Cannabis News of Note for the Week:
Politico Pro Cannabis (11/16): DAINES: HOPE ACT IS ON THE TABLE (paywalled newsletter, full article text below)
Law360: Pot Biz Org. Asks NYSE, Nasdaq To List ‘Plant-Touching’ Cos. (paywalled, full article text below)
Law360: Could Cannabis Banking Reform Finally Pass In Lame Duck? (paywalled, full article text below)
Cannabis Reports of Note for the Week:
Politico Pro Cannabis (11/16): DAINES: HOPE ACT IS ON THE TABLE
Some Republicans are open to pairing the SAFE Banking Act with another piece of legislation that gives states money to expunge cannabis-related records. The HOPE Act — sponsored by Reps. Dave Joyce (R-Ohio) and Alexandria Ocasio-Cortez (D-N.Y.) — is part of ongoing discussions about a possible end-of-the-year legislative package, Sen. Steve Daines (R-Mont.) told Natalie on Monday.
“We’re open to some additions to [SAFE]. I think the HOPE Act is one,” said Daines, the co-lead sponsor of the cannabis banking bill. “But if it gets bigger than that, I think we’re gonna have a problem.”
The HOPE Act doesn’t change marijuana’s legal status, but makes grant funding available for state governments to expunge cannabis offenses. Most cannabis-related convictions are at the state and local level, and expungements require significant resources to process.
Key context: Daines’ admission shows movement among Republicans, who before the election held firm to the stance that SAFE did not need any other legislation paired with it to pass. Sen. Cory Booker (D-N.J.) has insisted that SAFE be paired with criminal justice-focused legislation, but would not say on Monday if the HOPE Act would be sufficient for him to support SAFE right now.
Daines added that he would be part of a bipartisan meeting with Schumer on Tuesday to talk about “next steps.”
Pot Biz Org. Asks NYSE, Nasdaq To List ‘Plant-Touching’ Cos.
By Katryna Perera
Law360 (November 14, 2022, 4:59 PM EST) — The American Trade Association for Cannabis and Hemp, with the assistance of Duane Morris LLP, is urging the New York Stock Exchange and the Nasdaq Stock Market to begin listing “plant-touching” cannabis operators to align with the fast-growing nature and legalization of the industry.
In a policy paper issued Nov. 7 outlining its arguments, the American Trade Association for Cannabis and Hemp, also known as ATACH, said the exchanges’ practice of not listing cannabis and hemp operators is “outdated and out of step with the reality that transacting business with state-legal cannabis operators is a not a priority for enforcement by the [U.S. Department of Justice].”
According to ATACH, the exchanges have hesitated from listing operators due to concerns that they could become open to federal prosecution for aiding and abetting violations of the U.S. Controlled Substances Act since marijuana is still a federally controlled substance.
There is also a concern that the raising of capital and the payment of listing fees by operators to the exchanges could be seen as direct or indirect violations of anti-money laundering statutes, according to the policy paper.
But ATACH argues the exchanges do not need to worry as the federal government has taken a “laissez-faire” approach to enforcement of state-legal cannabis activities due to the growing popularity and legalization of the industry.
“The DOJ has established a decade-long track record of such non-enforcement, and the President has now taken affirmative steps in the direction of decriminalizing, and possibly de-scheduling cannabis,” the paper states.
Emily Paxhia, ATACH Capital Markets Council co-chair, said in a statement there is a “clear legal pathway” for exchanges to begin listing “plant-touching” cannabis operators.
Preventing cannabis operators from listing ignores the compliance-heavy nature of the industry, ATACH further argues.
“In order to maintain their state-issued cannabis permits, operators must implement [standard operating procedures], protocols, and other compliance measures intended to provide transparency and to ensure that state cannabis laws are not being violated,” the paper states. “Such operators, many of whom are currently trading publicly on the OTC Markets, the Canadian Securities Exchange, and the NEO exchange are already satisfying those exchanges’ listing requirements, are thus built for the reporting and disclosures required of publicly-traded companies.”
ATACH asserts that cannabis operators are more compliant and transparent than companies in other industries and listing operators is not only in the public interest but it would also line up with the exchanges’ various purpose initiatives to promote diversity and inclusion among issuers.
Finally, listing cannabis operators would promote the industry’s continued growth, ATACH claims.
