Fairness. That’s what marijuana businesses say they’re seeking to win as part of a broad Republican tax reform plan moving through Congress this month.
To date, they haven’t had much luck, but that doesn’t mean the fight is over.
Under a 1980s federal provision — known as 280E — cannabis businesses are forced to pay a much higher tax rate than companies in other industries.
The statute was originally intended to to stop drug cartel leaders from writing off yachts and expensive cars, but today its plain language means that that growers, processors and sellers of marijuana — which is still a Schedule I substance under federal law — can’t take business expense deductions that are available to operators in other sectors.
Last week, those businesses could not get any member of the House Ways and Means Committee to introduce — never mind muster enough bipartisan support to pass — an amendment attaching a 280E fix to the tax overhaul bill. Amendments on other topics were adopted or rejected on party-line votes.
The legislation was then approved, with all Republicans in support and all Democrats in opposition, and sent to the House Rules Committee to make preparations for a floor vote.
On Tuesday, Congressman Jared Polis (D-CO) did file a 280E amendment in the Rules panel, intended for floor consideration. He described the proposal as “essentially revenue neutral” in comments before the committee, of which he is a member.
Referring to the up to 70 percent effective tax rate that legal cannabis businesses are forced to pay because they cannot take expense deductions, Polis said 280E makes their prices artificially high and “prevents them from being able to completely undermine the criminal cartels” because those organizations can sometimes undercut legal prices.
Repealing the outdated provision would be the “nail in the coffin of the criminal cartels that jeopardize the health of our kids and our safety,” he said.
But the panel, as expected, did not allow the measure to advance before the full House, as has been the case with every marijuana amendment over the course of the past year.
What’s more, the panel advanced the tax bill under a “closed rule” that blocked all 139 submitted amendments on a broad range of topics from reaching the floor.
(One of those additional measures, by Congressman Lou Correa (D-CA) would establish a 15 percent federal excise tax on legal marijuana sales with revenue earmarked toward reducing the deficit.)
Polis’s motion to amend the rule to specifically allow the 280E measure to be considered on the floor failed on a party-line vote of three to eight.
The tax bill will now go before the full House later this week where it is expected to be narrowly approved.
In the meantime, advocates are hanging their hopes on the Senate, where the Finance Committee is marking up its version of the tax reform legislation this week.
Get access to this exclusive analysis for Marijuana Moment Patreon supporters that spells out which senators cannabis interests need to win over in order to approve a 280E amendment in committee. A sufficient number of GOP members of the Senate Finance Committee have supported marijuana measures in the past to put 280E reform within reach.
A total of 355 amendments have been filed before that panel.
While none are listed as explicitly dealing with 280E, the legislative text for the measures hasn’t been posted online, and one amendment in particular from Sen. Ron Wyden (R-OR) is described in a fashion that seems as though it may concern the marijuana tax provision: “Amendment of a perfecting nature to help small business.”
Wyden is the sponsor of a standalone 280E reform bill similarly titled, “The Small Business Tax Equity Act of 2017.”
Advocates have had success garnering increasing bipartisan support for that bill and standalone 280E reform legislation in the House this year as compared to versions filed in the past Congress. But those bills are not going to move though committee, to the floor and to the president.
The only real hope of getting a reform enacted into law is to attach it to a broader moving vehicle like the GOP tax bill.
And now, because of the failure to approve a 280E amendment on the House side, the only hope lies in the Senate. That means either getting an amendment adopted in committee or on the floor.
The latter will be a much harder path because the bill will likely be considered by the full body under an agreement that limits the number of amendments, and Senate Democratic leaders are likely to focus their efforts on measures concerning middle-class tax relief and general tax rates for businesses.
While convincing Senate Republicans to amend their leadership’s important bill in committee is a big ask, it is seen as not nearly as heavy a lift as convincing House GOP members to vote to change the bill in their chamber would have been.
