Cannabis: What I Didn’t Know
When I began my career in banking more than 20 years ago, I would never have anticipated that I would sometime be considered a “subject matter expert” on cannabis and cannabis banking. It is a loose term. There are no accredited degrees in cannabis banking. To my knowledge, the banking schools are not offering curriculum on cannabis banking. But, to truly be a “subject matter expert” on cannabis banking you first need to be a “subject matter expert” on the cannabis industry. So, I set out to purposely find out as much as I could about cannabis, how the industry operates, all the local, state and federal laws that effect cannabis and its byproducts. Below are the answers to some frequently asked questions I have learned along my journey:
What is the difference between marijuana and hemp?
What is the difference between CBD and THC?
Why is marijuana a Schedule I drug (right next to fentanyl, heroine and morphine) in the Controlled Substance Act (CSA)? Why does the CSA spell marijuana as marihuana?
Has anyone died from an overdose of marijuana? The DEA publishes an annual Drugs of Abuse report. And the report for 2020 states that “No deaths from overdose of marijuana have been reported.”
What is the FDA’s roll in hemp, marijuana, CBD and THC?
Intriguing fact: The human body has an endocannabinoid system and creates its own form of CBD.
What is most fascinating about the cannabis industry? It changes. Daily. There is a new regulation or change in current regulation, a new law, decriminalization, lawsuit(s), banking guidance, and much more. I study it all, but what I pay attention to most is legislation.
Legislation: Where Should We Start?
“America will never be destroyed from the outside if we falter and lose our freedoms, it will be because we destroyed ourselves”. – Abraham Lincoln
Are you confused about the ins-and-outs of legalization of cannabis? Well, that’s because it can be overwhelming and confusing. Here is a simplified history:
Federal law has prohibited the use and distribution of marijuana (marihuana) since 1937 (here is an interesting article on americanmarijuana.org’s website). Certain states began decriminalization legislation in the 1970’s. In the 1990’s, medical use of marijuana became legal in a number of states. In 2012, the States of Washington and Colorado made recreational cannabis legal. And today, there are 32 states and the District of Columbia that have some form of cannabis legalization and there are several ballot measures to legalize cannabis being considered in 2020.
What is legal and how to comply with the law is much more challenging. In most states, there are laws governing the use, sale and manufacture of cannabis, and then layer on the local government’s laws. Compliance with those laws can change city by city and county by county.
At the time that I am writing this, there are currently 1,526 cannabis related bills in state legislature and U.S. Congress, and that number changes almost daily. Currently, HDCS is tracking a multitude of different legislative efforts at the local, state and federal level. Each of these legislative efforts (or changes in administration) could affect whether a cannabis related business is in compliance with the law, or not. It requires ongoing subject matter expertise to stay abreast of all the challenges.
Something Interesting About Those 1,526 Cannabis Related Bills
Out of 50 States, 527 or 35% of the bills belong with these six states:
New Jersey 111
If you include the 76 bills currently in the U.S. Congress, it equates to 40% or a little less than half of all the cannabis related bills.
I should also point out that these five States have zero cannabis related bills:
North Dakota 0
What We Are Currently Tracking in the US Congress
Below I will briefly discuss a few of the current 76 cannabis related bills in Congress that HDCS is tracking.
12 are related to allowing Veterans access to medical marijuana or research on medical marijuana related specifically for our veterans. Veterans do not have access to medical marijuana and their physicians are not legally allowed to refer or prescribe medical marijuana, even if they reside in a state that has legalized medical marijuana.
7 are related to legalizing research of marijuana.
7 vary on topic, but I track them either because the bill is bi-partisan and stands a chance of passing or I personally find the bill interesting.
I track H.R. Bill 3884 and S.2227 just because the 50-year old activist group NORML is strongly advocating for its passage. H.R. Bill 3884 has 74 cosponsors; however, 73 of 74 are democrats which does not provide much bipartisan support. S.2227 only has 5 cosponsors and no bipartisan support.
There is one resolution that has passed the Senate. Resolution 238 is a resolution designating the week of June 3 through June 9, 2019 as “Hemp History Week.” Sponsored by Ron Wyden (D-OR).
H.R.2093 and S.1028 are for the STATES Act or Strengthening the Tenth Amendment Though Entrusting States Act. This bill eliminates regulatory controls and administrative, civil and criminal penalties under the Controlled Substances Act for certain marijuana-related activities that comply with state or tribal law. The bill also requires the Government Accountability Office to study and report on the effects of marijuana legalization on traffic safety. This bill possesses several aspects I look for in tracking a bill. 1) It is bipartisan. 2) It has a research element. 3) I personally like this bill.
Research Could Change the Industry
Why do these bills or resolutions matter? As stated at the beginning, marijuana is still a Schedule I drug in the CSA, and therefore, we have not legally been allowed to research this drug on humans or animals (with a few exceptions). Currently, individuals studying medicine at university are not educated on the human endocannabinoid system (although this is slowly changing). Also, the FDA has approved one drug (Epidiolex) and legally, if the FDA has approved a drug, then that drug cannot be in food consumed by humans or animals.
