Cannabis Banking News

May 17, 2024: Cannabis Banking Articles

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Now That It Appears Marijuana Is Being Rescheduled, How Does That Process Work?

Rachel L. Sodée, Whitt Steineker of Bradley Arant Boult Cummings LLP – Budding Trends

As we at Budding Trends reported last week, the DEA is set to finally accept the recommendation of the U.S. Department of Health and Human Services (HHS) to reschedule marijuana from Schedule I to Schedule III under the Controlled Substances Act. This is a monumental (and overdue) step for the DEA after HHS made its rescheduling recommendation in August 2023.

So, jump in, buckle up, and grab your munchie(s) of choice — we’re taking a trip down the road to rescheduling.

Stop One: White House Office of Management and Budget (OMB) Review
Once the DEA makes the rescheduling news official, the first stop on the road to rescheduling will be the White House. The OMB will conduct a review of DEA’s rescheduling proposal for budget and regulatory impact, as well as legislative coordination. If all goes to plan, the OMB will sign off on the DEA’s proposed rule. While the upcoming election does give the White House a heavy incentive to move OMB review along expeditiously, the process could still take up to 90 days.

Stop Two: Publication of Notice of Proposed Rulemaking
After what will likely be a short pit stop at the White House for OMB review and approval, the formal rulemaking process will begin upon publishing of a Notice of Proposed Rulemaking in the Federal Register. The formal rulemaking process will then proceed as prescribed by the Controlled Substances Act, 21 U.S.C. § 811(a), which calls for rulemaking “on the record after opportunity for a hearing pursuant to the rulemaking procedures proscribed by [the Administrative Procedures Act].”

Stop Three: Public Comment
The next significant pit stop will be the public comment process. The DEA will accept public comments on the proposed rule for a set period of time, likely 60 to 90 days. Interested stakeholders — anyone from your next-door neighbor to healthcare providers to major drug manufacturers — can take part in the public comment process. Based on the comments received, the DEA also has the option of modifying its proposed rule at this time.

Stop Four: ALJ Review and Inevitable Litigation
The next stop will be before an administrative law judge who will review the DEA’s proposal and who can choose to hold a hearing on the proposal to gather input, evidence, and arguments from stakeholders. By this time, we can also expect significant litigation attacking the rescheduling rulemaking from all angles, including lawsuits seeking to block the implementation of any final rescheduling rule. Read more

Bridging the Gap: Cannabis Rescheduling to Align Policy with Research

Julia Anderson of Sheppard, Mullin, Richter & Hampton LLP – Cannabis Law Blog

In a much-anticipated move, sources recently reported that the Drug Enforcement Administration (“DEA”) will recommend rescheduling cannabis from a Schedule I substance to a Schedule III substance under the federal Controlled Substances Act.[1] This recommendation will likely be based on the Health and Human Services Report, which evaluated scientific evidence of cannabis use for medical purposes and determined that cannabis does have accepted medical value with a higher safety profile than Schedule II medications.[2]

The DEA’s recommendation is also in line with President Biden’s directive for the Federal government to take steps to review how cannabis is presently scheduled under federal law.[3] In response to the DEA recommendation, the White House Office of Management and Budget will review the recommendation. If approved, there will be a public hearing allowing experts and the public to weigh in on rescheduling. Absent any major meritorious objections, cannabis will then be rescheduled from a Schedule I substance to a Schedule III substance.

While the rescheduling will not result in the legalization of recreational use of cannabis on the Federal level or result in many state cannabis laws complying with federal law, the rescheduling move will have significant legal ramifications for the cannabis industry as a whole and in terms of criminal sentencing for possession. For example, rescheduling will have an immediate impact on cannabis operator profitability. IRS Code 280E, which prevents cannabis operators from deducting normal business expenses, will no longer apply to cannabis businesses since this prohibition only applies to Schedule I and II substances. Cannabis operators should consider the monetary impact this will have on their operations and take steps to prepare for this major, albeit profitable change. Read more

FDA Continues to Take Stance That It Will Not Issue CBD Rules

Lauren P. Carboni, Kyle Y. Faget, Nathan A. Beaver of Foley & Lardner LLP – Health Care Law Today

The U.S. Food and Drug Administration (FDA) recently doubled down on its January 26, 2023 position that existing regulatory pathways for foods and dietary supplements are not appropriate to manage the risks of cannabidiol (CBD) and a new regulatory pathway is needed. Specifically, during an April 11, 2024 hearing before the House Oversight and Accountability Committee, FDA Commissioner Califf stated “the use of CBD raises safety concerns, especially with long-term use. Studies have shown evidence of liver toxicity, interactions with certain medications, and possible harm to the male reproductive system. CBD exposure is particularly concerning for children and during pregnancy.”

