Emily Yu

Welcome to the third season of State AG Pulse. In this season, we’re selecting one story every week from the state AG news. Over the next  minutes, we’ll take a quick dive into that story to analyze the impact of AGs as regulators and consumer protection guardians, and provide tips to help your business work successfully with state AGs.

Chris Allen

Hello and welcome back to season three of State AG Pulse. I am Chris Allen, a partner in Cozen O’Connor’s State AG Group. We are excited that you’ve decided to join us again today, and I am excited because I am joined by my colleague Emily Yu, an associate in the state AG practice. And Emily, you and I did the inaugural sneak peek issue of season three together. So it’s good to see you again.

Emily Yu

Nice to be back, Chris. And we have another exciting, fun story today to talk about.

Chris Allen

I know. We seem to get the, let’s call them the unusual topics. So today we are going to talk about cannabis. I can think of very few issues that have experienced so much evolution just in the last decade, maybe even the last five years. What we’re going to talk about specifically today is the role that state AGs play on this issue. Emily, maybe you can give us some background about one of the more recent developments of state AGs in this area.

Emily Yu

On September th, a coalition of  AGs led by Maryland, DC and Oklahoma sent a letter to congressional leaders in support of the SAFER Banking Act. SAFER stands for Secure and Fair Enforcement Regulation Banking Act. Now, different iterations of this act, formerly known as the SAFE Banking Act. I guess they decided to tag the regulation onto that later…

Chris Allen

Well, because obviously it wasn’t safe enough. So we had the SAFE Act and now we have the SAFER Act.

Emily Yu

Yes. So because of the name change, maybe the SAFER Act is faring better than the SAFE Act because… bigger, better newer act. So previously the SAFE Act, seven prior iterations of it had passed through the House and never made its way to the Senate. On the evening of September th, the SAFER Banking Act advanced from the Senate committee in which it was introduced, and it is now headed to a full Senate floor vote.

Chris Allen

No, the Senate doesn’t have any other business to deal with this week, so we can assume it’s just going to fly through there. And then of course, the House is the model of responsibility right now.

Emily Yu

Exactly. So the AGs were writing in support of the SAFER Act, and they made pretty much similar arguments to previous letters in which they’ve written in support of the SAFE Act. More on that later. In the letter, the AGs talk about the fact that marijuana in some form is now legal in  states, three territories and DC. And they make the argument that in the US sales would reach up to  and a half billion by the end of . So really setting the stage for how truly important this industry has become.

And they bring up the key issues driving their support of the SAFER Act – the fact that these marijuana businesses can’t access banking creates barriers to entry, creates instability within the industry, it’s a safety issue because all of these marijuana businesses, a lot of them are operating cash only, and that obviously leads to a lot of bad actors wanting to commit crimes to get in on that cash. And another issue, which is probably the most interesting to the states is they want their money, the taxes issue.

states currently collect taxes on marijuana sales. And they gave one example, which surprised me. In Montana,  million in tax revenue had been collected since January , which I found very interesting.

Chris Allen

Well, not a lot else to do in Montana, I guess. I’m sorry. I’m sorry, Austin, General Knudsen. It’s lovely up there. I’ve been there. It’s great.

Emily Yu

Going back to an allusion earlier to other previous AG letters in support of the SAFE Act, the SAFER Act’s predecessor, there have pretty much been AG letters in support of the SAFE Act almost every year. There was one in April  written by the NAAG co-chairs of the Federalism Committee. again, a bipartisan effort. There was a letter in May  in which a bipartisan group of  AGs had written in support of the SAFE Act, interestingly enough arguing that that should be passed as a part of a COVID relief package.

Chris Allen

Well, not a lot to do during COVID either.

Emily Yu

Yeah, I think that’s a great explanation as to why this kept popping up. And again, there were two other letters, one in , one in , again bipartisan. So this has really been an issue that’s garnered bipartisan support over, at least back until .

Chris Allen

It has. Well, it hasn’t entirely, Emily. I’m a little older than you are, so I remember when you had states like Nebraska and Utah going to legal war against Colorado back when Colorado was on the bleeding edge of legalization. But what does unify this, what does make it bipartisan, and I think you’re correct to point that out is, when you get beneath the question of should cannabis be legal or not, which the country seems to be trending pretty definitively in one direction about that, then you get to, okay, what are we going to do about it?

Despite, again, policy differences between, perhaps, Democrats and Republicans on this issue, what AGs do share is a desire to create a predictable legal environment. An environment in which their businesses know the rules of the road and can operate. An environment also where they are able to concretely tell their legislatures and their policy officials what the rules are. And when you have an issue like this where cannabis in its various forms is still illegal under the Controlled Substances Act, and that has a host of implications across the entire country in terms of regulation.

