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Cannabis legalization is coming. Sorta.

It's not actual legalization, but it's kinda close. Bear with me.

Hi everyone,

I’m gearing up for a busy few weeks in cannabis-world. (And if I owe you an email or a call or something else, I’m sorry and I’ll get to it!)

On Thursday, I’ll be moderating a panel about digital payments in the cannabis industry at the PBC Conference in Washington DC.

Next week, I’ll be in Chicago moderating a panel discussion on September 28 about the rise of the cannabis industry in the Northeast at the Benzinga Cannabis Capital Conference.

If you’re around either conference, hit me up.

And if you missed it, I went back on Vangst’s Proud to Work in Cannabis podcast to discuss how the shift to Schedule III will and won’t change things for the industry.

As always, let me know what you think.


Today’s Cultivated is sponsored by the PBC Conference.

PBC Conference is the preeminent payments, banking, and compliance conference for the cannabis industry, held in the heart of Washington DC at the Capital Hilton.

PBC brings together lawmakers, top cannabis regulators, and executives at the biggest cannabis companies to chart the future of the industry.

That’s not PR-speak, I mean it: Last year I spoke at PBC, and even broke some news from the conference floor.

September 21-22 will be the fourth iteration of the conference.

There will be keynotes from Rep. Earl Blumenauer — a longtime champion of cannabis reform in Congress — as well as Jim Cole. You’ll also hear from the head regulators of New York, Illinois, Massachusetts, California, and Oklahoma, among other stellar panelists.

I’ll also be speaking again, and I hope to see you all there!

white concrete building under blue sky during daytime

💡What’s the big deal?

What happened: Brace yourselves if you’ve heard this before.

The Senate Banking Committee will hold a markup of the SAFE Banking Act, a narrow cannabis banking bill, on September 27.

The markup is a key step to getting the bill to a full floor vote. While nothing is a done deal yet, senators on both sides of the aisle seem to be singing a different tune this time around.

“We’ve got enough votes to get it passed,” Montana Sen. Steve Daines told NBC News.

Zoom out: The bill, while far from legalization, would go a long way to normalizing how the cannabis industry is treated in the US.

This time actually does feel a bit different, based on conversations I’ve had with some industry and policy people. But as with anything in cannabis, never count your chickens before they hatch.

And yes, lawmakers have attempted to pass the SAFE Act nine times before.

I should note the calculus is a bit different in the House than any of the previous times lawmakers have tried to pass the bill. The Senate seems to be less of a problem, at least right now.

Democrats, powerful ones like Sens. Chuck Schumer and Cory Booker, want to stuff the SAFE Act full of social equity provisions in an effort to appeal to their base of progressive voters.1 

Those are mostly nonstarters for Republicans, many of whom don’t support legalization but understand the cash-only nature of the business isn’t working in their own states.

If you really want to know what some of the GOP think about cannabis, read this letter from Oklahoma Sen. James Lankford and signed by eight other Republicans pushing to uphold cannabis’s Schedule I status. Many of them are a long ways away from even a sliver of support.

The final bill, like many things in democracies, won’t be perfect for either side. But it might be a compromise that works.

🌿 Jer’s take

This brings me back to the headline of this newsletter. Allow me some creative license, here.

It’s looking more and more likely that we’ll have some form of cannabis legalization soon, just not in the simple way you might think. But when I say legalization, I don’t mean actual legalization.

Bear with me.

Here’s what the framework might look like:

  • The DEA officially moves cannabis to Schedule III.

  • The SAFE Banking Act passes, or portions of it get attached to a bigger package.

  • The Department of Justice issues a memo providing guidance around how the federal government should treat state-legal cannabis.

There are moving parts to each of these pieces, but this is a probable framework. The DEA could still push back, but most people I’ve spoken with don’t think it’s very likely.

This is about as close to quasi-legalization as we’ll get without Congress getting their act together to pass a clean, simple bill.

We’ll have something resembling a normal-ish recreational cannabis industry albeit with a pretty weird regulatory structure.

The Garland Memo

In the absence of Congress leading and enshrining legalization into law, the DOJ under Attorney General Merrick Garland will need to provide some clarity.

Let’s call it the Garland Memo for the purposes of this newsletter. It would look something like the Cole Memo passed under President Obama.

That basically instructed to the DOJ to remain hands-off with states that did choose to legalize.

A Garland Memo would likely allow states, either through ballot measure or state legislature, to legalize either medical or recreational cannabis, or both.

But many states would stay “dry,” meaning they’ll keep cannabis illegal. That’s their prerogative.

It’s even more bizarre that these “dry” states could theoretically still police cannabis sales and use. That would be up to local jurisdictions of course, but without clear federal guidance, they’re free to do as they please.

States that want cannabis could have it, and states that don’t, won’t.

Again, the federal government would need to be proactive to get ahead of this issue.

There are some drawbacks — and some questions

The first major drawback is this version of legalization does absolutely nothing to address social equity concerns.

Remember when Booker said he’d “lay himself down" before a banking bill passed ahead of decriminalization? Good luck with that.

Democrats will have to hold on to power for that to have a chance of being addressed, and my chief concern is that if the Schedule III + SAFE Act + Garland Memo structure comes to fruition, the incentive for lawmakers to push for more might go away.

I hope that’s not the case.

Second, without Congress leading the charge, it’s unlikely that interstate commerce will be allowed under this framework.

The recreational cannabis industry could still look like the state-by-state markets we have today.

Medical cannabis, however, could be in for disruption.

It’s certainly possible the FDA will push to regulate everything under this framework. While that’s a risk for medical cannabis businesses, it’s also far from certain.

And last, many issues important to cannabis advocates and consumers, like the right to grow at home, will be left up to states.

Why’s this happening now?

Both Republicans and Democrats have said that the patchwork regulations governing cannabis are unsustainable.

Even Clarence Thomas thinks so.

No matter where lawmakers stand on the issue of legalization, most of them agree something needs to change.

Nearly 90% of US voters say at least medical cannabis should be legal, and 59% say recreational use should be legal, according to Pew. Puppies are probably the only other thing that has this much bipartisan support.

Squeezing the toothpaste back into the tube is a lot more difficult than codifying what is basically already happening into law.

Look, this is far from actual legalization. I get it. But it’s probably as close as we’re going to come anytime soon. And it could be a lot worse.

Moving cannabis to Schedule III is not a panacea, as I’ve written. But it’s a huge step toward normalizing how the cannabis industry is treated by the federal government.

In an ideal world, we’d have clean, simple legislation that removes cannabis from the federal list of controlled substances, and regulates cannabis like alcohol in all 50 states.

But we’re going to have to be content with incremental progress, even if it’s no one’s ideal version.

If you enjoyed this post, share it around and help me grow Cultivated.

🥊 Quick hits

Cannabis tech startup GrowerIq raised C$1 million from the Government of Canada’s Federal Economic Development Agency for Southern Ontario.

Pablo Zuanic of Zuanic & Associates lays out a roadmap for how the SAFE Banking Act could pass.

Method Man’s cannabis brand Tical officially launched in New York.

Canopy Growth is seeking bankruptcy protection for BioSteel, the sports drink company it owns.

Kerrisdale Capital released a short report on Tilray, saying the company has “company has resorted to ongoing, shameless and massive dilution to stay alive.”