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Groundbreaking bipartisan Congressional Legislation could pave the way to fully legalized Marijuana

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On June 7, 2018, bipartisan legislation was introduced in both houses of Congress that would effectively grant to the 50 U.S. States and its territories and Federally recognized tribes the authority to legalize and regulate the manufacture, production, possession, distribution, dispensation, administration, or delivery of marijuana as they choose, eliminating contradictory federal prohibitions now in place[1]. If such legislation is ultimately enacted and signed into law by President Trump,[2] those “touching the plant” businesses in States with permitted adult use or medical marijuana regimes could operate free of fear of Federal prosecution.

In addition, banks and other financial participants (like the credit card processing networks) could, for the first time, accept deposits, move money and process transactions related to marijuana. Likewise, public and private investment funds and other institutional investors, which to date have avoided investing in the industry, will no longer risk federal prosecution and are likely to make substantial funding available. Could the first U.S. IPO of a marijuana growing, distribution or retail business[3] be far behind?

Despite a majority of the States having enacted, or being in the process of enacting, full adult use or medical marijuana programs, cannabis is currently a Schedule I (the most restrictive designation) drug[4] under the Controlled Substances Act (“CSA”), alongside other hardcore, addictive drugs. Even opiates, which have been in the headlines so much lately, are on the less highly regulated Schedule II to the CSA because they have an accepted medical use, while the U.S. Food and Drug Administration has largely blocked medical research involving marijuana.

Accordingly, there is today a head-on conflict between business practices accepted under many State laws and made criminal under Federal law[5]. The proposed legislation would remove this conflict and largely leave the regulation of marijuana to the States.

The proposed legislation in the United States Senate, styled the “Strengthening the Tenth Amendment[6] Through Entrusting States Act” (or the “STATES Act”), in contrast to its contrived name, is elegant in its simplicity. The STATES Act is only six pages (contrast that with the recent tax overhaul legislation or the Dodd Frank Act) and essentially exempts marijuana from the CSA in those jurisdictions that permit the manufacture, production, possession, distribution, dispensation, administration, or delivery of marijuana on either an adult use or medical marijuana basis. Hence no Federal law would be broken by activity lawful under state law. As proposed, the STATES Act also:

  • Prohibits the use of employees under 18 in marijuana businesses
  • Still makes illegal the use/sale of marijuana by those under 21 (except in medical marijuana situations)
  • Completely deregulates industrial hemp[7] from a Federal perspective
  • Revokes the basis for the forfeiture of property
  • Specifies that the proceeds from any transaction in compliance with the STATES Act shall not be deemed to be the proceeds of any unlawful transaction.

Of course, introduction of a bill, even with bipartisan support, does not ensure passage, and the current legislation may well be amended as it moves through the legislative process. There is no assurance that if anything is actually enacted, it will look like the current proposal. Nonetheless, its introduction is consistent with a sea change in the attitude of the public and of elected officials toward marijuana use, and may well portend the removal of the major obstacle to development of the industry.

For more information on the topic discussed, contact James Rieger at rieger@thsh.com or your usual contact at Tannenbaum Helpern.

[1] Interestingly, marijuana would continue to be illegal on the Federal level in those States that choose not to enact Marijuana use legislation.

[2] While predicting Congressional action and the President’s response is an uncertain, the smart money seems to believe he will sign the legislation if it passes both houses of Congress.

[3] These are common in Canada.

[4] Schedule I drugs have no currently acceptable medical use and a high potential for abuse.

[5] Prosecution of state-legal marijuana activity has been blocked by the periodic renewal of a Congressional budget rider prohibiting such enforcement.

[6] The 10th Amendment of the U.S. Constitution states “the powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.”

[7] Hemp is a form of Cannabis that contains less than 0.3% THC (the psychoactive agent in marijuana).


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