cannabis industry predictions

Status Update for 2019 Cannabis Industry Predictions

Back in December 2018, on behalf of Simplifya, I made three predictions for what we would see happen in the cannabis industry in 2019. Those predictions included that the New York and Illinois state legislatures would legalize recreational cannabis and that the 116th Congress would enact incremental reform to address some of the unique challenges facing state-legal cannabis businesses. 

So, what happened in 2019?

1. The New York legislature did not legalize recreational cannabis in its 2019 legislative session.

2. The Illinois legislature made history in June by becoming the first state legislature to legalize recreational cannabis sales.

3. The 116th Congress has taken some demonstrable steps toward reform, but progress has stalled in the Senate.

Cannabis Industry Prediction #1: New York will legalize recreational marijuana in 2019

the Statue of Liberty

I was wrong. But in my defense, at the time I made the prediction, there were several indicators that legalization was imminent. The New York Health Department had issued a 75-page report concluding that the pros of regulating recreational cannabis out-weighed the cons, New York City Mayor Bill De Blasio had announced he backed recreational cannabis, Gov. Cuomo had said he would include funds to implement recreational cannabis in his 2019-2020 budget proposal, and Democrats had retaken control of the state senate and controlled all of the state government. Legalization looked promising. 

But in the end, although there was broad support for legalization generally, the devil was in the details. Lawmakers could not agree on key issues and none of the proposals for legalization gained enough support.

Lawmakers in New York were split on the same issues that have roiled other states. They could not agree on how to tax cannabis or how to spend the revenue; how to address those who have been disproportionately impacted by cannabis prohibition; whether to allow local communities to opt-out of cannabis sales; and whether to allow home grows. Gov. Cuomo worked with legislators until the final days of the session to cobble together a bill that would garner enough support in the state senate, but their efforts ultimately failed. By some counts, they fell just two votes short. New York did adopt a decriminalization bill at the end of the 2019 session but fell short of full legalization.

Cannabis Industry Prediction #2: Illinois will legalize recreational cannabis in 2019 

On June 25, 2019, Gov. JB Pritzker signed the Cannabis Regulation and Tax Act (CRTA) into law and the Illinois state legislature became the first state legislature in the country to legalize sales of recreational cannabis. Every other state with recreational cannabis achieved legalization through ballot measures. (In 2018, Vermont’s legislature legalized the possession of cannabis, but not sales.)

The Illinois legislature had to wrestle with the same issues that ultimately sank legalization in New York; issues like social equity, local control, and home grows. To address social equity, the CRTA earmarks millions of dollars for communities hit hardest by cannabis prohibition and includes an expungement remedy that could clear nearly 750,000 cannabis convictions in Illinois. The Act also allows local jurisdictions to opt-out of cannabis sales altogether and allows only medical patients to grow plants at home. 

The CRTA was years in the making. Illinois lawmakers first submitted legislation to legalize recreational cannabis in March 2017, but it was rejected by both the House and Senate. After two years of negotiations, the proponents of legalization were able to compromise on key issues and stitch together a bill that attracted enough support from lawmakers. As a result of these efforts, Illinois made history in 2019 and became the 11th state to legalize recreational cannabis.

Cannabis Industry Prediction #3: Incremental reform in Congress 

Lastly, I predicted that the 116th Congress would pass legislation to shield legal cannabis markets from federal intervention, to facilitate cannabis businesses’ access to banking, and to alleviate the tax burden imposed on cannabis businesses via Internal Revenue Code Sec. 280E. Although the Democratic-controlled House has been the most proactive, pro-cannabis in history, its efforts have stalled in the Senate. The House has passed two significant pieces of legislation that address federal intervention and banking, but neither has made it through the Senate intact.

Simplifya's cannabis industry prediction for congress

The first piece of legislation the House sent to the Senate relates to federal intervention. On June 20, 2019, the House voted 267-165 in favor of prohibiting the Department of Justice from using funds to intervene against medical or recreational cannabis businesses operating in compliance with state law. This was especially significant because, although Congress has voted to protect medical cannabis businesses since 2015, this was the first time the House approved protections for recreational cannabis businesses. The Senate did not follow suit. On October 31, 2019, the Senate passed the spending bill but without the amendment protecting recreational cannabis businesses. It is unclear at this point whether the spending bill that is ultimately sent to President Trump will include protections for recreational cannabis businesses.

The second piece of legislation the House sent to the Senate relates to banking. On September 25, 2019, the House passed the SAFE Banking Act by a vote of 321-103. The SAFE Banking Act would create federal protections for financial institutions that serve cannabis businesses in states where cannabis is legal. The House passed the bill with bipartisan support, but the odds of passage in the Senate are uncertain. Mike Crapo (R-ID), the head of the Senate Banking Committee, plans to make several changes to the bill before the Senate votes on it. Any changes made to the legislation will then have to be approved by the House, so the SAFE Banking Act still has a long way to go. Check out the blog post by Simplifya Chief Compliance Officer John Vardaman for his analysis of the SAFE Banking Act and its chances of passing the Senate.

The House has addressed both federal intervention and banking, but has not passed any legislation related to Internal Revenue Code § 280E. Internal Revenue Code § 280E prevents cannabis businesses from deducting ordinary business expenses on their tax returns and, as a result, imposes enormous taxes on these businesses. Although the House has not passed any legislation addressing taxes, several lawmakers have introduced bills that would address taxes as part of comprehensive reform. 

Here are the comprehensive cannabis reform bills that have been introduced so far in the 116th Congress to keep an eye on:

Bill NameIntroducedPrimary SponsorsCosponsors
Marijuana Justice Act of 20192/28/19Rep. Barbara Lee (D-CA)
Sen. Cory Booker (D-NJ)
49 Rep.8 Sen.
Ending Federal Marijuana Prohibition Act of 20193/7/19Rep. Tulsi Gabbard (D-HI)35 Rep.
STATES Act4/4/19Rep. Earl Blumenauer (D-OR)
Sen. Elizabeth Warren (D-MA)
63 Rep.9 Sen.
Marijuana Freedom and Opportunity Act5/20/19Rep. Hakeem Jeffries (D-NY)
Sen. Charles Schumer (D-NY)
38 Rep.8 Sen.
MORE Act of 20197/23/19Rep. Jerrold Nadler (D-NY)
Sen. Kamala Harris (D-CA)
52 Rep.5 Sen.

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