Over the past three months, as it became clear that Joe Biden would become the nation’s 46th President, cannabis stocks have been, well, on fire. Since early November, stocks have climbed 74%, and, although there are ebbs and flows to this rally (there was a second boom when it became clear Democrats would also control the Senate), it is a rally nonetheless with a clear upward trajectory.
The reasoning behind this is obvious. Democrats, who now control the executive and legislative branches of the US government, made a lot of campaign promises to their constitutes regarding cannabis reform, decriminalization, and legalization. Though Biden was notably more moderate than many of his competitors in the primary, the new President is nonetheless on the record: “I think it is at the point where it has to be, basically, legalized.” He also no longer believes cannabis is a “gateway drug”, favors removing it from the Schedule 1 narcotics list, and has made several appointments that seemingly bode well for cannabis reform.
So what can cannabis manufacturers and retailers expect from the new administration? Which new policies are likely to be implemented. How did the previous administration’s cannabis policy reshape the industry over the past four years?
Only cannabis industry market research can say.
The Trump Administration Harshed the Cannabis Industry’s Buzz
Without offering any value judgement of his one term, it must be stated that the Trump administration was bad for the cannabis industry.
Most notably, in 2018 the administration rescinded three Obama-era policies, including the famous Cole Memorandum, that amounted to federal non-interference with states that have legalized recreational cannabis. This policy shift gave the Justice Department authority to prosecute cannabis manufacturers and retailers in states that had legalized their operation. One year earlier, the administration similarly told officials it could ignore the Rohrabacher-Blumenauer amendment, which prohibited the use of federal funds to prosecute individuals for medical cannabis.
This threw legal cannabis operations into question, jeopardizing their profits and very existence. And it wasn’t just an issue of enforcement and prosecution during the Trump administration, it was also one of guidance and regulation. For example, last year the Food and Drug Administration (FDA) submitted its newly-updated guidance on CBD products to the White House for review and approval, which never came.
Now, with Biden in office, the FDA has withdrawn the guidance and will resubmit to the new administration, leaving CBD manufacturers and retailers in a holding pattern until further notice. Until then, there are conflicting guidelines at the state and federal level, leaving confusion and no uniform regulatory policy.
To make matters worse, despite campaign rhetoric, the Trump administration failed to help the cannabis industry access federally insured banking and credit systems. Absent this access, businesses have trouble securing loans, cannot process credit card payments, and, even more problematically, are unable to manage finances in the traditional banking system. What do you do with profits you cannot deposit?
Therefore, whatever people may feel about the broader politics at play, the cannabis industry has reason to be hopeful under the new administration.
The MORE, SAFE, and STATE Acts: Three Legislative Opportunities for Cannabis Reform
Indeed, industry experts are currently monitoring three distinct legislative paths for cannabis reform. All three bills passed the Democrat-controlled House of Representatives during the Trump administration but did not make it to the Senate floor under former Republican Majority Leader McConnell. Now that Democrats control the Senate (by the narrowest possible of margins!), there is some renewed hope that the change could signal new momentum for cannabis legalization.
The most prominent bill, co-sponsored by then Senator (now Vice President) Kamala Harris, is called the MORE Act which stands for Marijuana Opportunity, Reinvestment and Expungement Act, which would decriminalize cannabis on the federal level. Seen as a criminal justice reform, the MORE Act addresses the racial disparities inherent in drug enforcement, allowing states to govern their own cannabis policy through federal decriminalization (importantly, the bill also expunges the records of individuals involved in low-level arrests related to cannabis).
It is vital to understand the distinctions between decriminalization and legalization, however. Indeed, there is little doubt that federal decriminalization is on the horizon—if the Biden administration did not intend to support such a measure, they surely would not have chosen its co-sponsor as its Vice President. But decriminalization refers to halting arrests and prosecutions for cannabis users. This is a far cry from federal legalization, which would essentially permit cannabis manufacturers and retailers to open up shop on federal lands, permit industry players to use FDIC-insured banks, allow interstate transportation, and signal the potential for a nation-wide legalization effort.
To that end, a second piece of legislation may also be reintroduced in the House for Senate and Executive consideration. Called the SAFE Banking Act, the Secure and Fair Enforcement Act would allow cannabis companies to conduct business through federally insured banks and capital markets without risking federal action. As it currently stands, cannabis companies operating in legal states remain wary of credit and banking systems that leave them vulnerable to federal seizure and punishment.
And finally, there is the Strengthening the Tenth Amendment Through Entrusting States Act, appropriately and annoyingly called the STATES Act. The bill, which must also be reintroduced to the House before taking its Schoolhouse Rock journey to law, does exactly what its name suggests—it protects businesses in legalized states from federal intervention.
While any one of these three bills would dramatically shift how the federal government regulates the cannabis industry each falls short of any full national legalization policy, which, seems unlikely at this point. Such decisions would probably to be left to individual states.
Cannabis Industry Market Research: Policy Doesn’t Come From Legislation Alone
Yet, even if none of these bills become law (though, again, it looks like the MORE Act has a pretty good shot), the new administration can nonetheless shift federal cannabis policy.
For example, Biden could simply reinstate the Cole Memorandum and other Obama-era policies that allowed the Department of Justice to look the other way and leave states to shape and enforce their own cannabis policies.
And, really, that’s all that cannabis industry players want. Sure, national legalization is the ultimate goal and dream, a forthcoming era of peace and pips and profits. But until then, keeping the federal government out of state cannabis policy, and allowing cannabis retailers and manufacturers to access federal banking, will do them just fine.
Consider that, as it currently stands, 35 states and Washington DC allow medical cannabis, while 15 of those states also permit recreational use. That means that already 30% of states in the union have legalized recreational cannabis, with the state legalization trade only growing. In the last election, states as disparate as South Dakota, New Jersey, and Arizona all legalized recreational cannabis, and now New York Governor Andrew Cuomo is pushing for his state to do the same. Whether red or blue, states recognize that tax revenue from cannabis sales can help offset COVID’s economic impact, as well as allow law enforcement to move away from costly enforcement initiatives.
We have long followed California’s path to recreational legalization and its aftermath in this market research blog. In 2020, state cannabis sales hit $4.4 billion dollars, up from $2.8 billion in 2019. With those kinds of numbers, they don’t need national legalization to make money, they just need the federal government to leave them, and their money, alone.
Market research can help companies navigate this limbo this limbo wherein their money is barred from federally insured systems and the feds can, at any time, close their state-permitted business is quite tricky. Indeed, figuring out the path forward, and then revising that path on the fly as new regulations emerge, can only be accomplished with cannabis industry market research.