How the 2020 Election Impacts Growing Cannabis Companies



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2020 election season is in full swing, and cannabis legalization is once again on the ballot.

This year, an increasing number of states are either considering full-scale recreational legalization or focusing on medical cannabis, with a whopping 18 states expecting to loosen their marijuana laws either through their legislatures or via ballot measure. But like most things in 2020, those endeavors did not all go according to plan. The spread of COVID-19 stifled legalization efforts in numerous states where ballot measure campaigns reliant on gathering signatures were forced to shut down because of public health concerns and social distancing guidelines.

Despite these challenges, five states will still be voting on legalization measures on Election Day: Arizona, Montana, New Jersey and South Dakota (recreational adult use) and Mississippi and South Dakota (medical). Despite states usually having legal medical cannabis programs in place prior to adopting recreational cannabis laws, South Dakota voters could decidetoenactboth medical andrecreational programs simultaneously this year.

As states vote to legalize cannabis on Tuesday, Nov. 3, 2020, the plant will remain federally illegal unless something extraordinary happens in the next month or so. Regardless, both the presidential and congressional elections will undoubtedly impact the future of federal pot legalization.

Cannabis and the Presidential Race

In September, Democratic vice presidential nominee and California Sen. Kamala Harris promised, at an ABC virtual town hall, that she and former Vice President Joe Biden would decriminalize cannabis.

“Under a Biden-Harris administration, we will decriminalize the use of marijuana and automatically expunge all marijuana-use convictions and end incarceration for drug use alone,” Harris stated.

While Harris was the lead Senate sponsor of the the Marijuana Opportunity, Reinvestment, and Expungement (MORE) Act, which would remove cannabis as a Schedule I drug and effectively legalize cannabis nationwide, her running mate, Joe Biden, does not support legalization. He instead believes more research on marijuana’s effects is necessary before ending prohibition, and his policy is as Harris stated: decriminalization and expungement.

The Trump administration, on the other hand, has taken several hostile anti-marijuana actions since the president took office in 2017. Despite indicating during his 2016 campaign that he favored leaving the issue of legalization of marijuana to the states, his administration rescinded Obama-era guidance on cannabis prosecutions andimplemented policies making immigrants ineligible for citizenship if they consume marijuana or work in the cannabis industry. Plus, Trump’s 2021 fiscal budget proposal removed protections for state medical marijuana laws.

However, Trump has not yet cracked down on state-legal cannabis programs, with his administration’s policy being that such programs could continue to operate without impediment by the federal government in spite of prohibition remaining the federal status quo. The Trump administration also signed a bill federally legalizing hemp, removingobstacles farmers face in growing hemp, including restricted access to banking, water rights and crop insurance.

While the Biden-Harrisadministration has committed to decriminalization, we still face the potential of another four years under President Trump, leading cannabis companies to look at options for expansion in the event of a continued lack of action by the federal government. Let’s take a look at some possible next steps for cannabis companies.

Interstate Compact Deals

With federal legalization progress stalled, one unique way forward is through interstate compact deals. Interstate compacts are agreements between two or more U.S. states that are approved by those states’ respective legislatures, and, if required based on the subject matter of the compact, consented to by the U.S.Congress.

Recently, a coalition of advocacy groups and marijuana businesses unveiled a unique plan to legalize interstate cannabis commerce regardless of ongoing federal prohibition. The Alliance for Sensible Markets has launched a campaign pushing governors from legal and likely soon-to-be legal marijuana states (California, Oregon, New York and New Jersey) to enter into an interstate compact that establishes a framework for cannabis to be transported and marketed across state lines. If this new effort succeeds in getting at least two states to sign on, the compact would then be transmitted to Congress, where lawmakers would choose to codify the agreement or not.

By allowing regulated commerce between legal states, interstate compact deals could encourage a flurry of new investments, as well as business formations and expansions in both medical and recreational states, creating thousands of jobs and generating billions of dollars. Plus, companies in emerging markets can lean on established businesses in producer states to meet local demand for the highest quality medical and recreational products.

Despite its risky nature, proponents of this approach believe that by developing a regulatory framework based on sound economic principles and common sense, such deals would prepare the U.S. for full-scale legalization. But the likelihood of compacts being approved by the federal government largely depends on the makeup of Congress next year.

Banking and the Removal of 280E Provisions

Another option is eliminating the current problems with the 280E tax code and lack of access to banking for the cannabis industry.

Not having access to banking services is often the most significant challenge for marijuana industry stakeholders. Without such services, state-compliant cannabis businesses can’t accept credit cards, acquire loans, set up deposit accounts, write checks, run payroll or pay taxes. And everybody is at risk under the current legal landscape — banks working with legal cannabis companies are either out of compliance or vulnerable to federal punishment, while cannabis businesses struggle to obtain the loans necessary to grow or launch new ventures.

The 280E tax code also bars cannabis companies from taking tax deductions or credits. Thus, cannabis entrepreneurs are forced to pay taxes on all of their revenue without the benefit of being able to use business expenses to reduce their taxable income. For many in the industry, that means paying a tax rate of up to 80% more than neighboring companies not in the cannabisspace.

Efforts to eliminate 280E provisions and expand access to banking services are both likely to come to fruition in the next couple of years, which further erodes the need for federal cannabis prohibition and enables cannabis companies to look at additional options for expansion.

At the end of the day, this year’s elections will have a massive impact on the future of the cannabis industry. But no matter how many states vote to legalize and regardless of which candidate wins the presidential election, interstate compacts and eliminating both the 280E tax code and lack of access to banking provide companies across the cannabisspace with several options for expansion — as long as the federal government continues not to get in the way of progress.

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