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House will vote on federal marijuana legalization for the first time, bill’s future in Senate uncertain

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WASHINGTON — The Democratic-controlled House will vote on legalizing marijuana at the federal level for the first time in the chamber’s history later this month, a hurdle Democrats and advocates are celebrating as Congress grapples with a host of pressing issues before the November election.

House Majority Leader Steny Hoyer, D-Md., said the House would vote on the MORE Act during the week of Sept. 21. The measure, sponsored by Rep. Jerry Nadler, D-N.Y., would remove marijuana from the federal list of controlled substances and expunge some marijuana-related criminal records, though it would still be up to states to pass their own regulations on the sale of marijuana.

“It’s about time,” Nadler told USA TODAY, calling it a “historic vote” marking the beginning of the end of the federal government’s “40-year, very misguided crusade” against marijuana.

Maritza Perez, director of the office of national affairs at the Drug Policy Alliance, a group advocating for the decriminalization of drugs, said her organization was “thrilled,” saying the bill would “begin to repair some of the harms caused by the war on drugs in communities of color and low-income communities.”

The House’s vote comes as views of marijuana have changed in Washington and increased numbers of Americans support the legalization of the drug, whether for recreational or medicinal purposes. And while this bill is likely to fail in the Republican-majority Senate, advocates still saw the vote as a step forward.

“I don’t even know if two years ago, I would have said that an act like this would have passed,” said Adam Goers, the vice president of corporate affairs at Columbia Care, which operates marijuana dispensaries across the country.

According to a 2019 Gallup survey, 66% of Americans supported legalization, though support did differ by party. More than three-quarters of Democrats said they supported legalization, as opposed to about half of Republicans.

Rep. Ed Perlmutter, D-Colo., told USA TODAY, “the country has moved” its views on marijuana.

With Congress’ action, “there’s a recognition of where the states are, and we’re not going to put the genie back in the bottle when it comes to cannabis,” he said, referring to the states who have already legalized marijuana in some form. “And we just need to move forward with these pieces of legislation and get the federal and state laws to align with each other.”

Marijuana is currently regulated by a patchwork of laws at the state and federal levels, and Goers said legalization at the federal level would add “normalization” for businesses and states by legalizing marijuana at the federal level.

Eleven states and the District of Columbia have legalized recreational marijuana, and 33 states, the District of Columbia, Guam, Puerto Rico, and the U.S. Virgin Islands have legalized medical marijuana, but marijuana is still illegal at the federal level.

Both President Barack Obama and President Donald Trump declined to enforce federal prohibitions on marijuana against states that legalized it for recreational or medicinal use. As president, Obama supported the decriminalization of marijuana, though not its full legalization.

Former Vice President Joe Biden, the Democratic presidential nominee, has called for the decriminalization of marijuana and the expunging of convictions for marijuana use, though he expressed skepticism about the legalization of the drug during the Democratic presidential primary. Biden’s website says he supports the legalization of medical marijuana and would leave decisions on recreational use up to the states.

The continued difference in laws at the federal and state level, is complicated for dispensaries and other marijuana-related businesses.

Many banks are less willing to work with dispensaries and other marijuana companies because of the federal ban, according to a report from the nonpartisan National Conference on State Legislatures. The inaccessibility of banks means many marijuana-based businesses are cash-only and are more vulnerable to theft.

A blanket federal legalization of marijuana would help add clarity and allow more marijuana-based businesses to access capital and banking, Goers said.

Nadler said he was sure the bill would pass the House, telling USA TODAY the bill had “probably unanimous” Democratic support and “considerable Republican support” but was unsure of its fate in the Senate.

The bill has one Republican cosponsor, Rep. Matt Gaetz of Florida, and 86 Democratic cosponsors.

For too long marijuana laws have been selectively enforced against people of color. I look forward to voting in support of the MORE Act which will expunge previous federal marijuana convictions and allow states to legalize marijuana. https://t.co/mTE6U1pNzi

Speaking on his “Hot Takes with Matt Gaetz” podcast, Gaetz called the bill’s removal of marijuana from the federal controlled substance list “absolutely a step in the right direction.”

