By Barak Cohen
January 9, 2020 at 5:00 am ET
Lawmakers are back at work in the nation’s capital for a new session of Congress following the holiday break, and it’s clear that the political winds in Washington, D.C., are shifting in favor of the cannabis industry.
The closing months of 2019 saw the House of Representatives approve a cannabis banking bill, the Secure and Fair Enforcement (SAFE) Banking Act, and the House Judiciary Committee approve the Marijuana Opportunity Reinvestment and Expungement (MORE) Act — the first time that a congressional committee has passed legislation that would legalize marijuana at the federal level.
The Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, rival legislation that would defer marijuana legalization to the states, is still pending before the Senate and House.
While all three bills ultimately stalled as the clock ran out on the prior session of Congress — perhaps due at least in part to lawmakers’ focus on impeachment issues — political support of the multibillion-dollar cannabis industry is clearly growing and picking up momentum.
Despite this progress, however, the short-term prospects for legalizing marijuana remain mixed and industry participants will have to continue navigating a complicated legal and regulatory environment for some time to come.
Cannabis encompasses both hemp, which is used in an increasing number of consumer products such as energy bars and drinks, and marijuana.
On the one hand, hemp was authorized for use in the United States at the federal level by the 2018 Farm Bill with certain limitations as to the use of derivatives such as cannabidiol as a food additive or dietary supplement.
On the other hand, marijuana remains illegal at the federal level, but, at the time of writing, it is legal for both medical and recreational use in 12 states and Washington, D.C., while 33 other states allow its use solely for medicinal purposes.
Thus, the vast majority of states have already legalized marijuana in some form, and this number grows steadily on a regular basis.
This inconsistency leads to a tricky road for would-be investors, businesses, and consumers with federal law on one side and diverse state laws on the other.
The lingering business uncertainty has meant that even something as simple as opening a bank account can result in a polite shake of the head from your bank manager, as most large banks, which are regulated at the federal level, haven’t allowed cannabis-related businesses to open accounts—and those that do often charge high fees to offset the additional costs and enforcement risks of such accounts.
Four federal banking regulators, including the Federal Reserve, are now seeking to address this roadblock, and issued guidance in December clarifying the legal status of hemp and the requirements for financial institutions that offer services to hemp-related businesses.
But there’s clearly more to be done before banks can support the expanding cannabis industry.
Aside from banking, transportation also remains a challenge. The U.S. Department of Agriculture’s recent move to enable the interstate transport of hemp through an interim rule provides important clarity to businesses and investors and is a welcome step.
Nevertheless, the interstate transport of marijuana remains illegal under the Controlled Substances Act, and some local enforcement agencies have had difficulty distinguishing between hemp and marijuana products, creating problems for distributors.
Additional hurdles blocking the legalization of cannabis and the market’s full potential also remain, due in no small part to the fact that the industry crosses multiple sectors and thus, the crosshairs of multiple federal regulators.
One critical regulator is the U.S. Food and Drug Administration, which to date still hasn’t approved CBD as an additive in food and beverages — although many companies are still selling CBD-infused snacks, drinks and dietary supplements.
Thus, the FDA, sometimes in partnership with the Federal Trade Commission, have issued warning letters against companies selling hemp-derived CBD-infused products that have made unsubstantiated health claims.
Amid this legal haze, there are a number of steps a company should take to keep their hemp- and marijuana-related business on the right side of the law.
For example, transactions and labeling should be transparent and scrupulously supported by documents. Do not make unsupported claims regarding health benefits. Comply rigorously with all state and local laws regarding cannabis. Don’t engage in interstate commerce, except for hemp and hemp-derived product. If dealing CBD products, be mindful of FDA guidance, which — although not particularly clear — raises dangers. And, aside from consideration of the specific product, conduct business activities in a wholly aboveboard and legitimate way.
Ultimately, the market will only reach its true potential when cannabis, particularly marijuana, use and banking are legalized at the federal level. While that moment appears to be closer — nearly two-thirds of voters back marijuana legalization, as do most of the Democratic contenders in the 2020 presidential race — we’re not there yet.
In the meantime, compliance, as difficult as it is, is key. With more states, and countries such as Canada, the United Kingdom and France all moving to legalize marijuana, and the widespread popularity of cannabis derivatives such as CBD, it seems certain the market will continue to grow.
That means the returns for savvy companies who stay on the right side of the law probably won’t go up in a cloud of smoke.
Barak Cohen is the Litigation Lead in Perkins Coie LLP’s Washington, D.C., office and a member of the National Cannabis Industry Association’s Policy Council, as well as the editor of the ABA’s forthcoming cannabis law treatise, a first-of-its-kind publication.
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