Key Regulations Impacting U.S. Cannabis Growth

May 15, 2019

2019’s evolving political and regulatory environment is significantly impacting the future direction of the cannabis industry at large. Major shifts in socio-political support for legalization have spurred momentum as progressive proposals have been put forth in states like Illinois and Massachusetts. We first saw this major shift in legislation with the 2018 Farm Bill. Also known as the Agricultural Improvement Act of 2018, the bill was finalized in December, setting up 2019 as an inflection point in state and federal understanding. There are, however, two key pieces of legislation that would strengthen and legitimize the United States cannabis market: the STATES Act and the SAFE Act.

STATES Act

In April 2019, the Strengthening the Tenth Amendment Through Entrusting States Act (STATES) was proposed in Congress. The bipartisan legislation would clear up longstanding confusion of state legislations versus federal law on cannabis and protect states who have implemented marijuana legalization. The STATES act would amend the Controlled Substance Act of 1970, which bans marijuana, to insert exemptions for individuals and businesses in compliance with state laws relating to the regulation, manufacture, production, possession, distribution, administration or sale of marijuana products.  

Due to its bipartisan support, there exists some measure of optimism the STATES act will pass. Many feel the illegal status of marijuana has thwarted critical medical research and creates an environment that stifles the growth potential of legitimate business and innovation.

SAFE Act

The Secure And Fair Enforcement (SAFE) banking act would serve as another large step forward for the legitimation of marijuana businesses by protecting the business banking practices of those operating in medical and recreational states. The act prohibits federal regulators from punishing financial institutions that provide services to cannabis-related businesses for trafficking or financial crimes. As a federally controlled substance, many risk-averse banks are hesitant to do business with legal marijuana businesses. Without a bank account, businesses are operating heavily in cash creating financial vulnerabilities that constrict market expansion. The current environment imposes difficulties for businesses to pay their bills and employees in a legitimate, non-cash way. The act was first proposed in 2017 but limited support left it to expire on the floor. With a more favorable political environment and great public support, it stands to have a better proposition of passage this year. However, analysts are saying there may not be enough political determination to push through a stand-alone bill at this time. The current political landscape surrounding banking and business regulations have led many to believe it is still too early to discuss how banks should deal with an industry that supplies a substance that the federal government still classifies as illegal. The STATES act may be the needed groundwork that would allow a safe political environment for passage of the SAFE Act.

In addition to these Acts, there are other aspects of the political environment that businesses need to consider to support long-term growth. The new Attorney General, William Barr - a longtime Republican legal head in the DOJ - said he would prefer if Congress passed legislation allowing states to craft their own marijuana laws instead of states legalizing cannabis in direct conflict with current federal law.

The 2020 presidential election looms as a crucial inflection point for the legalization of marijuana and the industry at large. For the first time, the majority of the Democratic candidates support marijuana legalization as many of the front runners for the nomination are the very same politicians who have been pushing for cannabis reform on Capitol Hill for years; including Senators Kamala Harris, Elizabeth Warren, Corey Booker and Kristin Gillibrand.

While these pivotal bills have yet to be passed by Congress, growing political and economic support indicates that federal legislation could be on the horizon which may set up the framework for a stronger cannabis industry in the United States.