THE COVID-19 pandemic is sending shockwaves through the economy and the legal cannabis industry is also feeling the effects.
Fortunately, in many states cannabis dispensaries were deemed an essential business during lockdowns and now there are moves afoot to further legitimatize the industry.
Cannabis industry executives also say there’s the possibility of seeing more legislation legalizing recreational use of cannabis in more states, and perhaps at the federal level. Here’s what’s at play.
Access to banking
The new $3 trillion coronavirus stimulus bill which the U.S. House of Representatives passed May 15 includes a provision that would allow banks to serve legal marijuana businesses without risking prosecution.
Financial institutions that serve cannabis businesses can be prosecuted for money laundering or financing criminal activity even if those firms are in states where recreational and/or medicinal cannabis is legal.
The stimulus bill adopts the language of another piece of legislation that passed the House with bipartisan support in September 2019, the Secure and Fair Enforcement Banking Act, or SAFE Act.
The measure would assure banks and credit unions that they won’t be penalized by federal regulators for working with cannabis clients in states that allow marijuana or hemp production and sales.
While that is good news, the Senate has yet to take up the stimulus bill, so its fate is unclear. Senate GOP leadership has indicated they are not inclined to take up the legislation and if they do, the final version of the bill may or may not include these cannabis-friendly banking provisions.
Can coronavirus speed up legalization?
The Workers’ Comp Executive reported that the California Department of Insurance’s Administrative Hearing Bureau is receiving an increasing amount of complaints from employers that are disputing their workers’ comp insurers’ request for additional premium for employees that had originally been classified as independent contractors.
The publication cited the case of a construction firm that State Compensation Insurance Fund says misclassified 42 individuals who worked for the company as independent contractors in 2017 and hence should pay an additional $114,000 in premium for that year.
The dispute is currently in front of the Administrative Hearing Bureau.
In 2018, the California Supreme Court handed down a game changing decision in the case of Dynamex Operations West, Inc. vs. Superior Court, in which it set forth a new test for who qualifies as an employee or independent contractor. Under this test, an employer must answer ‘yes’ to the following three questions if they want to classify a worker as an independent contractor:
Is the worker free of the employer’s direction and control?
Does the worker perform work that is not ordinarily part of the employer’s regular work ?
Is the worker involved in an independent trade or occupation that is the same/similar to the work being performed?
Cannabis industry CEOs have speculated to CNBC that the COVID-19 pandemic could spur Congress and state legislatures to introduce legislation that would legalize the cannabis industry in some way.
They reason that federal cannabis legislation is more likely to materialize after a number of states deemed cannabis dispensaries essential businesses, allowing them to stay open when many other businesses had to shut down during shelter-at-home orders. CNBC interviewed the chiefs of a number of cannabis businesses including producers Cresco Labs, Curaleaf, and Green Thumb Industries, and Matt Hawkins, a cannabis investor.
Some of them said that the government will be looking to help get the economy in gear again and that recreational cannabis sales could be a part of the solution.
When states started ordering most businesses to close, essential businesses were allowed to stay open and eight of the 11 states where recreational marijuana use is legal deemed dispensaries essential.
Additionally, weekly sales in March grew to $134 million in California, Washington and Nevada, up 17% from the weekly average of 2019, according to Cowen Inc., a financial services firm.
It noted that in the second half of March, the average purchase at dispensaries surged 47%.
Currently Arizona, New Jersey and South Dakota are slated to have recreational marijuana measures on the ballot for the November election.
In addition, Connecticut, New York and Rhode Islands have pending legislation that would legalize adult-use cannabis.
Meanwhile, legislation has also been introduced in the U.S. House of Representatives that would legalize cannabis for recreational use by adults.
While there is a slight chance it could pass the House, it would be a steep climb to get the bill passed in the GOP-controlled Senate.
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