A (Truly) Modest Proposal for Compromise on Cannabis

So many issues in our country are polarized, with each side convinced they have the greater understanding of what our country needs or what their God wants. We would not attempt to suggest a compromise on abortion or deficit spending. But, federal treatment of cannabis seems ripe for a compromise position, and this blog demonstrates our hubris by suggesting just such a compromise.

One view, publicly advanced most notably by Attorney General Jeff Sessions, seems to most of us like a giant step backwards into the days of Reefer Madness: marijuana — in all its forms including CBD-only products — is a gateway drug that is responsible for all that is evil in our society including opioid addiction.[1]

On the other hand, some industry advocates are equally confident that the right dosage/mixture of cannabinoids can save Western Civilization, or at least reduce the harmful societal effects of, and addiction to: opioids, tobacco and alcohol — as well as offer cures (or amelioration of symptoms) for epilepsy, arthritis, nausea, insomnia and serious pain (including horrible cancer-caused pain).

In between such extremes is the bulk of Americans, the majority of whom clearly believe cannabis should be legalized, especially for medical use. By the end of this year’s election cycle, over half of the adult population of the United States will have some sort of state-legal access to marijuana, even if they have to drive to a neighboring state to find a state-legal dispensary.

At last count, researchers (outside the U.S.) had identified 142 discrete “cannabinoids” that are produced in the cannabis plant. Only one of those cannabinoids, THC, is psychoactive. That is, THC is the only one that can get a user “high.” Many of the rest of these cannabinoids have been shown (in studies conducted outside the U.S.) to ameliorate serious disease conditions. Indeed, a committee of the FDA just unanimously recommended that a cannabis plant extract (CBD) be approved as a prescription drug for the treatment of severe childhood epilepsy. There is credible scientific evidence that other cannabinoids, and particular combinations of cannabinoids, have potential to treat MS, obesity, traumatic head injury, PTSD, pain and so on.

The blunt instrument of the federal government does not draw distinctions among cannabinoids. In the world’s most sustained and committed act of throwing-the-baby-out-with-the-bathwater, the U.S. federal government has decreed that any products made from the cannabis plant, including products containing no psychoactive THC, are treated the same as crack cocaine and heroin. Yet even Jeff Sessions’ Justice Department tacitly acknowledges that cannabis may not be as evil as advertised. Sessions has given the various local U.S. Attorneys the authority to prioritize drug enforcement in a manner that generally looks the other way in states where marijuana is legal, so long as the activity is legal in that jurisdiction and there is no evidence of organized crime or money laundering.[2]

Nevertheless, so long as cannabis remains a Schedule 1 controlled substance, state-legal businesses in this space generally will lack access to banks and other financial institutions, so there is a lot of cash sloshing around and cash breeds crime and violence in addition to management headaches and cost. Further, maintaining cannabis as a Schedule 1 controlled substance impairs U.S. research into its potential medical benefits[3], giving countries like Canada and Israel a technological advantage and leaving many U.S. customers at the whim of snake-oil salesmen.[4] Nor is there research into the potential harm — personal, health and societal — from legalizing a product that was not even state legal until a few years ago.

Proposals for federal legalization are themselves complicated. Some want to see cannabis rescheduled (mostly big pharma). Others would like to see cannabis unscheduled (mostly big tobacco, big liquor and big agriculture). Others want to protect small entrepreneurs, who took material risks jumping into this space, from the market-dominating influence of mega-corporations with the economic power to crush the competition.

So, here is our grand compromise proposal effectively a stand-still agreement.

First, all sides would acknowledge that nobody really knows enough about the societal and health benefits — and risks — of cannabis to develop thoughtful public policy. Likewise, we all acknowledge that the conflict between federal and state laws is causing unnecessary confusion, uncertainty and risks, including risks by communities trying to come to grips with the impact of state legalization efforts, patients who clearly aren’t getting the benefit of rigorous product efficacy and safety testing/research, and by business owners (from the risk of dealing in large amounts of cash and the potential prosecution as drug traffickers).

Second, to answer open issues, we suggest that for a reasonable period of time (we will open the bidding with five years), Congress or the administration would enact laws or rules that would:

  1. Not attempt to enforce the federal Controlled Substances Act prohibitions against anyone for cannabis-related “violations,” as long as the activity complies with the laws of the state in which the activity occurs (this is basically a resurrection of the original Cole memo without the fear of reversal on short notice).
  2. Expressly encourage serious research into the benefits — and potential for harm — to individuals and communities from cannabis legalization. Sociological research in this area would have the benefit of control groups because researchers could compare and contrast the implications of different regulatory methods adopted by the different states. Medical researchers, likewise, could engage in controlled studies of multiple strains and different combinations of cannabinoids.
  3. Expressly allow all accountants (including auditors) and financial institutions to accept customers (as both depositors and borrowers), from all state-legal operators, as long as they otherwise comply with FinCEN guidelines.
  4. Expressly allow the cultivation of hemp and interstate sales of hemp-derived CBD-only products for commercial purposes.[5] There seems little risk or harm in allowing free transport across state lines of products that are undisputedly free of psychoactive effect or addictive properties but which seem to provide relief for many ailments including insomnia, stress, joint and muscle pain.
  5. Suspend application of 280E for any business operating a state-legal business.

