What the Senate Banking Hearing on the SAFE Banking Act Really Means

The Senate Banking Committee held a hearing on July 23, 2019, on the lack of financial services available to the cannabis industry and the challenges this creates. The hearing shifted the conversation around cannabis at the federal level to one of support and concern. The Chairman of the Senate Banking Committee, Senator Crapo who is a Republican from Idaho, opened the hearing with a statement that voiced his concern that federal regulators are choking off the ability for lawful businesses, such as the cannabis industry, to obtain banking services.

Senator Cory Gardner from Colorado and Senator Jeff Merkley from Oregon spoke about the safety issues that exist in their states that are caused by the lack of banking services. Senator Gardner stated that the situation is untenable as hundreds of millions of dollars in cash are being driven in cars through the state.

The Senators also focused on the individual hardships faced by industry employees including the loss of bank accounts, credit cards the inability of cannabis employees to obtain a mortgage. The hearing also highlighted the impact on ancillary service providers such as plumbers, electricians, and union members.

Both Senators demanded that the federal government respect the state’s rights to develop a lawful cannabis industry. Senator Cory Gardner thoughtfully stated that the federal government must recognize the majority of citizens support cannabis and it is the one issue that the country can unite around. Senator Gardner remarked that we are a government of the people and the people have changed their point of view with regards to this issue. 

The tone of the hearing along with sentiment expressed in Senator Crapo’s statement reveal that Congress is finally listening. The tables may be turning in a positive manner for the cannabis industry.

So what is the SAFE Banking Act and how will it help the cannabis industry?

Under the Act, banks can provide financial services to the cannabis industry, and federal regulators may not initiate an action against the bank because cannabis is classified as a Schedule 1 drug. The banking regulator, FinCen, must also revise guidance to the banks within 6 months of the law’s effective date as to the type of activity a bank should report to it as suspicious or indicative of money laundering.

The SAFE Banking Act is a great start to bringing the cannabis industry into the mainstream commercial market. The devil will be in the details as to how federal regulators will treat the legacy money that will be brought into the banking system. Cannabis businesses should ensure to have appropriate documentation as to the origin of all investments and revenues. All new investments should be vetted to ensure that an audit trail exists to demonstrate that the money is derived from legal sources.

The Senate Banking Hearing was remarkable in that both sides of the aisle appear to be uniting around cannabis. Republicans will have a hard time arguing that state rights don’t matter. Democrats will be able to provide their constituents with a win that has been in the wings for a long time. A remarkable outcome in a contentious political environment.

California Passes Cannabis Bill that Includes Organic Cannabis Certification

The California Legislature passed cannabis legislation that includes an organic certification program that will be implemented by July 1, 2021. The organic certification program will be comparable to the National Organic Program and the California Organic Food and Farming Act. The organic certification program will help differentiate the California cannabis market and brands from national competitors.

The bill that was sent to Governor Newsom for his signature also contains the following changes to cannabis regulations:

  • The legislation allows a California licensing regulator to fine a licensee or unlicensed cannabis business for violations of the state regulatory requirements up to $5,000 per day per violation for licensees and $30,000 per day per violation for unlicensed cannabis businesses.

  • The Bureau of Cannabis Control Bureau may provide funding to local jurisdictions seeking help implementing social equity programs. The new law increases the amount of funding that is available to local jurisdictions, and permits the Bureau to utilize the Governor’s Office of Business and Economic Development to help administer the program.

  • The new law extends the repeal date for provisional licenses to January 1, 2022, and allows state regulators to revoke or suspend provisional licenses if the holder is not actively and diligently pursuing an annual license.

Delaware Legislature Moves 4 Marijuana Bills

The Delaware Legislature has moved four (4) marijuana bills during the last weeks of the 2019 legislative session. The hope of legalizing adult use marijuana in Delaware ahead of the June 30th closing date has faded. However, the state legislature has made progress on bills that expand the medical marijuana program and decriminalizes the possession, consumption, and use of marijuana by juveniles.

Details on the four marijuana bills are provided below.

  • SB 170 - CBD-Rich Card The bill was introduced on June 19, 2019, and creates a new medical marijuana card that allows patients suffering from anxiety to obtain products containing elevated levels of CBD or CBD and THC. The patient’s doctor must provide a written certification recommending medical marijuana for the anxiety or any other condition approved by the state.