The Commissioner then reiterated the Agency is willing to work with Congress to create “a new regulatory pathway that would provide access, safeguards and oversight over products containing CBD in ways that existing pathways cannot.” Per Commissioner Califf, a new regulatory scheme is needed that could “encourage better information to inform consumers about their choices.”

Under the Federal Food, Drug, & Cosmetic Act, any substance, including CBD, must meet certain standards to be lawfully marketed as a dietary supplement or food additive. The lack of rules for CBD, which are long overdue, has been a pain point for the industry. With the FDA continuing to take the position that it cannot regulate CBD under current food additive and dietary supplement laws and looking to Congress to take action, CBD’s fate looks as though it will continue to remain in unregulated purgatory. Should the FDA change its stance, promulgation of new rules that explicitly address the Agency’s concerns regarding CBD is likely the swiftest way for the industry to finally have clarity. In light of the recent testimony, however, we do not anticipate the FDA will promulgate new rules to regulate CBD any time soon. The FDA’s continued failure to take any action forces industry stakeholders to operate in a world of regulatory uncertainty, which is harming the CBD industry and its consumers. Read more

May 3, 2024: Cannabis Banking Articles

Will A DEA Reclassification of Marijuana Put the Banking Industry At Ease? Cannabis Companies Hope So

Michael Blood, Associated Press/Fast Company

The Biden administration’s move to reclassify marijuana as a less dangerous but still controlled drug was hailed as a monumental step in reshaping national policy. But it might do little to ease a longstanding problem in the cannabis industry—a lack of loans, checking accounts and banking services that other businesses take for granted.

“As far as financial institutions, I don’t necessarily think it’s going to have a demonstrable effect” on how they deal with cannabis operators, said Morgan Fox, political director for the National Organization for the Reform of Marijuana Laws, or NORML.

Similarly, a banking trade group expected no shift in the legal landscape with the proposed change.

“Any potential decision from the administration to reclassify cannabis has no bearing on the legal issues around banking cannabis,” said Blair Bernstein, a spokesperson for the American Bankers Association. “Cannabis would still be illegal under federal law, and that is a line many banks in this country will not cross.” Most Americans live in states where marijuana is legally available in some form.

But there’s a continuing problem when it comes to banks: Many financial institutions don’t want anything to do with money from the cannabis industry for fear it could expose them to legal trouble from the federal government, which still lists marijuana as illegal.

That conflict has left many growers and sellers in the burgeoning industry in a legal conundrum in which they are shut out of everyday financial services like opening a bank account or obtaining a credit card. It also has forced many businesses to operate only in cash—sometimes vast amounts—making them ripe targets for crime. Read more

U.S. Drug Control Agency Will Move to Reclassify Marijuana in A Historic Shift

The U.S. Drug Enforcement Administration will move to reclassify marijuana as a less dangerous drug, The Associated Press has learned, a historic shift to generations of American drug policy that could have wide ripple effects across the country.

The DEA’s proposal, which still must be reviewed by the White House Office of Management and Budget, would recognize the medical uses of cannabis and acknowledge it has less potential for abuse than some of the nation’s most dangerous drugs. However, it would not legalize marijuana outright for recreational use.

The agency’s move, confirmed to the AP on Tuesday by five people familiar with the matter who spoke on the condition of anonymity to discuss the sensitive regulatory review, clears the last significant regulatory hurdle before the agency’s biggest policy change in more than 50 years can take effect.

