What’s Happening on Capitol Hill? Part 4: Banking & Tax Reform

By Brian Blumenfeld, J.D., M.A.
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To round out our federal reform review, we look at the bills introduced into the 115th Congress that attempt to resolve the banking and taxation problems faced by state-legal cannabis businesses. As this is perhaps the biggest thorn in the side of the cannabis industry, any movement by the feds on these issues will be welcomed. As it turns out, there are four proposals currently pending for fixing the broken cannabis financial services system, with each proposal comprising a pair of House-Senate companion bills. We look at each pair in turn.

Group 1

S. 1156 – SAFE Act; or, Secure and Fair Enforcement Banking Act

HR. 2215 – SAFE Act; or, Secure and Fair Enforcement Banking Act

Policy: These SAFE Acts would prohibit federal prosecutors and federal regulators from preventing or disciplining in any way a depository institution simply because that depository institution serviced a cannabis-related business.

Impact: The impact of these bills would be widespread for both the cannabis industry and for financial service institutions looking to capitalize on the cannabis industry. For banks, the bills would remove all of the barrier-risks that are now keeping them out of the cannabis business. Currently, the feds have handed down policy guidance to banks stating that as long as they submit what are called “Suspicious Activity Reports, or “SARs” for cannabis-related accounts, and conduct their due diligence to ensure such accounts are complying with state law, then those banks will not be pursued by federal law enforcement. The problem with this guidance is that it is only policy, it is not law, and so it can change on as little as an administrative whim. The protection from cannabis business risk, most banks have determined, is therefore temporary at best and illusory at worst. Passage of the SAFE Act would instantly change all of that and initiate a banking bonanza. Banks will be racing to profit off of what is amounting to a newly minted billion dollar industry. Cannabis businesses will benefit greatly from all of this. Not only will they be able to stop operating strictly in cash and have access to all the traditional financial services that other businesses heavily rely on, but they will also be the beneficiaries of a highly competitive, and therefore affordable and efficient, cannabis banking market.

Procedural Status:

S. 1156

  • Introduced: May 17, 2017 by Senator Jeff Merkley (D-OR)

    Senator Jeff Merkley (D-OR)
    Image: Medill DC, Flickr
  • Cosponsors: 3 Republicans, 7 Democrats, 1 Independent
  • Referred to Senate Committee on:
    • Banking, Housing, and Urban Affairs

HR. 2215

  • Introduced: April 27, 2017 by Representative Ed Perlmutter (D-CO)
  • Cosponsors: 7 Republicans, 44 Democrats
  • Referred to House Committees on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Financial Services

Group 2

S777 – Small Business Tax Equity Act of 2017

HR 1810 – Small Business Tax Equity Act of 2017

Policy: These bills would carve out an exception to IRC 280E allowing cannabis businesses to deduct ordinary business expenses from their federally taxable revenues.

Impact: If enacted these bills will dramatically ease the tax burden for cannabis businesses. Currently, even when they are in perfect compliance with state law, cannabis businesses are not permitted to deduct ordinary business expenses. This means that net taxable revenues are, and are going to continue to be, substantially higher than net taxable revenues for businesses in any other industry. If enacted, profit margins—and therefore product quality, operational efficiency and innovation—are going to uptick across all states that have legalized.

Procedural Status:

Senator Ron Wyden (D-OR)
Image: JD Lasica, Flickr

S. 777

  • Introduced: March 30, 2017 by Senator Ron Wyden (D-OR)
  • Cosponsors: 1 Republican, 4 Democrats
  • Referred to Senate Committee on:
    • Finance

HR. 1810

  • Introduced: March 30, 2017 by Representative Carlos Curbelo (R-FL)
  • Cosponsors: 10 Republicans, 24 Democrats
  • Referred to House Committee on:
    • Ways and Means

Group 3

S. 780 – Responsibly Addressing the Marijuana Policy Gap Act of 2017

HR. 1824 – Responsibly Addressing the Marijuana Policy Gap Act of 2017

Policy: These bills combine to accomplish what each of the foregoing pairs accomplish separately. IRC 280E would no longer apply to state-legal cannabis businesses, and banking would become available for them as well. Additionally, advertising prohibitions in the CSA and the Communications act of 1934 would be removed, with the one exception that advertisements inducing travel from a state where cannabis is not legal to a legal cannabis state would be prohibited. Under Title II of the acts, barriers to federal bankruptcy proceedings would be removed. These bills would also reform the CSA as it relates to criminal liability for individuals, criminal record expungement and medical research for institutions, all of which are noteworthy but neither of which directly impact the legal cannabis industry.

