Proposed Federal Marijuana Reform: Financial Services Industry Primer – Cannabis & Hemp

On Friday, April 1, 2022, the House of Representatives passed
the Marijuana Opportunity, Reinvestment, and
Expungement (MORE) Act
 for the second time in two years,
with 220 votes in favor and 204 votes in opposition. The MORE Act
is one of at least three pieces of offered legislation that
legalizes, or partially legalizes, marijuana at the federal level.
After an hour of debate, the House also adopted two amendments
aimed at assuaging Republican concerns about impaired driving and
workplace safety. All three proposed laws expressly address some
financial institutions’ ability to operate in this emerging

The MORE Act not only removes marijuana from Schedule I under
the Controlled Substances Act (CSA), but it ushers in a regulatory
framework for taxing the sale of cannabis products and using the
tax receipts to fund a number of equity and economic programs for
those adversely impacted by the War on Drugs. The MORE ACT also
will authorize expansive research on cannabis and the impact of the
War on Drugs, and it will create a process for expungements of
non-violent federal marijuana convictions across the country.

Related Legislation

The Senate must now decide whether to adopt the MORE Act or one
of the other two bills: the Cannabis Administration and Opportunity Act
, proposed, but not yet filed, by Sen. Chuck Schumer
(D-NY), and Rep. Ed Perlmutter’s (D-CO) Secure and Fair Enforcement Banking (SAFE) Banking
, which was most recently passed by the House in 2021.

The CAOA is expected to have many of the same features as the
MORE Act, including (most fundamentally) delisting marijuana from
Schedule I under the CSA. It is also expected to:

  • Transfer jurisdiction over cannabis to the Food and Drug
    Administration (FDA), the Alcohol and Tobacco Tax and Trade Bureau
    (TTB) and the Bureau of Alcohol, Tobacco and Firearms (ATF) within
    the Department of Justice (giving cannabis a status similar to
    alcohol and tobacco);

  • Introduce a federal regulatory apparatus;

  • Direct proceeds of a new federal excise tax to individuals and
    communities most affected by the War on Drugs;

  • Provide for expungement of federal non-violent marijuana
    convictions; and

  • Provide for reforms to the treatment of marijuana-related
    activities or convictions in federal immigration policy.

Unlike the MORE Act or CAOA, the SAFE Banking Act does not
remove marijuana from CSA’s Schedule I. While the MORE Act and
CAOA focus on comprehensive legislation, the SAFE Act is a more
modest and more focused piece of legislation, which aims to protect
banking institutions-as well as their insurers-that choose to offer
services to a legitimate cannabis-related business operating in
accordance with their respective state laws. The bill generally
offers protection from penalties of a federal banking regulator
against a depository institution for offering services to
cannabis-related businesses. Transactions involving activities with
a legitimate cannabis-related business would no longer be
considered as generating proceeds from unlawful activities, and
depository institutions would no longer be liable or subject to any
federal law or regulation for providing services to the cannabis

Schedule I Classification

Removing marijuana from the CSA’s list of dangerous
“drugs with no currently accepted medical use and a high
potential for abuse” would almost certainly lead to an
exponential increase of commerce in the cannabis space. It would
allow depository institutions to take deposits from
cannabis-related businesses, allow payment processors and credit
card companies to engage in marijuana-related transactions,
encourage the development of more reliable insurance coverage for
cannabis-related businesses, and permit financial institutions to
more easily loan money-including loans secured by marijuana IP,
lines of credit, agricultural loans, and most other commercial
lending products available to growers, processors, manufacturers,
and retailers of more traditional products-to marijuana-related
businesses. Consumers would also benefit from a predictable, safe,
and enforceable payment system. That is all to say nothing of the
cascading effects such legalization would have on job creation, tax
collections, and public health as the black market is (perhaps
slowly) replaced with regulated commercial activity.

The Political Horizon

It is not clear whether Sen. Schumer has the votes necessary to
carry the CAOA through the Senate, as at least one or two
Democratic votes against passage (based on the breadth and scope of
the legislation, as well as taxation and disposition of funds in
“equitable” ways) are likely, and might be enough to
offset the handful of Republican Senators who may vote for

While passage of the MORE Act or CAOA in the Senate before the
November general election is uncertain, the Senate does appear to
have enough votes to pass the SAFE Act, due to strong support
throughout the financial services industry and on both sides of the
aisle. One potential issue with the SAFE Act-at least for
lenders-is that while it expressly permits depository institutions
to accept deposits from marijuana-related businesses, it does not
necessarily cure some of the problems that limit commercial lending
activity. For example, it does not carve marijuana out of the
CSA’s list of dangerous drugs. This circumstance means, among
other things, that bankruptcy protection will remain unavailable to
marijuana-related borrowers. Mastering 50 state law alternatives to
a debtor’s bankruptcy might therefore weigh against a
lender’s decision to enter into a national market.

That said, the cannabis industry itself, along with the finance
industry and powerful corporate interests (such as retailer Amazon)
have lined up behind the SAFE Act. The consensus seems that
industry does not wish a search for the perfect solution (i.e.
full-scale decriminalization and regulation) to get in the way of
the good (i.e. allowing a fuller range of financial services for
marijuana-related businesses). While passage of the SAFE Act seems
increasingly likely as a middle ground between current policy and
the aims of the MORE Act and CAOA, Congress may still iron out some
of the defective limitations in the SAFE Act through the
reconciliation process.

As Congress moves on this issue with relative haste before the
extended summer campaigning recesses, McGlinchey’s Cannabis team is following these
developments very carefully on behalf of our bank, lender, and
financial institution clients. When the time comes to enter this
new commercial space, you can trust McGlinchey for answers.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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