Podcast - A Conversation on Cannabis Legislation with Rep. Ed Perlmutter

Ron Klein: Hello, my name is Ron Klein. I'm a partner at Holland & Knight out of the Washington, D.C. and Fort Lauderdale offices. I work in the government practice group. My background is, I'm a business lawyer but also served in the Florida legislature, and most importantly for this conversation, I'm here with my good friend, Congressman Ed Perlmutter. He and I were elected to Congress in the same year and he has gone on and continued to just prosper as one of our great leaders in our country. A little bit of background, before I start grilling him, Congressman Perlmutter represents the Seventh District of Colorado. He is from Jefferson County, a lifelong resident his family has had business there and he has been a lawyer in that area who was elected to the state Senate, was leader in the state Senate, a great deal of reputation in being a bipartisan leader and working together on solving many of Colorado's issues. I would tell you that a couple of areas that he's been so involved with for so many years are renewable energy and smart growth policies. He's shaking his head, because it's true, and he was ahead of his time. As we know, these are huge issues right now, not just in Colorado, but for the whole country. And he's been speaking about them not only in his state Senate days, but as long as I've known him in his service in Congress and we thank him for his continued speaking out and now, of course, leading in those areas. As I said, he was elected in 2006 to Congress. He serves on the House Financial Services Committee, Science, Space and Technology Committee, the all-important Rules Committee, which every bill goes through, and the Select Committee on the Modernization of Congress. He's never been afraid to touch challenging issues, uphill battle types of climbs, and the subject matter today is cannabis, which of course is a fascinating issue, and one he has taken a great deal of leadership in and really has taken on that climb and is getting close to the top of the mountain. We're going to talk all about that. So welcome, Congressman Perlmutter. Anything you want to say to start?

Rep. Ed Perlmutter: Well, Ron it's great to be on your podcast. It's good to see you. And I'm happy to be part of your program so far away, and it's good to see a classmate from our class that was elected in 2006 doing so well with such a prominent law firm. Ask away.

Ron Klein: Thank you. And I thank you for your nice comments and back at you. So first of all, maybe since the since the subject is cannabis and obviously many of us have different knowledge and experiences over the years with cannabis and the laws around cannabis and all the rest of that, why don't you give us some background on the current state of law at both the federal and state level around the United States.

Rep. Ed Perlmutter: I think that's really the important focus we've got to take. So, you know, there has been kind of an odd history with marijuana, with cannabis over the years. In 1971 cannabis, anything with THC was made illegal for all purposes, it became a Schedule 1 drug under the Controlled Substances Act. So, it is on par with heroin and morphine and all of the heaviest drugs. It was outlawed for all purposes and that means you can't research it, you can't bank it, you can't smoke it, you can't eat it, you can't do anything with it; it's illegal. And so for the last 50 years, the federal law has really been on that track. At the same time over the last, say, 10 years, we now have 47 states plus the District of Columbia that allow some level of cannabis use. So it could be fully legal like it is in Colorado. We're now up to about 16 states where that's the case. We probably have a dozen more, I think 15 more that are medical marijuana states. And then the balance would be CBD, so cannabidiol. Even medical marijuana and cannabidiol are illegal under a strict reading of the Controlled Substances Act, so the state laws and the federal laws are in complete conflict at this point. But the states have sort of gone their own direction. We raised this back in about 2012, 2013, as Colorado legalized it, to the Obama Administration and said they ought to deschedule it or do something because this is really going to become a problem. And what they did was they put out a couple of guidances, one through the Treasury Department, one through the Justice Department that said, look, we understand that this is against the law under federal law, but if you make sure that there's no organized crime, it's transparent, kids can't get their hands on it and a number of other kinds of provisions, we're going to put an enforcement against cannabis at the bottom of the pile. It was called the Cole memo and the FinCEN guidance. And so we started down the path of allowing some banking and some other kinds of things to happen with those particular memos. So I'm happy to keep going, but I think maybe you want to ask a few questions about that, because the legislation is one thing that I'm working on and how the executive has approached it is another thing.

Even medical marijuana and cannabidiol are illegal under a strict reading of the Controlled Substances Act, so the state laws and the federal laws are in complete conflict at this point.

Ron Klein: Yes, that's a great segue. I think obviously we see two bodies of law there in conflict. First of all, state to state have different varieties of the use, but that could be controlled that way, but you saw this overlay of the federal government. So it sounds like what you're saying is that the federal government, at least under the Obama Administration, was sort of stepping back a little bit. Did that change at all during the Trump Administration?