In exchange, during the stand-still experimental period, states would agree not to materially expand their cannabis laws during the five year stand-still period. States already allowing adult use would continue to allow such use, and states allowing medical-only cannabis would neither materially restrict access for medical use nor would they expand their laws to allow non-medical adult use. In addition, all states that are still prohibiting cannabis on the effective date would not be able to alter their laws during the stand-still period. Any states violating the stand-still arrangement would not be entitled to benefits from certain federal government authorizations, such as relaxed banking restrictions for state-legal marijuana businesses. To the extent the industry can speak with one voice (which is, admittedly, hard), the industry would need to stand together to support this stand-still compromise.

Finally, we propose that Congress appoint a non-partisan task force or blue-ribbon commission to assess the state of the research at the end of the stand-still period, which will be charged with the responsibility for proposing a national cannabis policy informed by the data.[6]

Who stands with us on this modest proposal? [7]  Before joining this chorus, note that our proposal may become moot if a draft bipartisan Senate bill (Warren-Gardner), expected to be offered as soon as next week, is enacted. This bill, currently titled the Strengthening the Tenth Amendment Entrusting States (“STATES”) Act, is intended to reflect the compromise between Senator Gardner from Colorado and President Trump (in exchange for Senator Gardner’s support for White House Justice Department nominees) is expected to (1) exempt (with a few carve-outs) state legal marijuana activity from the Controlled Substances Act, (2) state that compliant financial and banking transactions are not “trafficking,” and (3) carve out industrial hemp from the Controlled Substances Act. Until the actual bill is introduced in the Senate, any prediction about whether it might be enacted is premature.

 

 

[1] In fairness, AG Sessions has recently backtracked somewhat on his typical hard-nosed approach. He recently stated it is appropriate to study medicinal benefits.

[2] https://www.lanepowell.com/portalresource/PDF_Sessions-Memorandum .

[3] Even if a U.S.-based researcher can (a) convince her institution to support the research, (b) obtain grant money for the research, and (c) obtain a very restrictive DEA Schedule I license to conduct the research, she still needs to get test material — which is only available from the National Institute on Drug Abuse (NIDA) cannabis farm maintained at the University of Mississippi. NIDA is highly restrictive about sending out material, and the material is of such poor quality that many researchers simply choose to work in other countries.

[4] Some states are permitting research activities under state law.

[5] The legal status of hemp-derived CBD oil is uncertain. The Controlled Substances Act excludes certain parts of the cannabis plant commonly used to create CBD oil from its definition of “marihuana,” a controlled substance. However, the Controlled Substances Act does not permit the cultivation of industrial hemp. Therefore, the majority of CBD products available in the U.S. originate from hemp oil or exempted parts of the hemp plant that are imported from outside the U.S. The so-called farm bill permits the production of industrial hemp for scientific and research purposes but does not permit cultivation for commercial purposes. The “Hemp Farming Act of 2018” introduced by Republican Senator Mitch McConnell would legalize the cultivation of hemp in the United States.

[6] The challenge here, of course, is that Congress could bow to pressure from powerful lobbying interests — such as, big pharma or tobacco — to grant them an oligopoly. But, that risk already exists if nothing is done.

[7] Not even all of our colleagues in our firm’s Cannabis group would adopt this approach, so we recognize that we may be on thin ice, but still believe an approach like this is worth discussing.

Print:
EmailTweetLikeLinkedInGoogle Plus
Photo of Barry A. Abbott Barry A. Abbott

Barry Abbott represents established corporations and startups in all aspects of their corporate, financial services, internet, payments and e-commerce businesses. He is nationally recognized for his work advising clients on developing ground-breaking consumer financial services products.

Barry Abbott is a pioneer in e-commerce lending matters. National and international financial institutions look to him for counsel on major transactions. He also advises startups (including crowdfunding, peer-to-peer and gaming companies) on corporate and regulatory matters. Notably, Barry was:

  • Involved in developing the legal documents for the first equity line product (for Crocker Bank in the late 1970s)
  • Principally responsible for developing all legal documents for the first major reverse mortgage program (for Transamerica HomeFirst in the late 1980s)
  • Original legal counsel responsible for organizing the National Council of Real Estate Investment Fiduciaries (NCREIF)
  • General Counsel to the REX Group, which developed the first true home owner-occupied option investment product and marketplace
Photo of Lewis M. Horowitz Lewis M. Horowitz

Lewis is Chair of Lane Powell’s Taxation team and Co-Chair of Lane Powell’s Cannabis Team. He is also a Certified Exit Planning Advisor qualified to assist private companies with their succession planning.