With Democrats now in control of the White House and Congress, the chances of federal legalization and regulation have never been better. Prior industry lobbying efforts have mostly focused on rescheduling cannabis under the Controlled Substances Act, but the inability to bank cannabis proceeds or deduct business expenses (due to federal illegality) has inhibited industry development in the interim. And as the federal government implements emergency measures to recover from the COVID-19 epidemic, cannabis enterprises should be a part of America’s economic recovery. Cannabis legalization, banking, taxes, and COVID-19 relief are all on the table for industry lobbying efforts with solid chances of realistic reform given the country’s current political power make-up.

Join Harris Bricken, in partnership with Capitol Hill Policy Group, a federal government relations firm, for a free hour-long webinar.

Harris Bricken’s, Hilary Bricken, teams up with Capitol Hill Policy Group’s Robert Odawi PorterJames Reid, and Pat Leopold to discuss strategic lobbying efforts to amend federal laws affecting the cannabis industry with particular focus on banking and taxation reform as well as COVID relief potential.

Hilary: Hey everybody, thank you for joining us today, good morning, good afternoon depending on where you are in the country, or internationally. We’re happy to have you. My name is Hilary Bricken, I’m an attorney with the law firm Harris Bricken, I’m in our Los Angeles office. Today, we’re gonna go through changing tides, lobbying on cannabis issues in the Biden administration, which I’m sure is no short of being a rollercoaster, even though we know that democrats are supposedly favorable to legalization, nobody knows exactly what the details are or when that’s going to occur. Today, I’m going to moderate our fine panel, which consists me and the great gentlemen that we have with us today from Capitol Hill Policy Group. Depending on your experience in the industry, you may or may not have had an experience with government relations. Pat Leopold, Robert Odawi Porter, and James Reid are the guys with the access on Capitol Hill when it comes to lobbying in government relations with members of Congress and other executive agencies that basically run the United States. Unless you’ve been living under a rock, you would know that the lobbying game around cannabis issues has become incredibly sophisticated. And the types of participants and private interest groups that are engaged in government relations on Capitol Hill and elsewhere regarding cannabis legislation have really upped the ante where we now openly have Altria, consolation brands, and other very large well- capitalized groups stepping in to try to shape and mold what federal laws and regulations will look like in the future. Today’s webinar is dedicated to talking about and answering your questions about what those issues look like as lobbying really takes shape in the 21st century of cannabis. It’s a much different game than it was 10 years ago, and I can tell you firsthand that I’ve seen lots of shifts in the regulations at the state level, different attitudes at the federal level, I’m licensed to practice in Washington, California, and Florida, all three of these states treat the issue extremely differently, I don’t think that’s going to stop in the future as the states are really the policy drivers, and in the best position to know what the local regulations should be. But the federal framework is anybody’s guess. Without further ado, I’m going to let Pat, Robert, and James introduce themselves. They have a few slides they’re gonna go to before we get to the discussion part of this where we answer your questions that you submitted before the webinar and of course the questions you have as we go through the slides. 

 

Robert: Very good Hilary, thank you for the opportunity and we’re very happy to be with you, everyone in attendance. My name is Robert Porter and I’ve worked in a variety of different areas, primarily with respect to American Indian tribes, but my role as a federally registered advocate and lobbyist have dealt with a number of different policy issues in terms of moving the Congress, moving the executive administration to the benefit of our clients. This is an area of great challenge in terms of the clash of sovereign governments, in terms of the federal and the state governments, and certainly in some cases, the tribes that I represent also have an interest in this area. But today we’re gonna talk about some of the issues associated with federal engagement now that we have a new president, new congress, and we’re hoping to get through a number of different issues of substance and process and strategy before the hour is over. I’m going to turn this over to my colleagues to introduce themselves. 

 

James: Hi, thanks very much for having me. My name is James Reid and I work with Rob and Pat at Capitol Hill Policy Group. We have a boutique shop here in Washington, but we have a great deal of experience among our team. I’ve spent 25 years now both on and off the hill, in and out of public service, handling and moving complex pieces of legislation and difficult issues over the last 20 years in Washington. As Hilary noted early, the dynamic has changed. Lobbying has changed, the players have changed, the pandemic has changed how we interact with Congress and the administration. A whole host of challenges in the upcoming year, especially as the new administration gets its feet on the ground. So, I look forward to talking about the outlook on this, and the challenges and opportunities in this space. Thank you again, for having me. 

 

Pat: Hi, my name is Pat Leopold, a colleague of Rob and James, thanks again for having me. I’ve spent close to 20 years on and off the Hill both on the Hill and also doing campaign work as well. My time on the Hill I spent 10 years as the chief of staff for Congresswomen Lynn Jenkins, who was a senior member of the House Ways and Means committee until she retired. Looking forward to the discussion today. Thank you. 

