Will the U.S. See Federal Cannabis Reform by 2023? States’ Rights and Access to Banking Still on the Table

American history shows that the U.S. government tends to progress through step-by-step, incremental changes until the majority of states have aligned on a single stance in support of sweeping federal reform.

For example, 35 states and U.S. territories had separately legalized same-sex marriage through their individual legislatures by the time the Supreme Court applied the Civil Rights Act of 1964 to protect same-sex marriages nationwide in 2015.

As of July 2022, 37 states and U.S. territories have separately legalized medical cannabis, with 19 states having legalized adult-use cannabis programs through their individual legislatures. This country is at a tipping point in which the dangers and undue burdens created by the schism between state and federal cannabis law can no longer be ignored.

Where Do Americans Stand on Federal Cannabis Reform?

In April 2022, the SSRS market research firm conducted a survey of opinions on national cannabis reform. This survey found that:

• 92% of Americans support medical cannabis legalization
• 94% of Democrats support medical cannabis legalization
• 88% of Republicans support medical cannabis legalization
• 69% of Americans support recreational cannabis legalization
• 78% of Democrats support recreational cannabis legalization
• 54% of Republicans support recreational cannabis legalization
• 58% of Americans believe alcohol is more harmful to health than cannabis
• 91% of Americans say the war on drugs (rooted in the federal Controlled Substances Act) has failed in preventing illegal drug use

America’s leading cannabis companies, financial institutions, social equity advocates, and ancillary stakeholders are shifting their focus from primarily state-level lobbying to burgeoning federal-level rules and regulations. The U.S. Cannabis Council is the latest major player in federal cannabis lobbying. This organization was spearheaded by high-revenue cannabis companies present in numerous state cannabis programs.

Immediate concerns across U.S. stakeholders include:

1. Access to banking and traditional financial institutions
2. Protect existing state programs and licensees’ early investments to operate in them
3. Advance the interests of those historically and disproportionately impacted by cannabis prohibition seeking to repair the harms to their community and build generational wealth within the regulated cannabis industry
4. Deschedule cannabis from the federal Controlled Substances Act
5. Regulate cannabis the same as alcohol, rather than the years-long, extremely expensive process pharmaceuticals must submit to

Positions on the above issues vary widely across party and state lines. This is why Congress is likely to work incrementally, meaning that a single narrow issue can be debated, resolved, and passed into law at a time. This approach allows the issues on which senators and representatives are aligned to pass federal reform laws quickly and efficiently while more highly debated issues remain on the table for longer.

However, it should be noted that some social equity advocates hold the belief that no issue—even those with bipartisan support in both the House and the Senate—should be able to pass until non-bipartisan social equity provisions are included. The legislature witnessed this in 2021’s attempt to include SAFE Banking Act in the National Defense Authorization Act described below.

SAFE Banking Act: Access to Banks, Credit Unions, and Traditional Financial Institutions

The SAFE Banking Act has passed the House of Representatives six times but has yet to be approved by the Senate. The purpose of this bill is to allow cannabis operators to accept credit cards, raise capital, and bank as any ordinary business would.

According to the U.S. Treasury, a mere 10% of American banks and 4% of all credit unions provide services to state-licensed cannabis businesses. Federal cannabis prohibition puts companies and employees at risk of violent crime because they are required to work exclusively with massive sums of cash. Prohibition also places an undue burden on patients and purchasers who must help companies pay the cost of the “cannabis tax” that ordinary business services, such as banking and financing, upcharge on state-legal, regulated businesses.

In an effort to get more immediate attention on federal banking reform, legislators have pivoted away from passing SAFE as a stand-alone bill and begun to insert SAFE banking provisions into complementary bills that have the momentum to pass quickly with bipartisan support.

Earlier this year, the House of Representatives inserted SAFE Banking Act provisions into their version of the America COMPETES Act of 2023. This draft passed out of the House but failed to pass through the Senate.