Impact: For the impact of IRC reform, see “Impact” section under S.777/HR.180. For the impact of banking reform, see “Impact” section under S.1156/HR/2215.

By leaving advertising guidelines completely up to the states, we would probably witness the easing of advertising restrictions by the states. Currently, states have tight advertising rules because, after protecting consumers, they do not want their state’s legal cannabis industry to draw attention from the feds in any way. That concern would become moot and we could see more advertising in and across legalized states. This would drive competition across larger markets, in terms of both product and service quality and branding/marketing strategy.

Access to federal bankruptcy proceedings would clarify the landscape for all potential financial scenarios in the lifecycle of cannabis businesses, which in turn will ease uncertainty concerns of potential investors. The bankruptcy provision, combined with the banking provisions will undoubtedly open access to capital for cannabis businesses looking to grow operations and market presence.

Procedural Status:

S. 780

  • Introduced: March 30, 2017 by Senator Ron Wyden (D-OR)
  • Cosponsors: None
  • Referred to Senate Committee on:
    • Finance

HR. 1824

Representative Earl Blumenaur (D-OR)
Photo: Bridget Baker, 92bridges.com
  • Introduced: March 30, 2017 by Representative Earl Blumenaur (D-OR)
  • Cosponsors: 0 Republicans, 8 Democrats
  • Referred to House Committees on:
    • Judiciary
      • Crime, Terrorism, Homeland Security, and Investigations
      • Regulatory Reform, Commercial and Antitrust Law
      • Immigration and Border Security
    • Energy & Commerce
      • Health
    • Ways and Means
    • Financial Services
    • Natural Resources
      • Indian, Insular, and Alaskan Affairs
    • Education and the Workforce
    • Veterans’ Affairs
      • Health
    • Oversight and Government Reform

Group 4

S. 776 – Marijuana Revenue and Regulation Act

HR. 1823 – Marijuana Revenue and Regulation Act

Policy: Subchapters A and B of these bills would impose two additional federal tax requirements on cannabis businesses. The first would be an excise tax on all producers, beginning at a rate of 10%, and growing each year that a producer is in business to a cap of 25% at five years. The second tax would be an occupational tax of $1,000 per year, to be paid by the principals of any cannabis producer or warehouse proprietor. Significantly, these bills would also authorize the federal government to regulate operations in the industry.

Impact: The tax impact of these bills would be a straightforward additional tax that cannabis businesses would have to pay, on top of state and local taxes. The burden of additional taxes will inevitably impact profit margins, initial decisions on whether or not to enter the market and strategies for expansion and innovation. The impacts of federal authorization and regulatory requirements was discussed in the second article of the series, specifically under the “Impact” section of HR1841

Procedural Status:

S. 776

  • Introduced: March 30, 2017 by Senator Ron Wyden (D-OR)
  • Cosponsors: None
  • Referred to Senate Committee on:
    • Finance

HR. 1823

  • Introduced: March 30, 2017 by Representative Earl Blumenaur (D-OR)
  • Cosponsors: 0 Republicans, 8 Democrats
  • Referred to House Committee on:
    • Ways and Means

What’s Happening on Capitol Hill? Part 3: The Medical Bills

By Brian Blumenfeld, J.D., M.A.
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This article continues the bill-by-bill review begun in the August 1st article on cannabis reform legislation proposed in the 115th Congress. In the next article and final piece in this series, we will examine the banking and tax reform bills related to cannabis.

Medical Cannabis Reform Bills 

S. 1008 – Therapeutic Hemp Medical Act of 2017

HR. 2273 – Charlotte’s Web Medical Access Act of 2017

Policy: These bills would amend the CSA to end federal prohibition over all CBD products and all hemp plants with THC content levels of below 0.3%. In other words, people and businesses would be free to grow hemp and/or manufacture CBD products without any fear of federal prosecution. These products would most likely then fall under the regulation of other federal and/or state agencies, but the bills do not specify what agencies they might be or what controls might be put in place.

Impact: The impacts from these bills nationwide have the potential to be massive. Hemp is a plant that can be put to highly effective use in many different industries, from textiles and construction to foodstuffs and seafaring. The efficiency of its growth and the breadth of its utility will make it a highly valuable commodity and a competitor with many other raw materials. For state-legal cannabis businesses, the legalization of CBD and hemp at the federal level could fundamentally change the market for those products. States that legalized cannabis already have provisions in place dealing with hemp and CBD—sometimes alongside their cannabis laws, sometimes handled by a separate state agency—and they could either leave those as they are or open up those markets to interstate activity. In states that have not legalized, CBD and hemp are typically included in the state’s definition of cannabis, and therefore they will remain illegal under state law unless further action is taken. Most likely, if federal prohibition ends on hemp and CBD, state prohibition will follow suit. Because legalization at the federal level will allow for interstate commerce in hemp and CBD, expect the emergence of a nationwide market, driven by online sales and interstate marketing, and developing independently from a cannabis industry still constrained to in-state activities.

