With the 2020 election right around the corner, we felt it was necessary to speak with three industry legal experts and discuss the potential implications of the elections on the Cannabis Industry. We examined the potential impact at both the state and federal level, as well as, how this pivotal election will impact current and future operators in legal states. It is important to understand how this will impact the prospect of Federal Legalization.
- Michael Cooper is the Co-Founder and Managing Member of MadisonJay Solutions LLC, a leading strategic regulatory advisor to the adult-use cannabis and hemp CBD industries that helps businesses develop robust, proactive regulatory strategies to grow and thrive in these fast-evolving areas.
- Kristina Dahmann is a senior associate in Ice Miller’s Litigation Group. Kristina has broad litigation experience encompassing traditional business and banking disputes, trade secret protection, white collar criminal defense and environmental litigation.
- Samuel H. Porter III serves as senior counsel in Ice Miller’s Public Affairs and Gaming Practices. His extensive background combines public service, government counsel, liquor control and gaming compliance.
1) How have things been leading up to the election, what are key items you are preparing current clients for?
The one certainty in these industries is regulatory change. And that’s a pretty important certainty in such highly regulated industries. Whether you’re talking about adult-use cannabis, medicinal cannabis, or hemp-derived cannabinoid products, these elections will bring change. For some, such as the adult-use reform on the ballot in New Jersey, the election can create a market where none previously existed.
For others, the impact will be more indirect, but dramatic nonetheless. For example, in the 2018 elections, a strong opponent of cannabis reform, Rep. Pete Sessions, lost his seat and committee chairmanship from which he had blocked votes on a number of cannabis reform measures—reforms that polled well and that vulnerable members of Congress preferred not to oppose. With the Democrats taking the House in 2018, Rep. Sessions’ chairmanship passed to Rep. Jim McGovern who removed those impediments. That has led to members of Congress being forced to go on record on cannabis issues, and leading more candidates for office to take explicit positions on cannabis issues.
In an environment like this, it’s essential that entrepreneurs understand both what may be changing and when those changes may be coming.
Put another way, we know the rules of the game will be changing. Understanding (1) the rules most likely to change, (2) what those changes may look like, and (3) when those changes are coming provides a crucial strategic advantage. Winning businesses in these highly regulated spaces aren’t merely reacting to rule changes; they are building their businesses to capitalize on the opportunities created by where the rules are going.
Kristina Dahmann & Sam Porter
That’s easy, patience! As all of your readers know, when it comes to legalization issues of cannabis patience is key. On a national level, it seems unlikely that a Biden win or the Democrats taking control of both chambers is going to have immediate sweeping changes for cannabis in the short run. We believe a Biden Administration is likely to prioritize COVID relief efforts and health care insurance first.
There was some discussion about the federal Marijuana Opportunity, Reinvestment and Expungement (MORE) Act receiving a floor vote by the end of the year. However, if Biden wins we would be surprised if this happens – we would imagine his Administration would want to take a more active role in framing the legislation before it’s voted on. If Trump wins, it seems unlikely that the Democrats would gain control of the Senate so it may just be business as usual for the time being with a Trump second term.
So for now, it’s patience.
2) What are some things on the ballots for this election that you are paying close attention to? What should operators be paying attention to?
The obvious answer is the state ballot initiatives. There have been positive polls on cannabis reform initiatives across the country. And when those pass, they can have very dramatic impacts.
For example, consider New Jersey’s adult-use reform measure. It has been polling very, very strongly. Assume the polls are right and it passes, what happens? The immediate answer is that New Jersey is put on a pathway to open a new adult-use market. But the impact won’t be limited to New Jersey, which shares borders with two highly populous states. In fact, New York City and Philadelphia are connected by commuter rail to New Jersey. Though the governors of New York and Pennsylvania already support adult-use reforms in their respective states, one can expect that a thriving adult-use market generating much-needed tax revenues for state coffers is likely to increase the political pressure on neighboring states. Of course, any movement in New York is likely to have a cascading effect on Connecticut and so on.
