It’s been another eventful year for the cannabis industry, from the House passing the Marijuana Opportunity Reinvestment and Expungement (MORE) Act for the second time, to a federal appeals court ruling that delta-8 THC is legal under the 2018 Farm Bill, to lawmakers once again failing to approve banking reform.
Here, Jonathan Havens, co-chair of Saul Ewing Arnstein & Lehr’s Cannabis Law Practice and chair of the firm’s Food, Beverage and Agribusiness Practice, shares the biggest developments he’s seen so far in 2022, as well as which industry trends stakeholders should watch during the second half of the year.
1. Continued Consolidation
Mergers and acquisitions are still driving continued consolidation in the cannabis industry, Havens said. Local operators are joining forces with multistate operators as the MSOs expand their footprint and strengthen their brand story at the state and federal levels.
“I think ending the federal prohibition on cannabis is still farther off than some would like, but it seems like these MSOs are strengthening their footprint, expanding into the jurisdictions that they … haven’t been in before because the laws just weren’t there when they first started out,” Havens said. “I think consolidation is one of the big themes we’ve seen.”
2. ‘Interesting Scenarios’ in Federal Cannabis Policy Reform
November’s midterm election raises questions about how federal cannabis policy reform efforts may play out during the lame duck period, after the elections and until the new Congress is sworn in in January.
Havens predicts that Republicans will take control of one or both chambers of Congress, which he said “could set up some interesting scenarios for cannabis reform during the lame duck.”
“There are a lot of things that a lot of people are going to try to get done during that period,” Havens said. “I don’t know that cannabis is necessarily in anyone’s top five, but we could see a possibility of cannabis reform, whether that’s associated with banking [or] whether that’s a broader measure, like moving … a centrist proposal like Nancy Mace’s States Reform Act.”
Havens said some form of cannabis policy reform could pass during the lame duck session or early next year, depending on the breakdown of Congress after the Midterms, and that the Capital Lending and Investment for Marijuana Businesses (CLIMB) Act is one to watch.
“As far as banking is concerned, I think a lot of folks were hopeful that [the Secure and Fair Enforcement] (SAFE) Banking [Act] would get attached to the COMPETES Act and, obviously, it got stripped out,” Havens said. “There’s an interesting proposal that was introduced recently, [the] CLIMB Act. … It would address capital markets.”
Still in draft-bill form, the CLIMB Act would allow the New York Stock Exchange (NYSE) and Nasdaq to list cannabis companies, which have been forced to list in Canada.
The legislation also outlines business assistance for cannabis operators in the form of investment and commercial banking, deposit taking, and trust services, Havens said. It also includes provisions to allow credit card companies to process cannabis-related transactions.
“It's a pretty sweeping proposal,” Havens said. “It’s new. We don’t really know what the future is, but again, depending on what the breakdown in Congress is [after the Midterms], … perhaps that has a bit more advancement.”
The SAFE Banking Act, on the other hand, has continued to hit roadblocks in the Senate; despite the House passing the banking reform bill six times, the Senate has refused to take up the legislation, which was most recently removed from the America COMPETES/USICA Act in a conference to reconcile the differences between both chambers’ versions of the bill.
“Right now, [with] the SAFE Banking Act, the House hasn’t been the problem,” Havens said. “It’s been the Senate. Chuck Schumer, as the majority leader, has said, ‘We’re not going to pass cannabis reform unless it includes broad-based measures like social equity and grants for communities disproportionately impacted by the war on drugs.’ So, SAFE Banking really hasn’t gotten an opportunity to advance in the Senate. I don’t know that, under Republican leadership, it would necessarily have a much better shot. I do think it’s at least possible because, unlike Chuck Schumer, I think there’s an appetite in the House and the Senate to advance cannabis reform with more modest social equity proposals.”
Schumer’s comprehensive cannabis legalization proposal, the Cannabis Administration and Opportunity Act (CAOA), was unveiled in draft form nearly a year ago, in July 2021, but formal introduction of the legislation has been postponed until later this summer.
Havens said the CAOA may be dead on arrival, however.
“I think it contains too much,” he said. “It’s too broad. Specifically, it certainly would address cannabis’s Schedule I status, and it would give hybrid federal and state regulation, although there’s a lot to be figured out there with where the feds leave off and where the states pick up. … It has very robust social equity measures, … but the social equity provisions in the CAOA are very broad. So broad, in fact, that I don’t even think that there are 50 Democratic votes in the Senate, let alone the 10 additional Republican votes that you would need to survive a filibuster.”
3. State-Led Expansion
While cannabis policy reform efforts tend to move slowly at the federal level, states are still rapidly legalizing medical and adult-use cannabis within their jurisdictions.
“I think people should really pay attention to state ballot initiatives,” Havens said. “There are a few that are already on the ballot for the fall and a few others that I think will get on the ballot if the campaigns collect the required number of signatures. So, as the states have done, they’re going to continue to be at the forefront of expanding these programs in the face of … lack of action on the federal level.”
4. Further (State) Regulation on Delta-8
Just as states continue to legalize cannabis within their borders, Havens expects them to also adopt policies to regulate—or ban—delta-8 THC in the absence of clear federal regulations.
The 9th Circuit Court of Appeals in California issued an opinion in May stating that delta-8 is legal under the 2018 Farm Bill, but Havens and others have cautioned that this may not be the much-needed clarity that the industry has been waiting for.
“I would caution: It’s a trademark decision, and it was dealing with an injunction at the lower court level,” Havens said. “I know a lot of people are reading this as, ‘Oh, the 9th circuit says that delta-8 is completely legal.’ Well, it wasn’t an all-or-nothing decision. It was deciding if the injunction in the lower court was correct for trademark purposes. I think there’s a lot more to learn about what states and the federal government are going to do vis-à-vis delta-8 regulation."