Congress will inevitably relax decades-old federal restrictions on cannabis, West Michigan industry experts say, but how and when lawmakers will act are key unanswered questions that could determine who gains access to the market.
Want more news like this every weekday? Get the free MiBiz Morning Edition newsletter.
Several federal cannabis reforms are pending in Congress, including the Secure and Fair Enforcement (SAFE) Banking Act and the Cannabis Administration and Opportunity Act. The SAFE Banking Act passed the U.S. House in April, while Democratic Senate Majority Leader Chuck Schumer proposed the Cannabis Administration and Opportunity Act in draft form on July 14.
Schumer’s bill would decriminalize cannabis by removing it from the Controlled Substances Act and allow it to be taxed and regulated. States could maintain their own cannabis regulations under the bill, though businesses would be free from federal prosecution in states where cannabis is legal. Schumer’s sweeping bill also includes the immediate expungement of non-violent cannabis-related federal convictions.
The bill proposes to regulate the cannabis industry through the U.S. Food and Drug Administration and the Alcohol and Tobacco Tax and Trade Bureau. A federal excise tax that could be as high as 25 percent for large cannabis businesses is also included in the bill. Under the proposal, that tax revenue would go back to funding cannabis research and to communities with high proportions of cannabis-related convictions.
“We commend the (Cannabis Administration and Opportunity Act), it’s a great step forward,” said Leslie Wyman, president of the West Michigan Cannabis Guild. “One glaring issue with the proposed act is the proposed federal tax rate, which is on top of the already outrageous state tax rates paid by operators and consumers. A 25-percent tax rate on top of state taxes is ridiculous, especially when alcohol is taxed at half that rate.”
Wyman supports the bill’s plans for product standardization, automatic expungement and grant programs that improve equity in the industry. However, Wyman hopes to see more grants provided by the program.
Ultimately, the West Michigan Cannabis Guild’s priority is to advocate for more opportunities to build wealth in the cannabis industry, Wyman said. Schumer’s bill is a good step, but the proposed taxes should be lowered and more resources for diversity and equity in the industry should be added, she said.
Casey Kornoelje, owner of Grand Rapids dispensary Pharmhouse Wellness, said the possibility of federal legalization or decriminalization of cannabis brings “mixed emotions” for him as a local retailer. He agrees with the need for more modest federal taxes and a focus on equity.
“With any additional tax, it’s a penalty. It’s a penalty on the operator and the consumer,” Kornoelje said. “Any additional tax on the operator is a negative thing.”
More broadly, Konoelje fears the potential of relaxed federal regulations squeezing out small, independently owned companies like Pharmhouse Wellness.
“As a small player in the field, I feel the de-scheduling of cannabis will open the floodgates to a lot of large, corporate players that will be interested who have been on the sidelines simply because of the federal barrier that existed,” Kornoelje said.
Indeed, a recent analysis by Pitchbook suggests that Schumer’s bill, if it became law, may help U.S. cannabis companies go public and draw widespread private investment once the fear of criminal prosecution under finance laws is removed.
Pushing for banking first
The banking implications are another source of debate amid potentially loosened federal cannabis regulations. Some in the banking industry have argued that the SAFE Banking Act is a more reasonable approach before comprehensive decriminalization proposed by Schumer.
The threat of criminal penalties under anti-money laundering laws has dissuaded many banks from engaging with the industry, though some credit unions and community banks in Michigan have started working with companies.
Community Bankers of Michigan CEO Mike Tierney told MiBiz in May that about 10 Michigan banks currently serve cannabis businesses. Since marijuana remains illegal at the federal level — despite legalization in some form in 38 states — banks and credit unions involved with the industry must comply with rigorous requirements.
The SAFE Banking Act, which Republicans have generally supported more than comprehensive cannabis reforms, would prohibit federal agencies from penalizing financial institutions that serve cannabis-related businesses in states where it is legalized. The SAFE Banking Act would not touch the federal status of cannabis.
“We’d all like to just see the SAFE (Banking) Act,” instead of full legalization, Tierney said in May. “It would be fine if we could provide services to the cannabis industry without any federal repercussions. We don’t need to have marijuana legalized on the federal level.”
Some operators say banks’ hesitation to engage with the industry has closed off opportunities for smaller entrepreneurs and, by extension, more diversity in cannabis ownership.
Peter Marcus, communications director for Grand Rapids-based cannabis producer Terrapin Care Station, believes Schumer’s broader bill is unlikely to pass without support from Republicans and moderate Democrats in Congress. Marcus agrees that the more incremental banking reforms may be a better path.
“It’s a matter of process and practicality and, believe it or not, we can do a lot more with the banking component first,” Marcus said. “Sure there are companies out there figuring it out, but the average Black and brown cannabis stores don’t have access to capital or banking. What (Congress) could be doing now is legalizing banking on the federal level and working with the U.S. Small Business Administration to provide loans to Black and brown businesses first to start or expand their business.”
Chris Anderson, general counsel and chief regulatory officer at Grand Rapids-based Fluresh, goes “back and forth” on whether the narrower banking bill should be pursued before a more sweeping approach.
“If we can get it all, we might as well get it all,” Anderson said. “If we do just get the incremental banking passed, there might be less motivation on the federal level to address other things like the tax and justice piece.”
Anderson is optimistic that some federal reforms will come in the next year or two.
“Almost 40 states have some form of legalization, and obviously many of those states have congressmen and senators of both parties that want these businesses to succeed, are seeing positive taxation coming in, and businesses giving back to the community,” Anderson said. “I do think there is real bipartisan support for this.”