If any of the above bills passed which allow for research, several things could take place:
We would better understand the benefits and/or harmful effects of marijuana on the human body and animals.
We would better understand the human endocannabinoid system and how it interacts with the plant.
We would better understand the variations of the plant and how each interacts with the human body and why.
If the FDA has this much needed research, they could definitively approve or disapproved of CBD and its various uses and benefits (or detriments). See bipartisan bill H.R.5887
If research could scientifically prove benefits on the human body along with the fact that there have not been reported deaths (specifically related to marijuana overdose) marijuana then could be considered a Schedule III drug versus Schedule I, or removed from the CSA altogether.
A SAFE Banking Act?
H.R.1595 is the Secure And Fair Enforcement Banking Act of 2019 or the SAFE Banking Act. It has passed the House and is now stagnant in the Senate (S.1200). H.R.1596 had 206 cosponsors with 179 being democratic and 27 republican. Even though this bill has bi-partisan support, there are less than a handful of senators that have control of it going nowhere. If this bill can pass in the Senate, it would be a game changer for the cannabis industry (and banking for that matter). If passed, this bill would generally prohibit “…a federal banking regulator from penalizing a depository institution for providing banking services to a legitimate marijuana- or hemp-related business.” And various other protections. I should point out that even if this safe harbor for cannabis banking is passed, businesses within the cannabis industry, including hemp, will still be considered high-risk and banks entering this space will be advised to seek professional consultation from companies with knowledge and experience, similar to HDCS.
Just recently, 16 State Treasurers signed a letter requesting Congress to include the SAFE Banking Act in the next coronavirus relief legislation.
In May, 34 State Attorney General signed a letter asking Congress to pass the SAFE Banking Act, stating, “We are a bipartisan group of state and territorial attorneys general committed to public safety, financial transparency, and the rule of law….urged passage of the SAFE Banking Act, or similar legislation, that would provide a safe harbor for depository institutions that service a marijuana-related business in a state with robust regulatory controls that ensure accountability in the marijuana industry.”
Also, FDIC’s Chairwoman McWilliams has been consistent regarding her stance on cannabis banking, according to this article released in June stating, "Financial institutions considering implementing cannabis banking programs should take comfort in recent comments made by FDIC Chairwoman Jelena McWilliams during virtual meetings held with bankers in Michigan and Arizona. While McWilliams said she could not ‘give blanket immunity’ to banks or ‘bless them and say ‘go ahead and do it’ because marijuana remains illegal at the federal level, McWilliams stated that she thought bankers would be ‘OK’ with regulators if they conduct due diligence that ensures licensed entities comply with state regulations and follow the 2014 FinCEN guidelines, including the filing of suspicious activity reports (SARs).
Even though currently dormant in Congress, I believe that safe banking (on a federal level) is on the horizon.
And Each State is Different
As previously stated, each State has its own laws, and within each State, each municipality may differentiate from the State. For example, even though California has legalized medical and recreational sales, there are several counties that have banned the sale of marijuana.
Some states have only legalized medical marijuana, some states have both medical and recreational (a.k.a. adult use), some states that had both have dissolved medical into just recreational, some states only allow for hemp, and some have no formal legalization of hemp or marijuana (Idaho and Mississippi, as of today). Furthermore, some states may not have legalized medical or recreational use of marijuana; however, they have some form of decriminalization of marijuana.
As several states are considering different forms of legalization or decriminalization, it is imperative for HDCS to have an idea which ones may become active soon or make significant changes to current laws. Below are a just few examples of some recent changes or what is in the pipeline:
Missouri: Missouri’s medical marijuana effectively began operations in June of this year.
Kansas City, Missouri’s City Council approved a city ordinance that can pardon non-violent marijuana convictions.
Louisiana: Governor John Bel Edwards signed HB211 which provides protection for banks and credit unions that service cannabis businesses from being penalized by state regulators.
New York: Assembly Bill 1617B or the “marijuana regulation and taxation act” has been introduced in the Senate and is currently in committee.
New Jersey: New Jersey’s SCR 183 (a ballot initiative) proposes a constitutional amendment to legalize cannabis for personal, non-medical use by adults who are 21 years or older, subject to regulation by a Cannabis Regulatory Commission.
New Mexico: During a press conference in April 2020 New Mexico Governor Michelle Lujan Grisham (D) stated that she wished the legalization of recreational marijuana would have passed earlier this year as it would have offered additional revenue for a state with limited resources and a large outbreak of COVID-19. “If there was ever a time for wishful thinking, I wish we had passed recreational cannabis because that would be $100 million.”
