Everything You Need to Know About the STATES Act
February 5th, 2019
In January of last year, then-Attorney General Jeff Sessions, someone with a long record of opposing marijuana, rescinded the Obama-era Cole Memo. The Cole Memo essentially stated that the federal government would take a laissez-faire approach to enforcing federal marijuana laws in states where cannabis is legal.
In response to this move by Sessions, Democratic Senator Elizabeth Warren and Republican Senator Cory Gardener introduced a bipartisan bill called the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act. If passed and signed into law, the STATES Act will authorize states to make their own decisions with respect to making and enforcing cannabis laws related to possession, production, and sale, without federal interference.
The Marijuana Problems the STATES Act Solves
There are three primary problems regarding cannabis regulation that the STATES Act would solve. Firstly, the act would address the glaring discrepancies between state and federal cannabis laws that create a lot of regulatory problems for consumers and industry stakeholders. The act identifiesthat “46 states have laws permitting or decriminalizing marijuana or marijuana-based products” and would protect anyone who’s acting in full compliance with state cannabis laws from federal prosecution. In other words, people who are acting in compliance with state law will no longer be violating federal law.
Additionally, the STATES Act would put protections in place for financial institutions seeking to conduct business with the cannabis industry. Right now, cannabis is classified as a Schedule I drug under the Controlled Substance Act, which means banks and other financial institutions are at risk of money laundering charges and other sanctions whenever they deal with the marijuana industry. The current threat to banks means that the majority of marijuana businesses are cash-only enterprises, which puts these businesses and their employees at great risk of theft and violence. In fact, both the Federal Reserve and law enforcement officials have expressed grave concern over the increase in crime associated with cash that cannot be banked.
Passage of the STATES Act would mean that, as long as cannabis transactions are compliant with state law, they cannot be considered trafficking under the Controlled Substances Act. Therefore, financial institutions in states with legal or decriminalized marijuana are free to work with the cannabis industry without the threat of prosecution. Not only would this development make transactions easier, but it would also help protect businesses from being targeted by criminals for having large sums of cash on hand.
The third biggest problem the STATES Act solves is great news for cannabis investors and the United States economy as a whole. The legalization of cannabis across Canada has resulted in a multi-billion dollar industry. Canadian marijuana firms are raising billions of dollars from public capital markets and institutional investors, which is money that the United States cannabis industry is likely to see once financial institutions feel safe to transact with marijuana businesses.
What Investors Are Saying About the STATES Act
Big-name Canadian cannabis businesses are already setting their sights on the U.S. market with the introduction of the STATES Act. For example, Canopy Growth, which is currently valued at more than $11 billion, reportedly saidthat it would “move ahead” into the U.S. market once legislation is in place to prevent the federal government from interfering with state marijuana policies, which the STATES Act would do.
Furthermore, the parent of Corona, Constellation Brands, which has increased its investment in Canopy Growth, said that it had “no plans to sell any cannabis products in the U.S. or any other market unless or until it is legally permissible to do so at all government levels.” In June of last year, shortly after the introduction of the STATES Act, Constellation CEO Rob Sands said that if “we see that opportunity within the confines of what we can legally do, we will do it.”
Other prominent cannabis investors who are optimistic about the investment promise the bill holds include president of Acreage Holdings George Allen who stated: “The illegality of cannabis at the federal level has put much of the financial industry off-limits to businesses operating legally in two-thirds of the states. But most lawmakers agree that the awkward dual legal status of cannabis has gone on too long, and they will vote in 2019 to pass the act to protect U.S. states that elect to legalize cannabis. The bill will not only allow cannabusinesses to bank, but it will also spark a big bang in terms of investment. We will see a frenzy of activity and attention when the first institutional investors join the fray.”
Additional Impacts of the STATES Act
In addition to the aforementioned solutions and implications for cannabis stakeholders, there are several other changes, both good and bad, worth noting that will occur if the STATES Act becomes a law. On a positive note, industrial hemp will no longer be considered cannabis. Hemp is currently a legal relative of cannabis and it’s a strong and sustainable material that can be used in everything from paint to food. If and when hemp is no longer considered cannabis, the significant production barriers it currently faces from being associated with the drug will be lifted, resulting in a lot of economic potential.
The bad news is, cannabis will still be illegal at the federal level because the Drug Enforcement Administration refuses to remove its Schedule I classification. And while the Schedule I classification won’t affect banking per the STATES Act, it does mean that major limits remain on medical cannabis research and the industry as a whole.
The STATES Act, a bipartisan bill that Congress is expected to pass into law, is a major step forward for cannabis legalization and the entire cannabis industry. It will allow financial institutions to transact with marijuana businesses without fear of federal prosecution, which not only makes the cannabis industry safer by reducing criminal threats to cash-only businesses but opens the door to massive financial opportunities for investors.
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