Procedural Status:

Senator Cory Gardner (R-CO) Photo: Gage Skidmore, Flickr

S. 1008

  • Introduced: May 2, 2017 by Senator Cory Gardner (R-CO)
  • Cosponsors: 7 Republican, 4 Democrat
  • Referred to Senate Committee on:
    • Judiciary

 HR. 2273

  • Introduced: May 1, 2017 by Representative Scott Perry (R-PA)
  • Cosponsors: 10 Republicans, 10 Democrats
  • Referred to House Committee on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health
    • Financial Services

S. 1276 – Cannabidiol Research Expansion Act

Policy: This bill would accomplish two objectives: First, it would open channels for researchers to access and experiment with cannabis and cannabis extracts. Second, it would initiate the process at the end of which the Attorney General must make a determination as to which Schedule of the CSA is most appropriate for cannabidiol (CBD).

Impact: The impact on this legislation to state-legal cannabis businesses is rather remote—in both time and practice. The research access provisions will certainly create an uptick in medical and psychological research activity, the outcomes of which will add to our knowledge of how consuming cannabis in different forms and amounts effects the brain and body. This type of government-regulated research takes many years to process and complete, as both bureaucratic and scientific standards must be met. As for initiating the re/de-scheduling review process for CBD, this is a direct response to the 2016 denial by the DEA to re/de-schedule cannabis. That determination, published in the Federal Registrar on August 12, 2016, was made following a comprehensive study of the medical benefits and harms of cannabis conducted by the Department of Health and Human Services (HHS) and the Food and Drug Administration (FDA). Although such an in-depth study and its resulting negative determination pronounced so recently would normally rule out the chances of success for another re/de-scheduling attempt so soon after, the DEA did leave the door open with its statement that it “did not focus its evaluation on particular strains of marijuana or components or derivatives of marijuana.” It is just this door that S. 1276 seeks to exploit. By focusing the re/de-scheduling process on CBD specifically, the presumption is that the outcome of the scientific CBD studies would have a far better chance at satisfying the re/de-scheduling criteria set forth in the CSA. If such a determination was made, then the impact would come in two potential varieties. One, CBD would be rescheduled and become available for medical use according to FDA rules applicable to other prescription drugs. Two, CBD would be descheduled and would fall under the prerogative of the states, in which case the above analysis for S. 1008 and HR. 2273 would pertain.

Senator Dianne Feinstein (D-CA)
Photo: Daniel Torok

Procedural Status:

S. 1276

  • Introduced: May 25, 2017 by Senator Dianne Feinstein (D-CA)
  • Cosponsors: 3 Republican, 2 Democrat
  • Referred to Senate Committee on:
    • Judiciary

S. 1374 – Compassionate Access, Research Expansion, and Respect States (CARERS) Act of 2017

HR. 2920 – Compassionate Access, Research Expansion, and Respect States (CARERS) Act of 2017

HR. 715 – Compassionate Access Act of 2017

HR. 714 – Legitimate Use of Medical Marijuana Act (LUMMA) of 2017

Policy: All four of these bills would make an exception to the CSA for state medical cannabis laws. Federal prohibition, in other words, would end for medical cannabis in those states that have legalized, and it would be left to those states to devise how it would be regulated. In states that have not legalized, both state and federal prohibition would remain. The companion CARERS Acts in the House and Senate, along with HR. 714, would also amend FDA rules to widen access to cannabis for research purposes.

Impact: The impact of these bills on the rules for state-legal medical cannabis businesses would be relatively minor in terms of functionality. This is so because they leave not only the determination to legalize up to the states, but they leave the design of the regulatory system up to the states as well. In other areas, however, big changes will be seen that benefit the industry: banking will open up for state medical businesses, and so will the opportunity to write-off ordinary business expenses. Investment risks over legality will end, making for easier access to capital. Questions about contract enforcement and risks of federal prosecution will become moot, and when state regulatory bodies make decisions on how to govern the industry, they will no longer have to concern themselves with U.S. DOJ enforcement and/or prosecutorial policies. Enactment of any of these bills would be a big win for medical cannabis.