 

Rob: So why don’t we get right into. This is briefly an overview, we want to talk about the facts of transition in terms of the new administration. We want to give you a brief summary of some of the pending legislation that’s been submitted over the last couple of Congresses. We want to drill down a little more deeply on those bills that deal with tax, banking, and regulatory issues, because that’s certainly been a topic of primary consideration in terms of past legislation, and invariably is today. We’re going to talk a bit about the politics of lobbying for cannabis issues, and what we foresee as opportunities and challenges. We’re also going to talk a little bit about, as Hilary mentioned, the interplay of some of the larger business interests that have stepped into the cannabis space in recent years, and what that might mean for potential legislative direction in how congress responds in particular. Lastly, we always try to leave with solutions, we try to leave with you a sense of strategy and what needs to be done, by you as a company, an entrepreneur, or as a coalition. Because frankly, it’s a double variable, if you don’t get involved, nothing’s going to happen. If you don’t get involved, someone else will shape the outcomes, and we want a chance to talk a little about that. Why don’t we get right into it and go to the next slide? 

So, some of you may have followed this pretty close during the campaign, but President Biden did not out of the box announce any kind of support for federal legalization for recreational marijuana. His tone shifted throughout the campaign, definitely out of deference to the fact that so many states have legalized in whole or in part some medical or recreational marijuana use. And also, undoubtedly because of his running-mate, Senator Harris, now VP Harris, had established a very progressive record in the senate on a number of different issues but also with respect to cannabis and marijuana, and we have a quote here about her interest in decriminalizing it completely and to protect those who had been wrongfully convicted in her view of marijuana-related offenses. So, she demonstrates a very progressive and enthusiastic track record during her time in the Senate. And obviously she’s not the president, but part of the leadership team. We have every indication that Pres Biden and she are working closely on a number of different initiatives, and we expect that at some point she’ll be in a position to work with the president and potentially take action on a variety of different matters that would move the administration in a more pro-cannabis pro-marijuana friendly dimension. It could be as simple as going back to, some of you may remember the Cole and Wilkinson memos developed by the Justice Department. Those were withdrawn by the Trump administration, the attorney general sessions, and in many ways it didn’t have much of an effect, and those of you in the industry may recognize that, but nonetheless, leaving US attorneys to their sole discretion to decide when to bring marijuana-related prosecutions is obviously a policy, it’s certainly the law, but it’s something that could be subject to modification as a result of a new presidential administration. So, we’re gonna keep an eye on that. 

The legislative side of the equation with Congress, we certainly have new leadership with Senator Schumer and the democrats taking control of the Senate, aligning the entire Congress under the control of the democrats, and we know senator Schumer has definitely made commitment to making marijuana reform one of his priorities, but he also has many of his colleagues in the democratic caucus who have sponsored legislation, who are very active in wanting to see change in the legal framework by which marijuana is currently scheduled as a controlled substance, and the consequences and penalties that are inflicted on those who have been convicted. The margins in both Houses as some of you may have been following is very close. The senate is tied 50/50, and what that means is that if there is a tie vote between the democrats and republicans on legislation, VP Harris steps in to break the tie. But it’s even more challenging than that, because of the filibuster rules, and some of this James is going to talk about towards the end in terms of tactics and how to move forwards, but it’s even more difficult because you need a 60-vote majority to be able to move any legislation forward in regular order, as they say. So, this is an opportunity, we view this as political change that’s occurred in a way that would favor generally any kind of cannabis and marijuana related reform, so this is why we’re here, to have this conversation to figure out how to turn that into action. Next slide, please. 

One of the things that some may be aware of, some may not, is that hemp was legalized by virtue of the Farm Bill 2-3 years ago, so the administration of Donald Trump did move forward to implement the law and really open up an entire new industry as it relates to hemp production. We mention this simply because it didn’t happen by accident. Legislation is always the result of willfulness, and those who both from the state side, government side, and industry side, we’re active in legislating really the complete legalization and regulation of hemp under federal law. We wanted to flag this issue of success so that you could see that with some active lobbying, with engagement, with targeted coalition building to bring together like-minded interests, it’s possible in order to get action in legislation to succeed and that’s what we have here with the reflection of the farm bill. 

No action was taken with regard to the Food Drug and Cosmetic Act, in terms of FDA regulations. This is another area where we have unknown, old rules governing this kind of activity. The FDA has not been supportive in terms of any kind of regulation of ingestible, so it’s something that it’s not by any means a complete fix with the hemp and CBD, but otherwise that’s something that has to be dealt with in terms of further legislation and regulation. Hilary, anything you want to add onto this in terms of state of the law? 