Now, with continued bipartisan support, Rep. Ed Perlmutter (D-CO), has again filed to amend the NDAA of 2022 to include SAFE Banking language. The Senate previously blocked SAFE’s inclusion in the National Defense Authorization Act (NDAA) of 2022, when Senate Majority Leader Schumer (D-NY) and Sen. Booker (D-NJ) took the contentious position that SAFE does not do enough to support social equity.

Opinions are divided as to whether the SAFE Banking Act is a meaningful first step toward helping those impacted by cannabis prohibition enter the industry by reducing these communities’ already disproportionate discrimination in access to banking and capital; or, whether the U.S. must implement all social equity provisions now or risk them being excluded in broader federal reforms to come.

Marijuana Moment reports:

“Despite recently saying that he’s ‘confident’ that the Senate will take up his bill this session, Perlmutter recognized that while he’s supportive of revisions related to criminal justice reform, taxation, research and other issues, he knows that ‘as we expand this thing, then we start losing votes, particularly Republican votes and we got enough votes in the Senate to do it’ as is.”

What Other Cannabis Provisions Are Being Added to the NDAA?

As of July 6, an additional slew of cannabis and psychedelics amendments are in the process of being added to the House’s 2023 draft of the NDAA. Four significant cannabis provisions in deliberation would:

1. Require reasonable cannabis sentencing standards to be added to the military code
2. Require the Department of Defense to conduct medical studies as to the efficacy of cannabis over opioid treatments in veterans
3. Allow VA doctors to “assist veterans in providing recommendations, opinions, and completion of the forms” to become medical cannabis patients
4. Prohibit federal employers from discriminating against veterans who use or have used cannabis

Veterans’ issues tend to garner support on both sides of the aisle. The question is whether Sens. Booker and Schumer will again block any cannabis provisions from passing the Senate without the inclusion of social equity provisions, such as those they have outlined in their Cannabis Administration and Opportunity Act (CAOA). CAOA is still in the drafting and public comment process, and is unlikely to be filed and enacted by the end of 2023.

States’ Rights: Protecting State-Regulated Cannabis Programs

The language proposed is language that most existing cannabis companies established their businesses on when it was outlined in the Cole Memo of 2013. The Cole Memo “Guidance Regarding Marijuana Enforcement” advised the Department of Justice’s law enforcement and attorneys to respect highly regulated, state-licensed cannabis businesses and focus their attention on risks including but not limited to:

• Preventing cannabis distribution to minors
• Preventing cannabis revenue from going to criminal enterprises, gangs, and cartels
• Preventing the diversion of cannabis from legal states to states that continue to prohibit cannabis
• Preventing state-authorized cannabis businesses from acting as a cover for the trafficking of other illegal drugs or activity
• Preventing violence and the use of firearms in cannabis cultivation and distribution

In 2018, former Attorney General Jeff Sessions made it one of his first acts in office to repeal the Cole Memo. Business owners, attorneys, accountants, and other stakeholders across the country remember this day, on which they all received phone calls of concern: “What will you do now that you have to shut down?”, “What will you do now that your law/accounting license is going to be revoked?”

Current Attorney General Merrick Garland has reiterated his belief that the Department of Justice should not interfere with state-legal cannabis programs. However, he has failed to put his opinion into a format that holds the force of law.

Since the day the Cole Memo was repealed, various legislators and stakeholders have been fighting to formalize this guidance in federal law. According to NORML:

“The bipartisan amendment, introduced by Reps. Barbara Lee (D-CA) and David Joyce (R-OH), with the non-committee support of past champions Reps. Earl Blumenauer (D-OR), Tom McClintock (R-CA), and Eleanor Holmes Norton (D-DC), would bar the DOJ from using resources to interfere with the ability of states, territories, tribal governments, or the District of Columbia to implement laws and regulations governing the legal and regulated production, sale, and use of cannabis by adults or to target people acting in compliance with those laws.”

As of July 6, the above proposal has been approved by the House Appropriations Committee. It must now pass on the House and Senate floors before it passes into law.

It is clear the momentum is behind federal cannabis reform. The most likely result is that the federal government will greatly pare down the proposed legislation to advance just one or a couple of significant provisions for 2023.