Senator Cory Booker (D-NJ) Photo: David Shinbone, Flickr

Procedural Status:

S. 1374

  • Introduced: June 15, 2017 by Senator Cory Booker (D-NJ)
  • Cosponsors: None
  • Referred to Senate Committee on:
    • Judiciary

HR. 2920

  • Introduced: June 15, 2017 by Representative Steve Cohen (D-TN)
  • Cosponsors: 1 Republicans
  • Referred to House Committee on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health
    • Veterans’ Affairs
      • Subcommittee on Health

HR. 715

  • Introduced: January 27, 2017 by Representative Morgan H. Griffith (R-VA)
  • Cosponsors: 2 Republicans, 1 Democrat
  • Referred to House Committee on:
    • Energy and Commerce
      • Subcommittee on Health
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations

HR. 714

  • Introduced: January 27, 2017 by Representative Morgan H. Griffith
  • Cosponsors: 1 Democrat
  • Referred to House Committee on:
    • Energy and Commerce
      • Subcommittee on Health

HR. 2020 – To Provide for the Rescheduling of Marijuana into Schedule III of the CSA

Policy: As its wordy title indicates, this bill would bypass the schedule review process and by legislative fiat move cannabis from Schedule I to Schedule III of the CSA.

Representative Matt Gaetz (R-FL)

Impact: Businesses handling drugs in Schedule III must register with the DEA and comply with DEA record keeping and security requirements. Doctors would be permitted to prescribe cannabis products. Importing/exporting will become available by permit, which would bring state businesses into competition with foreign cannabis firms. The biggest impact will be that cannabis sold pursuant to federal law will have to undergo the FDA’s New Drug Application process conducted by the Center for Drug Evaluation and Research, the largest of the FDA’s five centers. This includes clinical testing and a comprehensive chemical/pharmacological review. The drug would then be subject to FDA regulation for marketing and labelling. For states that wanted to maintain their legal medical cannabis systems, a conflict would remain because cannabis cultivators and dispensaries could operate in compliance with state law while simultaneously failing to meet new FDA and DEA requirements. States will then have a choice: bring state laws into line with federal laws, creating all of the advantages of federal legality discussed above, yet causing major disruptions to the industry; or retain the status quo, allowing the industry to grow as is with all of the in-state advantages but without the advantages of federal legalization. This all would of course leave behind recreational cannabis which would remain in the legal gray zone.

  • Introduced: April 4, 2017 by Representative Matt Gaetz (R-FL)
  • Cosponsors:
  • Referred to House Committee on:
    • Energy and Commerce
      • Subcommittee on Health
    • Judiciary

HR. 331 – States’ Medical Marijuana Property Right Protection Act

Policy: Section 881(a)(7) of the CSA subjects to federal forfeiture all property involved with cannabis activities. This bill would make an exception to that provision for all property in compliance with state medical cannabis laws.

Impact: Although not legalizing medical cannabis, this bill would be a strong step in the direction of legitimizing state-legal medical cannabis businesses. As a result of the property forfeiture clause of the CSA, two impediments faced by the medical cannabis industry is that investors are hesitant to invest and land lords are hesitant to lease or otherwise engage the medical cannabis market. By eliminating the risk of such property loss due to the federal-state conflict, this bill would have the very welcomed impact of easing access to capital and expanding opportunities for land use.

  • Introduced: January31, 2017 by Representative Barbara Lee (D-CA)
  • Cosponsors:
  • Referred to the House Committee on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health

What’s Happening on Capitol Hill? Part 2: A Bill-By-Bill Review

By Brian Blumenfeld, J.D., M.A.
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Since the first session of the 115th Congress convened on January 3, 2017, twenty-four cannabis reform bills have been introduced, fifteen in the House and nine in the Senate. All of them address in varying ways the puzzles that have emerged as more and more states legalize cannabis in the face of federal prohibition. Some are narrow, some are broad, some are for medical cannabis only, some for recreational too, some have more bipartisan support than others, but all indicate in some manner the direction federal reform will eventually take.

H.R.1227 – Ending Federal Marijuana Prohibition Act of 2017

Understanding the content and status of these bills and what they would mean for the industry if/when they are enacted, will help stakeholders anticipate changes that we know are bound to drop, and therefore be better prepared to adapt to them when they do.

Generally lacking in the journalism on cannabis is coverage and analysis of federal proposals deep enough to provide a useable understanding of the policies they stand to codify. As CIJ is dedicated to providing just such useable information to industry-insiders, this bill-by-bill review fills the gap.

