The Secure and Fair Enforcement (SAFE) Banking Act, was reintroduced in Congress, on March 19th. A version of the bill in 2019 garnered 321 votes in its favor, and 103 in rejection. However, the bill floundered in the then Republican-controlled Senate. There is renewed optimism now that Democrats hold a slight control of the Senate.
The bill seeks to offer federal-wide protection from prosecution for US bankers that serve the cannabis market.
Cannabis companies must be cautiously delighted but deepen lobbying on federal-wide uniform rules; insurance access rather than just retail banking and robust data capture.
The biggest dilemma of the US cannabis market is that trade, consumption, or banking for participants is lawful in select states but there is no federal blanket protection. From 2012, adults over the age of 21 can lawfully use marijuana in 15 states and Washington DC. Additionally, 36 states have legalized the usage of medical cannabis meaning – loosely – the majority of Americans can possess marijuana for medical or recreational purposes.
This arcane patch of rules is a headache to marijuana market participants. “The biggest risk the cannabis industry faces is uncertainty. Not only around regulation but around the nature of the lawsuits that could arise,” an authoritative report about the industry, compiled by New Dawn Risk consultancy, states.
Marijuana companies in the US incur millions of dollars in consulting lawyers to weave through a maze of intimidating, non-uniform state laws that can change from state to county. For example in Pennsylvania, a web of rules means marijuana traders have to part ways with up to $2 million upfront in paperwork and proof of assets alone.
So the re-introduction of the SAFE Act is a very important opening for marijuana companies to lobby for a law that gives blanket federal protection. That way, American marijuana corporations get a competitive footing and don’t have to coy around the rules, and list on indexes in nearby liberal jurisdictions like the Toronto Stocks Exchange in Canada.
“We believe the passing of the SAFE Banking Act will advantage all U.S. cannabis operators. For Item 9 Labs, we’ll see direct benefit in access to further financing our Arizona cultivation site buildout and cannabis products to fulfill our customer demand. With our upcoming merger with OCG, Inc. and their Unity Rd. franchise, the robust pipeline of prospective franchise partners will gain additional access to financing – much like SBA loans assist other franchise concepts. We also expect the passing will open the broader exchanges, like NASDAQ and NYSE, with investment banking and institutional investors able to participate, and make it easier for U.S. citizens to purchase shares.”
Don´t forget insurance
The re-introduced bill mandates that federal banking regulators cannot “terminate or limit the deposit insurance or share insurance” or “take any other adverse action against a depository institution” just because it provides banking services to licensed cannabis corporations.
Cannabis companies must not fall into the trap of focusing their lobbying too heavily on retail banking whilst overlooking insurance. As cannabis cultivation, harvesting and trade heat up in the US domestic market, don’t forget that marijuana is a business that´s galloping beyond our shores. China, as bullish as ever, already plants 50% of the total area of cannabis grown in the world today. The World Intellectual Property Organization, states that 306 of the 606 patents involving cannabis today are in the hands of Chinese corporations and individuals.
It is almost given that US marijuana businesses will venture abroad to pick virgin markets or diversify harvests, and this is where insurance shines. Global and domestic US marijuana logistics are complex and fraught with risks of shipping, fire, or climate change disrupting harvests. The legalized cannabis industry in the US would pay $1 billion in annual insurance premiums if the trade was insured to levels offered for other sectors.
Lobbying must intensify to make it easier for cannabis corporations to obtain legal insurance at competitive rates thus they can safely hire more workers and expand operations. As a National Association of Insurance Commission report stated in 2018: “Lack of insurance for the industry adds layers of unnecessary risk and exposure for all market participants.”
Data is savior
The re-introduction of the SAFE Act bill could unleash an avalanche of pent-up data that will enrich both cannabis traders, healthcare agencies, users, and bankers.
Right now due to patchwork of mysterious rules, the cannabis sector runs by word-of-mouth figures, and insider chats (not structured data). “Thousands of employees and businesses across this country have been forced to deal in piles of cash for far too long,” Rep. Perlmutter, the pusher of the re-introduced bills said via a news release.
Without a modern, high-quality data registry on the marijuana market, it is double difficult for retail insurance companies to fairly price packages, or for cannabis traders to haggle for competitive interest rates. Without data, insurers are piloting in the dark. Cannabis growers lose, and health agencies can´t track the impact on consumers.
