Title by Bruce Barcott and Shaleen Barcott
Many drug reformers and leaders in the cannabis industry have applauded the SAFE Banking Act vote as well as the Biden Administration’s Review of the Federal Status of Marijuana. The federal marijuana reform bill is a threat to thousands of small business owners and farmers if Congress does not take action to small businesses.
A state-licensed marijuana company is not allowed to use basic financial services under current law. This means that marijuana companies are not allowed to use basic financial services. The emerging cannabis billion-dollar companies don’t have a problem with that. Private equity and funding rounds of hundreds of millions are used to expand the cannabis industry and buy smaller companies.
Small businesses cannot compete at that scale. The Biden administration plan to simply reschedule cannabis will likely supercharge the growth of national cannabis conglomerates, while suffocating local community-scale business.
It should be a win-win situation for both parties. The support for small businesses and marijuana legalization is a rare issue where Republican and Democratic voters can find common ground. In a recent Gallup survey, Republican supporters of legalization are now at 51 percent. Meanwhile, 81 percent Democrats want to abolish the prohibition on pot. Both parties want to be viewed as the true friends of Main Street moms and pops.
But party leaders are embracing a lose-lose. In a recent study published by the Drug Enforcement and Policy Center at Ohio State University, we discovered that America’s $26 billion legal marijuana industry is rapidly consolidating in the hands of few well-financed players on a national level. In 2018, only 3 percent was generated by the seven largest cannabis companies from across the country. By 2022, this share would have grown to almost 18 percent.
If this trend continues, America’s cannabis industry could soon look like the beer industry. A handful of multinational corporations will dominate the market while small businesses compete for a shrinking share of the pie.
Here’s what could happen. In 2010, President Biden began a review of the status of marijuana as a Schedule I substance. The Department of Health and Human Services has reportedly recommended that cannabis be reclassified to a Schedule III substance, along with steroids, ketamine and Tylenol containing codeine, instead of its nonsensical Schedule I classification (heroin and LSD), which was imposed by the anti-hippie Nixon administration.
If the Drug Enforcement Administration is in agreement with HHS, then a downscheduling will force the Internal Revenue Service (IRS) to stop treating state-licensed legal companies as if they were cocaine smugglers from the Miami Vice era. This is no small matter. In the early 1980s, Congress created Section 280E of the federal tax code to punish companies that sold substances on the Schedule I and II list. State-licensed cannabis businesses are taxed between 60 and 90 percent.
The federal criminal status of marijuana users would not change if they were moved to Schedule III. They would still be prohibited from using basic banking services. For the first time ever, this would allow for a federally approved, FDA-legal status, which is something that major pharmaceutical companies could likely afford.
Small businesses in every industry use a variety of programs to compete on a crowded market. Small business loans backed by the government are what drives America’s economic engine. These financial instruments are partially guaranteed by federal Small Business Administration and secured by local bank. They turn promising business ideas into successful, wage-paying businesses. They enable successful companies to expand. They help businesses recover when disaster strikes.
SBA loans are available to all American entrepreneurs–except those running state-legal cannabis companies. Banks would still be at risk of violating anti-money laundering laws, even if they were given Schedule III status. SBA officials would remain bound by marijuana’s still-technically-illegal federal status.
Congress and the White House do not need to reinvent themselves. Simple solutions are available. Small businesses can now engage in interstate trade before Amazon or Philip Morris enter the market. Grants and loans could be made available to them. SAFER, an modest banking reform, could provide small cannabis businesses in America that are state licensed, pay taxes and follow the law a fair chance at success, if amended to include SBA loans.
America’s 33,000,000 small businesses deserve to compete and succeed. Local entrepreneurs who thrive in the face of national competition, regardless of industry, strengthen our communities.
Bruce Barcott, author of Weed the People, The Future of Legal Marijuana, is the founder and director of Parabola Center for Law and Policy.
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