U.S. Virgin Islands: In April, the U.S. Virgin Island Governor Albert Bryan Jr (D) began the process of revisiting cannabis legalization stating, “We have taken the time to gather further public input as well as address the concerns of the individual legislators,”…“As the economic disaster, the last few weeks has created has affected the [Government Employees Retirement System] greatly it is our hope that we can have a greater sense of exigency in implementing all the things that can help us regain solvency.”… “Certainly, cutting the annuity of retirees by 30 percent cannot be the path,”
Virginia: Virginia Governor Ralph Northam (D) signed a bill decriminalizing small amounts of marijuana. Virginia's House majority leader and other lawmakers announced plans to pursue broader cannabis legalization in the state.
California: Governor Newsom submitted a budget proposal for consolidation of California’s three Cannabis Authorities. The Governor also granted pardons to a number of people with marijuana convictions. The Nevada County, California district attorney filed a motion to dismiss several prior marijuana convictions and reduce some cannabis felonies to misdemeanors. The State Bar of California's Committee on Professional Responsibility and Conduct issued an opinion stating its lawyers can advise cannabis clients.
Oklahoma: The Oklahoma Supreme Court cleared a proposed marijuana legalization ballot measure for signature gathering.
Arizona: Arizona marijuana activists filed 420,000 signatures to qualify a marijuana legalization measure for the November ballot.
Oregon: Oregon’s secretary of state announced that activists officially collected enough signatures to put a measure decriminalizing drug possession and using marijuana tax revenue to fund expanded treatment services on the November ballot.
Other states with possible significant changes regarding cannabis this year:
Mississippi (may be a long shot)
Most Americans Do Not Have an Issue with Marijuana
There are several studies that demonstrate the average American does not have an issue with recreational marijuana and even more are accepting of medical marijuana. A recent Gallup poll reflects 70% of Americans view smoking marijuana as morally acceptable. But we don’t know what we don’t know. Much needed research could guide us all in the direction of making informed decisions.
Then There are the Lawsuits
There are countless cannabis related lawsuits throughout the United States. Below are just a few that I find interesting:
DEA decides a cultivator’s legal hemp is illegal? See Apothio, LLC v. Kern County Sheriff’s Office filed 04/10/2020.
PetSmart was once sued for allegedly using false and deceptive practices to sell hemp products for pets. This lawsuit has been dropped.
Federal judge orders the company Sundial Herbal Products to stop distributing hemp seed oil after FDA’s repeated warnings. The FDA has sent multiple warning letters. This is the first know federal injunction against a company selling a hemp product.
In Louisiana, the Supreme Court ruled that a lower court must consider a case claiming that a sentence of life without parole for the sale of $30 of marijuana was excessive.
An Oklahoma judge is being asked to block residency and location regulations that could force some existing medical cannabis businesses to close.
Why Does Monitoring Legislation Matter?
It is imperative for HDCS to be “subject matter experts” regarding the everchanging cannabis industry and state or federal banking compliance and guidance. As a part of our extensive and customizable services, we provide up-to-date information which includes applicable changes in local, state and federal laws and regulations for our bank clients. We assist each bank with the implementation of the best practices for training, tracking, monitoring and reporting regarding its specific cannabis banking program. Below is an example of the five separate cannabis banking programs:
- A customizable cannabis banking program for a financial institution that wants to prevent banking cannabis businesses.
- A customizable cannabis banking program for financial institutions that only wants to bank hemp related businesses.
- A customizable cannabis banking program for financial institutions that want to get ready to bank hemp or marijuana related businesses, but implementation of the program is down the road.
- A customizable cannabis banking program for a financial institution that wants to only bank Tier II cannabis related businesses.
- A customizable cannabis banking program for a financial institution that is ready to bank hemp and marijuana related businesses.
Why Early Entry Matters
As demonstrated above, the cannabis industry is here to stay and is rapidly growing. There are several advantages to entering this space now.
- Adding a risk-focused cannabis banking program through HDCS can add liquidity and additional profitability at a time when financial institutions need it the most. By safely integrating more cannabis related businesses into the banking system and migrating them away from dealing in an all cash world, the money goes directly into the economy and adds very inexpensive deposits and a new source of fees for banks.
- One of the many things that financial institutions are experts on is anti-money laundering. HDCS can assist in the vetting of a cannabis related business to ensure that each company is complying will local and state laws and regulations. It makes those cannabis related businesses that are not legal and compliant, more recognizable outliers and easier for law enforcement to spot as they continue to be forced to trade and live using all cash.
- More than likely, regulators will be looking for assistance from banks successfully banking the industry for the creation of banking guidance after a SAFE Banking Act is passed.
HDCS Has Created a Roadmap
Trying to figure out where to start with a cannabis banking program or have an existing program? We would be happy to meet with you to understand your objectives and risk appetite and share our view of the best practices involved in establishing a safe and profitable cannabis banking program. We can also walk you and your team through our virtual data portal, which demonstrates our content for creating a safe, sustainable and successful cannabis banking program.
HDCS, Inc. / Director of Product and Business Development