A recent poll found that fifty-five percent of American adults think that the laws regulating the legal cannabis markets in some states are successful, or that they are at least “more of a success than a failure.”
The survey, taken by YouGov on April 20 of this year, asked 27,328 Americans living in the states that have already enacted laws to legalize marijuana, “Do you think the legislation has been a success or a failure?”
The poll provided 5 response options to participants:
More of a success than a failure
More of a failure than a success
Combining to account for the majority, thirty-six percent of poll participants say the laws regulating the legal cannabis markets in eleven of the states are “more of a success than a failure” and nineteen percent replied that they are a total success.
Believing the opposite, thirteen percent of respondents stated that recreational legalization laws have been “more of a failure than a success.” Only six percent view the legislation as a complete failure. Unsure of the effectiveness of the laws, twenty-six percent of people replied that they “don’t know.”
YouGov sorted the survey results according to:
Significant imbalances in responses among the geographical regions, gender, age, and income levels of poll participants were not observed.
Disparity Among Political Parties
The only category that produced a notable difference among respondents was political party affiliation. Not surprisingly, Democrats and Independents were more likely to reply that the legislation was a “success only” or “more of a success than a failure” than their Republican counterparts.
Sixty-seven percent of Democrats and fifty-four percent of Independents attested that regulated markets were operating within one of the two positive poll response choices. Forty-one percent of poll participants that described themselves as Republican also categorized the legislation as successful.
Independents (21 percent) were more likely than Democrats (10 percent) to consider the law to be a complete failure or “more of a failure than a success.” Thirty-four percent of Republicans agreed that the legislation is unsuccessful.
National Shift Toward Support
Another YouGov poll administered on the same day found that sixty-two percent of Americans believe that the use of cannabis will be legal in every one of the United States within the next decade and that fifty percent of voters believe that “recreational marijuana should be legalized.”
In-line with the results of this recent poll from YouGov, the opinion of the majority of Americans has been steadily shifting in support of legalization for many years now. A poll released by Gallup last year revealed that an even greater percentage of voters (66 percent) are now in favor of a regulated recreational cannabis market. That number increased from fifty-eight percent, according to a 2015 Gallup poll.
Polls from the last several years show that most voters in states like Maryland, Connecticut, and Wisconsin support the recreational legalization of marijuana. Some large cities in states where the plant has not yet been legalized for recreational use, like New Orleans, LA, and Dallas, TX, have still supported the trend by choosing to decriminalize personal possession.
Legislation to end the federal prohibition of cannabis has been submitted in the U.S. Senate by Senator Ron Wyden (D-OR). S. 420’s companion proposals, including H.R. 420, were submitted in the House last week by Representative Earl Blumenauer (D-OR).
“The American people have elected the most pro-cannabis Congress in American history and significant pieces of legislation are being introduced,” said Blumenauer. “The House is doing its work and with the help of Senator Wyden’s leadership in the Senate, we will break through.” “I introduced S.420, my bill to legalize and responsibly regulate and tax marijuana,” Wyden tweeted on February 8. “It’s time to bring our country’s marijuana policies into the 21st century, and my legislation is the way to do it.”
S. 420 was introduced on Friday, February 8 as part of a legislative package consisting of three different proposals being called the Path To Marijuana Reform.
The first one, Small Business Tax Equity Act, proposes that legal cannabis businesses should be allowed to claim tax deductions just like any other small business. Currently, they may not claim tax deductions or credits because cannabis remains a Schedule I substance under the Controlled Substances Act. This amendment was enacted in 1982 after a narcotics dealer claimed expenses associated with the sale of illegal drugs on his taxes. Now that more than half of the states in the nation have legalized cannabis for either medicinal or recreational purposes, those state-legal businesses deserve to be able to operate as such.
The second, Responsibly Addressing the Marijuana Policy Gap Act, permits states to determine their own cannabis laws, thereby “reducing the gap between federal and state laws.” As long as individuals and businesses are operating under state law, this proposal would remove the risk of federal criminal penalties. It also allows legal cannabis businesses to have access to normal banking services, permits U.S. veterans access to medical marijuana, and protects the rights of Native American tribes to grow and sell marijuana on tribal land.