All twenty-four bills fit rather neatly into one of three categories: De-scheduling/State Control Reform, Medical Cannabis Reform and Banking/Tax Reform. This second article in the series will look at the first category, and the next article will wrap up the last two.

De-Scheduling/State Control Reform

HR 1227 – Ending Marijuana Federal Prohibition Act of 2017

Policy: The bill proposes two major changes to the CSA. The first is to strike cannabis from the statute, essentially leaving the regulation or prohibition of it up to each state. The second is to insert into the CSA a provision that makes it a federal offense to transport cannabis from one state to another in any way that violates state law. In other words, if a state wished to continue prohibiting cannabis, it would be both a federal and state crime for anyone to transport cannabis into that state. Likewise, if a state wished to legalize and regulate cannabis, but wanted to prevent out-of-state cannabis from entering, the transportation provision would permit that state to do so.

Impact: Industries in states that have already legalized cannabis will structurally remain the same. Banking will open up for these state businesses, and so will the opportunity to write-off ordinary business expenses. Questions about contract enforcement and risks of federal prosecution will become moot, and when state regulatory bodies make decisions on how to govern the industry, they will no longer have to concern themselves with U.S. DOJ enforcement and/or prosecutorial policies. The big potential change will be seen if two or more contiguous states that have legalized cannabis decide to permit transport of the drug between their states. Markets will expand, opening access to new customers and challenges from new competitors. Licensees may also have the option to venue shop, and we could see states themselves competing with one another to attract cannabis business with the carrot of favorable regulations.

Representative Thomas Garett (R-VA)
Photo: C-SPAN

One possible pitfall to keep in mind is that this legislation could violate something in constitutional law known as the Dormant Commerce Clause—a topic CIJ will cover should it surface.

Procedural Status:

  • Introduced on February 27, 2017 by Representative Thomas Garett (R-VA)
  • Cosponsors: 4 Republican, 11 Democrat, 1 At-Large
  • Referred to House Committees on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health

HR 2528 – Respect States’ and Citizens’ Rights Act of 2017

Policy: This bill would add to the CSA a provision specifically declaring no congressional intent to preempt state cannabis laws.

Representative Diana DeGette (D-CO)
Photo: Center for American Progress Action Fund, Flickr

Impact: HR 2528 would rule out the potential for a judicial resolution to the federalism controversy. Most legal challenges to state legalization regimes have relied on a theory of Supremacy Clause preemption. Most notably was the 2014 case initiated by Oklahoma and Nebraska against Colorado, which you can find broken down here. Although the Supreme Court denied to hear that case, the issue is outstanding and remains an important factor, if not the central factor, in cannabis cases currently pending in federal court. Under this reform, state cannabis laws would be safe from invalidation, but it is less clear whether a mere anti-preemption clause would strip the federal government of its other powers under the CSA, or alter in any way the current status of cannabis as a Schedule I controlled substance. Questions arising under such uncertainty would likely have to go through long and hotly contested litigation before we have concrete answers. So although this proposal would resolve the ticklish issue of preemption, it leaves unaddressed the many other conundrums posed by federal-state divergence.

Procedural Status:

  • Introduced on May 18, 2017 by Representative Diana DeGette (D-CO)
  • Cosponsors: 1 Republican
  • Referred to House Committees on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health

HR 1841 – Regulate Marihuana Like Alcohol Act

Policy: This bill sets to accomplish a number of different reforms: remove cannabis from CSA; allow for import and export except into states that wish to prohibit cannabis altogether and/or prohibit its importation into the state; decriminalize cannabis use on national forest land; require a permit from the Secretary of the Treasury to import cannabis and to engage in any cannabis business activity; mandate businesses that obtain a Treasury permit to also comply with all State laws (so if state wants to continue to prohibit, they may); share jurisdiction over the administration and enforcement of the new federal laws between the DEA and the Bureau of Alcohol, Tabaco, Firearms and Explosives which is to be renamed the Bureau of Alcohol, Tobacco, Marijuana, Firearms and Explosives.

Representative Jared Polis (D-CO)
Photo: Joshua Lawton, Flickr

Impact: If enacted, this bill will have many of the same impacts as the abovementioned HR 1227- Ending Marijuana Federal Prohibition Act of 2017. The IMPACT section for that bill will also pertain to this bill, with the following exception: by requiring a permit to operate a cannabis business from the Department of Treasury, the bill would add a layer of regulation on top of state law. Treasury Permits would be conditioned on permitees complying “with all other Federal laws relating to production, sale and consumption of marijuana.” Although §302 of the bill limits Treasury’s discretion in denying applications to only certain, enumerated disqualifying factors, the “other Federal laws” the bill refers to could embody any number of policy and jurisdictional preferences either enacted by the Congress or promulgated by the executive agencies charged with administration. At the current stage of speculation the best we can say is that descheduling cannabis under this bill would be a benefit to the industry, but out of all of the present proposals the provisions authorizing federal regulation present the greatest uncertainty for the shape the future of the industry might take.

