The U.S. House voted 321-103 to pass the SAFE Banking Act on Sept. 25, the first major floor vote in Washington, D.C., for any cannabis reform legislation. H.R. 1595 will provide a safe harbor for financial institutions that work with cannabis business clients, effectively opening the door to formal banking relationships in the fragmented, federally illegal cannabis industry. 

U.S. Rep. Ed Perlmutter (D-CO) has led the charge for cannabis banking reform in Congress for years. As the bill’s primary sponsor in the U.S. House, Perlmutter introduced the debate on the floor by extolling the importance of public safety—and by defining how banking protections will lead to a more secure consumer marketplace. 

The vote count touched on a rare moment of bipartisan support in Congress. U.S. Rep. Steve Stivers (R-OH) pointed out that the debate necessarily focused on the public safety argument that Perlmutter brought up: "For me this bill has nothing to do with the larger debate about marijuana and whether it's a good or bad thing," he said. 

U.S. House

Across the industry, banking reform has been hailed as a vital step forward in the development of legal cannabis businesses. 

"We applaud the House for taking up this vital cannabis policy reform legislation,” Neal Levine, CEO of the Cannabis Trade Federation, said in a public statement. “The SAFE Banking Act will ensure state-legal cannabis businesses and their employees have access to the same basic banking and financial services that are available to other legal industries. Allowing the cannabis industry to access banking services will reduce its reliance on cash and greatly improve safety for cannabis businesses, employees, and consumers. It will also increase transparency and help law enforcement deter and detect illegal operations." 

Rachel Gillette, partner and chair of Greenspoon Marder’s Cannabis Law Group, told Cannabis Business Times that this vote is in many ways a bellwether moment for the industry. Political tides are turning; while this U.S. House vote doesn’t mean that anything’s being signed into law or that any sweeping reform is suddenly cast across the country, the news is a symbol of broader trends in federal priorities. 

First and foremost, it’s a tentpole for private business development, a major policy platform that spans the aisle in Congress. 

“I don’t know that people understand the difficulty in this day and age of trying to operate a multi-million-dollar business in cash only," Gillette said. “It is a very challenging situation. If you want to go pay a bill in cash—like a utility bill for your grow facility—a lot of utility companies don’t take cash payments, so you literally have to run around or pay an employee to run around to go get you money orders to be able to pay your bills. You have to make appointments with the taxing authorities to be able to pay your taxes in cash. It makes it very difficult to be tax compliant if you don’t have a bank account. The list goes on and on. If banking was to be expanded—and this would offer protections to financial institutions that choose to offer services to state-legal marijuana businesses—it would be a big step for the industry.” 

Banking reform is a major step toward normalization and some form of federal recognition of cannabis as a legitimate industry. It’s a prerequisite, in some ways, for broader reforms. Rescheduling cannabis or giving its regulatory oversight entirely to state governments—two possible shapes of federal “legalization”—would require some legitimate pathway to banking for any national industry to emerge in full. 

“Denying access to banking is making it harder to increase the diversity of the cannabis industry,” Steve Hawkins, executive director of the Marijuana Policy Project, said in a public statement. “Passing this legislation would provide resources for those with limited access to capital and increase the chances of success for state-level social equity initiatives. The SAFE Banking Act is a positive step in the right direction for cannabis policy reform in the United States, and its passage will improve the likelihood that other cannabis legislation will advance in Congress.” 

The U.S. Senate, on the other hand, where the bill is heading next, is a far more complicated political landscape for cannabis legislation like the SAFE Banking Act.  

Where the House bill gathered 206 co-sponsors, the Senate equivalent has gathered 33 as of Sept. 24. Republicans hold a majority of the Senate’s 100 seats, making the task just that much more difficult for elected officials seeking passage of this landmark bill. Senate Majority Leader Mitch McConnell, of Kentucky, has made his opposition to cannabis well known—despite his fervent support for the legalization of hemp, as seen throughout 2018’s campaign for the Farm Bill. 

“What it ends up doing in the Senate is anybody’s guess, to be honest, but it does have bipartisan support,” Gillette said. “The reality is that this is a bill that will allow banks to feel safe banking the industry, and it removes the risk of them banking the marijuana industry. Cannabis is here to stay.” 