 

Hilary: Well, I think from my perspective, the important thing to recognize, is that hemp and hemp CBD are going to be a totally different animal than what’s happening with state by state legalization of cannabis or even the medicalization of cannabis. They should be treated differently, they are treated differently under the law. What’s very interesting is that on a state- by-state basis, even for CBD and hemp derived CBD, we have yet another clash of state rights versus the federal government, where the FDA has basically taken the position that CBD and food and beverages are marketed as a drug with bodily occurred effects, violates the food drug and cosmetic act. At the same time, you have states that have whole regimes dedicated to being able to allow hemp CBD in food and beverages, and as curative effect products. So again, just like cannabis, with the federal government and the controlled substances act, we still have yet another state and federal conflict, even on the hemp CBD level where really the battle is between the FDA and the states, and what states are allowing, which in some of these states is incredibly comprehensive when it comes to hemp CBD, but ultimately the FDA inevitably will sort that out. There’s been some delay, some caused by change in the administration, the coronavirus, but there’s lots of lobbying going on over what hemp and hemp CBD will look like. Will it truly be pharmaceutical grade, like we have GW pharma with epidiolex, I’m not sure that’s going to be the be-all end-all for hemp CBD or will there be some kind of over-the-counter option that a mom and pop in any given state can sell interstate, we just don’t know yet with the FDA. And to Rob’s point, there’s just doesn’t seem to be a huge amount of desire there to figure this out very quickly, which is a shame because the states have again taken the lead in allowing manufacturers, and retailers and distributors to be really innovative in this space and to market and produce these products that otherwise actually violate federal law. So, at the end of the day, the entrepreneur again is holding the bag, taking the risk. 

 

Rob: Next slide please. And this reflects some of the legislative activity in the past, Congress had dealt with this issue of the FDA regulation issues. It’s out there, but as Hilary mentioned, it doesn’t seem to be the leading edge of engagement in terms of the legislative activity. But it’s gonna be out there, we’ll come back to this at the end of the presentation in terms of ways in which we think this could be a real weaponizing issue frankly for large interests in the industry. We wanted to highlight just a few of pieces of legislation so that you see there has been activity to deal with certain aspects of cannabis legalization, but obviously it hasn’t been enacted yet. 

Next slide, please. 

Here are a few of the bills at a high-level summary that we wanted to share with you. The Marijuana Opportunity Reinvestment and Expungement Act, the MORE act, is a very prominent piece of legislation that then-Senator Harris was involved in supporting. Decriminalizes marijuana, expunges prior convictions, establishes a tax on cannabis products, and the revenues would be deposited into a trust fund to support various social programs and otherwise address communities impacted by the war on drugs. The MORE act did past the House in the last Congress, so that was a very significant development, certainly a reflection of the fact that the House had been taken over majority wise by the democrats but given the republican control of the Senate in the last congress, it didn’t move. The Marijuana Freedom and Opportunity Act, introduced by Sen. Schumer and Rep. Hakeem Jeffries, also decriminalizes marijuana and addresses state expungement of prior convictions. Marijuana Justice Act, Senator Cory Booker from New Jersey, very active on this in terms of his work with Rep. Lee to make sure that there are more social justice elements of prior marijuana law and policy that are addressed, because of the disparity in criminal activity associated with marijuana that have affected people of color and disadvantaged communities. Next slide, please. 

The Ending Federal Marijuana Prohibition Act, introduced by then-Rep. Tulsi Gabbard, which would decriminalize marijuana and eliminate penalties for those who transport marijuana between states where it’s legalized. This leads to a variety of different commerce-related issues that have to be dealt with, even as simple as moving marijuana across state boundaries. We start looking at rescheduling, the business aspects of this legislation, the FDA regulatory aspects, transportation and commerce aspects, the issues start piling up in terms of what has to be dealt with by the government if there’s to be any movement forward with legislation. The STATES act, which is another prominent piece of legislation, it had a lot of bipartisan support when it was introduced, originally by Rep. Blumenauer and Sen. Warren, it would prevent federal interference with states that had legalized marijuana and would address banking issues in terms of insuring compliant transactions and allowing for some legitimization of the cannabis industry from the banking community. This is to recognize the fact that state governments have legalized the business, but the federal government has not. So, this is with the intention to harmonize the regulatory schemes through the STATES Act. The Secure and Fair Enforcement Banking ACT, the SAFE Act, is another that focuses on banking issues associated with engaging in marijuana commerce. I think we have one more of the bills that are more recently focused. The Marijuana 1-to-3 Act would reclassify marijuana from a schedule I drug to a schedule III drug under the Controlled Substances Act. Another related issue, veterans, federal facilities where health care is provided. Veterans Cannabis Use for Safe Healing Act, for those VA facilities that are in states where it’s currently legal, there’s been legislative action to ensure that veterans can receive the benefit of that in those states. So, there’s a lot of activity that’s occurred, and there’s certainly attention that we expect from these same members to reintroduce these bills. It’s been a busy year already, in terms of addressing the coronavirus and the relief packages, and it’s something obviously the sponsors will get to in terms of reintroduction of these bills, in an effort to try to move the legislation forward. Hilary anything you want to offer on your lens on some of the legislative activity thus far? 