Procedural Status:

  • Introduced on March 30, 2017 by Representative Jared Polis (D-CO)
  • Cosponsors: 1 Republican, 14 Democrat
  • Referred to House Committees on:
    • Judiciary
    • Energy and Commerce
    • Ways and Means
    • Agriculture
      • Subcommittee on Conservation and Forestry
    • Natural Resources
      • Subcommittee on Federal Lands

HR 975

Statute: Adds one sentence to the CSA that excludes its application to any person acting in compliance with State cannabis laws.

Representative Dana Rohrabacher (R-CA)
Photo: Gage Skidmore, Flickr

Impact: The bill would have the same impact as the above HR 1227 – Ending Marijuana Federal Prohibition Act of 2017, with the only exception that the transportation provision in HR 1227 makes it clear that states will be permitted to prohibit the importation of cannabis from other states if they want to. This bill, without speaking directly to the matter of interstate importation, could leave the question open-ended until resolved through judicial interpretation.

Procedural Status:

  • Introduced on February 7, 2017 by Representative Dana Rohrabacher (R-CA)
  • Cosponsors: 8 Republican, 12 Democrat, 2 At-Large
  • Referred to House Committees on:
    • Judiciary
      • Subcommittee on Crime, Terrorism, Homeland Security, and Investigations
    • Energy and Commerce
      • Subcommittee on Health

Legislative Update

On Tuesday, August 1st, Senator Cory Booker (D-NJ) introduced the twenty-fourth cannabis reform bill. The bill has yet to be assigned a number or referred to committee, but it is called the Marijuana Justice Act of 2017, and makes some interesting contributions to the lineup of reform proposals.

Sen. Cory Booker (D-NJ)
Photo: Nick Fisher, Flickr

For legalization purposes, the bill both removes cannabis from the CSA and removes prohibitions on importing and exporting. The above analysis for descheduling and import/export would apply to Booker’s bill in the same way. The interesting twist thrown in is how criminal and racial justice objectives are linked to incentives for states to legalize. The ultimate decision to legalize or not in a given state will continue to be the prerogative of each state, but the catch is that if a state does not legalize cannabis and the number of arrests for cannabis offenses in that state disproportionately impacts minority or low-income citizens, then the federal government will pull funding it provides to that state for criminal justice-related programs. This could push more states who would otherwise not legalize onto the reform bandwagon. Such states will have to pit how much they value federal funds against how much they value criminalizing cannabis. If the former outweighs the latter, policy logic will dictate that they legalize. Updates on this bill, and movement on any others, will be tracked by CIJ.

For the next piece in this series, we will review the bills currently pending in Congress that cover medical cannabis reform and banking/tax reform. Stay tuned for the latest on what’s happening around Capitol Hill and in federal cannabis policy circles.

What’s Happening on Capitol Hill? Cannabis Reform Proposals and the 115th Congress

By Brian Blumenfeld, J.D., M.A.
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As CIJ readers are probably aware, last month Congress passed the Consolidated Appropriations Act of 2017—the annual budget, in other words. Lying within this 1,665-page document is Section 537, which for one year restricts the Department of Justice from using any funds to prevent states from implementing their medical cannabis laws. Medical cannabis businesses and patients can take some solace in this restriction. Last summer, the influential U.S. Court of Appeals for the Ninth Circuit, sitting in San Francisco, confirmed that this appropriations rider prevents federal prosecutors from bringing suit against medical cannabis businesses and users operating in compliance with state law. Two problems remain glaring, however: one, the protection only applies to medical cannabis activity, not recreational; and two, it is only guaranteed to last for one fiscal year.

To be sure, for the 115th Congress to address the profusion of issues emerging from the nationwide legalization movement, they must do something more. Various reform proposals have in fact been introduced during the current congressional session, and in order to fully digest where they stand and what they have the potential to accomplish, it will help to make sure that we know how they fit within federal legislative procedure.