Rep. Ed Perlmutter: A little bit. In kind of an odd way, Trump appointed Jeff Sessions to be the attorney general. As attorney general, he revoked the guidance that had been offered in the Justice Department under Obama. So the Cole memo was revoked, but Secretary Mnuchin kept the FinCEN guidance in the Treasury Department. So yes and no. Basically, the Trump Administration, with the exception of Jeff Sessions and his revoking the Justice Department guidance, kind of kept on the same course as the Obama Administration as it applied to cannabis.

Ron Klein: So what are the kinds of things that the federal government can do in a sort of a comprehensive way to allow states to do what they want to do at this point?

Rep. Ed Perlmutter: So there are several pieces of legislation that are under discussion. The one that I'm working on and have been working on now for seven years is called the SAFE Banking Act. What it involves is providing a safe harbor for financial institutions: credit unions, banks, trust companies, insurance companies, real estate companies to be able to do business with a marijuana establishment, a dispensary or the like, without violating federal banking laws and the Controlled Substances Act. So it gives the banks a safe harbor, allows them to start providing credit cards and payroll and checking accounts and normal financial services and get the cash that's generated by this industry off the streets. The cash really attracts crime, robbery, burglary, murder. We've seen that, and we want to, from a public safety standpoint, allow legitimate businesses to have legitimate banking relationships.

It [the SAFE Banking Act] involves is providing a safe harbor for financial institutions: credit unions, banks, trust companies, insurance companies, real estate companies to be able to do business with a marijuana establishment, a dispensary or the like, without violating federal banking laws and the Controlled Substances Act.

Ron Klein: So for people listening to this who maybe don't know that much about what you're saying is right now in general, you can't use banking services. So that means when people go to a dispensary, they're paying cash and they're collecting cash, that's the only way to pay for these goods.

Rep. Ed Perlmutter: And they pay their employees in cash and pay their services, the plumber in cash. So it really is just a heavily cash dominated business right now. Now, we do have still the FinCEN guidance that says we'll allow some banking if you follow all of these protocols. But most financial institutions are nervous about that. They'd like to see real legislation in place. They don't want to have something revoked out from underneath them like Jeff Sessions did with the Cole memo. So that's where we're going with the SAFE Banking Act, so that banks and credit unions and other financial institutions can feel comfortable that the law allows them to provide financial services to legitimate marijuana businesses and different businesses that work with the marijuana industry, whether it's the shop owner who has a storefront where a dispensary is, or a plumber or the lawyer. One of the big supporters of this is ScottsMiracle-Gro, which is a major, a Fortune 500 company, fertilizer business out of Ohio. They are seeing much of their business is related to the marijuana industry. As a consequence of that, plus a number of Republicans who kind of have a libertarian sort of bent have been very supportive of the legislation that we've drafted. Steve Stivers has been my main Republican sponsor. He's from Ohio and that's where ScottsMiracle-Gro is.

Ron Klein: Interesting. I'm from Florida and I've noticed that traditionally Florida, a very large agriculture state, which people know, not just citrus, but a lot of citrus has gone away over the years because of canker. But farmers are very anxious to go into this as a cash crop, and they just view it as a great opportunity, very conservative people who view this, they want to legalize, they want to make sure it's done the right way and they're looking for it. So let me ask one question I've been asked about this, does your bill also include insurance products?

Rep. Ed Perlmutter: Yes. In fact, every insurance association, whether it's property casualty, life insurance, fidelity, you name it, they are supportive of the legislation. We work closely with the insurance industry, obviously with the banking industry, with credit unions, with the Real Estate Roundtable, with the Armored Car Association, with attorneys general across the country, with state treasurers, because state treasurers are getting paid in cash. And municipal taxes are being paid in cash. Everybody agrees this is a real problem and we've got to get it resolved so that normal kind of financial transactions can take place. Now, this bill is focused on banking. We have several other bills we can talk about that are much broader in scope.

Ron Klein: I want to get to that in a second, thank you, because I think that is the next question. Before I get to that, though, your bill passed just this last number of days. 321 to 101, which means bipartisan. I understand half of the Republicans and obviously a larger number of Democrats, but the fact that it's bipartisan at this point for a lot of different reasons. But tell me, what does that portend for the opportunity in the Senate?

Rep. Ed Perlmutter: So we were able to pass it with big bipartisan support in the last Congress when it sat in the Senate Banking Committee, even though we sent it to him in several different forms. The Republican Senate just didn't move on it there. You know, that was the case. Now, we were able to pass it again with big bipartisan support. So it was every Democrat and 106 Republicans voted in favor of the bill, which we sent to the Senate last Monday. So we were able to move it quickly, had support of our leadership. Now Sherrod Brown is the chair of the Senate Banking Committee, and he and I have had some conversations we're going to keep talking, unlike the Republican Congress, which really was very nervous about moving on the legislation at all, even though we had a lot of Republicans as co-sponsors, it never moved.