And that’s an ideal situation, I think, where AGs can come and talk, not only from their roles as the chief law enforcement officers in their states, but also policy advocates and political actors, people that understand the concerns of their constituents and also, like you said, the interests of their governments in raising revenue.

Emily Yu

So just to weigh in a little bit more on what AGs have done in the past, and Chris, what you were saying earlier about AGs fighting over whether or not medical or recreational or even hemp should be legalized, when I was digging back into some of the other previous AG actions in addition to these bipartisan letters in support of banking regulations, I did see a lot of what you were talking about, AGs working to create more certainty and stability for those already in the industry.

Early on, a lot of AGs were creating work groups within their AG’s offices or within their state governments, setting forth their own guidelines for use of different types of cannabis products, writing comments to the FDA to try and shape the development of cannabis regulation. There were really big pushes on CBD product labeling, both in actually taking enforcement action and issuing warning letters. And all of that makes a lot of sense and ties in with why AGs are now writing in bipartisan support and have been writing for the last few years to address, like you said, now that it is legal in  states, three territories and DC, what now?

And that same theme of AGs trying to create certainty, legalization question aside, really continues to pull through and has been a thread in AG cannabis activity since . And maybe that thread gets to get closed up nicely if the Senate decides to vote in support of this SAFER Act, hopefully someday in the near future.

Chris Allen

I don’t recommend anybody hold their breath in terms of congressional activity in the next several weeks at least. But one thing I like to do on these podcasts is actually step back for a second, because hopefully we still have some listeners on here who are not in the cannabis space. And what we can learn from this, I think, is applicable to, say, some of the conversations we’re having about AI right now, algorithmic decision making. There’s a lot of, what’s it, non-traditional financing, for example. FinTech, that’s what it’s called.

These are all areas where the pace of development, the pace of the issue is far outstripping anything the feds can do. It’s outstripping what a lot of state regulators can do. But again, state AGs, because they sit in this unique role, because they have such diverse authority in so many tools at their discretion, they’re able to act and they’re able to shape the regulatory environment around these issues much faster and more effectively, I would argue, than a lot of other entities out there, maybe any entity out there.

And like you said, Emily, to do it on a bipartisan basis. And so what we can learn from this cannabis discussion, I think, is really interesting and it’s applicable to a lot of other fields and to entities that are operating in those other fields. And I should say we have clients in the cannabis space, so we know this from experience. The state AGs are going to be in the driver’s seat on so many of these issues because they can bring their consumer protection authority to bear, because they can speak with the authority of the states.

Because they can express all of the interests that their states have in not only having definitive rules of the road for the business community, but also in recognizing revenue, recognizing the benefits that these industries and the business community can bring to their states as well. And so AGs are both key actors here, they can also be key allies. They should be people that the business community is reaching out to tell them these issues. I guarantee you the cannabis industry has been out there telling AGs, hey, we can’t operate like this with the Feds potentially coming down on our backs and shutting down our financial access while at the same time you’re telling us that we can do business and serve the people of your state.

So there’s a broad lesson to be drawn to from this issue. And it’s one of the reasons I find it’s just so fascinating as a topic because the specific AG angle here has just been remarkable to watch over the last decade.

Emily Yu

Yeah. And I’m sure this won’t be the end of AGs weighing in on this space and becoming more involved even after, if the SAFER Banking Act passes now, these cannabis businesses will have access to banking services that every other type of business has. But it obviously doesn’t stop there. There’s going to be, with states having so recently legalized marijuana in so many places, it’s going to be a process of states AGs and the federal government all working together to fine tune regulation of this industry.

And I think your parallel of this industry and AGs taking action here to FinTech, it’s a perfect parallel. A lot of the same language and concepts that are used here with the SAFER Banking Act; the SAFER Banking Act at its core is creating a safe harbor for depository institutions to service this industry. And that just rang a lot of bells in my head with the regulatory sandboxes and all of that. So I think that was a great parallel you drew there.

Chris Allen

For sure. Well, I think we’ll leave it there. This has been a good discussion, Emily. Thank you as always for your insightful comments. And if the SAFER Bank Act doesn’t work, I look forward to the SAFEST Bank Act of . We hope you found this informative and perhaps entertaining, and we hope you join us for our next podcast. In the meantime, take care, everyone.

Emily Yu

You have been listening to State AG Pulse, brought to you by Cozen O’Connor’s State AG Group and the State AG Report. Please leave us a five star rating and of course, tune in again next week.