 

Hilary: it’s just really interesting that now there are all these efforts for broad sweeping legalization, I’m not sure that lawmakers really understand what that’s going to entail from a regulatory perspective and the amount of work that goes into building that framework although the states could tell them. It’s going to take years for it to really form and become mature. I have always thought that when it comes to legalization, we wouldn’t see these broad sweeping reforms take place any time soon, but that it would be this chipping away, maybe 280E reform, or like the SAFE banking act coming through to basically extend the band-aid that are the fintech guidelines right now for access to financial institutions. I don’t really have more to add than that, other than I think that the big question that everybody wants to know, and I’m sure we’ll get there in this discussion, is when are these things going to happen? And are they going to happen before 2022 when we have these midterm elections and again the deck is going to be shifted regarding political power. And are these reforms realistic to get through with that narrow margin of majority in both bodies of Congress? I think that regular lay people, and even lawyers that don’t do government relations, we don’t know or understand those power dynamics on a regular basis, so many people and many clients come to me saying isn’t this going to happen tomorrow? And I think the answer is absolutely not. But will it actually happen in the next two years? That’s what I think people really want to know. 

 

Rob: Well let’s turn a little deeper dive into some of these business-related legislative efforts and I’m going to invite in my colleague Pat Leopold to talk a little bit about some of the tax and business-related provisions. So, next slide, please. 

 

Pat: Thanks, Rob. As we look forward, Rob kind of did a good look back where we were. As we look forward to the next Congress, there’s a few things that we want to talk about. First of all, decriminalization or legalization. As Hilary said, I would note, it’s unlikely to be a big moment when it all just happens. Usually that’s not the way Congress works, it’s bit-by-bit, and one day you’re just there. But I will say that decriminalization or legalization is not going to unfold like it did for example in Colorado, where, hey, it’s legal, let’s figure out how to regulate this now. 

There’s very much going to be a regulatory process in state that’s formed and ready to go before legalization or decriminalization works. That’s not to say that it’s not going to continue evolve or be improved upon, but there’s definitely going to be a structure in place, which is going to be the product of a legislative of onslaught, a lot of lobbying, there’s going to be a lot of players in the process. We’re creating a whole new regulatory state, that’s going to be a massive amount of investment. Large tobacco companies, they’ve got an advantage in this. Hilary mentioned earlier that Altria some of these other companies are coming in, they’ve been through this process before. They were involved in the lobbying process when tobacco regulation went into place. 

They have a very stringent regulatory environment. It’s very extensive, it’s cost-prohibitive to entry, it very much advantages the larger companies over the smaller companies. This didn’t happen by accident, they knew what they were doing. It should be noteworthy that they’re taking a long look at the cannabis industry now. That’s why we all need to engage at all levels if we want to be part of this process. On banking reform, those might be some that we might see sooner than later. Obviously, the SAFE Act already passed the House last time. There’s some question how much it really matters, it’s somewhat of a stadium of already existing law which will inevitably give some banks more confidence and decision to engage in the cannabis market, but even it if did pass that it doesn’t mean that the credit card processors are going to come along. There’s plenty of instances in other industries that they just choose not to engage in, and whether or not they would do that with decriminalization in place is sort of hard to know at this point with something as simple as the SAFE act. Next slide. 

Tax. This is a big one we don’t hear talked about a lot. Usually in the cannabis industry we hear a lot about 280e reform. What is 280e reform at the end of the day? It’s a tax cut. Part of the appeal of cannabis legalization for policy makers is being able to get more revenue. They get more money, they get to spend it, they get to give tax cuts to their voters, whatever it is. They always want more money. Certainly, taxes such as alcohol, tobacco, and in this cannabis, “sin taxes,” taxes which are more appealing to republicans where typically they’re not in favor of taxes, so the idea that 280e reform would come along without a corresponding excise tax, it seems pretty unlikely. But I would note that in theory, and I know there’s a lot of discussion about this, could it happen through reconciliation, to essentially get around filibuster, and the answer is, probably. With reconciliation, inevitably it’s the choice of the Senate Parliamentarian, it’s one person. That person gets to decide whether or not it meets the standards of reconciliation or not. One current roadblock that exists is there’s no budget score for 280e. It has to have that so that would definitely be a roadblock, but again, at the end of the day you’re asking policy makers to essentially give a product which is illegal a tax cut. That seems unlikely without a federal excise tax. I’ll move on to the federal excise tax. What might that look like? First of all, we don’t know. Again, it’s definitely going to be the product of a massive lobbying operation. I worked on the Ways and Means Committee in the House. All tax measures have to start in the House Ways and Means Committee, it’s actually in the Constitution. That’s where they begin. I would note that the MORE Act, which passed last Congress, had a five-person excise tax in there. But, it did not go through the Ways and Means Committee. This is because essentially the MORE Act was a democrat messaging bill. That’s what happens at the end of a Congress when, whether it’s for political reasons, they’re sending a message that this is the direction they want to go. This is something we’re interested in, but they know there’s a zero percent chance of passing through the Senate. So, they didn’t really mess around with the details. The idea of a 5% excise tax, which is what they had in there, is probably pretty unlikely. It’s gonna be higher than that. So, there’s a lot of different ways you could set up an excise tax, which again is the product of a huge legislative and lobbying onslaught. It could be based on potency, that’s what alcohol does. They have an excise tax where you pay more on… liquor has the highest tax, wine a little less, then beer the least. With Cannabis field, obviously that would be THC. The more THC, the higher. There’s different levels, and different threshold sets and different excise tax on those. I’d also note that in the alcohol field, the smaller producers pay a lower excise tax. Like the first however many hundred thousand barrels. It’s not particularly small, like Sam Adams, which we all know, Jim Cook was massively involved. He’s someone who does Sam Adams commercials, everyone knows him, and he was heavily involved in the lobbying process, and spent a whole bunch of money. He and the brewer’s industry got together, and the small brewers got a carve out. It’s not necessarily a good public policy decision, although everyone likes the idea of small businesses, it really was just a well-run organized operation. That is an operation which I think certainly the cannabis industry would be interested in. You could also do an excise tax based on weight. That’s the way tobacco does it. Now there’s no carve out for smaller producers, it’s just based on weight. Or there’s an ad valorem excise tax, which is value, which is what was in the MORE Act. Again, we don’t know exactly what’s going to happen, but I just want to point out that if decriminalization is going to happen, it is very likely that it’s going to come along with an excise tax, but what kind of excise tax that is, what the rate is, are there carve-outs, that’s all TBD. 

