part, “the rapidly growing American cannabis industry represents an extraordinary economic opportunity for our country, yet Canada is threatening to deprive American farmers, workers and businesses from the prosperity that rightly belongs within our borders.” The ad goes on to ask the federal government to “allow states to enact their own cannabis regulation so that we can fairly compete and protect our domestic industry before it’s too late.” This is exactly what the STATES Act would provide. Under the act, states would be able to enact their own cannabis regulation and American cannabis businesses would have access to the domestic capital markets.
The STATES Act could solve the current discrepancy between state and federal law, allow financial institutions to work with American cannabis businesses, and promote the U.S. cannabis industry. Jobs, economic growth, and public safety all could be enhanced if the STATES Act were promulgated into law.
Nikolas Komyati is a principal and chair of the cannabis practice group at the law firm of Bressler, Amery & Ross. Timothy McHale is an associate in the practice, which focuses on Florida and New Jersey. Contact them at firstname.lastname@example.org and email@example.com