The other obvious answer is the control of the White House and House and Senate at the federal level. Cannabis reform is a popular issue, and there are bipartisan supporters in Congress today. That said, there are a number of Democratic senators who will be likely to push for federal reform if they retake the Senate. The next question, in that version of events, is which of the varying options of federal reform will they take up.
3) Arizona, NJ, South Dakota, Montana, and Mississippi are all on the ballot for some sort of legalization, how do you think this will impact the industry?
Every state that creates a new market is significant. It’s significant because it opens opportunities for new entrepreneurs in that state to produce or sell state-regulated and taxed cannabis and cannabis products, and opportunities for experienced operators in more mature markets to expand their operations, enter into licensing deals, or offer their expertise.
Moreover, whole books could be written about the potential health impacts of consumers replacing untested illicit market products with rigorously tested products produced in facilities with modern sanitation regulations and the impact of supplanting the illicit market with operators subject to environmental oversight.
Progress at the state level is also significant because it increases the pressure for federal reform. Assume, for a moment, that you are an elected official representing one of these states in Congress. It’s hard to imagine that protecting state cannabis markets didn’t just become a significantly more important part of your job description, putting aside all of the other important reasons to support reform. Victories in “Red” and “Blue” states only further increase the pressure for federal reform, regardless of the parties in control after the election.
Simply put, no state has a rollback of cannabis reform on the ballot. So, at a minimum, there is no “pickup” opportunity for prohibitionists. The only question is how many of the positive polls in these races translate into victories on November 3 and how much additional momentum reform gains.
Kristina Dahmann & Sam Porter
Aside from deregulation, the cannabis industry seeks credibility and legitimacy. A sweeping passage of the combination of medical and adult use across these five states may help normalize the image of cannabis use. If all five states pass the proposed law, new operators are likely to put increased demands on their State and Federal office holders to support their businesses.
This would mean more energy spread out across Congress to support issues like decriminalization and a review of existing banking regulations. We also think it will become a revenue issue for other states that don’t allow for medical or adult use. COVID-19 has blown massive holes in state budgets, Governors and state legislatures are going to be looking for ways to cut costs and increase revenues.
“Sin” taxes have historically been one source of revenue to help states crawl out of the red. So, as more states adopt some sort of legalization, it seems likely more states will follow.
4) How would this election impact Federal Legalization? What are your thoughts?
As I just mentioned, we’re not coming out of this election with fewer states having cannabis markets. And if the polls are correct, there are going to be some Americans waking up with their states tasked with opening new regulated cannabis markets. That can only increase the momentum behind (1) federal cannabis reform and (2) the likelihood of reforms to make the landscape for hemp-derived cannabinoid products clearer for that matter.
In my view, “Federal Legalization” is unlikely to occur in a single vote. Rather, it is likely to come in a series of incremental steps, both legislative and regulatory. An instructive example is the hemp cannabinoid market, where the 2014 Farm Bill led to the broader 2018 Farm Bill. But if you are in the hemp cannabinoid market, you know well that the legal framework, particularly around specific product categories, remains unsettled and still in the process of evolution.
So, what’s the takeaway? Make sure that your team understands the rules as they stand, but also where they are going. Learn from some of the operators who, for example, were proactive and thus able to capture significant market share while the competition played catch-up when regulatory changes were implemented in existing markets. And then make sure that your short- and medium-term strategies put you in the best position to leverage the opportunities available in these highly regulated spaces. Or, alternatively, be ready for some very unhappy calls from your investors because change is definitely coming.
Kristina Dahmann & Sam Porter
Fair Enforcement (SAFE) Banking Act. That said, Mitch McConnell, and by all recent polls is safely holding a lead in his Kentucky Senate race, holds the keys to the Senate vote, assuming the Republican party maintains the majority. Some of the biggest Senate races to keep an eye out for are Joni Ernst of Iowa and Steve Daines in Montana.
