ACT Resources Cannabis News – November 2019
The end of the year is fast approaching and cannabis industry news developments have not slowed down. In a year marked by widespread legislative action on cannabis, including on Capitol Hill, there has been no dearth of information to captivate entrepreneurs in the space. Last month was no different, with more positive developments coming down the pike. From national legalization efforts in Mexico to a crackdown on corruption in the licensing of legal cannabis businesses, the industry continued its growth and evolution toward a more normalized and visible business. ACT Resources brings you the good, bad, and ugly of some of the most recent developments in this installment of our monthly news update.
Mexico prepares for cannabis legalization
Canada became the first country in North America to federally legalize cannabis, and while the U.S. is home to 33 states where medical marijuana is now legal, as well as 11 that have legalized adult use, it is Mexico that is poised to become the second.
On Oct. 17, the Mexican government unveiled draft legislation that would legalize cannabis, making it the third country worldwide behind Uruguay and Canada to end cannabis prohibition. The legislation follows the Mexican Supreme Court’s decision last year that effectively ruled bans on adult use and possession of cannabis are unconstitutional. That decision marked the fifth occasion the court ruled on the matter, which in Mexico means it is essentially legal precedent.
Under the draft legislation, which might change, Mexican citizens must be 18 to purchase and possess cannabis products, which creates a significant market of its 127.6 million people. Cannabis consumption will be banned in public spaces, however, so no cannabis cafes or lounges will be permitted. Further, Mexican packaging regulations are expected to be tightly controlled, demanding non-descript packages that do not depict people or characters in any way.
Edible cannabis products would also not be part of the adult use industry under the proposed law. Instead, they would be restricted for medical use only. Licensing priority for Mexican cannabis businesses will be given to low-income entrepreneurs, small farmers and indigenous Mexican people, rather than large, established cannabis companies.
The Mexican Supreme Court set a deadline for passage of the legislation by the end of October. Lawmakers reportedly missed that deadline, but the pending legislation is still alive in the legislature. Mexican lawmakers have requested an extension to the deadline and reportedly intend to debate the bill this month.
Cannabis industry corruption crackdown
As more states legalize cannabis, the FBI has noted a significant risk of corruption in the licensing process. States generally require extensive application processes to determine which entrepreneurs will be awarded licenses to cultivate, distribute and sell cannabis products. The agency is concerned that public officials could be susceptible to bribes in exchange for licenses throughout these state-run processes.
The FBI first publicly announced its concerns in August, but since has begun a crackdown against corruption in the state licensing of cannabis businesses. One city that has drawn considerable attention is Sacramento, California, where the FBI is investigating whether some cannabis businesses paid brides to public officials in exchange for licenses.
As federal attention shifts from enforcement of prohibition to investigations of corruption, the cannabis industry stands to benefit from fairer and more transparent licensing processes on the local and state levels. Licensing applications are time consuming and costly endeavors, so guaranteeing a level playing field based on merit and capability is essential to ensuring the continued healthy growth of the young cannabis industry.
Cannabis industry breaks lobbying records
The cannabis industry is quickly growing into a full-fledged business community with the ability to influence public policy. That has been highlighted by the major increase in lobbying funds directed toward pro-cannabis initiatives, particularly the passage of the federal Secure and Fair Enforcement (SAFE) Banking Act.
Cannabis industry businesses spent $3.77 million in the third quarter of 2019, which exceeds spending for the entirety of 2018 by more than $1 million. The SAFE Banking Act, which would implement safeguards for financial institutions that work with state-compliant cannabis businesses, has been a central focus of the cannabis industry this year. Much of the increased lobbying funding has been focused on the passage of that bill.
- Cannabis industry breaks lobbying records
The cannabis industry is quickly growing into a full-fledged business community with the ability to influence public policy. That has been highlighted by the major increase in lobbying funds directed toward pro-cannabis initiatives, particularly the passage of the federal Secure and Fair Enforcement (SAFE) Banking Act.
Cannabis industry businesses spent $3.77 million in the third quarter of 2019, which exceeds spending for the entirety of 2018 by more than $1 million. The SAFE Banking Act, which would implement safeguards for financial institutions that work with state-compliant cannabis businesses, has been a central focus of the cannabis industry this year. Much of the increased lobbying funding has been focused on the passage of that bill.
The biggest individual spenders are among the most common household names in the cannabis industry. The Cannabis Trade Federation spent $760,500, topping the charts, followed closely by Curaleaf Holdings at $700,000. In third place was the National Cannabis Roundtable, which contributed $445,000, followed by the National Cannabis Industry Association at $430,000 and Parallel Brands at $420,000.
SAFE Banking Act update
Where has the influx of lobbying dollars gotten the SAFE Banking Act? The bill passed the House of Representatives with overwhelming support in September, which was a significant victory for advocates of the legislation. Now, the bill lies with the Senate. It is unclear whether the chamber will bring the bill up for debate and, eventually, a floor vote.
The SAFE Banking Act would insulate financial institutions from federal charges of money laundering, a big concern that has kept many out of the space. Since cannabis remains federally illegal, a federally chartered bank stands to lose their FDIC status and charter if they face money laundering charges, effectively shutting them down. Nationwide, only about 500 banks and 100 credit unions have extended financial services to cannabis industry businesses, making it difficult for them to operate as normal companies. The SAFE Banking Act would avail additional banking services to the industry, making it easier to secure checking accounts, electronic payments and loans.
That all depends on one man: Senate Majority Leader Mitch McConnell (R-KY). McConnell can decide whether to bring the bill to the Senate floor for a vote, where it would either pass or fail with a simple majority. It remains unclear whether McConnell intends to do so.
Center for Disease Control (CDC) update on electronic vaporizer associated lung injury (EVALI)
The ongoing vaping crisis, now referred to officially as EVALI, has created concern in the cannabis industry around vaping products. The CDC announced last month that “informal” THC vaping products purchased on the black market or from unlicensed dispensaries are the primary driving force of the illness. The number of people hospitalized related to EVALI has risen above 1,600, with 34 deaths reported to the CDC at the time of the announcement.
Some states have responded to the EVALI epidemic by banning all vaping products outright, including non-cannabis vapes. Massachusetts instituted a four month ban on all vaping products, for example. New York, also, is reportedly considering banning certain vaping products in light of the illnesses.
The CDC’s announcement that black market vape products are primarily responsible for the illnesses hasn’t prevented declining sales of licensed products in the cannabis industry, however. Sales of cannabis vapes and associated products have reportedly declined by 15% nationwide, and by as much as 60% in some states.
Whether you’re breaking into the cannabis industry or run an established business, staying on top of the rapid news developments in the space is a must. Also essential is partnering with an accounting team well versed in the intricacies and special considerations required for a cannabis business. ACT Resources offers the advice and recommendations you need to keep your cannabis business’s financial house in order and to avoid running afoul of the sometimes labyrinthian regulations surrounding the industry. If you are in need of financial assistance don’t wait – ACT today. And stay tuned for our next monthly news update!