“Whereas liquidity shortfalls and high costs of capital may impede the achievement of the cannabis industry’s social equity objectives, the infusion of capital into the cannabis market that might result from operator trading on the Exchanges could increase the likelihood that such goals are met. And a stronger performing cannabis industry due to such capital would likely boost the overall U.S. economy,” the paper states.
According to ATACH, cannabis sales revenues are projected to exceed $30 billion in 2022 and $50 billion in 2026. Additionally, the industry is expected to create more than 800,000 jobs by 2026.
In a statement, Duane Morris cannabis industry group partner and co-team lead Seth Goldberg said: “Now is the time for plant-touching operators to be listed by major exchanges … the very operators that grow, process, and dispense cannabis are not being subjected to federal enforcement where their cannabis activities comply with state law.
“Nasdaq and NYSE are already listing companies who are facilitating trading in plant-touching operators, or whose businesses are dependent on such operators. Having crossed the rubicon, it is time to talk about listing plant-touching operators,” he added.
Could Cannabis Banking Reform Finally Pass In Lame Duck?
By Deanna Lucci, associate at Duane Morris LLP
Law360 (November 16, 2022, 4:57 PM EST) — In the Nov. 8 midterm elections, voters in both Maryland and Missouri approved legalization of cannabis for adult use, while voters in Arkansas, North Dakota and South Dakota voted no on legalization.
With the passage in Maryland and Missouri, 21 states as well as the District of Columbia have now legalized cannabis for adult use, and another 16 states permit cannabis for medical use.
Despite the fact that nearly half of all states have now legalized cannabis for adult use, it remains illegal under the federal Controlled Substances Act as a Schedule I drug, along with drugs like heroin and LSD. Such a classification means that cannabis has a high potential for abuse and has no acceptable medical use, despite research to the contrary.
Among the many challenges created by this split between state and federal law, none is more frustrating to the rapidly growing cannabis industry than the lack of meaningful access to banking, lending and capital markets.
Because cannabis remains federally illegal, most traditional financial institutions will not conduct business with cannabis enterprises due to heightened and burdensome reporting requirements and fear of federal prosecution for aiding and abetting illegal activity and money laundering.
However, as discussed in this article, a stalled bill that would address these issues may have a chance at passing in Congress in this fall’s lame-duck session.
Under the federal Bank Secrecy Act and related laws and regulations, financial institutions are required to keep records and report activities that may indicate money laundering and other financial crimes, such as terrorist financing.
While the BSA provides a basic framework, it also directs the Financial Crimes Enforcement Network of the U.S. Department of the Treasury to issue anti-money laundering regulations.
The detailed requirements of the BSA are found in FinCEN’s BSA/AML regulations, which include suspicious activity reporting requirements.
In addition to its regulations, FinCEN has issued clarifying guidance on certain topics, including suspicious activity reporting with respect to marijuana-related businesses.
In its guidance, FinCEN directs that, regardless of any state law that legalizes marijuana-related activity, financial institutions still have the obligation to perform customer due diligence and ongoing monitoring, including with respect to marijuana-related businesses.
Financial institutions are also required to file suspicious activity reports if the financial institution knows, suspects, or has reason to suspect that a transaction conducted or attempted by, at, or through the financial institution: (i) involves funds derived from illegal activity or is an attempt to disguise funds derived from illegal activity; (ii) is designed to evade regulations promulgated under the BSA, or (iii) lacks a business or apparent lawful purpose.
Further, the Money Laundering Control Act prohibits “monetary transaction[s] in criminally derived property.”
Although the U.S. Department of Justice has not made it a priority to prosecute banks for providing services to cannabis-related businesses, most traditional banks and financial institutions are nonetheless wary of doing so without a change in federal law.
As a result, while legal recreational and medical cannabis sales nationwide are expected to reach $33 billion this year, most cannabis companies still conduct their business entirely in cash and must use cash to meet payroll obligations and pay taxes, causing serious public safety concerns.
Because they deal mostly in cash, cannabis businesses have been the target of burglars and armed robbers, and many of their employees have been assaulted and even killed. Many cannabis businesses are forced to hire private security for this reason, at a high cost.
While there are some financial institutions that offer credit or debit card systems to cannabis enterprises, their services are limited in that they do not provide loans or other traditional banking services.