So now, industry interests are hoping that Wyden’s amendment is about 280E, that he can hold all the Democrats on the panel in support of it and that a select number of targeted Republicans will go along with the plan.
Find out which senators cannabis businesses need to target to win a 280E reform amendment in the Senate Finance Committee in this exclusive analysis for Marijuana Moment Patreon supporters:
Even if 280E language is adopted on the Senate side, it will still have to a survive a bicameral conference committee that merges the bill with the House version which does not contain the provision.
Wyden’s office and cannabis business advocacy interests active on Capitol Hill did not respond to queries from Marijuana Moment for this story.
Senate Schedules Hearing On Marijuana Business Banking Access
In one of the clearest signs of marijuana reform’s growing momentum on Capitol Hill, a Republican-controlled Senate committee has scheduled a hearing for next week that will examine cannabis businesses’ lack of access to banking services.
The formal discussion in the Senate Committee on Banking, Housing and Urban Affairs on Tuesday comes as legislation aimed at resolving the marijuana industry’s financial services problems is gaining momentum. A House cannabis banking bill that cleared that chamber’s Financial Services Committee with a bipartisan vote in March now has 206 cosponsors—nearly half the body—while companion Senate legislation has 32 out of 100 senators signed on.
(Marijuana Moment’s editor provides some content to Forbes via a temporary exclusive publishing license arrangement.)
American Bankers Association Demands Answers About Hemp And CBD
The American Bankers Association (ABA) recently sent a letter imploring top federal financial regulators to provide explicit guidance on how the banking sector can lawfully service hemp businesses.
The letter—sent to the heads of the Federal Reserve, Federal Deposit Insurance Corporation (FDIC), the Treasury’s Comptroller of the Currency and Financial Crimes Enforcement Network (FinCEN) last week—describes ongoing uncertainty among financial institutions since hemp and its derivatives were federally legalized under the 2018 Farm Bill.
ABA Executive Vice President Virginia O’Neill wrote that “banks remain uncertain about the degree to which they can serve hemp-related companies, and the compliance and reporting requirements that such relationships require.”
“Although other federal regulators have issued helpful clarifications regarding hemp production, banks are subject to a complex set of legal requirements and regulatory expectations and require specific guidance to ensure they are acting appropriately,” she wrote. “Furthermore, the unique nature of hemp as a low-THC strain of marijuana, which remains a Schedule I substance under the [Controlled Substances Act], means banks must have a reliable mechanism to distinguish legal hemp from federally illegal marijuana with extreme confidence.”
There have been other attempts to elicit clarification from federal regulators in the months since hemp was legalized.
Rep. Andy Barr (R-KY) asked FDIC Chair Jelena McWilliams about the issue in May, telling her that he has constituents who’ve told him their access to financial services has “actually deteriorated since we descheduled industrial hemp” and requesting further guidance.
In a similar letter to federal regulators this month, Sen. Michael Bennet (D-CO) also complained about the continued lack of access to banking services for hemp producers. The 2020 Democratic presidential candidate said he hopes the agencies “can work expeditiously and in a coordinated manner to issue guidance describing how financial institutions can offer financial products and services to hemp formers and processors.”
But so far, the closest the regulators have come to assuaging the concerns of banks is a statement from a top Federal Reserve official who said during a Senate hearing earlier this month that “hemp is not an illegal crop.”
ABA said it appreciated the comment but that “a formalized statement from the agencies is necessary to enable banking services for the hemp industry on a meaningful scale.” O’Neill requested confirmation of five specific areas of interest.
