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3 Cannabis Legislation Predictions Ahead of the 2020 Election

Will Congress act soon to bring a measure of common sense to this country’s cannabis policy? What about the states?

2020 Election Graphic

The glacial pace at which the federal government has implemented cannabis policy–particularly in light of the rapid evolution of cannabis laws at the state level–is at the same time predictable and frustrating to those seeking a measure of certainty. And it begs the question: Will Congress act soon to bring a measure of common sense to this country’s cannabis policy? What about the states?

Mark Twain wrote that “[p]rophesy is a good line of business, but it is full of risks.” With those risks in mind–and a plate of crow in the warming drawer–I offer the following three predictions about cannabis policy, and its implications, for the remainder of 2020.

Prediction No. 1: None of the current “big fix” proposals will pass Congress before the election.

Congress is unlikely to pass major cannabis legislation before the presidential election. At least three such bills are currently pending in Congress: (1) the Secure and Fair Enforcement (SAFE) Banking Act; (2) the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act; and the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act.

The SAFE Banking Act appeared to have momentum last year when it passed the House of Representatives with bipartisan support and began making progress in the Senate. The proposal would allow financial institutions to transact with cannabis-related businesses in states that have legalized the plant. Nowhere is the federal prohibition on cannabis more impactful than in the banking laws prohibiting financial institutions from banking the proceeds of unlawful activity, including proceeds from state-legal cannabis operations. For better or worse, these laws prohibit the full development and maturation of the industry. Despite the bill’s early momentum, it appears to have stalled in the Senate.

The Strengthening the Tenth Amendment Through Entrusting States (STATES) Act “would amend the Controlled Substances Act so that it no longer applies to persons acting in compliance with state or tribal laws on cannabis, and the proceeds of any compliant transaction would not be deemed unlawful under anti-money laundering statutes or other federal laws.” It would also solve the problem of compliance with Rule 280E–a massive obstacle to growth in the industry–because state-legal marijuana activity would not trigger 280E. The bill does not currently appear to have sufficient support to pass Congress.

The Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act would remove cannabis from the Controlled Substances Act and take steps to address the past implications of prohibition through social justice and equity programs. The act would also impose a tax on sales from cannabis growers to processors. The act has yet to garner the kind of strong bipartisan support it needs, and it may be the least likely of the three pieces of proposed legislation to become law. Its biggest obstacle is the Republican-controlled Senate, which does not appear to support measures that would expunge prior (even non-violent) cannabis convictions.

Prediction No. 2: Even if banking relief becomes law, the full integration between cannabis and banking sectors will take years.

It has long been conventional wisdom that a federal banking fix will supercharge the cannabis industry. But is that really the case?  

On the one hand, opening the banking system would almost certainly be a net positive to the cannabis industry. It will open the doors of conventional depository and lending services to an industry that has predominantly relied on private investment that required higher rates of return and time-consuming, labor-intensive capital raises.

On the other hand, I foresee two potentially confounding factors to unimpeded industry growth. First, many cannabis companies have established banking relationships at this point. Local banks and credit unions around the country have done business with cannabis operators, and that might blunt the impact of federal banking legislation compared to the impact it may have had five years ago.

Second, there is no guarantee that even if allowed to do so, large financial institutions will choose to do business with cannabis companies. All one has to do is look at how financial institutions responded to the federal legalization of hemp 18 months ago: There is no restriction on a bank’s ability to provide services to hemp companies, and many of the country’s major banks have chosen not to do so or were slow to come aboard, often citing compliance challenges and reputational risks. A spokesperson for Wells Fargo, for example, stated late last year–even after federal guidance made clear that banking hemp was permissible–that “[o]ur current position remains that we don’t presently bank or provide services to [hemp or cannabis businesses],” according to an article in The Counter, a nonprofit news organization covering the U.S. food industry. 

Financial institutions are likely to perceive similar risks even if they can work with cannabis operators, and they are likely to respond in a similar way. I predict it will be years, not months, after any banking legislation passes before the country’s banking system embraces the cannabis industry in a meaningful way. 

Prediction No. 3: Mississippians will vote for medical cannabis, but their wishes will be thwarted.

And now for a change of pace, and this one may shock people who haven’t been paying attention to the efforts to get medical cannabis on the ballot in Mississippi this November. Mississippi, of all places, has medical cannabis on the ballot. There are other closely watched states this election season, of course, as supporters hope that citizens will approve legalization measures in Arkansas, Arizona, New Jersey (all adult-use) and Nebraska (medical.) But as someone who lives in the South, medical marijuana legislation in Mississippi would have sounded as likely to me two years ago as the state uprooting entirely and moving to Mars. 

This past fall, more than 200,000 Mississippians signed a petition to include medical cannabis on the ballot in the November 2020 election. In March, the Mississippi Legislature passed legislation that places a competing medical cannabis proposal on the same ballot. Under Mississippi law, a ballot initiative only becomes law if it receives 40% or more of the total votes cast in the election. This means that in order to become law, (1) a majority of voters must first vote to approve medical cannabis and then (2) one of the competing initiatives must take a substantial percentage of all such “yes” votes to garner 40% of the total vote. So, while polling suggests likely voter support medical cannabis, the result is uncertain. And ballot initiatives have not historically had great success in Mississippi. For example, a ballot initiative to amend the state constitution to provide “adequate and efficient system of free public schools” failed in 2015, as did an effort to change the state flag in 2001. 

Medical cannabis advocates have cried foul, claiming that the conservative-leaning Legislature enacted the proposal solely to split the votes between the competing initiatives and ensuring that neither receives the requisite support. Supporters of the legislative proposal deny that claim and maintain that the citizen-led initiative lacks sufficient controls and oversight. Ultimately, the voters of Mississippi will decide. I predict the vote will be split, and Mississippi will wait at least another year for a medical cannabis program – provided that advocates can craft a proposal that garners enough support to minimize legislative machinations.

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Only time will tell whether these predictions will prove true. If there are any takeaways, it is that the piecemeal, state-by-state process for cannabis legalization is likely to continue while federal efforts move more slowly. One thing is for certain, though: cannabis advocates and opponents will debate these fundamental and critical issues throughout 2020 and beyond. Stay tuned.

Whitt Steineker is a partner and co-chair of the Cannabis Industry team at Bradley Arant Boult Cummings LLP in Birmingham, Ala. He represents clients in a wide range of cannabis issues. In addition, he advises non-cannabis clients – from banks to commercial real estate companies to insurance companies and high net worth individuals – on best practices for doing business with cannabis companies. He can be reached at [email protected].
 
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