 

Rob: I want to jump in on this because I headed up economics as an undergraduate to be dangerous, and one of the things you mentioned about cannabis as a sin product is that the economist will tell you that in theory the tax rate on the sin product should be assessed at a level at which it pays for all the social consequences of the legalization of the sin product. There was a report that came out of the congressional budget office years ago that analyzed, that the social cost of marijuana legalization was just one-fifth that of alcohol legalization because of the after- effects of people who ingest or over-ingest in marijuana is just not the same as it is for people who are drunk and have alcohol problems, in terms of criminal justice, violence, etc. There’s theory about what the tax rate should be, but as you’ve mentioned there’s also the politics and the engagement. You can see where this issue alone, if we’re gonna see any kind of opening of doors through rescheduling or banking, it’s not gonna happen unless the tax rate issue is dealt with. And even if you’re focused on the tax rate, you can immediately see the distinction between large players, small players. Should there be step down if you’re a smaller producer or retailer for example? That’s not going to happen by accident, it will be because those smaller producers or retailers get involved in the process. Because again, the big guys will always be able to cover the expenses, but the little ones won’t. 

 

Pat: One thing there, just to give people an idea, a lot of people think that an excise tax and an eventual excise tax on cannabis will probably fall in loosely, taxed somewhere around like a joint of marijuana would be taxed at approximately the cost of a 6-pack of beer, which is somewhere around 35-50 cents in excise tax. 

 

Hilary: I just want to add for the folks that have been watching this saga for maybe the past decade or so, and I assume that everybody on this webinar has a deep interest in cannabis and has studied, and we’re not talking about cannabis basics 101. The issue with 280e, folks think we won’t have to wait on Congress because the courts will handle it. Some federal judge in tax court is going to overturn this draconian unfair and unequitable law. I’m here to tell you right now, it’s not going to happen. Multiple times now, Constitutional arguments have been advanced that 280e is unconstitutional, it wasn’t meant to be applied this way, there’s a lot of legislative speculation over its overall intent. No federal court has entertained those arguments, they will not entertain those arguments. I applaud the litigants who are trying to overturn it in court, but the courts have punted on this, and will continue to do so, it will come down to obviously a federal legislative change, which is going to be no small undertaking for the reasons we’ve discussed here. Do not rely on the courts for having the industries’ backs, they never had, or have in certain circumstances that are exceptions under the law. 280e is not going away based on some kind of judgment, it just will not happen. 

 

Rob: Very good. Why don’t we turn this over to James, and go to the next slide. James will help give us a sense of what the strategy looks like, the outlook for legislative action, so turn it over to James. 

 

James: Thank you. Another question is, can it happen in the next two years? A lot of things I thought would never happen in attitudes have changed dramatically in a whole host of issues, sometimes a lot more rapidly than you would think, and policy makers get overtaken. But with every issue, it has to be a coordinated thought-out plan, at some point things appear random but in reality, they’ve taken years of planning and years of change, building up a lot of that activity behind the scenes. Sort of broad, start out the presentation with, we have a brand-new administration. Priorities 1, 2, 3 through 50 right now is addressing the COVID crisis. Getting people vaccinated, rolling out the recovery plan, getting people their checks. Nothing else is getting oxygen right now in this administration. So, that is a huge challenge. With any luck, a good public health system, the vaccines will have rolled out mostly by this summer, people will be vaccinated, the crisis will begin to recede and abate, and the administration must return to other priorities. So, we’ve done the big bucket of the COVID response. The next phase of this will be the administration building back better. It’s infrastructure plan, it’s ideas for rebuilding all sorts of social institutions, from free community college to cancelling student debt, to building roads and bridges and addressing wastewater and climate change, and every sort of policy issue that they campaigned on. I think at the moment the administration has a clear idea of what it would like to do. And that huge universe I just laid out, each one of those could be a six month or multiyear process to get done. This administration would like to address them in the next three to six months. That’s going to be the next herculean effort to undertake in terms of what matters. They believe they have a once in a lifetime, once in a generation opportunity to address an infrastructure crisis, to address an environmental crisis, and to address the climate crisis. So that will dominate what this administration and Congress looks at over the next three to five months. That doesn’t mean, just because something is front and center, dozens of other issues aren’t being talked about, aren’t being discussed, aren’t being thought about. What it means is that, for the White House, its political attention and focus is on one set of issues. A key set of issues for the president. But every day we work on all sorts of issues for all sorts of clients that are never in the paper but are important to industries and companies and to a whole host of activities that again you’re not hearing about. Bur Congress really can’t walk and chew gum at the same time, and are engaging in a whole host of issues under the radar screen, or at least under the front page of most newspapers. I think the other core issues that you’re going to see in the next 3-6 months are voting rights, which is a core democratic priority, especially in light of what’s happened in the states. The Congressional democrats, this administration, the number one task they have is they want a new voting rights act and a new set of procedures to make it easier to vote. I’m going to be honest, I think this community probably needs to be cognizant of that. 

