Executive Summary
Well into the third year of the global pandemic, with record inflation and the uncertain outcomes of geopolitical issues roiling global markets, the cannabis industry has nevertheless continued upon a similar path as recent years. Public polling continues to show that the overwhelming majority of U.S. adults support the legalization of marijuana for both medical and recreational adult-use. Yet, legislative solutions are unlikely due to Congressional dysfunction and the shift in focus to the midterm elections. Although various efforts to legalize marijuana and end the cannabis industry's inability to access the financial system have been introduced in Congress, nothing appears imminent. Additionally, employers around the country are being squeezed by the competing pressures of increasing legalization, availability of cannabis, and increased protections for the employees who use it.
The cannabis industry is not immune from market forces. As more states legalize marijuana, there will no doubt be an increase in distressed cannabis businesses as companies grapple with new and complex regulations while also potentially facing the effects of a global economic downturn. Cannabis companies, unable to access the benefits under the federal bankruptcy code, may need to consider new "escape valves" if facing insolvency.
There are bright spots such as the edibles market, which is expected to do even better in 2022 than in prior years. However, federal illegality will likely continue to complicate regulatory efforts by the U.S. Food and Drug Administration to provide much-needed rules and guidance in this area.
Other agencies may yet choose to tackle issues that could reverberate within the cannabis industry. The U.S. Patent and Trademark Office, for example, has increasingly been granting cannabis-related patents and is also involved in litigation that could impact companies' ability to obtain trademarks under federal law.
Halfway through the year, where do things stand and what is coming down the road? In the following pages, members of Foley & Lardner's nationally recognized Cannabis Industry Team will share their perspectives and offer insights on the critical issues and inherent challenges facing this exciting and developing industry.
Legislation and Government Affairs
Infrastructure Investments
In its first year, the Biden Administration has invested heavily in improving physical infrastructure through the the Infrastructure Investment and Jobs Act, known colloquially as the bipartisan infrastructure package. Within the bill, there are several carve-outs that focus on cannabis research. Specifically, provisions allow for researchers to study marijuana from state-sanctioned dispensaries. Additionally, the bill requires the development of a public report with recommendations on allowing scientists to access retail-level marijuana to study its impacts on impaired driving.
The Biden Administration has pushed its own recommendations on research. Specifically, the DEA recently proposed a massive increase in the production of marijuana for research purposes. This would include expanding federal cannabis cultivation beyond the University of Mississippi, which is currently the only approved facility for cannabis cultivation.
The Biden Administration also has pushed a $2.2 trillion social spending package, the Build Back Better Act (BBB). The BBB passed the House of Representatives in November, but has since stalled in the Senate. Negotiations are ongoing, and there are no cannabis updates within the bill.
Appropriations Spending
As Congress negotiates FY 2022 appropriations, multiple amendments have been added and removed regarding cannabis. Notably, President Biden included the Rohrabacher-Farr amendment, which bars the Department of Justice (DOJ) from interfering with the implementation of state medical marijuana laws, in his budget proposal for FY 2022. The amendment was included with the two latest continuing resolutions that have funded the government. The latest continuing resolution funds the government through February 18, 2022, after which Congress will need to pass a funding measure or face a government shutdown.
The Harris Rider, a provision originally introduced in 2014 by Rep. Andy Harris (R-MD-01) that blocked the District of Columbia from regulating and taxing recreational marijuana, was not included in the initial round of appropriations bills released by Senate Appropriations Chairman Patrick Leahy (D-VT). It is unknown whether or not the amendment will be included in the final appropriations bills.
Major attention will be on the Blumenauer-McClintockNorton-Lee amendment, which removes the word "medical" from the Rohrabacher-Farr amendment and would prohibit the DOJ from intervening in statelegalized cannabis programs. The measure passed the House last year, but died in the Senate. The original co-sponsors of the bill wrote a letter of support to the Appropriations committees, but there has been no indication on its inclusion in the final bill.
National Defense Authorization Act
Congress recently passed the National Defense Authorization Act (NDAA) prior to the end of 2021. An amendment included within the Senate version of the bill allows the Department of Veteran Affairs (VA) to recommend medical marijuana to patients and requires the VA to increase research efforts on medical marijuana. The VA has resisted efforts to expand research in the past; these developments will be monitored closely.
The House-passed version of the NDAA added the SAFE Banking Act. However, it was removed from the Senatepassed version of the bill, despite 24 governors across the United States sending a letter to congressional leaders urging its addition to the bill.
Legalization Efforts
The House passed the MORE Act in the 116th congress with little bipartisan support. The MORE Act would decriminalize marijuana and would make the decriminalization retroactive by expunging all previous charges. In addition to a 5-8 percent tax to help with social services related to cannabis, it also had a number of banking, research, tax, and equity-related provisions. It was reintroduced in the 117th congress, but there has been no action since its reintroduction.
The Senate represents a tougher landscape for legalization efforts. Majority Leader Chuck Schumer (D-NY) has a plan to decriminalize and deschedule cannabis. His plan has been regarded as significantly broader than the House plan, but has no bipartisan buy-in from Republican senators. With the control of the Senate likely being decided in the swing states of Georgia, North Carolina, and Wisconsin, all of which have not legalized medical or recreational usage, Schumer is unlikely to force any tough votes on Democratic incumbents.
Republican senators still hold strong opposition towards any legalization efforts. In July, POLITICO polled a dozen GOP senators who represent medical or recreational cannabis markets, and none indicated that they would vote to remove cannabis from the Controlled Substances Act. Sens. Steve Daines (R-MT) and Mike Rounds (R-SD), who represent states that recently legalized recreational usage, have nonetheless voiced their opposition to federal legalization efforts. Only one senator from a fully legal state is up for reelection in 2022, Sen. Lisa Murkowski (R-AK), and she said in an interview that removing federal penalties from cannabis may end up being the "cleanest" way to break down the many hurdles facing cannabis businesses.
Finally, there has been a push to have the DOJ deschedule cannabis. While this route is not particularly likely as President Biden has been a notable opponent of federal legalization, it is an option to monitor should all legislative angles fail.
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