Once OMB signs off, the DEA will take public comment on the plan to move marijuana from its current classification as a Schedule I drug, alongside heroin and LSD. It moves pot to Schedule III, alongside ketamine and some anabolic steroids, following a recommendation from the federal Health and Human Services Department. After the public comment period and a review by an administrative judge, the agency would eventually publish the final rule. Read more

Cannabis Stocks Spike Following Reports Marijuana Will Be Reclassified as Less Dangerous Drug

Antonio Pequeño IV, Forbes

Cannabis company stocks skyrocketed Tuesday following multiple reports marijuana will be reclassified to a less dangerous drug schedule, which could broaden the substance’s medical usage and cut down regulations tied to it.

KEY FACTS

Canada-based Canopy Growth Corporation shares surged more than 65%, closing at $14.88, its highest closing price of the year.
Tilray Brands opened at $1.77, rocketed more than 35% through trading and closed at $2.47.
Several other cannabis companies’ shares spiked Tuesday including Aurora Cannabis (+46%), Amplify Alternative Harvest (+26%) and Trees Corporation (+26%).
The stock jumps come after news the Drug Enforcement Agency will propose the reclassification of marijuana from a Schedule I drug to a Schedule III drug, which the federal government says can be used with a prescription.
Marijuana currently shares the same schedule as drugs like heroin, ecstasy and LSD despite being legal in several states.
The reclassification of marijuana would be the first time in 50 years the drug would receive a different designation and the first time the federal government would acknowledge marijuana’s medical benefits, NBC reported.

WHAT TO WATCH FOR

The DEA’s proposal for a less stringent designation for marijuana still requires review from the White House Office of Management and Budget once submitted, according to the Associated Press, which first reported the news. The DEA will take public comment on the proposal if it’s approved by the White House, the AP noted, citing five people familiar with the matter. The DEA referred Forbes’ request for confirmation of the proposal to the Department of Justice, which declined to comment.

KEY BACKGROUND

Though reclassification of marijuana would not result in legalization at the national level, the change could bring about lower tax rates for the cannabis industry and result in less restrictions on scientific marijuana studies. The Department of Health and Human Services recommended the DEA move marijuana to a less harsh drug schedule in August, also resulting in a stock surge among the same cannabis companies that reacted positively to the reclassification news Tuesday.

Apr. 19, 2024: Cannabis Banking Articles

Where Is Cannabis Legal? A Guide To All 50 States

Recreational cannabis is now legal in 24 states, and five more could legalize adult-use sales this year. But will the DEA finally remove pot from the list of the world’s most dangerous drugs? Read more here.

Does the SAFE Act Go Far Enough? Why the Legalization of Cannabis Is Inevitable

An industry can’t grow into maturity unless it has the same access to the financial system as any other legal business.

Henry Meier, Esq., Credit Union Times

In Massachusetts, I bet there is a couple scratching their heads for the last month, trying to figure out how to get their finances in order after the Court of Appeals for the First Circuit ruled on March 5 that the husband was not entitled to the protections afforded by a Chapter 13 bankruptcy because he was employed at a business that legally cultivated cannabis within the state, even as it remained illegal as a matter of federal law.

The SAFE Act doesn’t go far enough when it comes to protecting financial institutions in this country.

Why? Simply put, it is impossible for an industry to grow into maturity unless it has unfettered access to the financial system to the same extent as any other legal business. As things stand now when it comes to cannabis, however, Marijuana Related Businesses (MRBs), and apparently their employees, lack unburdened access to some of the most basic legal protections afforded to other legal businesses. Most notably, access to reorganization afforded by bankruptcy.

The SAFE Act, which has passed the House of Representatives at least five times, would generally permit financial institutions to provide financial services to businesses and individuals engaged in the cannabis industry in states where it is illegal to do so. Senator Chuck Schumer (D-N.Y.) has pointed to the legislation as one area where there might be the potential for compromise with the House. Unfortunately, however, more than a decade of experience has demonstrated that the SAFE Act does not go far enough. What we need is comprehensive legislation that addresses bankruptcy administration and other debitor and creditor considerations such as the legal status of collateral. Read more

Schumer and Key House Lawmakers Discuss Merging Marijuana Banking Bill with Cryptocurrency Reform

Kyle Jaeger, Marijuana Moment

Bipartisan congressional lawmakers from the House and Senate are discussing the possibility of combining cyptocurrency regulation legislation with a marijuana banking bill.