Gaetz criticized a provision in the bill that creates a 5% sales tax on the sale of marijuana to fund community programs benefiting people previously convicted of marijuana-related offenses. The Florida Republican dismissed it as a form of “reparations” but said he would still vote for the bill when it came to the House floor.

Nadler said the provision was about “making people whole from harms suffered directly as a result of the marijuana ban,” which he noted had disproportionately affected racial minorities.

An ACLU report analyzing marijuana-related arrests from 2010 to 2018 found that Black people were 3.64 times more likely than white people to be arrested for marijuana possession.

Sen. Kamala Harris, D-Calif., the Democratic vice presidential nominee, introduced the Senate’s version of the bill, though it has not made any progress beyond the Senate Committee on Finance and has no Republican cosponsors.

Republican Finance Committee spokesperson Michael Zona told USA TODAY there was “no plan” to move forward on the Senate bill.

Despite the bill’s odds in the Senate, advocates were still pleased. The Global Alliance for Cannabis Commerce called the planned vote the “greatest federal cannabis reform accomplishment in over 80 years.”

The vote on legalizing marijuana finds itself in the middle of a crowded legislative calendar and a bitterly divided Congress with only three weeks of session to pass crucial legislation before the Nov. 3 election. Congressional leaders and Trump’s White House appear no closer to a deal on more coronavirus relief than they were a month ago as millions struggle financially from the pandemic. Plus, the entire federal government shuts down if the two sides don’t pass a funding plan by the end of the month.

One House Republican expressed skepticism about the timing of the bill amid the COVID-19 pandemic.

“In the midst of an increase in opioid addiction deaths during the coronavirus pandemic, it seems strange that the focus of House majority leadership would be to fully legalize marijuana, a known gateway drug to opioid addiction,” Rep. Andy Harris, R-Md., said in a statement. Harris criticized the bill for legalizing recreational marijuana and using “hard-earned taxpayer dollars to help subsidize the marijuana industry.”

A provision originally authored by Perlmutter allowing marijuana businesses to access banks was included in House Democrats’ $3.4 trillion COVID-19 relief package, but its inclusion was derided by Senate Majority Leader Mitch McConnell as part of “strange new special-interest carveouts for the marijuana industry” and is unlikely to be included in any final COVID-19 relief package.

"It's about time," Rep. Jerry Nadler told USA TODAY, calling it a "historic vote" although its future in the GOP-led Senate appears fraught.

Could the success of ballot measures to legalize marijuana add pressure for federal legalization?

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Could the success of ballot measures to legalize marijuana add pressure for federal legalization?

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Now that 15 states have legalized the use of recreational cannabis — and only six states still count it as fully illegal — industry experts say the federal government is facing more pressure to ease its tough standards on the use and sale of the drug.

President-elect Joe Biden has promised to tackle criminal justice reform — including marijuana laws, and Vice President-elect Kamala Harris was an early supporter of the MORE Act, which would lay the groundwork for federal decriminalization by expunging marijuana convictions and prohibiting the denial of benefits on the basis of a “cannabis-event.”

Businesses in the $17 billion cannabis industry would benefit from full legalization with easier investment and banking opportunities, much of which is regulated federally. And state and federal governments may profit from a simpler tax scheme on the drug.

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“If you don’t allow that legal operation, somewhere in the community, the sales will continue,” Chris Lindsey, a legislative analyst of Marijuana Policy Project, told Marketplace.

Lindsey compares current federal cannabis policy to alcohol prohibition in the 1920s. Prohibition made it federally illegal to produce, import, transport, and sell alcoholic beverages but consumers were safe from prosecution. This led to criminal organizations controlling a black market and — most importantly — gaining all the profits.

“The federal government really just needs to stop becoming a hindrance,” Lindsey said. “This is not a bipartisan issue, the culture war on cannabis is over.”

The uncertainty can make it hard to do business without a regulatory system that allows cultivation, processing, and sales under a federally-mandated framework, according to Lindsey.