Recent developments may finally close this gap and allow cannabis businesses more access to the banking system, credit cards, lending and capital markets that other types of businesses enjoy.
The Secure and Fair Enforcement Banking, or SAFE Banking, Act would prohibit federal regulators from taking adverse actions against financial institutions that provide banking services to legal cannabis-related businesses and ancillary service providers, including, but not limited to, landlords, accountants and law firms.
The SAFE Banking Act has passed the U.S. House of Representatives a total of seven times after first passing in 2019, but has not yet made its way to the Senate despite support from at least 21 state governors, the American Bankers Association, several other banking and insurance industry groups, and the general public.
In the past year, Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Cory Booker, D-N.J., held off on supporting the SAFE Banking Act in the Senate in favor of introducing their own, more comprehensive cannabis legalization and social equity bill, the Cannabis Administration and Opportunity Act in July.
In addition to permitting cannabis companies to access the banking system, the CAOA would have legalized and decriminalized recreational cannabis with an eye toward supporting communities that have been most affected by the war on drugs.
After failing to receive enough support from their Republican colleagues, in late summer Schumer and Booker began to soften their respective positions on the SAFE Banking Act, stating that they would be open to passing a version of the bill if it contained added social equity and expungement provisions.
On Oct. 6, President Joe Biden took executive action and announced that he would issue pardons for all prior federal offenses of simple possession of marijuana, and urged state governors to do the same.
As part of his executive action, Biden also directed the secretary of health and human services and the attorney general to “initiate the administrative process to review expeditiously how marijuana is scheduled under federal law.”
At the time, many observed that this executive action could usher in cannabis banking reforms in the lame-duck session between the November election and the swearing-in of the new Congress on Jan. 3, 2023. This is because it was unclear which party, if any, would control Congress in 2023, and the Democrats want to secure a victory on cannabis reforms before the new Congress begins.
After Biden’s announcement, Booker said he was hopeful that Congress would pass federal legislation in the lame-duck session. On that front, Booker alluded to “bipartisan movement” due to “problems in the banking industry” that many think refers to a version of the SAFE Banking Act that is colloquially referred to as SAFE Banking Plus or SAFE Plus.
While SAFE Banking Plus has not yet been introduced, it would likely include some key provisions from the CAOA, such as ensuring equitable access to financial services for minority-owned cannabis businesses, allowing small business loans, requiring financial institutions to prove compliance with anti-discrimination laws, expungements of criminal records, reinvesting marijuana tax revenue in economic opportunities for communities disproportionately affected by the war on drugs, and access to medical cannabis for veterans.
In the run-up to the election in late October, Schumer said Congress was getting “very close” to introducing and passing a bill that would allow banking access for legal cannabis businesses and expungements of past convictions, referring to positive conversations he had with a “bunch of Republican senators.”
Now that the midterms are over, Democrats will retain control of the Senate, and it appears that Republicans will assume control of the House, leaving Congress divided.
Since the House will also need to introduce its own version of the SAFE Banking Act in order to make its way to the president’s desk, Democrats in Congress are motivated to pass a bill before the end of the year while they still retain a narrow majority in both houses.
However, cannabis reform is just one of the many Democratic priorities, and there are only six weeks left in the term.
In an interview on Nov. 13, Booker said that Democrats must enact cannabis reform now or likely wait until “many years from now” when the Democrats are in control of Congress again.
If the Senate passes a version of the SAFE Banking Act this year, then the House will need to vote on its own companion bill. If there are no differences between the Senate and House versions that need to be worked out via conference committee, then it would go to the president’s desk for signature.
If the bill is not passed this year, then it will be up to whomever is elected speaker of the House to schedule a vote on a House version of the bill.
House Minority Leader Kevin McCarthy, R-Calif., won the Republican nomination for speaker, but faces a challenge from far-right members when a full vote is taken in January.
Although McCarthy voted in favor of the SAFE Banking Act in the House in 2019 and 2021, if he ultimately becomes speaker it is unlikely that he will make cannabis reform a priority.
In light of the above, Democrats seem more motivated than ever to pass some version of the SAFE Banking Act before the end of the year. However, given the number of issues on Democrats’ priority list, it may prove difficult to get it over the finish line in the next six weeks.
Deanna Lucci is an associate at Duane Morris LLP.
The opinions expressed are those of the author(s) and do not necessarily reflect the views of their employer, its clients, or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.