Restricting people’s ability to vote probably restricts people’s ability to do referendums and to do a lot of these, you know this legislation on marijuana at the state level has been through state referendum’s and state votes, not just for changing state legislatures to make changes but to make changes to voting through initiatives. So, rolling back people’s ability to vote could be problematic or something to consider as you also look at a state strategy and a federal strategy. 

That’s one area where states have outpaced the federal government in terms of change on marijuana issues, and that’s probably not going to change in the short-term. Because, there are no federal voter initiatives except voting in new members of Congress and a new administration. So, those are sort of the big ticket, million-dollar policy goals of this administration. That being said, I think as Pat laid out, there are three corresponding buckets here. You have a justice bucket on marijuana reform. You have a constituency and a large block of policymakers who feel that marijuana laws have been used to unfairly incarcerate and target people of color. They want to change the criminal justice system and criminal justice reform remains a top priority for a large number of policy makers on the Hill and also for the administration. You know, in his confirmation hearing of attorney general Merrick Garland was asked, would you reverse the Trump Administration’s decision to aggressively enforce federal marijuana crimes? He wouldn’t commit to it, because it’s politically unwise to make those types of statements in confirmation hearings, but I think you will see a tone and tenor out of this justice department pulling back from aggressive enforcement. That doesn’t mean that local federal prosecutors aren’t going to engage at times, but this administration will make a slight shift in the policy where it can by congressional interaction. I heard one senior democratic staffer tell me last week, this administration will have used their big items, they have a year before the natural laws of politics and the next election come in, where it makes big ticket items very difficult to do. But that leaves all of 2022 where they need still victories. Members of Congress are going to want to introduce bills, make change, the whole Congress isn’t going to stop because there’s an election in November 2022. The question is, we need advocacy to use this period to do the legwork. It is a quieter period where people need to be building a case, coalitions need to be built, you need to think about what matters to me most? Can you make common cause with the criminal justice reform? Those people who need changes in the banking laws, can you find a path forward with the financial services industry? It’s periods like this with a new administration where there’s an intense burst of energy over core democratic priorities. You just can’t wait until there’s not something on the agenda, because there’s always going to be a crisis, always going to be something that catches a policy-maker’s attention, but this type of change comes from day-in and day-out advocacy. It’s from making the case at your local representative’s town halls, it’s about making the case through a trade association or direct advocacy. And I’m going to say that, the one thing as you look forward as you make change, is you need to give the policy maker a reason to do this. Although lots of states have moved forward, Congress is a little C conservative institution. It moves slowly, it moves incrementally, it moves cautiously on the vast majority of issues. The challenge that this issue has is that the decriminalization part rubs a lot of republican members the wrong way. They just don’t like the idea of reducing the criminal penalties of marijuana use, they’re just not there yet. This is even from people whose states have gone down this path. It is an education campaign that’s going to take time. Just because you think it’s the right thing to do, just because your state has done it, is not a sufficient reason for some policy maker to jump in and say well I agree with you. There needs to be, from the advocates, a compelling reason for the federal government to do this. Whether it be a justice argument, or a revenue argument, or a public health argument, we need to sharpen the message and make that case day-in and day-out, and not wait for some member to get their bills through, because that’s a relatively hard process to do, just in light of where things stand. The House will be easier to move some of these pieces of legislation through, because there’s democratic support. The Senate will be trickier finding advocates and champions on the republican side. Some of it is just an inherent default to law and order, default to status quo, some of it is members of a certain age are not going to accept the idea of legalization. So, you could conceivably get there with 50 votes. It is more likely going to need 60 votes, and 10 republican senators to go along with this idea. So, it’s not an insurmountable task. All sorts of bills still pass the Senate with far more than 60 votes. But it’s not something that happens in a passive environment, it has to happen in an active environment. As you think about your own business, your own advocacy, that’s what you have to think about—making those long-term connections and making a case. I do think there are younger House republicans, republican Senators who are if not going to champion, at least will not oppose. Sometimes that’s the best case you get, people don’t have to oppose you to get something done. The movement loss from Senator Gardner from Colorado, was the one republican senator who was very engaged in these issues, he lost in the last election and was replaced by a democrat, probably with the same views from Colorado, but I do think that is incumbent upon doing the work every day, building the case, getting the bills introduced, things will happen but you don’t know when they’re going to happen. Lightning sometimes strikes, and a piece of legislation moves through more quickly than you expect. But I will say, as Rob and Pat noted, these companies, Altria, Consumer brands, CVS, the convenience store industry are betting on when and not if. I think you need to bet on when and not if, and making sure the policy goals that you have are included for when we get to “when.” So, I can’t say that it’s two years, and I can’t say that it’s ten. It could be 8 months, it could be 3 years. But it requires a content, continuity of effort and change, and I think sometimes we’ll have to look for… everyone would like all of the change to come all at once. That happens very rarely. As I said, I’ll go back to, an incremental cautious conservative institution makes changes in those manners. So, I think it’s a question of prioritization of the policy goals and objectives, and then focusing your advocacy and attention on that. As a timing, using the next 6 months to build the case, and then making a big push as we come into Fall, when this whole huge infrastructure package will be resolved one way or the other. So, as I said, the final thing, as we think about this, standalone bills very rarely move in Congress on issues like this these days. So, whether this gets attached to a broader criminal reform bill, a broader tax bill, I don’t necessarily look at if you’re going to get a single marijuana or cannabis bill to move through the institution standalone. The question is how do we get these policies included in the legislation that Congress is going to pass? That’s all that matters. We don’t need our own special Bill number. That’s always been my thought. You just need a coordinated plan to get these policies included into legislation that the president is going to sign into law. And some of this advocacy also will be getting the department of justice, department of homeland security, getting a whole bunch of the enforcement apparatus to recognize that decriminalization and legalization is a benefit for them. Rather than taking away a core activity of folks who’ve spent their entire careers and policy focus on marijuana being illegal, and how you respond to that illegality, and how do you get them to think about it as a benefit for them as an agency and an institution, that a legalized product regulated and taxed is a much better setup for our government to engage in. 