Senate Majority Leader Chuck Schumer (D-NY) raised the topic with House Financial Services Committee Chairman Patrick McHenry (R-CA) and Ranking Member Maxine Waters (D-CA) on Thursday, a source familiar with the conversation confirmed with Marijuana Moment.

The legislation has yet to be finalized, but the prospect of merging the Secure and Fair Enforcement Regulation (SAFER) Banking Act with the stablecoin measure comes amid heightened expectations about the Senate moving the cannabis bill as a standalone, months after it cleared committee.

Politico reported that the package under consideration could potentially be attached to a Federal Aviation Administration reauthorization bill that needs to pass before May 10.

Schumer recently reiterated his intent to pass legislation to “safeguard cannabis banking” as part of a “busy agenda” that he hopes to achieve in the “weeks and months ahead,” though he again stressed the need for bipartisan cooperation. Read more

Pennsylvania Lawmakers File Marijuana Legalization Bill Ahead of Committee Hearing This Week

Kyle Jaeger, Marijuana Moment

Just ahead of a Pennsylvania committee meeting on cannabis reform this week, House lawmakers have introduced a bill to legalize marijuana that the lead sponsor says is “grounded in safety and social equity.” Rep. Amen Brown (D) is sponsoring the legislation, which is an identical companion to a bipartisan Senate cannabis legalization measure that was filed last year.

The House legislation was introduced on Tuesday, with five cosponsors signed on, two days before members of the Health Subcommittee on Health Care are scheduled to hold the latest in a series of meetings on legalizing marijuana. At last month’s hearing, members focused on criminal justice implications of prohibition and the potential benefits of reform.

On Thursday, the panel will look at social equity issues related to legalization. Witnesses include representatives of the Minority Cannabis Business Association (MCBA), Parabola Center, the Diasporic Alliance for Cannabis Opportunities, a Boston cannabis management official, a retired judge and others. Read more

New York Cannabis Regulations Are (Initially Ruled) Unconstitutional, Says New York Judge

Aram Ordubegian, Justin A. Goldberg, Kirsten A. Hart, Emily M. Leongini of ArentFox Schiff LLP – Perspectives/Alerts

New York Supreme Court Justice Kevin Bryant recently ruled that all New York State cannabis regulations are unconstitutional and therefore, null and void. In an opinion issued on April 3, Justice Bryant explained that the adoption of the regulations by the state’s cannabis regulator, the Cannabis Control Board, were “arbitrary and capricious and violative of Petitioners rights under the New York Constitution.”
However, on April 4, Justice Bryant revised his ruling, to narrow its scope, to only rule unconstitutional the third-party, advertising-specific regulations at issue in the case.

The case was brought by Leafly Holdings, Inc., an out-of-state cannabis marketplace, and other plaintiffs, against the Cannabis Control Board, to invalidate portions of the Regulations that prohibited third-party advertising for cannabis products. The case is Leafly Holdings Inc., et al v. New York State Office of Cannabis Management, et. al, Index No. 908706-23 (N.Y. Sup. Ct.).

The case challenged Parts 118-121, 123-125, and 131 of Chapter II of Title 9 of the Official Compilation of Codes, Rules, and Regulations of the State of New York, which governed the adult-use cannabis market in New York. The regulations were developed over the past two years by the Office of Cannabis Management (OCM), the entity that administers the Marihuana Regulation and Taxation Act for the Cannabis Control Board. Leafly submitted numerous comments to OCM during the public comment period for the regulations, but OCM did not respond before finalizing the regulations in 2023. Read more

Floridians to Decide Fate of Adult-Use Marijuana This November

Caroline Bradley-Kenney, Slates C. Veazey, Whitt Steineker of Bradley Arant Boult Cummings LLP – Budding Trends

It’s not a joke. On April 1, 2024, the Florida Supreme Court ruled that voters will decide in November whether Florida will become the 24th state to legalize adult-use marijuana. In the face of significant opposition that succeeded in keeping a similar initiative off the 2022 ballots, the Florida Supreme Court this time agreed that the language of the initiative satisfied Florida law. The proposed amendment must receive at least 60% approval to pass.

