With everybody high on cannabis’ potential after New York legalized cannabis, is it a good time to jump into marijuana stock investing?
States first legalized cannabis in 2012, but the business is still in its infancy on a national level. Even though New York just legalized cannabis, it is still a cash business operating outside of federal law, which still considers marijuana a Schedule 1 substance on the same level as heroin.
As a Schedule 1 substance, the federal government says cannabis has “a high potential for abuse, no currently acceptable medical uses,” and “lacks accepted safety for medical uses.”
A majority of states, 36, and the District of Columbia have legalized cannabis for medical use, according to the National Council of State Legislatures, which also said 16 states and D.C. have legalized recreational marijuana, opening it up to 40% of the national population.
It is still a federal offense to distribute marijuana. The only reason states have been able to legalize cannabis and build a market within the state is because the U.S. Department of Justice has yielded to states since President Barack Obama ordered DOJ to back off in 2009.
Although Democrats have been associated with legalizing cannabis, it has some bipartisan support. For instance, John Boehner, the once-staunch anti-pot Republican speaker of the house, is now a spokesman for the industry.
Some things that might change on the federal level:
SAFE Banking Act: The Secure And Fair Enforcement Act has been reintroduced in the U.S. House and Senate. SAFE would allow financial institutions to provide services to cannabis clients without fear of federal penalties, according to the law firm, Foley Hoag. SAFE would establish a safe harbor for depository institutions providing financial services to cannabis businesses by prohibiting federal banking regulators from:
• Terminating or limiting deposit insurance for servicing cannabis clients.
• Prohibiting, penalizing, or discouraging a depository institution from providing financial services to cannabis clients.
• Recommending, incentivizing, or encouraging a depository institution to not offer financial services to cannabis clients.
• Taking adverse or corrective supervisory action on loans made to cannabis clients.
• Prohibiting or penalizing a depository institution for providing financial services to cannabis clients.
The legislation would also tell the treasury department to ensure guidance issued by the Financial Crimes Enforcement Network is consistent with the SAFE Banking Act and does not obstruct financial institutions from providing financial services to cannabis clients.
Although SAFE has bipartisan support in the Democratically-controlled chambers, Foley Hoag said the bill’s passage would still be unlikely without “accompanying removal of cannabis from the schedule of controlled substances and restorative justice provisions to expunge or pardon past cannabis offenses.”
The new laws would not necessarily legalize marijuana nationally, but they would remove many of the barriers that states and businesses face.
The biggest impact would be allowing full participation of the cannabis industry in the financial system. Retail purchases is still conducted in cash, so businesses have to contend with limited options in the federally regulated banking system.
“This matters to cannabis companies of all types, especially those that want to utilize the available federal exemptions in their securities offerings,” according to a post from Jonathan Bench, Harris Bricken attorney.
The SEC said the amendments will promote capital formation and expand investment opportunities while preserving investor protection. That means cannabis companies would have access to a wider pool of investors.
“We can expect future refinements to the SEC’s rules to provide more opportunities for investors,” Bench wrote, “and more guidance for companies looking for safe harbors from legal snags when dealing with investors.”
Steven A. Morelli is a contributing editor for InsuranceNewsNet. He has more than 25 years of experience as a reporter and editor for newspapers and magazines. He was also vice president of communications for an insurance agents’ association. Steve can be reached at [email protected]