The Democratic Senate is kind of looking at it the other way. They want to add things to the bill, which is great. They just need to actually act. If they add research, because under the Controlled Substances Act something you can't even study the effects of THC or cannabis, you can't tax it in a way that makes any sense because that would be a violation. So there's all sorts of regulatory problems and research problems and medical problems and they want to address those things and I think that's great, but they just need to really get busy on something. So I think this will be kind of the catalyst to the Senate actually taking some steps to at least allow banking, probably research, do some things regarding equity with respect to cannabis, because, you know, a lot of cannabis violations really affect minority communities in a very disproportionate way. That's one of the things that I know a lot of people would like to address, but as you add stuff, you start losing some Democrats and quite a few Republicans.

I think this will be kind of the catalyst to the Senate actually taking some steps to at least allow banking, probably research, do some things regarding equity with respect to cannabis, because, you know, a lot of cannabis violations really affect minority communities in a very disproportionate way.

Ron Klein: I know there's a lot of criminal justice reform issues that are also tied to this being a controlled substance and all that. I think that another thing that people are concerned about and even people that are using it for medicinal purposes right now is making sure that whatever is out there, that the efficacy is standardized, that they know what they're buying, that there's some type of regulatory structure. I mean, the natural progression, I would think, would be FDA at some point or some type of oversight of what's being sold. And then, of course, the taxing is the second issue. But talk about where this goes, it's not going to happen in this bill unless the Senate really expands it, but what do you see as next steps for the industry?

Rep. Ed Perlmutter: Well, I'm going to step back and tell you what I think the next steps are, because I don't want us to get too far ahead of ourselves. So this banking piece is something that has to be addressed because the financial industry is really under federal law. So the Federal Controlled Substances Act has a huge impact because it's federal law and it affects banking, it affects credit unions, affects anything really in the financial services arena. So it has to be addressed to get the cash off the streets. Now, on top of that, I can see a lot of members of the House and the Senate in favor of research. So to your point, to be able to really study cannabis and THC to determine how powerful it is, how weak it is, to allow for some standardization, you know make some determinations. How does it help medically? Is it really a medicine and how do we want to manage that?

So, you know, it could be regulated through the FDA, could be regulated in a way that is similar to alcohol, so that there's a there's a taxing structure and a regulatory scheme in place that has the states in charge of some of the regulation and the federal government in charge of some of it. Those things are all up for discussion. I know the Senate is looking at that. But again, as you start expanding the breadth of this thing, the potential for losing votes begins to show up. But we'll see. We'll see how they proceed with this.

Ron Klein: We know we've seen that before. You know, the good intentions of making a bill better, loads it up so heavy that when it comes back to the House after the Senate, then it's dead on arrival. So I hear your point.

Rep. Ed Perlmutter: I think the Senate, you know, they've got to watch their own part of the Congress because some people can be so ambitious that they can't even get it out of the Senate. Like I said, we haven't seen any legislation move out of the Senate related to cannabis. The House has moved legislation. So let's see what the Senate can do and hopefully they'll get the right mix and be able to pass something back to the House.

Ron Klein: Like you said, the Senate takes 60 vote, unless they change the filibuster. So going back to the Senate and the leadership; we know McConnell last time, never let it see the light of day, which is his prerogative, to say we're not going to hear or we're not going to get it out of committee or whatever it may be. This time, Senator Schumer, who does control the floor, has been more pronounced and that we want to bring it forward. Have you had the chance to speak to Senator Schumer or other colleagues in the Senate about you mentioned Senator Brown, but anybody else and just give a sense whether and how they're going to do with us.

Rep. Ed Perlmutter: Well, so the primary sponsors are Jeff Merkley, senator from Oregon, and Steve Daines. So Jeff is a Democrat. Steve Daines is a Republican from Montana. So those are the primary sponsors. There are, I think, another thirty eight co-sponsors on top of that, mostly Democrats, but quite a few Republicans. So I think we have 38 or 40 co-sponsors in the Senate of the SAFE Banking Act. I know that Senator Schumer is very interested in moving something forward with respect to cannabis. And I think he is pretty ambitious in what he would like to see pass the Senate. So we'll see what kind of a bill he can put together and what kind of coalition he can put together to pass, whether it's the SAFE Banking Act or something in addition to the SAFE Banking Act. Let's see what he can he can do to move that. But he's going to be more open, certainly, than Mitch McConnell was.

Ron Klein: And I saw that recently in his home state, which he's paying close attention to just legalized cannabis in a more dramatic way. So I think that obviously gives them a little local flavor on this in addition to his national leadership. So obviously, a bill passed in the House and a bill passed the Senate then goes to the President. What does the attorney general think about this? And what do you what are you hearing from the administration in terms of their views of the SAFE Banking Act.