The potential passage of this initiative would also mark a period of change for Florida adult residents, Medical Marijuana Treatment Centers in Florida, and other marijuana industry members across the United States.

First, non-medical, personal use of marijuana and marijuana accessories by an adult would no longer be criminalized. This means that adults age 21 years and older would be able to legally possess, purchase, and use marijuana products and accessories, with or without a medical card. Adults that purchase recreational marijuana would be limited to possessing 3 ounces of marijuana, of which no more than 5 grams can be of concentrate form. Additionally, Medical Marijuana Treatment Centers would be permitted to “acquire, cultivate, process, manufacture, sell, and distribute marijuana products and accessories to adults for personal use.”

According to the language of the proposed amendment, any adult age 21 or older would be able to purchase marijuana products and accessories for personal use from a Medical Marijuana Treatment Center. A Medical Marijuana Treatment Center is defined as an entity that “acquires, cultivates, possesses, processes (including development of related products such as food, tinctures, aerosols, oils, or ointments), transfers, transports, sells, distributes, dispenses, or administers marijuana, products containing marijuana, related supplies, or educational materials” that is registered by the Florida Department of Health. Read more

New Hampshire Governor Won’t Sign Marijuana Legalization Bill

A.J. Herrington, Forbes

New Hampshire’s Republican Gov. Chris Sununu will not sign into law a bill to legalize recreational that was passed last week by the state House of Representatives, according to media reports. The House passed the bill for a required second time on Thursday, just over a week after the measure’s original approval.

The measure, HB 1633, was introduced at the beginning of the year by Republican state Rep. Erica Layon. The bill was approved in the House on April 11 by a vote of 239-136. Under New Hampshire state law, legislation with financial elements must be passed twice. The first time the marijuana legalization measure was up for a vote in February, the chamber advanced the bill by a vote of 239-14.

If passed by the state Senate and signed into law by Republican Governor Chris Sununu, the bill would legalize marijuana for adults aged 21 and older, who would be permitted to possess up to four ounces of weed. The measure also legalizes the commercial cannabis production and sales under a tightly regulated model overseen by the New Hampshire Liquor Commission. The bill only allows for 15 retail cannabis dispensaries to operate statewide to serve a population of nearly 1.4 million people.

The measure, however, does not conform to conditions set by Sununu. Last year the governor said he would sign a tightly regulated marijuana legislation bill, changing his stance on the issue after years of opposition. Read more

In Minnesota: Commerce Finance Bill Focuses on Cannabis, Insurance Fraud

Tim Walker, Minnesota House of Representatives

Because this is not a budget year for the Legislature, any finance bills introduced are usually relatively slim. In other words, there are no thousand-page “omnibus” bills in sight. The House Commerce Finance and Policy Committee supplemental budget bill, which members approved Wednesday, is a case in point.

On its way to the House Ways and Means Committee, it would make only a handful of supplemental appropriations in four areas largely through modest reallocations of previously allocated dollars.

Rep. Zack Stephenson (DFL-Coon Rapids) sponsors HF5295, which as amended, would provide the following fiscal year 2025 funding:

$5.5 million to the Department of Health for substance use treatment, prevention and recovery grants;
$2.73 million to the Office of Cannabis Management for enforcement purposes and a product testing and reference lab; and
$1.85 million from a special revenue fund to beef up the Commerce Department’s insurance fraud efforts.

An additional $1.74 million would go to the attorney general’s office in the 2026-27 biennium to enforce the Minnesota Consumer Data Privacy Act.

Office of Cannabis Management
About half of the $2.73 million proposed for the Office of Cannabis Management would go toward the enforcement of temporary regulations established by last session’s legislation legalizing adult use recreational cannabis, said Interim Director Charlene Briner.

The rest would be used to operate a cannabis product testing and reference lab, which Briner said would be “critical to protecting the health and safety of Minnesotans who choose to consume these products or who use them for medical purposes.”

The lab would be integral to efforts to prevent the entry of illegal cannabis into the marketplace and to initiate product recalls in the event of adverse events from tainted cannabis products. Read more