Cannabis Reforms

Brace Yourself: Incremental Cannabis Reforms Ahead

Cannabis Industry Veteran Sees Some Limited Federal Changes Coming

Anyone involved in cannabis knows the legal and regulatory environment underpinning the industry is subject to new laws and regulations at the federal, state, and local levels. To date, states have led the way on cannabis reforms, from California’s voters approving a measure to allow medicinal marijuana in the 1990s to Illinois’ legislature recently approving a recreational program for adults in the state.

However, as more states legalize cannabis in some form, federal policymakers increasingly realize the need for reform on the national level.  Simplifya’s new Chief Compliance Officer & General Counsel, John Vardaman, is a veteran of some of the battles over federal cannabis policy that have already been waged in Washington, D.C. 

In 2013, the Department of Justice issued the Cole Memorandum. Though former Attorney General Jeff Sessions rescinded the Cole Memo in early 2018, many US Attorneys still abide by its guiding principles. The document outlined cannabis policy measures that states and businesses needed to implement and follow in order to avoid federal prosecution. John drafted the memo and grew into something of a legend in cannabis policy circles. 

I recently sat down with John and we discussed the state of cannabis compliance and what the industry can expect in the coming months and years.

Current Congressional Initiatives

Cannabis Reforms

On July 10th, The House Judiciary Subcommittee on Crime, Terrorism, and Homeland Security held a hearing seeking input on how the federal government should reform its cannabis laws. Many in the cannabis industry called the hearing a historic development and a few pundits went as far as to predict it heralded the start of a serious effort by this Congress to end federal cannabis prohibition. 

John, however, cautioned against reading too far into the hearing’s immediate impact. “It’s encouraging these issues are being considered in Congress and it’s getting the attention it deserves. I would caution that expectations about full legalization need to be tempered. It’s important to remember, notwithstanding the spread of state legalization, there’s still a lot of opposition to full legalization, especially in Washington,” he said.

Near-Term Federal Cannabis Reforms

Given some federal lawmakers’ opposition to fully legalizing cannabis, John predicted the federal government will likely take a more incremental approach. He told me that there are two ends of the spectrum regarding cannabis reform, ranging from full legalization to cracking down on state reform efforts. The most likely outcome, John predicted, “is something in between.” He added, “That might look like some legal protection for what we have now. Basically, if a state legalizes, they will enjoy federal protection, but if cannabis is illegal in a state, it will remain illegal.”

John told me an example of a federal cannabis reform that may pass in the near term is banking legislation. In fact, the Senate Committee on Banking, Housing & Urban Affairs held its first hearing regarding cannabis businesses’ access to banking on July 23.

Banking Solutions on the Horizon

Cannabis Reforms

Essentially, the bill, if it becomes law, would make it easier for cannabis businesses to access banks like other legally operating businesses. Fearful of fines and other penalties, many banks and other financial institutions remain leery of serving businesses in the cannabis industry.

The current situation, however, causes many transactions in the cannabis industry to be handled via cash or lightly regulated cryptocurrencies. It is difficult for the federal government to accurately account for these types of transactions and, as a result, leads to the potential for money laundering and tax aversion.

Even opponents of cannabis reform efforts realize this is a growing problem and that the federal government should make it easier for banks to take on clients in the industry, which explains why the Senate may move on the bill, John explained. In fact, John added he thinks this measure is the most serious and consequential cannabis bill likely to get approved by Congress and President Trump before the next election. 

House and Senate Dynamics

If the Senate passes the bill, it would then move to the House for consideration. 

The Democratic majority in the House generally views federal cannabis reforms more favorably than the Republican-controlled Senate, meaning if the measure passes the Senate, there is a good chance it will become law. President Trump’s past statements on the matter indicate some willingness on his part to consider and approve cannabis reform measures that reach his desk.

The 2020 Election and Cannabis Reforms

Cannabis Reforms

Speaking of the election, John shared some insights on how the landscape for reform may change after the 2020 election.

Crucially, he said, the makeup of the Senate may be the determining factor in how federal cannabis reform measures play out, regardless of President Trump being re-elected or not. Even if a pro-reform Democratic candidate wins in 2020, and assuming the Democrats keep the House majority, a broader cannabis legalization effort will likely run into a wall if the Republicans maintain control of the Senate, according to John. 

The Way Washington Works

My discussion with John reminded me that change takes time, especially at the federal level. While many in the industry pin their hopes on a sweeping cannabis reform effort that will lead to full federal legalization in the coming months or years, the way Washington often works is via incremental changes on the margins. 

I don’t say this to say change isn’t possible. The state-level cannabis legalization efforts are proof that change does occur. However, it’s best to plan operations and compliance efforts around what is most likely to happen next and not what is unknown.

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