President Joe Biden announced that he would pardon thousands of low level federal marijuana offenders, and ask the federal government to re-evaluate weed’s federally illegal status. The measure doesn’t free any prisoners or provide clarity for the industry. But to a degree not previously seen, the president’s order suggests a willingness to invest political capital in cannabis reform.
For the cannabiz, the news is the most important out of D.C. since August 2013 when the Cole Memo, named for deputy U.S. attorney general James Cole, signaled the feds would tolerate the state REC markets legalized by voters in Colorado and Washington state.
Biden’s order also appears designed to deepen the federal bureaucracy’s engagement with the many facets of legalization. President’s Obama and Trump resisted this step, despite the widening chasm between federal prohibition and the now dozens of states that have created or are creating regulated MED or REC markets.
In recent years, bills to legalize federally, and more limited banking legislation, have repeatedly sailed through the House of Representatives with bipartisan support before stalling in the Senate. With the industry struggling on numerous fronts, many executives had previously hoped banking reform could squeeze through Congress during the lame duck post-election session.
That’s now changed. Biden’s action activates the executive branch, specifically the Departments of Justice and Health and Human Services to review marijuana’s legal status under federal law.
- Leafly describes this as launching an administrative process towards legalization.
- Personally, I think legalization through executive action is unlikely. Even if the administration did unilaterally change the plant’s legal status, it would take years and Congress would almost certainly still have to pass legislation governing the industry.
Weed remains a marginal issue inside the Beltway. Aside from the historic nature of a president pardoning thousands of marijuana offenders, Biden has brought the issue to the center of Washington weeks before a midterm, giving cannabis a centrality in the D.C. mix that it hasn’t had before.
A limited pardon
The White House announcement pardons the approximately 6,500 Americans convicted of federal marijuana possession.
According to the administration, none of these individuals is currently in prison. However, by expunging their records many will regain their ability to vote, to obtain housing, student loans, work and other opportunities denied them because of their criminal records.
- Biden asked the Justice Department to create an administrative process to distribute the pardons.
- As of 2020, there were about 3,000 Americans serving federal sentences for pot crimes, all for selling, trafficking and other more serious offenses. The order does nothing for them.
Biden also called for state governors to follow his example.
- There are several times as many pot offenders locked up in state prisons than federal. Again, however, the overwhelming majority are locked up on more serious charges.
- State pardons similar to Biden’s could benefit far more people. According to NORML, since 1965 nearly 29M Americans have been arrested for pot-related violations.
Mixed signals for the cannabiz
Long suffering pots stocks had their best day in years on the news. “Legalization has become a question of when, not if,” wrote Eric Spitz, CEO of data company Rootz.ai and a cannabis policy analyst.
Still the short-term implications for the industry remain murky. For businesses, the key phrase in Biden’s announcement is for federal agencies to “review expeditiously how marijuana is scheduled under federal law.”
As many of you already know, under 1970’s Controlled Substances Act (CSA), marijuana is a schedule I drug, meaning it has no medical value and a high risk of abuse. Heroin and LSD are also schedule I drugs.
Almost everyone in the existing industry wants to see cannabis *de-*scheduled. This would sever it from the CSA and enable it to be regulated like tobacco and alcohol.
- As with those substances, a new or existing federal agency would likely handle federal oversight.
However, Biden’s statement leaves open the possibility that the drug would be re-scheduled to another rung of the CSA. That would rank somewhere along the spectrum between schedule II, which includes risky drugs with a recognized health benefit, such as cocaine and some powerful amphetamines and opioids.
- Schedule V includes codeine cough syrup.
Neither end of this spectrum models the kind of markets the industry has sought to pioneer. Some within the industry suspect re-scheduling would create a path for Big Pharma to hijack the cannabiz.
On the other hand there’s a temptation to look at the state markets and scoff at the idea that the feds would uproot them. It’s important to remember that this process has no precedent. As Cannabis Distribution Association board member Lauren Fraser Coté recently wrote in WeedWeek, that the existing state markets can use to sway the feds — whether agencies or Congress — to lean in their preferred direction.
A long road ahead
Biden’s announcement sends the legalization in a new and unknown direction. But three financial executives — from fintech, lending and payments — each expressed doubt that Biden’s announcement would do much to relieve operators’ financial woes:
Tyler Beuerlein, Safe Harbor Financial:
“It will have no effect on the current banking or lending landscape. The statement that the Federal legal status will be reviewed is certainly positive but no timeframe on that process has been given. It is also important that cannabis stakeholders realize this is and will remain a highly regulated industry, even upon Federal legality. Most financial institutions will remain on the sidelines for that reason.”
Geroge Mancheril, CEO, Bespoke Financial:
“While today’s announcement by President Biden likely will not increase access to debt financing for cannabis operators in the near term, it is meaningfully positive evidence of some federal support for eventual federal legalization from an administration which has disappointed cannabis advocates since January 2021. At Bespoke, we’ve been the first and most active direct lenders to cannabis operators of all types and are still actively adding new borrowers across 18 states in the US, but we expect the broader financial industry will need to see definitive legislative changes enacted before other lenders become increasingly active in the cannabis industry. Optimistically, similar incremental steps could ultimately advance the prospects of limited legislation such as SAFE Banking, but we expect the political gridlock of the next 2 years will be a significant hurdle that cannot be underestimated.” (Quote updated: 10/7/22)
Dustin Eide, CEO, CanPay:
“Biden’s announcement is unlikely to change the cannabis-related banking or payments landscape, at least not in the near future. Real change could come following federal agencies’ review of cannabis scheduling, which would involve the Department of Justice, Department of Health and the FDA. That review is likely to take a significant amount of time. The range of potential outcomes is broad – from keeping cannabis a Schedule 1 drug to complete de-scheduling, and anything in between. Until we get that kind of clarity, things will remain pretty much as they are for banking and payments in the cannabis industry.”