Ernst has consistently opposed legalization of cannabis in any form. She did, however, support the 2018 Farm Bill. Daines has been more open to medical uses of cannabis, including supporting its availability to veterans.
Daines’ opponent current governor Steve Bullock has stated publicly that the federal government should not interfere with the states’ decisions around cannabis legalization. Some other races to keep an eye on include Colorado, which has been a leader in promoting the cannabis industry.
Recent polls show Governor John Hickenlooper pulling away from incumbent Senator Cory Gardner. It looks like turn out may play a big factor in the Colorado race. In the end, if the Democrats take control the Senate, it may lead to cannabis banking reform, but probably not a lot else in the first year. This would provide access to additional capital for the industry.
In the event there is a sweep from the Democrat side of the aisle, there may also be policy changes from the U.S. Department of Justice and from FinCEN as well, starting with the rescinding of the Sessions Memo or the reinstatement of Obama era guidance for those responsible for policing the drug community.
About the interviewees
Michael Cooper – MadisonJay Solutions
Michael Cooper is the Co-Founder and Managing Member of MadisonJay Solutions LLC, a leading strategic regulatory advisor to the adult-use cannabis and hemp CBD industries that helps businesses develop robust, proactive regulatory strategies to grow and thrive in these fast-evolving areas. Michael draws on his time as General Counsel of MHW, Ltd., the leading provider of solutions for alcohol producers, and prior regulatory law practice at Cravath, Swaine & Moore LLP where he designed compliance programs, advised on regulatory risks for mergers and financings, and defended companies before regulators.
Michael currently serves as Co-Chair of the NCIA Policy Council, the organization’s think tank for cannabis policy. He is also the Chair Emeritus, and the immediate prior Chair, of the NCIA’s State Regulations Committee. He is a graduate of Harvard College and Harvard Law School. Michael publishes and speaks frequently on topics related to cannabis regulation.
Kristina Dahmann – Ice Miller
Kristina Dahmann is a senior associate in Ice Miller’s Litigation Group. Kristina has broad litigation experience encompassing traditional business and banking disputes, trade secret protection, white collar criminal defense and environmental litigation. She also has provided risk management, compliance, and state and federal regulatory counseling to local banking institutions and businesses.
Kristina has specific experience with federal and Ohio administrative and regulatory processes with respect to federal and state-regulated industries and regularly provides counseling to help clients navigate these industries.
Kristina Dahmann was recently named as a 2021 Super Lawyers Rising Star. Ice Miller’s Litigation Practice Ranked One of the Top 33 Most Feared Firm – Ice Miller’s Litigation Practice was featured in BTI Consulting’s Litigation Outlook 2020. The Firm’s corporate counsel ranked among the top 33 most feared law firms in Litigation and on the honor roll in Product Liability Litigation.
Sam Porter – Ice Miller
Samuel H. Porter III serves as senior counsel in Ice Miller’s Public Affairs and Gaming Practices. His extensive background combines public service, government counsel, liquor control and gaming compliance, which allows him to provide multi-dimensional service to his clients. Before joining Ice Miller, Sam was the regional director of compliance for Penn National Gaming, Inc. (“PNGI”) in Columbus.
He oversaw all compliance operations for the Ohio Hollywood Casinos, Racinos and Racing to ensure adherence to all federal and state regulatory requirements, PNGI policies and compliance with responsible gaming.
Sam served as assistant chief counsel to the Office of Governor John Kasich, providing legal counsel to the Governor and senior staff. He worked with the Governor’s legislative team and members of the General Assembly to draft and review legislation and administrative rules as well as all state agency chief counsels to manage and direct major litigation and policy matters.
This information is for educational and general informational purposes only. It is not specific legal advice. You should seek legal advice from your counsel in an attorney-client relationship.