In 2014, Colorado became the first state to allow recreational cannabis to be sold. Six years later, a total of 15 states — including South Dakota, Montana, Arizona, and New Jersey who all passed ballot measures in the most recent election — have followed suit.

In 2019, legal cannabis brought in around $1.9 billion in state and local taxes. Matt Karnes, a former auditor and equity analyst, who now runs the research group GreenWave Advisors, said that the market value of the industry could be around $70 billion if it were federally legalized, which would allow for considerably more in tax revenue.

A uniform system for taxation and regulation — which does not exist now — would increase business growth and benefit local economies, Karnes said. But because the federal government still classifies marijuana as a Schedule I drug, there is no guidance from the federal government on taxation and it varies greatly by state.

For example, Oregon has 17% sales plus a 3% added tax for certain state localities on retail marijuana. In comparison, Washington state charges a much higher rate of 37% on excise and 8% on sales tax. These neighboring states have shown a stark difference in approaches to taxation and revenues.

Karnes said it is just a matter of time before Pennsylvania, New York and Connecticut expand their medical marijuana programs into legal recreational-use. These big markets for cannabis — all bordering recently legalized New Jersey and each other — would make it easier for big food, beverage, and/or pharmaceutical companies to feel comfortable entering the industry, Karnes said.

This might push out some of the smaller producers and retailers who have been controlling legal cannabis. It all depends on how the federal government approaches new cannabis legislation in the coming years.

“Like any business or any industry, the rules of the game are going to have a huge effect on who wins and who loses,” said John Hudak at the Brookings Institute, an expert on state and federal marijuana policy.

Carl Davis, research director at the Institute on Taxation and Economic Policy, studies states’ cannabis tax structures and he said one problem is that most states’ excise tax is based on price not weight.

“In the states that have built their system around prices, if you see a big price cut happen, there’s going to be an automatic state tax cut as well,” Davis said. “And so not only are you losing revenue, you’re actually exacerbating any price decline.”

Goods such as gasoline or alcohol are taxed by volume, so the amount of tax revenue a state or the federal government makes is built into the amount produced and sold.

Some states like California, Maine, and Alaska have built their cannabis tax systems to partially factor in weight or volume, but for the most part taxing is dependent on the price of the product.

For now, demand is still high providing favorable prices for both businesses and to the states that are taxing the products, Davis said. “But the writing’s on the wall, the price is going to fall a lot in the years ahead.”

Competition between states and among cannabis businesses will expand the market causing prices to fluctuate. How much prices move is dependant on how the federal government decides to tax the cannabis industry as it decriminalizes or legalizes marijuana, according to Davis.

The current nationalized marijuana prohibition outlaws interstate commerce — even among neighboring states that have legalized cannabis — but a federal mandate changing that would alter the dynamics of marijuana businesses, said Hudak at the Brookings Institute.

“States don’t like doing what they’re doing with cannabis: tiptoeing around, violating federal law, hoping that the feds don’t swoop in and crack down on them,” he said.

Even if they could expand operations, getting the funds to do so might be a challenge. That’s because the current prohibition makes it impossible for marijuana businesses to apply for loans with most large federally-insured banks, leaving companies few options for financial resources.

In addition, IRS code 280E prevents marijuana businesses from taking tax deductions. Marijuana businesses can’t factor in deductions of wages and benefits of retail employees, rent, or utility payments into their profit calculations because they deal in a controlled substance.

U.S.-based cannabis companies also can’t launch initial public offerings, leaving them without access to institutional investment capital. Currently, all the publicly-traded cannabis companies on U.S. stock exchanges have to be based abroad — mostly in Canada.

And without those funds, U.S. businesses are missing out on major opportunities, Hudak said.

“The industry is losing out on capitalization opportunities. They’re losing out on market expansion opportunities. They’re also losing out on research opportunities,” he said. “There’s a lot of medical cannabis research being done in other countries in ways that are far more advanced than what we’re doing here.”

“There are countries that are eating America’s lunch in that sense,” he added.

Legalization advocates say there is a tax, and business case, to be made for federal legalization. ]]>