Cannabis Update

Legislative Activity on the Federal Front Starting to Pick Up

Those of us who track tax and legal developments on the cannabis front were very busy in 2018. There was a flurry of state legislative actions to make cannabis legal for medical and/or recreational purposes. So, for example, by the end of 2018:

  • 33 states and the District of Columbia (DC) had legalized cannabis for medical purposes,
  • 10 states, including DC, had legalized it for recreational purposes, and
  • several other states announced plans to make similar changes in early 2019.

By contrast, on the federal side, almost nothing had changed in 2018. However, in early 2019, legislative interest and activity on the federal front is starting to pick up. Four bills have already been introduced on the taxation and regulation of cannabis. These bills would completely change the legal approach of the feds to cannabis: H.R. 420, S. 420, S. 421, and S. 422.

H.R. 420

The short title of the bill is “Regulate Marijuana Like Alcohol Act.” The bill was referred to the Judiciary Committee, as well as to the Committees on Energy and Commerce, Ways and Means, Natural Resources and Agriculture. It provides for the decriminalization of marijuana, the removal of marijuana from Schedule I of the Controlled Substances Act, the licensing and administration of marijuana, the addition of marijuana to certain legal authorities relating to intoxicating liquors, and other amendments relating to federal authority regarding marijuana, including the application of standing unfair advertising practices.

S. 420

The short title of the bill is “Marijuana Revenue and Regulation Act”. The bill imposes excise taxes on marijuana products, removes marijuana from Schedule I of the Controlled Substances Act, provides federal licensing of marijuana, the regulation of operations such as packaging, labeling, advertising, and trade, as well as the imposition of civil and criminal penalties.

S. 421

A bill to amend the Controlled Substances Act to reduce the gap between Federal and State marijuana policy, and for other purposes. One of its key provisions would allow banking access for cannabis companies.

S. 422

The short title of the bill is “Small Business Tax Equity Act of 2019”. The bill amends Code Sec. 280E to allow deductions and credits relating to expenditures in connection with marijuana sales conducted in compliance with state law. It thus treats marijuana businesses the same as all other businesses for federal income tax purposes.

Current Legislative Support

Although similar bills were introduced in 2018 and did not see the light of day in the last legislative session, this year it may be different. There appears to be much stronger legislative support than in 2018 for federal changes to the taxation and regulation of Cannabis, especially among Democrats, who now control the House.

To this end, Congressional Democrats on the House Financial Services Committee held a hearing looking at relaxing banking restrictions on the cannabis industry. The hearing titled, “Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses,” was held on February 13.

According to Mark L. Friedlich:

The hearing – which looked at proposed cannabis banking legislation that the banking industry supports – is only the first step in getting a bill passed.

But it’s seen by the cannabis industry as a significant development – although any legislation that passes the House will face a bigger challenge in the Republican-controlled Senate.

The draft bill, among other things, would prevent a federal banking regulator from:

  • Terminating or limiting the deposit insurance of a federal financial institution solely because it provided services to a legal cannabis business.
  • Prohibiting, penalizing or discouraging banks from providing services to legal marijuana businesses.
  • Taking adverse action on a loan made to a legal cannabis business.

Keep a Close Watch in 2019

It is of course too early to predict the final legislative expression of the provisions reflected in this and other proposed legislation. But, there appears to be greater momentum in 2019 for the Feds to join their state legislative brothers and sisters in capitalizing on the revenue potential of taxing cannabis, as well as in reducing the current costs of enforcement of federal cannabis laws. That being said, any legislation in Congress related to cannabis faces an uphill battle despite the industry’s optimism. Passage of any bill, whether related to the banking industry or reducing the gap between how many states and Federal government treat cannabis, in 2019 is unlikely.

Stay current with changing nexus regulations across all states by regularly visiting our Sales Tax Nexus reference page.


Mark Friedlich

All stories by: Mark Friedlich

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