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Repealing the outdated provision would be the “nail in the coffin of the criminal cartels that jeopardize the health of our kids and our safety,” he said.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.
Facebook Uses Marijuana And Broccoli To Show Off Its AI Tech
Marijuana buds and tempura broccoli can look oddly similar out of context, but Facebook’s artificial intelligence (AI) technology can tell the difference.
At its annual developers conference on Wednesday, Facebook CTO Mike Schroepfer discussed how the social media giant is able to leverage visual AI to spot “policy-violating content,” including advertisements to sell cannabis on the platform. He explained the process by comparing images of the fried vegetable next to marijuana buds, which he described as the “most benign possible example” of prohibited content he could find.
— Queenie Wong (@QWongSJ) May 1, 2019
Five years ago, the company relied on “behavioral signals” to catch people advertising cannabis—things like whether the advertiser has been “caught for doing bad stuff before” or whether they used “obvious words” like “marijuana” or “drugs” in the post. But as AI advanced, Facebook developed a system that could visually distinguish cannabis from other miscellaneous items.
To drive the point home, Schroepfer put both images on the screen and challenged the audience to differentiate them.
— Tom Simonite (@tsimonite) May 1, 2019
A few people thought the tempura broccoli was marijuana, but most seemed to get it right. The visual algorithm was 94 percent sure that the marijuana was, in fact, marijuana, and 88 percent sure that the other image was the broccoli.
— john colucci (@johncolucci) May 1, 2019
For Facebook, the technology offers a convenient way to streamline its policy enforcement efforts. But for many cannabis reform groups and media companies that run Facebook accounts, the presentation is a window into an ongoing frustration.
The ban on content promoting the sale of federally illicit drugs has had collateral consequences for pages that post noncommercial marijuana material such as news outlets like Marijuana Moment and state regulatory bodies like the Massachusetts Cannabis Control Commission. These pages have at times been hidden from search results (a technique referred to as “shadowbanning”) because the algorithm isn’t able to accurately differentiate commercial advertisements from cannabis-related news articles, for example.
Marijuana influencers and state-legal cannabis businesses have long complained about having their accounts on the Facebook-owned Instagram platform temporarily disabled or permanently blocked for depicting cannabis or advertising their services.
A policy change may be on the horizon, as the company said in March that it wants “to consider whether we can loosen this restriction, especially in relation to medical marijuana, legal marijuana and brick and mortar stores.” But for the time being, Facebook will continue to enforce the policy, and it hasn’t provided a status update on that front at the conference so far.
“It’s against our policies because it’s against U.S. federal law, so you can’t advertise marijuana on Facebook,” Schroepfer said.
Photo courtesy of Facebook.
FDA Sends Warnings To Three Companies Selling CBD Products
At the same time that the Food and Drug Administration (FDA) is working to create a regulatory framework for hemp-derived CBD, it’s also cracking down on companies that are in its view irresponsibly marketing CBD products and making unsanctioned claims about their medical benefits.
FDA announced on Tuesday that it and the Federal Trade Commission sent warning letters to three such companies last month: PotNetwork Holdings in Florida, Nutra Pure in Washington state and Advanced Spine and Pain in New Jersey. The letters were sent “in response to their making unsubstantiated claims related to more than a dozen different products and spanning multiple product webpages, online stores and social media websites,” FDA Commissioner Scott Gottlieb said in a press release.
In a Twitter thread, the commissioner added that he was “concerned to hear recently that several national pharmacy chains and other major retailers have begun to sell or will soon begin to sell” CBD products and that the agency will “be contacting them to remind them of #FDA obligations and our commitment to protect consumers against products that can put them at risk.”
CVS and Walgreens both recently announced they will begin selling CBD-infused products.
We’ll be contacting them to remind them of #FDA obligations and our commitment to protect consumers against products that can put them at risk.
— Scott Gottlieb, M.D. (@SGottliebFDA) April 2, 2019
In the press release about the warning letters his agency has already sent to CBD companies, Gottlieb asserted that they used their websites to “make unfounded, egregious claims about their products’ ability to limit, treat or cure cancer, neurodegenerative conditions, autoimmune diseases, opioid use disorder, and other serious diseases, without sufficient evidence and the legally required FDA approval.”