  • Senate Substitute 1 for SB 24 - Compassionate Use Card The bill broadens access to medical marijuana by allowing a patient or a designated caregiver for an adult or pediatric patient to obtain a compassionate use card for a severe and debilitating condition after presenting a signed statement from a physician indicating that there is no other effective treatment available.

  • HB 243 -The Delaware Patient Right to Grow Act- The bill was introduced on June 20, 2019, and permits the home cultivation of marijuana for personal use. Under the legislation, patients may grow and possess up to six flowering plants and six non-flowering plants. The patient or caregiver must tag the plants and report seed-to-sale information to the state on a monthly basis. Landlords and Homeowner Associations may prohibit the cultivation of marijuana authorized under the Act.

  • SB 45 - Civil Penalties for Juvenile Use of Marijuana The bill decriminalizes the possession, use or consumption of marijuana by juveniles. The bill makes it a civil violation for juveniles to possess, use or consume marijuana.

California Bill Will Allow Individuals to Deduct Cannabis Expenses

The California Senate will vote to pass a bill that allows individuals to deduct business expenses associated with legal commercial cannabis activity. The proposed amendments to the Personal Income Tax Law ensures that the cannabis industry is treated like all other businesses, and provides a stepping stone for industry growth.

Currently, California’s Corporation Tax law permits the deduction of cannabis business expenses even though these deductions are prohibited under federal law by Section 280E of the Internal Revenue Code. Under federal law, expenses associated with the illegal sale of drugs are not allowed to be deducted. California’s personal tax law currently refers to this portion of the Internal Revenue Code. The bill removes the reference to the federal regulations, which will allow persons to deduct cannabis business expenses in California.

Governor Jerry Brown vetoed the a similar bill during the 2018 legislative session due to the loss of state revenues. The Franchise Tax Board estimates the loss in tax revenues to be in the tens of millions of dollars.

Colorado's 7 New Cannabis Laws Will Propel Industry Forward

The Governor of Colorado, Jared Polis, signed seven (7) new cannabis laws into effect. The laws will propel Colorado’s cannabis industry forward by opening doors to public capital, allowing on-site consumption and delivery licenses, and making strides in the development of a robust hemp industry.

Below are brief summaries of the 7 new cannabis laws.

Publicly Licensed Marijuana Companies - The new law repeals the ban on investors in marijuana businesses that are publicly traded companies, and repeals the 15 person limit on the number of out-of-state investors. Under the law, controlling beneficial owners must make certain disclosures, and these controlling beneficial owners may be prohibited from becoming a licensee if unsuitable. A controlling beneficial owner is a person that owns 10% of the stock in the marijuana business.

Marijuana Hospitality Establishments - The new law allows retail establishments and mobile hospitality establishments to permit on-site consumption of marijuana products. Retail storefronts may obtain a license from the local jurisdiction where it is located. Colorado’s regulators are charged with adopting new regulations to oversee this new license type.

Regulated Marijuana Delivery - The new law allows medical and adult use retail stores and transporters to apply for a delivery license. The law requires the state to begin permitting medical marijuana delivery licenses by January 2, 2020 and permitting retail marijuana licenses by January 2, 2021. Businesses holding multiple licenses must apply for a separate delivery license for each license held. A $1 dollar charge would be added to each delivery to cover the cost of increased law enforcement needs. The law prohibits the delivery of medical or adult use marijuana in any municipality or jurisdiction that prohibit certain marijuana establishments including retail stores.

Electronic Filing Of Certain Taxes - Requires the electronic filing of state taxes when an electronic filing system is created or for taxes due on or after January 1, 2020, whichever is later. The new electronic filing law will reduce the inefficiencies of manual processing.

Hemp Regulation Alignment With 2018 Federal Farm Bill - The new law aligns Colorado’s Industrial Hemp Regulatory Program with the requirements of the 2018 Farm Bill. Under the law, the Commissioner of Agriculture must establish a hemp management plan and adopt regulations to implement. The new hemp regulations can be structured to address concerns raised by the US FDA at its May 31 hearing on CBD products.

Industrial Hemp Products Regulation - Requires manufacturers of hemp products to register with the state and pay a $300 fee. The new law also authorizes the Commission of Agriculture to establish a working group that will study the regulation of hemp products. Finally, local jurisdictions are authorized to adopt regulations that establish licensing requirements and fees for businesses engaged in extraction, storage, processing or manufacturing of hemp products.