 

Rob: James, that’s a really great summary of some of the challenges and some of the strategy ideas. We’ve got a couple questions that have come in, we certainly want to have some time to address that. As we transition to that, I just want to share a personal experience in terms of my work with sovereign tribal nations. A few years ago, dealing with tobacco issues for a client that is involved with cigarette, tobacco products manufacturing, we saw a similar dynamic occurring 10 years ago as it relates to tobacco, Pat mentioned it. The large companies, like Altria, Philip Morris, as you know, Reynolds, etc. really ran to and embraced the regulatory scheme, and the reason was because they had written the regulatory scheme, and they were somewhat counterintuitive about the idea that the FDA should be involved with the regulation of tobacco products. So, the family smoking prevention and tobacco control act was adopted, and what it did was escalated the cost of doing business in the tobacco industry, because of the testing of particular products, manufacturers especially, the small ones, one of which is a client, were really hit with unbelievable and burdensome regulatory costs just to stay in business. By that measure alone, the embracing of regulation, and costs and fees, etc., on top of the very high excise tax that exists on tobacco products, really drives out small players from the field. So, as we’ve seen the news coming in, this is an open forum and we’re all friends here trying to learn about an industry, but there are differently competing interests amongst our friends here in the industry, in terms of how large you are, in terms of what your long-term game is, and James is right, it’s just a matter of timing, a matter of when. But those of you who are on the small-to-medium end of the business, it’s really probably going to be a life or death dynamic in the way in which legislation emerges, because the system will be pushed in a way that’s designed to destroy those medium to small businesses. There’s no question about it, based on past experience. I think we need to be real honest about that, as we talk about the risk of inaction, of doing nothing, because it will mean that forces will, not even conspire, because it will happen in the open. We’ll be drawn against and down upon you. Hilary, you want to take any last thoughts before we take some questions? 

 

Hilary: I think that’s right. I think these larger companies and corporations are not going to reinvent the wheel and what’s worked for them in the past, regarding the regulatory template. More barriers to entry are better for them than a smaller to medium-sized business, and what do I mean when I say smaller and medium sized business? I mean anything from mom and pop up to these multi-state operators. These are cottage markets, there’s no interstate commerce. Once these larger companies get in and begin to lobby and we have interstate commerce, they will just move the machine into the new industry to process and sell accordingly. People really believe that there are going to be these major M&A events once the federal shields drop. I’m not convinced that that’s the case, for a number of reasons. With some of our legacy operators, where there’s going to be lots of hair on the deals for various criminal regulatory tax reasons, stemming from statewide legalization, the chances are more likely. These companies are just going to compete, and not actually going to acquire anything other than a completely perfect operator, which you can. In most of these states, these are very very small operations compared to what these companies have going on, when it comes to things like cultivation, scaling of infrastructure for manufacturing, distribution and sales, so to be part of the lobbying conversation around how these issues shape out, everything from social equity to tax reform, to regulatory reporting, is hugely important. Otherwise, you really will be on the menu and shortly out of existence, unless the states step up to protect some of these cottage barriers to entry, like residency requirements, and other requirements that play into the hands of local players. But I can tell you, in the end they’re probably not that interested in doing that, for the same reasons as the federal government, that this is a tax play, a jobs-creation play. They want to ensure that right operators get a foot in and continue, and that’s not always going to lend itself to keeping mom and pop and these smaller medium-sized businesses alive. With that, I don’t want to end on a total doom and gloom note, because change is possible here, you can have a voice if you’re organized and you have your issues straight, and your timing straight. According to James’s super valuable contribution, I don’t think a lot of people understand that. But I want to get into some of the questions that we’re getting. One that came through while we were talking, which I thought was very interesting, but probably going to end up being totally superficial, I’m sure you guys have all heard it, everybody listening has probably heard it. The Biden administration is firing, letting go, putting on leave, certain folks that have admitted cannabis use in the past. Is this at all indicative of what this administration is going to do going forward? Since it seems a bit hypocritical to run your campaign maybe indirectly on the platform of legalization while firing folks who have used cannabis in the past. 