At the same time, the warning letters announced today make clear that #FDA has and will continue to monitor the marketplace and use our authorities to take action against companies illegally selling these types of products when they are putting consumers at risk
— Scott Gottlieb, M.D. (@SGottliebFDA) April 2, 2019
FDA is hustling to provide manufacturers guidelines on marketing cannabidiol following the federal legalization of hemp last last year, but the process is complicated by the fact that CBD is the active ingredient in an FDA-approved drug, Epidiolex, and remains the subject of intensive clinical testing. Gottlieb has indicated that it will take years to develop a regulatory plan for CBD without further congressional action.
In the meantime, companies that continue to choose to engage in CBD commerce should be wary about making health claims about their products. The commissioner said FDA has “limited resources” for enforcement operations, but it would take action against companies that make “over-the-line” statements.
In the press announcement, FDA listed some of the unauthorized claims that the three companies made. For example, the products were touted as being able to treat cervical cancer, Alzheimer’s disease and substance use disorder.
“I believe these are egregious, over-the-line claims and we won’t tolerate this kind of deceptive marketing to vulnerable patients,” Gottlieb said. “The FDA continues to be concerned about the proliferation of egregious medical claims being made about products asserting to contain CBD that haven’t been approved by the FDA, such as the products and companies receiving warning letters today.”
“Selling unapproved products with unsubstantiated therapeutic claims can put patients and consumers at risk,” he said. “These products have not been shown to be safe or effective, and deceptive marketing of unproven treatments may keep some patients from accessing appropriate, recognized therapies to treat serious and even fatal diseases.”
Questions about what constitutes an unauthorized claim that would put a company at risk of enforcement action will likely come up at the agency’s just-announced public hearing CBD issues on May 31. Stakeholders are invited to submit information about the public safety impacts of CBD and how to manufacture and market products that contain the cannabis compound.
This piece was updated to include Gottlieb’s tweets about national pharmacy chains.
Photo courtesy of Nicholas C. Morton.
Marijuana Banking Bill Approved By Congressional Committee
A congressional committee voted on Thursday to approve legislation aimed at increasing marijuana businesses’ access to banks.
Following multiple days of lengthy debate and consideration of several amendments, the House Financial Services Committee voted 45 to 15 to advance the legislation to the full body.
Floor action has not yet been scheduled, but cannabis reform advocates are hopeful that the committee approval of the banking bill is a sign Democrats are ready to move broad marijuana reforms this year.
Indeed, House Rules Committee Chairman James McGovern (D-MA) said in a radio interview on Wednesday that he expects the chamber to vote on legislation to end federal marijuana prohibition within a matter of “weeks.”
“We will guide it to the House floor for a vote, which I think it will pass with an overwhelming vote—Democrats and I think a lot of Republicans as well,” he said. “If we have a strong bipartisan vote that will increase the pressure on the Senate to do something.”
All of the party’s major 2020 presidential candidates now support outright legalization, as do a majority of its voters, according to polls.
The banking bill “addresses an urgent public safety concern for legitimate businesses that currently have no recourse but to operate with just cash,” Chairwoman Maxine Waters (D-CA) said at the start of the committee’s proceedings, which began on Tuesday and carried over through a second Wednesday meeting to votes on Thursday morning.
“However, I also consider this bill as part of a holistic approach toward providing criminal justice reform to those who have been harmed by criminalization of marijuana, and should not by any means be the only bill the House takes up on the important issue of cannabis reform,” she said.
While some surveys also show that a smaller majority of GOP voters back ending cannabis prohibition, Republican lawmakers in Congress had blocked marijuana amendments from even being considered over the course of the past several years during their House majority.
Last week, top Republicans on the Financial Services Committee requested that Waters delay the vote on the banking legislation, writing in a letter that they had several “unanswered questions” about the measure.
“Some on my side support the measure as written. Many oppose it,” Rep. Patrick McHenry (R-NC), the panel’s top Republican, said in his opening remarks at the committee meeting. “Most important for this committee, we need to ensure that we’re doing our due diligence before proceeding. One committee hearing is not enough to fully understand the consequences of this bill. It is a massive change in federal policy.”
That the vote went ahead over GOP objections is a sign that the effective marijuana roadblock on Capitol Hill has been lifted by the chamber’s new Democratic majority.
Under the approved bill, federal banking regulators would not be able to punish financial institutions just because they work with marijuana businesses that are legal under state or local laws, or those of an Indian tribe.