The third bill in the legislative package is called the Marijuana Revenue and Regulation Act. This proposal would remove cannabis from the Controlled Substances Act, effectively de-scheduling it. It also seeks to tax and regulate cannabis products in the same way that alcohol and tobacco currently are, imposing an excise tax on the sale of cannabis. Federal permits from the Department of Treasury would also be issued to cannabis producers, importers, and wholesalers. “The federal prohibition of marijuana is wrong, plain and simple. Too many lives have been wasted, and too many economic opportunities have been missed,” Wyden said in a press release. “It’s time Congress make the changes Oregonians and Americans across the country are demanding.”
With nearly half of U.S. states having legalized some form of whole plant marijuana — recreational or medical — pot production is up. Way up. Despite the plant’s federal illegality, such dramatic changes in the production levels and trade dynamics of the United States are having a significant effect on the pot production and economics of trading partners like Mexico.
For decades, it has been understood that both Canada and Mexico imported literally hundreds of tons of cannabis into the U.S., primarily for the recreational black market. These imports, however, are down. Why?
American Pot Considered Best
Increased pot production in the U.S. is part of the equation; the superior quality of American herb is the other. To illustrate this shift, consider that well-heeled cannabis consumers in Mexico are beginning to request American strains from states like Colorado and California. Mexican cartels, acclimated to the flow of product from the south to the north, are actually beginning to import cannabis (and selling it for about four times the price of their regular stock).
It is estimated that, prior to the current wave of American legalization, only about 15-20 percent of the cannabis consumed in the U.S. was domestic. Today, according to the United Nations, the United States produces a third of the marijuana it consumes. In 2014, customs authorities in California seized 132,000 pounds of illegal cannabis entering the country. In 2009, only five years earlier, the amount seized was double. Cannabis from major production states like California and Colorado is displacing much of the pot that used to flow from Mexico.
To compensate for the lack of demand by American consumers for their product, Mexican cartels have increased production of heroin and methamphetamines. In fact, according to the Drug Enforcement Administration, nearly half of the heroin consumed in the U.S. comes from Mexico, a number that was only 14 percent as recently as 2009.
Mexican Farmers Abandoning Cannabis
In Sinaloa, a center of Mexican pot production, farmers are ripping out cannabis and planting green beans and tomatoes. A government program that subsidizes such crops has seen participation increase by 30 percent since 2013.
“In our town, [cannabis production] dropped because it’s no longer a profitable business,”
said Mario Valenzuela, mayor of Badiraguato, Mexico.
If California approves fully legal, regulated recreational marijuana in November 2016, Mexico will face even larger volumes of domestic herb against which it must fight for customers. With such a large amount of high-grade cannabis being sold in legitimate dispensaries and retail shops — the safe, legal way Americans like to shop for things — will Mexican cartels give up on cannabis imports?
Cartels can obviously continue to focus on hard drugs like heroin and meth and other lines of business, such as human slavery and prostitution. A lack of profits from cannabis production and sales certainly won’t put Mexican cartels out of business. However, the billions of dollars put into the hands of violent organized crime is now shifting to legal entrepreneurs, cultivators, and shop owners in states like Colorado, Oregon, Washington, and California. Along with this shift, tens of millions of tax dollars are entering municipal, county, and state coffers instead of fueling drug war violence and terrorism south of the border.
California’s Influence on Mexico
Some in Mexico are predicting that the effect of full legalization in California would be so dramatic as to force Mexico to also legalize the herb.
“If California legalizes, you can’t politically sustain prohibition in Mexico,”
said Jorge Javier Romero, president of the CUPIHD drug policy group in Mexico City.
As more states legalize at least medical cannabis, demand for high-quality domestic product will continue to surge, further marginalizing profits on cheap Mexican herb. While states like Ohio are planning closed markets that would, by law, rely only on cannabis produced in-state, full legalization in open-market states like California, Oregon, and Colorado may cause a serious and permanent shift in the profit centers of Mexican organized crime.
With full legalization inevitable in states like California and possible even at the federal level within the decade, Mexico’s drug cartels will continue to focus on highly addictive drugs, like heroin, while leveraging their other lines of business, like prostitution. Regardless of the effect on Mexico and its many violent cartels, the American economy will enjoy a rare boost that actually helps the little guy, not Wall Street.
photo credit: thecommonsenseshow.com
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