Rep. Ed Perlmutter: They are generally open to it, but we've got to have more specific conversations. I had quite a few conversations, actually, with Secretary Mnuchin about it in the last Congress. I don't know, I'd be guessing, speculating, but I think had we gotten it out of the Senate, I think he at least Secretary Mnuchin was pretty receptive to doing something because, again, these banking services that are normal for, you know, all sorts of other businesses can't be offered without a lot of restrictions to a marijuana business or somebody that services the marijuana business. So I am planning to have conversations with Secretary Yellen, she and I have spoken about it in the past and also with the White House. But I think they're pretty open to it. I think that President Biden is open to doing something with cannabis. He's a pretty conservative guy on this subject, but I think with respect to the banking piece of this, he sees that it has to be addressed.

We just had recently, a murder in Oregon where there have been 100 robberies over the course of the last year. Some armed, some not, but robberies because of all the cash there. We just had a bystander shot in a robbery here in Colorado and we've had a murder here. A young man named Travis Mason, who had just come back from Afghanistan, and was serving as kind of a night guard while he was working his way through school and had a couple little kids and he got killed in a robbery. There really is a public safety component to this that cannot be overlooked. It just the business generates so much cash.

Ron Klein: So I'll ask you the last question for our little conversation. Using your crystal ball, 10 years from now. What do you see the cannabis industry looking like in the United States? What do you see the use? How do you see the whole picture?

Rep. Ed Perlmutter: I see it maturing into a fully legal industry that's regulated in a fashion like alcohol. There will be public companies that will be in this sphere. We'll be working with Canada, I'm sure, because they've legalized it across the board and allow for investments and sort of public financing of marijuana businesses, cannabis businesses up there. I see that same thing in the United States. There will be sort of the medical aspect to it and then the fully legal aspect, banking services will be provided, there will be research that will allow us to standardize different kinds of strains of cannabis and the edibles. How potent are the edibles? That's something that has to be done and needs to be done. I see that all occurring over the course of the next five to 10 years.

I see it maturing into a fully legal industry that's regulated in a fashion like alcohol. There will be public companies that will be in this sphere.

Ron Klein: Well, that makes all the sense in the world and boy we have come a long way from the days when Bill Clinton was attacked for inhaling or not, whatever the situation was, but people have changed their views. I think I shared with you the story of being from Florida, it was illegal here forever, of course, and it would come up on the constitutional amendment where the voters get to vote. Never had enough votes. But I could tell the difference one of the years, just a few years ago, when my dad who at the time was about 89 years old, and when he told me he was voting to legalize cannabis, marijuana, I said deals done it's over, it's going to pass. And it did it passed like 70% or something like that. People on the older side were recognizing that there were some medical uses for relief of some pain and some other things that we're dealing with and for cancer and things like that.

I want to just thank you again for your leadership on this, because what you've done is you've taken the most responsible way of thinking it through. It's not a casual conversation. It's a serious one about something that needs to be treated seriously, both from a law, criminal law, banking, the efficacy, all those things. So just if you want to close with any anything else that we should all be thinking about and cannabis. But we appreciate what you're doing.

Rep. Ed Perlmutter: Look, you just summarized it very nicely. So when I first started working on this legislation, it was back in 2012, 2013 and the chair of the committee at that time, Barney Frank, said, OK, Colorado has legalized this there's going to be a collision in the banking sector there's going to be a lot of cash here. Let's get this addressed. So I started working on it and when I would bring it up, there was always what I called the chuckle factor. Everybody would chuckle about it, saying, OK, you're from Colorado, you're a mile high or this or that. But by being persistent, even on a subject that really hadn't been addressed since 1971, eventually people did see how serious this was and how you know the potential for this business from all sorts of perspectives, whether it was: there's so much cash that it's going to attract crime, to potentially all sorts of medical benefits to it, to just its normal business let them have normal banking relationships. So that chuckle factor has gone away, you know, resulted in a very big vote. Out of 435 members of Congress, we got 321 who voted in favor of it in the House of Representatives. So, you know, this is a serious subject, just as you said. And folks are generally saying, OK, let's just get this thing out in the open and get the cash off the streets and let's regulate it properly, tax it properly and allow it to have normal kinds of business relationships. So we'll see. We'll see how it goes. But I think we're on the right track with this.

This is a serious subject... And folks are generally saying, OK, let's just get this thing out in the open and get the cash off the streets and let's regulate it properly, tax it properly and allow it to have normal kinds of business relationships.

Ron Klein: I think its time has come and it's been through great members of Congress like you who have taken it on the way you have. On behalf of Holland & Knight and me personally as a friend, I thank you for taking the time today and we look forward to seeing great things from this piece of legislation, and other things you're working on.