Catching Up to Speed with the Legislative Process 

How A Bill Becomes A Law
Photo: Mary-Frances Main

Whenever confronting a question about government and politics, it is never a bad idea to start at the source of authority. In America, that source is of course the Constitution, and in Article 1, Section 5, Clause 2, We The People have given to Congress the power to “determine the rules of its proceedings”.  When we remember back to the School House Rock cartoon for How A Bill Becomes A Law, the majority of political maneuvering behind the basic process taught in the cartoon actually happens according to these ‘rules’ or ‘resolutions’. In fact, at the beginning of each new Congress (every two years) each chamber, and each committee and subcommittee within each chamber, votes on the rules that will govern how they are to go about their legislative business. Traditionally, the rules from the previous Congress are carried over by this vote with only minor tweaks. On top of that, both parties in each chamber have their own internal rules and procedures for setting their policy agenda, directing political strategy, and determining which members will be nominated to certain leadership positions and committee posts. Playing the game of politics according to this layer cake of rules is a necessary part of the work of a legislator, and is often as important a factor in how our country is actually governed as is who wins election to office and what substantive provisions are formally enacted into law. So for the purposes of understanding federal cannabis reform, let’s take a quick look into the procedural status of the relevant legislation and who is in a position to influence what happens to it; then, when reviewing the policies they stand to codify, we will also understand the legislative landscape they must navigate.

Rep. Rohrabacher launches the Cannabis Caucus, Photo via Earl Blumenauer/YouTube

A good place to start is February 16, 2017 when Republican Congressmen Dana Rohrabacher (R-CA) and Don Young (R-AK) along with Democratic Congressmen Earl Blumenaur (D-OR) and Jared Polis (D-CO) launched the Congressional Cannabis Caucus. Under House and Senate rules, such a caucus must formally register with the House Committee on Administration as a Congressional Member Organization (CMO), disclosing its officers and members and declaring its purpose. These CMOs are sometimes referred to by different names: caucuses, conferences, coalitions, task forces, etc. The best known of these are the House and Senate Democratic Caucuses and the House and Senate Republican Conferences. By setting party policy, driving legislative strategy, promoting party cohesion and rewarding party loyalty, these largest of CMOs dominate partisan activity on Capitol Hill. Smaller CMOs, on the other hand, advance only specific interests and often cross the partisan divide. The Cannabis Caucus, for instance, was formed to catalyze a federal response to the nationwide legalization movement, and its “Path to Marijuana Reform” is a large part of the spate of bills that have been dropped into the congressional hopper over the past six months.

All in all there are twenty cannabis reform bills currently pending in Congress. In the House, all but two of the fourteen bills there have been referred to either the Energy & Commerce Committee or the Judiciary Committee, and all but one of the six in the Senate have been referred to either the Finance or Judiciary Committees.

A Note on Committees & Procedure

Rep. Earl Blumenauer (D-OR), is on the Ways and Means Committee
Photo: Michael Campbell

Under House and Senate rules, bills are referred to committees by matching the former’s subject matter to the latter’s jurisdiction. In the House, the Speaker may attach time limits for committee action, refer a bill or portions of a bill to multiple committees and determine the sequence in which they are to be considered. The Speaker may also convene an ad hoc committee to consider a bill, and “make such other provision as may be considered appropriate.” As can be gleaned, the Speakership holds substantial procedural powers, and is in fact the only congressional leadership position created by the Constitution. The Senate’s counterpart, the majority leader, has in comparison less discretion in moving along legislative business.

At the next step, both the House and Senate grant each committee the authority to make their own rules on how they are to consider bills. Once referred, committee chairs generally decide to further refer a bill to a subcommittee, hold hearings, subpoena evidence and witnesses, call ‘markup’ sessions to propose and debate amendments, and finally to schedule a vote to report bills back to the chamber floor. If a committee chair wishes to kill a bill, these procedural powers provide wide, though not absolute, authority to do so. Jockeying for a chairmanship is therefore big game in the life of a legislator. Ultimately, members are nominated and elected to their respective committees and chairs according to the rules of their parties’ caucus or conference, and upon a vote of approval on the floor. Seniority is only one factor in these votes, and so because nothing is predetermined, these intraparty contests can explain a great deal about member behavior.

With that background to help triangulate Capitol Hill politics, we should now be better equipped to look into the cannabis bills pending before the 115th Congress, the committees to which they have been referred, and their procedural status. Stay tuned for the next article in this series when we will begin our bill-by-bill review.

What Does The Constitution Have To Say About Cannabis Legalization?