Currently, while a growing number of banks are opening accounts for cannabis businesses as more state policies change, many remain reluctant to do so out of fear of violating federal money laundering or drug laws. As a result, many marijuana growers, processors and sellers are forced to operate on a cash-only basis, which can make them targets for robberies.
Legally-authorized cannabis businesses are forced to operate w/ cash only, which sometimes makes them targets for violent criminals. #HR1595, the #SAFEBankingAct will address this issue by creating a safe harbor that allows banks & credit unions to provide services to these biz.
— Financial Svcs Cmte (@FSCDems) March 27, 2019
The legislation approved by the committee, the Secure And Fair Enforcement (SAFE) Banking Act, currently has 152 cosponsors—more than a third of the entire House, which is far more support than any previous standalone cannabis bill has earned. Twelve Republicans have cosponsored the legislation.
The SAFE Banking Act’s approval by the financial services panel is only the third time in history that a standalone marijuana reform bill has cleared a congressional committee. Last year, other committees voted to advance legislation encouraging the Department of Veterans Affairs to study medical cannabis and to require the Department of Justice to license additional growers of marijuana for research, but those proposals never made it to the House floor for action.
“It is our job to address this and no longer ignore it. I have brought this legislation up for six years,” Rep. Ed Perlmutter (D-CO), the SAFE Banking Act’s lead sponsor, said prior to the vote. “The people of this country sort of took it into their own hands, state by state, to pass initiative for medical marijuana or for cannabis oil or fully legal.”
Committee Acts On Amendments
Prior to voting to advance the bill to the House floor, the committee took action on a number of proposed changes to the legislation.
Perlmutter put forth an amendment to his own bill, which was adopted via a voice vote. In addition to clarifying the definition of the financial services that are covered by the bill and specifying that its provisions would protect Federal Reserve banks, new additions would require the federal government to study diversity and inclusion in the marijuana industry—a key concern of legalization advocates seeking to undo the damage of the war on drugs, which has been waged in a racially disproportionate manner.
The new language would require federal financial regulators to publish annual reports tracking “information and data on the availability of access to financial services for minority-owned and women-owned cannabis-related legitimate businesses” and to issue “regulatory or legislative recommendations for expanding access to financial services” for those populations.
In addition, the amended bill directs that the Government Accountability Office to conduct a study “on the barriers to marketplace entry, including in the licensing process, and the access to financial services for potential and existing minority-owned and women-owned cannabis-related legitimate businesses.”
Also during the committee markup, Rep. Katie Porter (D-CA) moved a separate amendment that would extend protections to so-called “de novo” banking institutions that are seeking charters or master accounts from a Federal Reserve bank. It was adopted via a voice vote.
My friendly amendment to the cannabis banking bill passed unanimously! Clarifies that *new* banks/credit unions are also protected by the bill. We need to level the playing field for new market entrants, in this growing industry and across our economy. https://t.co/IUYBMrszRq
— Rep. Katie Porter (@RepKatiePorter) March 27, 2019
Rep. Steve Stivers (R-OH), one of the bill’s lead Republican cosponsors, filed an amendment expanding the legislation’s protections to insurance companies. It too was passed in a voice vote.
An amendment from Rep. Scott Tipton (R-CO) directs the Government Accountability Office to study previous reports that banks are required to file on their marijuana business customers to understand how effective they are in identifying bad actors. It was supported by the bill’s sponsors and approved on a voice vote.
Tipton filed an another amendment aimed at making sure drug cartels and organized crime networks aren’t able to benefit from the bill’s provisions, but he withdrew it instead of forcing a vote.
Rep. Bill Huizenga (R-MI) moved to delay the bill’s effective date until marijuana is federally descheduled, but withdrew the amendment rather than force a vote.
Rep. Blaine Luetkemeyer (R-MO) sought to attach an amendment that would add “legal entities operating in accordance with federal law” to those covered by the bill. In introducing the measure, he made reference to prior federal investigations of banks working with firearms dealers and payday lenders. It was ruled non-germane, however.
Rep. Andy Barr (R-KY) filed an amendment that would have delayed the bill’s enactment until the Treasury secretary certifies it wouldn’t leave any financial institution more susceptible to illicit financial activity and money laundering, and that it doesn’t inhibit their ability to comply with federal regulations. It was defeated in a voice vote and then again in roll call vote by a margin of 33 to 27.
