Cannabis by Caltabiano

Everyone knows the legal cannabis sector is seemingly unstoppable as an emergent business sector. Everyone also knows it is a business space in the U.S. that is defined by complex and challenging regulations and legalities that restrict the industry’s full potential to expand economically and even scientifically. 

The vast majority of today’s challenges for legal cannabis–both adult-use and medical–exist because of one hurdle: the inclusion of cannabis as a Schedule 1 drug under the Controlled Substances Act.

That federal act, born in the early ’70s during the Nixon administration, has severely limited scientific research of cannabis because it has prevented the kind of federal funding needed for it. Also, the Controlled Substances Act inclusion has left banking institutions wary of doing business with any type of cannabis entity in the U.S., plant-touching or otherwise, because of the risk they take should the DEA decide to seize assets under a criminal investigation. And despite the ability of individual states to legalize their own markets, MSOs and others in this industry continue to face interstate commerce complications because of cannabis being illegal at the federal level under its Schedule 1 classification.

And even though the 2018 Farm Bill opened up CBD the market for businesses, it did little to change the kinds of costly uncertainties presented to cannabidiol by its genetic relation marijuana.

Now, decades after the U.S. government deemed cannabis as dangerous as heroin and LSD, there’s a renewed congressional effort underway that aims to remove cannabis from the Controlled Substances Act. And next month the issue is set to come to a floor vote in the U.S. House as lawmakers there revisit the Marijuana Opportunity, Reinvestment and Expungement (MORE) Act. 

What happens with the MORE Act after next month’s planned House vote depends on several electoral scenarios to be decided this fall, but this much is certain: the days of cannabis as a Schedule 1 drug are numbered. Public sentiment and industry profits have changed too drastically of late for cannabis to remain under its current onerous restrictions that no longer make sense medically, socially or economically.  

This sea change means that in time future U.S. cannabis businesses will operate in a wide-open market compared to today’s tightly controlled business space. And for operators currently in the industry, it means competition also will expand like never before.

More details on the MORE Act

Last year, the MORE Act was introduced in the House by Rep. Jerry Nadler and in the Senate by Sen. Kamala Harris. Aside from the act’s focus on removing cannabis from the Controlled Substances Act, it also enacts other vital changes in the industry. Here are some of the highlights:

• Expands veterans’ access to cannabis: The act would remove federal barriers that prevent Veterans Administration doctors from prescribing cannabis to VA patients who live where cannabis is legal. Not only is this important in giving VA vets the same medical-treatment options as everyone else, but it’s also a measure that could carry a sizable economic benefit, given how cannabis use has seen year-over-year increases among older Americans.
• Provides SBA funding to cannabis businesses. The MORE Act allows cannabis businesses and their service providers to tap into something too long missing in this business sector: Small Business Administration funding.
• Expunges low-level cannabis convictions. In addition to changing the legal status of cannabis, the act also is designed to apply restorative justice to people arrested for low-level cannabis offenses. Most of these individuals who were victimized by America’s decades-long “War on Drugs” are Black even though cannabis use among Whites and Blacks are practically the same.
• Creates a trio of programs to accomplish social goals. Under the act, the industry would employ a 5% excise tax to finance the programs that target economic investment in affected communities, grant programs for small businesses and a licensing program to help ensure equitable cannabis-business licensing.
• Will better track relevant business data about the industry. The act also directs the Bureau of Labor Statistics to compile and disseminate information about cannabis company owners and others who work in the industry, providing business transparency in the sector and tracking important information about who is behind the companies in the cannabis space.

What to know about the MORE act for now

Despite this moment in time being a crucial one for the cannabis industry as it seeks to remove marijuana from the Controlled Substances Act, there’s still only a slight chance that the MORE Act actually will be signed into law any time relatively soon. 

Even though the bipartisan act was introduced in the House and had a companion measure introduced into the Senate, the upper house of Congress remains firmly in the cold, hard grip of anti-cannabis GOP personas such as Senate Leader Mitch McConnell; Idaho’s Mike Crapo, who is in charge of the important Banking Committee; and Iowa’s longtime cannabis opponent Chuck Grassley, who has often spoken out against marijuana, going as far as to call it and the people who use it “dangerous.”

So, with the current political dynamics and today’s fixed mix of Republicans, Democrats and independents in Congress, the MORE Act floor vote in the House next month actually could be the last we’ll hear about the measure and its benefits for the industry for a while.

Of course, all bets on that are off when the fall elections come in less than 90 days. That’s because, right now, the House remains firmly governed by a Democrat majority as Republicans likewise control the Senate. But given the president’s pre-election polling, it’s not unforeseeable that GOP control of the Senate could have a greater chance of flipping to the Democrats this year. And were the Democrats to control both houses of Congress after Election Day (along with the White House), the chances of cannabis coming off the Controlled Substances Act would be exponentially improved and happen even sooner than what might have been previously expected.

There won’t be a guarantee, though, of such legislative work happening quickly. Were a new administration to take the White House in January, it will have its hands full with immediate and ongoing COVID-19 pandemic responses that will suck away much of the energy and import of other legislative measures like the MORE Act. 

Should the Senate flip in November, legislation like the MORE Act most certainly will be approved and implemented, but there is still a good likelihood that it won’t be approved as soon as many in the industry might like. That might be the new reality, though, after a new president turns attention and time to controlling the pandemic’s infection rates first and foremost. Under such a scenario, the MORE Act might not be part of the new law-making that typically takes place the first 90 days of a new presidency and instead, will be pushed back to later in the new (or continuing) presidency when the pandemic and responses to it are more manageable.

Today’s cannabis operators should prepare now

Once cannabis is removed from its Schedule 1 classification under the Controlled Substances Act, it’s not hyperbole to suggest that the industry will expand even more profoundly. And with more federally funded research finally available, it’s enticing to imagine the possible scientific advances in how cannabis will be used to aid human health one day.

Of course, descheduling could signal an era of tighter competitiveness for the industry as a mass of new players rushes the market after legalization. And that’s why many of today’s more-profitable cannabis operators already are watching to see what real effect might come from the Nov. 3 elections and how they can best prepare now, whether through consolidation or expansion or any other move. 

M&A activity in the cannabis sector has been practically non-existent this year. That doesn’t mean we won’t see these deals return as cannabis companies with access to cash plan for upcoming U.S. legalization efforts, whether from the ballot box or from a wholesale federal change after cannabis is no longer part of the Controlled Substances Act.

There is a momentum for change in the industry. More importantly for legalization efforts, there also has been a change in how the public views cannabis. And at some point – perhaps beginning next month with the House vote on the MORE Act – legalization in the U.S. will move from idle and hopeful speculation to actual business movement in the U.S, market. 

It’s not a matter of if it will happen. It’s just a matter of when. 

The only question left for now is: Are today’s cannabis business leaders prepared for the change to come?