Overview of Federal and State Cannabis Regulations and Emerging Policy Shifts

ACKRELL CAPITAL CHAPTER IV U.S. Legal Landscape State governments continue to adjust recreational cannabis regulations in an effort to create favor- able industry conditions and address health and public safety concerns. State-licensed recreational cannabis businesses must comply with a host of requirements related to security (such as video sur- veillance, alarm system requirements and owner/operator criminal background checks), product diver- sion (particularly seed-to-sale tracking requirements), product safety and quality (including product labeling requirements and potency and contaminant testing), and general business operations (such as restrictions on advertising and compliance with energy and environmental standards). m U.S. Federal Law Current federal law effectively prohibits all cannabis use and all commercial cannabis activity in the United States. Producing, selling and possessing cannabis are federal crimes. No cannabis-derived drug has ever been federally approved for use in treating any medical condition. Otherwise legitimate busi- ness transactions conducted by cannabis companies—and their banks, for those who can access bank- ing services—are legally suspect. Certain intellectual property and bankruptcy protections critical to many U.S. businesses are not available to cannabis companies. Cannabis companies pay federal income tax at effective rates significantly higher than other businesses. Despite official prohibition, federal policies and laws recently passed by the U.S. Congress have carved out a limited space in which the state-legal cannabis industry has managed to thrive. Enforce- ment policies published by the U.S. Department of Justice (DOJ) have unofficially invited cannabis business to proceed if certain conditions are respected. The U.S. Department of the Treasury (DOT) established reporting policies that create room for banks to service the cannabis industry. Federal bud- get legislation has prevented allocated funds from being used to prosecute conduct that complies with state medical cannabis laws. Recent developments indicate that the federal government may be pursuing policies and practices that create space for cannabis research and approval of cannabis-derived drugs. In particular, the US. Drug Enforcement Agency (DEA) adopted a new policy in 2016 designed to increase the number of DEA-registered cannabis cultivators (there has been only one such cultivator for nearly 50 years). And the U.S. Food and Drug Administration (FDA) is reviewing a New Drug Application (NDA) submit- ted in October 2017 for what could be the first ever cannabis-derived pharmaceutical approved by the federal government. The following chart shows three general areas of federal law that impact the cannabis indus- try—food and drug regulation, banking and finance, and intellectual property—as well as specific laws and federal policies related to each of the areas discussed later in this chapter. © 2017 Ackrell Capital, LLC | Member FINRA/SIPC 67 HOUSE_OVERSIGHT_024703