Institute Of Cannabis Research Role And Mission - The law creates the Institute of Cannabis Research that is to be located at the Colorado State University. The role of the institute is to perform research on the effects of marijuana and the efficacy of medical marijuana.

Nevada Legislature Sends Cannabis Electronic Payment Processing Bill To Governor for Signature

The Nevada Legislature has sent a bill authorizing the creation of a closed loop payment processing system for the cannabis industry to Governor Sisolak for his signature.

AB466 authorizes the creation of an electronic payment system for the cannabis industry by July 1, 2020. The closed loop payment processing system will be operated as a pilot program by the State Treasurer.

The voluntary system allows customers, medical marijuana patients, and marijuana establishments to establish accounts using a mobile app or a card. The accounts can be used to engage in financial transactions related to marijuana. The system would provide the state with real time recordkeeping, and will provide the cannabis industry with an electronic business-to-business payment platform.

Nevada will charge fees that are sufficient to cover the cost of administering the pilot program, which will also be used by the industry to electronically pay state taxes.

Colorado Passes Legislation Allowing Municipalities to Create Local Licensing Regime for Hemp Products

The Colorado Legislature passed a bill that allows local municipalities to adopt ordinances to license and regulate businesses that engage in the storage, extraction, processing, or manufacturing of industrial hemp or industrial hemp products. The bill will become law if it is signed by Governor Jared Polis.

The new law allows counties and local municipalities to adopt a local license fee for hemp businesses and establish licensing requirements. The local municipalities may not adopt additional food safety requirements if they conflict with state laws.

The new law also requires wholesale food manufacturers that create hemp products to register with the Department of Agriculture and pay an annual fee. The Department of Agriculture must establish a stakeholder working group to study the regulation of industrial hemp products that will meet on or after December 1, 2019. The working group must provide the Colorado Legislature with written recommendations.

Oklahoma Passes Legislation to Guarantee a Medical Cannabis Dispensary in Every Town

The Oklahoma Legislature passed a bill that will prevent local municipalities from prohibiting medical cannabis dispensaries. The bill has been sent to Governor Kevin Stitt for his signature. The state’s medical marijuana industry is booming as the Oklahoma Medical Marijuana Authority has received over 5,400 business applications. The state has over 1,400 dispensaries, which produced sales that topped $18 million in April.

The new law is in line with the business friendly environment in Oklahoma for medical marijuana businesses where there are fewer restrictions, low fees and tax rates as compared to the coastal markets. Under the new law, local municipalities may not prohibit retail medical marijuana businesses. A municipality may determine the appropriate zoning area for the businesses, but a retail businesses must be allowed. As we have seen in other states, local municipalities utilize buffer zones and zoning areas to cap the total number of marijuana businesses within the local jurisdiction.

Oklahoma’s approach limits the municipal risk that exists in other states that allow local jurisdictions to opt out. Cities that opt into commercial cannabis can opt out based on the change of the city’s administration, which results in litigation and lost investments.

Last week, Mountain View, California banned retail shops after the election of a new mayor. The prior administration approved an ordinance that allowed three dispensaries within the city. Applicants that worked with the city during the 18 month period to establish marijuana storefronts will be able to reapply for delivery licenses.

Wisconsin Bill Clarifies Gun Rights for Medical Marijuana Users

The Wisconsin Senate introduced a bill that clarifies the gun rights for persons who are medical marijuana patients. Firearm dealers must receive clearance from the US Department of Justice (DOJ) prior to selling a gun in order to prevent a sale to persons who are prohibited from owning a gun under federal or state law.

The bill prohibits the DOJ from considering a persons participation in the Wisconsin medical marijuana program when conducting a search to determine if a person is prohibited from possessing a firearm. The legislation would also prohibit the Department of Health Services from disclosing the persons who participate in the medical marijuana program to any federal agency.

Nevada Assembly Moves Bill Allowing Electronic Tax Payments

The Nevada Assembly has pushed forward a bill that would authorize the creation of an electronic payment system for the cannabis industry by July 1, 2020. The closed loop payment processing system will be operated as a pilot program by the State Treasurer.

The voluntary system allows customers, medical marijuana patients, and marijuana establishments to establish accounts using a mobile app or a card. The accounts can be used to engage in financial transactions related to marijuana. The system would provide the state with real time recordkeeping, and will provide the cannabis industry with an electronic business-to-business payment platform.

Nevada will charge fees that are sufficient to cover the cost of administering the pilot program, which will also be used by the industry to electronically pay state taxes.