By Brian Blumenfeld, J.D., M.A.
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With the Trump Administration sending mixed signals on legal cannabis, and with Congress beginning to ramp up efforts for reform, in order for industry stakeholders to best understand where we are headed, it will be helpful to remember how we got here. As readers may be aware, the current status of federal cannabis law can be traced back to the legislative prong of Richard Nixon’s War on Drugs. His Controlled Substances Act of 1970 (CSA) made it a federal crime for anyone to use or possess any amount of marijuana anywhere in the U.S. Current federal cannabis policy, on the other hand, complicates the matter, and can be traced back to a memorandum issued in 2013 by then-Deputy Attorney General James M. Cole. The Cole Memo instructed U.S. attorneys general in states that have legalized marijuana to use their limited resources in prosecuting CSA offenses only if they violated specific federal enforcement priorities. The highest of these priorities include diverting legal marijuana business revenues to illegal drug operations, transporting marijuana over state lines, making marijuana accessible to minors, and growing marijuana on federal lands. The problem is that the Cole Memo is only a policy, it is not law; and so not only can the current administration unilaterally change it whenever it wants, but state-legal cannabis businesses, their employees and customers are breaking federal law every single day!

Former Deputy Attorney General James M. Cole
Photo: Shane T. McCoy

This is a very unusual situation to be in for both the states and the feds, and it raises two basic constitutional questions: What gives the feds the right to make cannabis illegal everywhere in the U.S.? And how can states simply defy the prohibition?

The first question was in fact answered by the U.S. Supreme Court in 2005 when two California women (Diane Monson and Angel Raich), both with very serious illnesses, sued the federal government for confiscating their state-legal medical cannabis. The feds defended their actions by claiming that the Constitution’s Commerce Clause gave them the authority to march into California, march into the homes of these women, and enforce the CSA. Diane and Angel argued that the Commerce Clause only gives the feds the authority over interstate commerce; and since their cannabis was grown by themselves, used by themselves, never bought or sold, or transported out of the state, it was therefore wholly intrastate cannabis and had nothing at all to do with interstate commerce. The Court sided with the feds, ruling that even though the cannabis was intrastate, when you take all intrastate cannabis activity like that and add it together, it will have a substantial impact on the interstate cannabis market. Because of that connection it was ‘necessary and proper’ for the feds to enact the CSA and enforce it anywhere in the country they wanted. Although there is still much debate over this ruling, it remains the law of the land to this day.

United States Constitution
Photo: National Archive

Fast forward to 2014. The states of Nebraska and Oklahoma sued Colorado claiming that by legalizing marijuana, Colorado was violating federal law under the CSA. Because federal law overrides state law when they conflict, then Colorado’s cannabis laws must be struck down, or so they argued. In response Colorado took a very interesting position that built on the hard realities of the cannabis market. It is best to explain it in four parts. First, they cited the fact that the federal government lacked the resources to enforce the CSA, a claim which the feds have admitted to themselves. Second, Colorado pointed to a constitutional doctrine called ‘anti-commandeering’, which says that they have no obligation to criminalize cannabis at all. If the feds want to make it a federal crime, that is one thing; but that does not mean CO must make it a state crime as well. Third, Colorado said that by regulating cannabis as extensively and strictly as they have done, they are reducing the amount of cannabis activity compared to not regulating it at all. Taken together, this means that because Colorado does not have to criminalize cannabis, and because the federal government cannot enforce their own criminalization, then Colorado is actually helping out the feds by regulating the drug instead of allowing for a free-for-all under state law.

The Congressional Cannabis Caucus Announced

In March of 2016 the Supreme Court declined to hear the case in full or issue an opinion, which had the effect of giving a default victory to Colorado. Among political and legal commentators the speculation is that enough justices on the Court either agreed with the logic of Colorado’s position or wanted to wait for this federal-state controversy to be worked out by Congress. Because it was only a default victory, the constitutional status of the legal cannabis industry remains on unprecedented and unstable ground. The Controlled Substances Act has not yet been found to preempt state law, so cannabis businesses are still able to operate legally in their state. But because the CSA still applies to everyone, they do so at the whim of the Trump Administration’s policy preferences. The confusion that this presents has put cannabis businesses in many difficult situations, and it serves as the legal backdrop for such familiar problems as access to banking and contract enforcement.

Currently, legislative and judicial fixes are in motion. Related cannabis litigation is pending in federal court at the 10th Circuit Court of Appeals in Denver. And a Cannabis Caucus has formed in the U.S. Congress to address the shortcomings of the CSA. In the coming articles we will explore both of these routes to reform, the likelihoods of various possible outcomes, and the impact they will have on the legal cannabis industry.

Editor’s Note: For readers interested in learning more about this topic click here for Brian’s research article published by the Virginia Journal of Social Policy & the Law