Updates on Federal Cannabis Legislation

Alex Pyle and Bruce Bagdasarian | October 18, 2021

Since 1970, the Controlled Substances Act has classified cannabis as a schedule I drug. This classification means the federal government considers cannabis to have no medicinal value and a high potential for addiction and abuse. Schedule I classification subjects cannabis consumers and businesses to potential civil and criminal penalties, as well as the risk of asset forfeiture under federal law. Although the current Attorney General, Merrick Garland, has stated that the federal government will not commit resources to those complying with local cannabis policies, most banks are still unwilling to deal with cannabis-related businesses. This makes it difficult for business owners to obtain financing and forces them to seek non-bank financing at higher interest rates and to raise money through private investors. Credit card companies are also unwilling to allow their cards to be used for cannabis purchases, which has resulted in cannabis related businesses being forced to operate using cash and debit cards only. In addition, even though cannabis may be legal in particular states, landlords may be reluctant to have cannabis-related tenants because of the risk of those tenants being shut down by federal authorities, and because an illegal use of their property may either trigger a loan default or make their property difficult to finance. To date, 18 states have legalized adult use cannabis and 37 states have legalized medical use cannabis. In addition, an April Pew Research poll reported that 91% of U.S. adults say marijuana should be legal for medical or recreational use. This change in public opinion towards cannabis has led to the introduction of multiple recent bills in the House and Senate attempting to decriminalize or loosen federal regulations of cannabis. The following is an update on the latest developments in federal cannabis legislation and regulation.

Cannabis Administration Opportunity Act

The Cannabis Administration and Opportunity Act was introduced on July 14, 2021 by Senate Majority Leader Charles Schumer, Senator Cory Booker and Senator Ron Wyden. The act proposes to decriminalize and deschedule marijuana federally, recognizing state law as controlling the possession, production, and distribution of cannabis. States would be prohibited from interfering with interstate commerce where a lawful cannabis delivery requires transport through the state’s borders, but states may enact legislation regarding all other aspects of cannabis-related business. The bill also proposes that revenue generated by federal marijuana taxes would be used to provide for reinvestment in certain persons adversely impacted by the War on Drugs, as well as supporting restorative justice, public health, and safety research. The bill is set to be voted upon during the week starting September 26, 2021.

SAFE Banking Act of 2021

The SAFE Banking Act, passed in the House on April 19, 2021, as a measure attached to a defense bill. This bill would create protection for financial institutions that work with marijuana centered businesses. Protection would be provided by generally prohibiting a federal banking regulator from penalizing a depository institution for providing banking services for a legitimate cannabis-related business. In addition, the act would classify proceeds from legitimate cannabis-related business as not being proceeds received from unlawful activity, thus removing these proceeds from the umbrella of anti-money laundering legislation. Furthermore, under the SAFE Banking Act, a depository institution would not be liable or subject to asset forfeiture for providing a loan or other financial services to a legitimate cannabis-related business, and depository institutions could not be ordered to terminate cannabis-related customer accounts. The SAFE Banking Act was received in the Senate on April 20, 2021, was read twice, and referred to the Committee on Banking, Housing, and Urban Affairs.

MORE Act of 2021

The MORE Act would remove cannabis from the Controlled Substances Act as well as expunge cannabis convictions from convicted person’s records. In addition, the act would bring in federal tax revenue by imposing an initial 5% tax on retail sales of cannabis which would increase to 8% over three years. This tax revenue would be funneled to the federal Opportunity Trust Fund to be used for community reinvestment. The MORE Act was reintroduced in the House on May 28, 2021, and is in the first stage of the legislative process. The act is likely to be considered by committee next before the entire bill is sent on to the House or Senate. The act is scheduled to be considered by the House Committee on the Judiciary on September 29, 2021.

The Veterans Medical Marijuana Safe Harbor Act

The Veterans Medical Marijuana Safe Harbor Act would temporarily allow veterans to legally possess and use cannabis under federal law if cannabis has been recommended to the veteran by a doctor in accordance with state law. In addition, physicians working for the U.S. Department of Veterans Affairs would be allowed to issue medical marijuana recommendations to veterans as treatment. This act was introduced on April 15, 2021, and the latest action taken on the act occurred on July 14, 2021 when the act was referred to the Subcommittee on Health.

Overall, some federal reforms of cannabis legislation are likely around the corner. As public opinion has turned to overwhelmingly support cannabis use for medical purposes as well as for recreational purposes, at least some elements of the proposed legislation described above become more likely to pass. In addition, as more states receive substantial tax revenue from cannabis legalization, the federal government may seek to take its own piece of cannabis tax revenue through federal legalization.