“Specifically, we ask that the agencies confirm that:
“—hemp is no longer a controlled substance, effective as of the enactment of the 2018 Farm Bill, and therefore proceeds derived from hemp businesses are not unlawful, and handling those proceeds does not constitute money laundering;
“—banks do not need to file suspicious activity reports solely because a transaction relates to hemp or hemp-derived products;
“—banks can rely on a license issued by a state department of agriculture or the U.S. Department of Agriculture to confirm that a hemp producer is operating in compliance with state and federal law, and that their product qualifies as ‘hemp’ as defined in the 2018 Farm Bill;
“—in accordance with United States Department of Agriculture (USDA) guidance, banks can serve hemp cultivators and processors operating subject to state pilot programs under the 2014 Farm Bill, effective immediately; and
“—as soon as USDA finalizes its regulations related to industrial hemp, banks will be able to serve hemp cultivators and processors operating under state approved plans or direct federal licenses.”
Further, ABA asked for specific guidance as it relates to hemp-derived CBD and information about “the appropriate procedures for sourcing those products back to legal cultivators and processors.”
While the association recognized that “this is an evolving area of law and regulation” and that questions remained among federal regulators about the implementation of hemp legalization, it said that “there are steps that can be taken now to help clarify legal and regulatory expectations for banks in the current environment.”
The letter focused exclusively on hemp and its derivatives, but there’s a simultaneous conversation going on nationally about how financial institutions can work with state-legal marijuana businesses. Bipartisan legislation that would protect banks that service such businesses has the support of all 50 individual state bankers associations.
Read the full ABA letter on hemp banking below:
Regulators Hemp 062119 by on Scribd
Photo courtesy of Brendan Cleak.
Congressional Committee Asks JUUL For Documents On Marijuana Partnerships
Is the e-cigarette company JUUL planning on expanding its stake in the marijuana industry?
That’s one question the chair of a congressional subcommittee asked the company in a letter concerning JUUL’s role in the “youth e-cigarette epidemic” earlier this month.
Lawmakers have frequently criticized JUUL for making products—specifically flavored e-cigarette cartridges—that allegedly appeal to young people at a time when rates of cigarette use are steadily declining. But while JUUL was developed by the cannabis vaporizer company PAX, it hasn’t announced plans to further partner with marijuana companies.
Rep. Raja Krishnamoorthi (D-IL), who chairs the House Subcommittee on Economic and Consumer Policy, apparently sees the possibility on the horizon, though.
In a letter sent to JUUL on June 7, the congressman said his panel was investigating youth e-cigarette usage and, specifically, how the company’s marketing tactics might be exacerbating the issue. He requested documents on everything from clinical trials on how JUUL devices divert people away from traditional cigarettes to communications on the company’s rationale for the nicotine concentration of JUUL pods.
Tucked within the extensive request is a question about potential marijuana partnerships. Krishnamoorthi asked for:
“All documents, including memoranda and communications, referring or relating to proposals, plans, and/or intended partnerships or collaborations between JUUL and any cannabis-related companies, including but not limited to Cronos Group.”
It’s not clear where the Cronos-specific mention comes from, but the company has perviously caught the interest of the tobacco industry. The maker of Marlboro cigarettes, Altria Group, invested almost $2 billion in the Canada-based cannabis company in December. Two weeks later, Altria invested $13 billion in JUUL.
Marijuana Moment reached out to JUUL, Cronos and Krishnamoorthi’s office for comment, but representatives did not respond by the time of publication.
If a partnership does emerge, it would likely be met with some controversy, as opponents and proponents of marijuana reform alike have long expressed concern that the tobacco industry would take over the cannabis market and commercialize it in a way that mirrors how it peddled cigarettes.
Of course, given that tobacco use is declining and tobacco companies generally have the infrastructure that would make a pivot to cannabis relatively simple, such a partnership would not be especially surprising.
Senate Majority Leader Mitch McConnell (R-KY) has made the case several times that tobacco farmers in his state could leverage the federal legalization of industrial hemp and its derivatives by growing the crop to offset profit losses from declining tobacco sales.
Read Rep. Krishnamoorthi’s full letter to JUUL below:
2019-06-07.Krishnamoorthi t… by on Scribd
Photo courtesy of Wikimedia.