TORONTO--(BUSINESS WIRE)--PRESS RELEASE--FSD Pharma Inc. has announced the signing of a letter of intent (LOI) to establish a joint venture with the company’s wholly-owned subsidiary, FV Pharma Inc. and World-Class Extractions Inc. to develop, manage and operate a cannabis extraction and processing facility in Cobourg, Ontario to extract various cannabidiol and other valuable elements from cannabis and hemp plants.

The LOI amends, supersedes and replaces, in its entirety, the Collaboration and License Agreement entered into as of Nov. 23, 2018 by and between World-Class and FV Pharma.

Following execution of the LOI, FSD Pharma and World-Class will each hold a 50-percent interest in the Joint Venture. The Joint Venture is expected to enter into a five-year lease agreement with an additional five-year option with FV Pharma to install the Boss Extraction and Processing unit(s) designed by World-Class’ subsidiary Soma Labs Scientific, occupying up to 5,000 square feet of licensed indoor space at the facility. The lease will commence Dec. 1, 2019 and contain provisions for the expansion of the facility during the first six months of operation. Under the terms of the LOI, FSD Pharma has agreed to allocate additional finished space as required to expand the extraction and processing facility to accommodate the installation of World-Class’ Small Beast (a large capacity ethanol extraction system) along with all the required peripheral equipment for the processing of crude into refined products.

The patent-pending Boss Extraction system provides proprietary systems and methods for producing cannabis extracts. Its technology can perform sub-critical CO2 extraction; combining proprietary max flow technology with advanced thermodynamics, automated features, and an exclusive plug and play design. The Boss features a maximum processing capability of up to 200 lbs per day, scalability add-on features, and continuous flow to produce extracts that have substantially greater concentrations of target cannabinoids and possess minimal contaminants. The Boss Extraction system is intended to provide third-party Licensed Producers with access to the technology needed to extract oil for value-added product production.

Once established, both parties to the Joint Venture will contribute the following resources to develop, manage and operate the cannabis extraction and processing center at the Facility:

• Extraction operations will commence with the installation by World-Class’ subsidiary Soma Labs Scientific of three Boss Extraction systems in an existing licensed area for extraction and processing at the facility.
• World-Class Extractions, through Soma Labs Scientific, will provide the Joint Venture with all of the extraction and processing equipment required, assuming all direct costs.
• All expenses and costs incurred by the Joint Venture will be evenly split with 50 percent born by each party.
• Once operational, the extraction machinery will be managed and operated by FSD Pharma.

Additional provisions under the Joint Venture once established:

• World-Class is entitled to nominate two of the five directors of the Joint Venture.
• FSD Pharma is entitled to nominate two of the five directors of the Joint Venture.
• One independent director will be assigned to the Joint Venture.
• FSD Pharma has agreed to allocate additional completed space for future expansion installation of a Small Beast Ethanol Hemp Extraction system.
• Both parties will fund operating costs and expenditures associated with the Joint Venture.

The Joint Venture is expected to provide additional revenue and partnership opportunities for both parties as the processing center is capable of performing toll processing extraction for third-party Licensed Producers using FV Pharma’s processing license. The FV Pharma Facility, formerly Kraft Canada’s production facility, is located approximately one hour’s drive from Toronto and is equipped with numerous on-site resources, making it a favorable location for third-party toll processing contracts.

Raza Bokhari, MD, Executive Co-Chairman and CEO of FSD Pharma stated, “This is an important development for FSD Pharma, allowing the Company and World-Class to establish a processing center for on-site extraction of oil-based products and extracts at our Facility in Cobourg in 2019. Using FV Pharma’s processing license, the Joint Venture can begin processing once the Boss Extraction Systems are installed and our agreement is finalized. This Joint Venture provides us with additional revenue opportunities as we process our pharmaceutical-grade cannabis flower into high-quality oil-based products to meet the increasing demand for such products in the medicinal space.”

Rosy Mondin CEO of World-Class stated, “World-Class is thrilled to be the official extractor of FV Pharma, while opening up our processing operations to other Canadian producers. The toll processing model is economical as license holders can create valued added cannabis oil derivative products under their corporate brand(s) without major expenditures on in-house extraction machinery or requiring a processing license. This milestone is incredibly significant as World Class is now ready to accept new tolling contracts and officially begin to generate revenue in the near term."