 

James: Well I’ll take a stab at that. I think the administration pushed back a little bit on the total number of people who were let go. Holding a national security clearance is a privilege and not a right. And although they did not come out and say it, if one underestimated cannabis usage or left out something else on that national security form, it’s grounds for instant termination. So, I think my gut is that people in an effort to downplay potential use, probably triggered, I hate to use the word lie, but that’s probably what triggered the termination proceedings. I think in the White House it was ultimately five people, which leads me to suspect that it was a much smaller… People’s forms were either filled out incorrectly unintentionally or intentionally, and they ran afoul. And again, it goes back to some government institutions are inherently conservative. So, if you admit to smoking marijuana every day, the national security people are going to say, I think you’re a security risk. And you’re just not going to get that. And that’s going to be problematic. And again, it’s a double standard. If you said you have two glasses of wine everyday, but you really have 5-7, and you have a drinking problem, you’re likely not going to get that clearance either. I think the uniqueness of working in the White House probably created a special class of issues, but I don’t know that it’s endemic, administration wide. But I do think, no matter legal or not legal, in some parts of the federal government, law enforcement or national security, they’re never going to be real enthusiastic about employees who are regular cannabis users, at least in the short term. 

 

Rob: I just don’t think it has anything to do with policy. This is an HR matter. Each of us on this panel have been involved in human resources issues, it’s a tough business, you gotta follow the rules, and that’s what I think it was, you have to follow the policy. 

 

Hilary: Yeah, I think I tend to agree. Another question, because I think folks that were maybe integral in pioneering legalization back in ’96 in California who have stuck with it as the decades have gone on, probably cannot imagine a world where a big tobacco company comes in and starts marketing and selling cannabis products, and one of the questions that we have is based on your experience, this is a question for all three of you, and Rob in particular because of your tobacco experience, will “big tobacco” be supportive of this cannabis industry and hoist up other small players to ensure equity, or are they more of a competitive threat at the end of the day? I think you’ve already answered this, but I want you to be very clear. 

 

James: A more recent example was vaping. It sort of became an explosion, and a whole host of policy questions around those companies. Then Altria takes a 40% stake in Juul. Tobacco companies have a declining business here in the United States, they’re selling fewer cigarettes. They need new lines of revenue, new lines of business to help upset, so whether that be vaping or cannabis, I view them probably as right now, evaluating whether legalized marijuana becomes a lucrative line of business and helps offset a declining tobacco business. That’s how I would view Altria’s engagement. As you think about it, in some of these other coalitions like the convenience stores, they want a uniform product. Every 7-11 wants uniform products to sell across the country. Who’s in a better position to provide a uniform product at the store you buy in Maryland or the store you buy in California? Large national players. So that is some of the reason that I would say the supply chain and the ecosystem likes big, established players in a marketplace, because if you’re going to sell a product nationally, it’d be great if the product was the same in every store you had, you’d reduce marketing cost. So, I definitely view these large companies as looking at this as new lines of business as revenue, rather than as a complement to their existing lines of business, and that’s where they’re getting into these activities. 

 

Rob: I tend to think of the question relating to whether the fox wants to have a good relationship with the chickens. Sure! But it’s going to be dinner time soon for the fox, given the trajectory of how these issues have played out in the past. I think we have a lot of work to do, and I just want to leave everyone with, we’re in business too. In part, we want to be available to work with you if you’re interested. This certainly lends itself to a collective coalition kind of work to focus on these issues. Obviously, there may be those of you who singularly are able to work with us to help get engaged on these issues, but there’s a lot of players, a lot of activity, I think that it seems disorganized at some level. We have some big battleship players out there like the marijuana cannabis industry association, so working in coordination with those efforts, being more granular as it reflects your particular interest would be a focal point. But we’re glad to have further conversations with you if this is something that you think we could help with. Hilary, I’ll turn it over to you for final thoughts, but thank you all for your time today. 

 

Hilary: Fantastic, we are at the noon hour on the West coast, which concludes this webinar. Gentlemen, I want to thank you for your time and attention, incredibly valuable insights that you just don’t get when you Google “lobbyist” on the internet, we really do appreciate it. And to everybody who attended and watched, thank you so much, we hope you join us next time.