Small Business Administration Congressional Hearing: Another Milestone for the Cannabis Industry, Featuring Detractors Offering Inadvertent Support

On June 19th, the cannabis industry got another chance to make its case about access to banking services on the Hill at a hearing by the Small Business Administration featuring comments and questions from seven different congressmen and women (1).

What industry advocates and business people got was mostly partisan support from Democrats, and inadvertent support from Republicans and other detractors who unwittingly advocated for legalization, with references to Frankenstein and comments about using Budweiser as medicine.

What promised to be an interesting discussion with four witnesses testifying to the SBA committee panel in a House meeting room crowded with about 100 interested cannabis activists, cannabis association members and press became another D.C. example of the sometimes absurd and sometimes poignant, with the usual naysayers presenting the sort of misfiring biases that continues to stall the growth of the industry, while proponents laid out simple common sense objectives for running a business like any other small business in this country.

Current SBA guidelines make both direct and indirect marijuana businesses ineligible for the SBA’s loan programs. SBA has had a longstanding policy to prohibit SBA-backed lending to businesses engaged in “illegal activity,” but began expressly identifying direct and indirect marijuana businesses as illegal in 2019 regardless of state laws, adding confusing language that, for example, would prohibit an accountant who advises a marijuana business from getting SBA assistance but would lend money to a plumber hired to work inside a cultivation center (2).

Testifying were Shanita Penny, president of the Board of Directors for the Minority Cannabis Business Association; Eric Goepel, founder and CEO of the Veterans Cannabis Coalition; Dana Chaves, senior vice president and director of specialty banking for First Federal Bank of Florida; and Paul Larkin, legal research fellow in the Meese Center for Legal and Judicial Studies at The Heritage Foundation.

In his opening remarks, the ranking member of the committee, Steve Chabot (R-OH), inadvertently made the case for cannabis legalization and regulation. He said that he believes creating a more organized business for entrepreneurs in the industry would negatively affect the young people in society. “The National Institute for Drug Abuse study found that nearly 33 percent of fifth graders have reported having used marijuana at least once,” he said. “Another study reported that eight graders, tenth graders and 12th graders using marijuana is at the highest rate in history.” A regulated industry would make cannabis sales and consumption illegal to minors under the age of 21.

The back and forth that followed over the next 90 minutes sometimes rolled into the absurd. When discussing how states have legalized cannabis, and were essentially serving as laboratories of democracy to try out novel social and economic experiments (a phrase made famous by Supreme Court Justice Louis Brandeis [3]), Larkin was asked to respond why this method couldn’t be used with the cannabis industry. “It’s a great phrase but it has its limitations because after all Dr. Frankenstein had a laboratory too,” Larkin said.

He added that deciding whether marijuana is a safe and effective drug should be left to the FDA, and not the states, back-handedly making the case for better access to studying the plant.

Congressman Tim Burchett (R-TN) said that there can a lot of talk about the medicinal purposes of cannabis, but that people really just want to get high. “That is the reality of this industry, I believe.” He followed with a question to Larkin: “Do you think it makes sense for the federal government to allow tobacco to be sold under federal regulation, but to authorize states to have complete control of marijuana?” “Yes I think that would be quite silly,” Larkin said, making the case for federal legalization. “There is no reason for the FDA not to get involved as they did in 2009 with regulating the safety of cigarettes and tobacco. And there is no reason not do the same thing here.”

Regarding Burchett’s observation that people just want to get high, Larkin quoted a January 17th Wall Street Journal article by Dr. Peter Bach, a pulmonary physician working at Memorial Sloan Kettering Cancer Center in New York, who wrote that if weed is medicine so is Budweiser (4).

The Burchett statement and article quote was challenged by Goepel, who said that the idea that the vast majority of consumers are using cannabis specifically to get high undermines the medical value that veterans have experienced. “The drugs that have been prescribed to vets, like opioids, sedatives, stimulants, and anti-psychotics, all carry euphoria as a side effect,” he said. “They are all also very psychoactive and incredibly impactful on mental health. We have a situation here where cannabis is a dual-purpose substance. It can be used recreationally and medicinally. That can’t be said for alcohol or tobacco. There are no children who are seizure-free because they are drinking Budweiser.”

First Federal Bank of Florida, a federally chartered bank established in 1962 with 24 branches in eight states, began taking cannabis accounts on April 1. The bank now has 62 cannabis-related accounts with over 55 applications pending. Chaves told about an executive she knew who left a Fortune 500 company to work with one of their cannabis clients. “He was refinancing his home with a large national bank that this executive had a long-standing relationship with,” she testified. “Literally 30 minutes before closing his loan, the bank cancelled it because of where his funds were coming from. We had to step in and assist him in financing his home.”

In Chabot’s final remarks, he said that it seemed somewhat ironic to be discussing the business of marijuana when there is an opioid epidemic that has killed so many Americans all across the country, inadvertently making the case for using marijuana to manage pain instead, which has caused no deaths or overdoses. “Marijuana is illegal, if federal law was enforced, and I think that is something Congress should take up to make a decision,” he said. “We ought to clarify one way or another if it’s legal or not. We owe that to the public. A lot of things have changed in this country, and we will see where this all goes.”

The hearing had its desired positive outcome. On June 28, SBA Committee Chairwoman Nydia Velázquez (D-NY), Rep. Jared Golden (D-ME), and Rep. Dwight Evans (D-PA) announced legislation, the Ensuring Safe Capital Access for All Small Businesses Act of 2019 (5), that would make direct or indirect cannabis businesses eligible for SBA-backed loans including: the 7(a) loan guaranty program; disaster assistance; the Microloan program; and the 504 loan program. Since many of these programs are geared towards borrowers who have trouble obtaining credit from conventional loans, Velázquez’s bill would help to level the playing field for entrepreneurs from communities of color and other underserved areas that have been disproportionately harmed by the War on Drugs.

Disclosures:

References:

1. https://smallbusiness.house.gov/news/documentsingle.aspx?DocumentID=2690

2. https://www.sba.gov/document/information-notice-5000-19004-issuance-sop-50-10-5k
3. https://supreme.justia.com/cases/federal/us/285/262/. Brandeis: “To stay experimentation in things social and economic is a grave responsibility. Denial of the right to experiment may be fraught with serious consequences to the nation. It is one of the happy incidents of the federal system that a single courageous State may, if its citizens choose, serve as a laboratory; and try novel social and economic experiments without risk to the rest of the country.”
4. https://www.wsj.com/articles/if-weed-is-medicine-so-is-budweiser-11547770981

5. https://smallbusiness.house.gov/news/documentsingle.aspx?DocumentID=2712