Another Barr amendment would have restricted the bill’s reach to only protect hemp businesses instead of those that deal with marijuana. It also lost on both a voice vote and a recorded vote. The latter went down 42 to 18.
An amendment from Rep. John Rose (R-TN) would have required banks to attest that they have internal controls ensuring that no funds have been deposited in their institutions that are associated with illegal organizations. It too was rejected in voice and roll call votes, with the latter tallying 33 to 27.
A second Huizenga amendment would have postponed enactment until federal financial regulators are able to issue guidance to banks. It was rejected with a voice vote, and a roll call was requested, which came out 35 against to 25 for.
Rep. Sean Duffy (R-WI) offered an amendment to withdraw the bill’s protections from banks that serve marijuana businesses located within 1,000 feet of schools, youth centers, public parks, child care facilities, public housing, civic centers or designated drug-free zones. It was rejected via a voice vote, and then in a roll call vote by a margin of 34 to 26.
During the broader debate on the bill, Rep. Denny Heck (D-WA), who along with Perlmutter is a leading sponsor of the proposal, spoke about a Colorado marijuana dispensary security guard who was killed during an attempted robbery as an example of the public safety harms of blocking banking access. He added that allowing cannabis industry operators to store their profits in regulated financial institutions would “enhance supervision and audibility of marijuana businesses.”
Banking Is Just The First Step For Federal Marijuana Reform
The banking legislation, which was the subject of a separate lengthy committee hearing last month, is seen by advocates as just the first step in an ambitious cannabis reform agenda they want the Democratic House to pass this year. Several more far-reaching bills to change marijuana’s legal status so that states can implement their own policies without the looming threat of federal interference have not yet been scheduled for hearings. Other pending proposals seek to address medical cannabis access by military veterans, the removal of roadblocks to research and tax rates for marijuana firms.
“Congress must take the long view that all these efforts—and I will work to ensure that when it comes to passing [the banking bill] that the House does not take a ‘one and done’ approach but that we will also comprehensively work, especially with our colleagues on the Judiciary Committee, on a series of marijuana related reforms,” Waters, the Financial Services Committee chair, said prior to the vote.
This country is in need of criminal justice reform, including addressing the historic racial & social inequities related to the criminalization of #marijuana. That is why @FSCDems support the #SAFEBankingAct which complements other cannabis reforms introduced by @HouseDemocrats pic.twitter.com/tl2x97vXVl
— Financial Svcs Cmte (@FSCDems) March 27, 2019
Rep. Nydia Velazquez (D-NY) said at the Wednesday meeting that she will be exploring ways to expand credit opportunities for marijuana businesses, particularly those owned by women and minorities, in her role as chair of the House Small Business Committee.
Late last year, Rep. Earl Blumenauer (D-OR) authored a “blueprint” memo that lays out a step-by-step process Democratic leaders could take to federally legalize marijuana by the end of 2019. Passing a banking bill is a key part of his plan.
A good start in our blueprint to legalization, but it's just the beginning. We will continue to work so all marijuana related bills see their day this Congress. The STATES Act, Veterans Equal Access, decriminalization, industry equity, and restorative justice all coming soon! https://t.co/5P1Zt0tY4m
— Earl Blumenauer (@repblumenauer) March 27, 2019
“This is a historic and critical step forward for the nation’s burgeoning cannabis industry. Lawmakers seem to recognize the urgency and public safety implications of ensuring cannabis businesses can access banking services,” Steve Hawkins, executive director of the Marijuana Policy Project, said in a press release. “Regardless of where members stand on legalization, they can agree that it is in the public interest to make banking available to cannabis businesses in states where it is legal.”
NORML Political Director Justin Strekal also praised the committee’s action.
“This is a positive step forward to address an untenable tension between state-legal cannabis marketplaces and federal marijuana prohibition,” he said. “Ultimately, the banking issue is just one symptom of the toxic and cruel policy of federal marijuana criminalization. In order to truly bring the vibrant marijuana economy out of the shadows, actions need to be taken by Congress to end federal prohibition and the discrimination that comes with this failed policy.”
Sens. Jeff Merkley (D-OR) and Cory Gardner (R-CO) are expected to file companion legislation on access to financial services for marijuana businesses in the Senate soon. A prior bill during the last Congress garnered 20 cosponsors in the chamber but did not receive a hearing or vote.