The CLIMB Act: Is Federal Cannabis Business Reform Coming?

In May 2022, a bipartisan pair, Rep. Troy Carter (D-La.) and Rep. Guy Reschenthaler (R-Pa.) introduced a never-before-seen bill—the Capital Lending and Investment for Marijuana Businesses Act (“the CLIMB Act”).

The proposed legislation, H.R. 8200, would result in a decrease in the cost of doing business as a cannabis-related business (CRB); the ability for such companies to treat banking, financing, and transactions as a traditional business might; and relief for third-party business services put at risk due to cannabis’ Schedule I status under the federal Controlled Substances Act.

In its own words, the C.LIMB Act intends:

To amend any applicable federal law to permit access to community development, small business, minority development, and any other public or private financial capital sources for investment in and financing of cannabis-related legitimate businesses, and to amend the Securities Exchange Act of 1934 to create a safe harbor for national securities exchanges to list the securities of issuers that are cannabis-related legitimate businesses.

To put it plainly, the CLIMB Act would treat legitimate cannabis and cannabis-related companies the same as any other business where federal law would otherwise interfere with third parties’ ability to provide standard business services (e.g., banking and insurance).

What Business Services Would the CLIMB Act Protect?

The H.R. 8200 intends for a broad interpretation so that cannabis and cannabis-related companies are put on an even playing field with traditional business operations. Its purpose may be to reduce purchase prices on cannabis products in highly regulated states, to stimulate economic activity by reducing risks to third-parties, to improve the current state of capital markets—there are numerous benefits to this bill that would justify its introduction.

For an idea of the kinds of business activity the bill is designed to protect and expand; the CLIMB Act defines protected cannabis “business assistance” to include:

• Financial services such as commercial banking, deposit-taking, trust services, capital raising, lending, brokerage, prime brokerage, securities finance services, investment banking, custody services, credit card services, money transfer services, securities underwriting, and investment advisory services
• Providing debt or equity capital and the receipt of dividends, interest, or distributions of that capital
• Provision of accounting services; advertising services; legal or compliance services; IT, software, and communications services; packaging, transportation, or other logistics services
• Provision of equipment parts, substances, or testing services “needed to produce marijuana, hemp or extracts therefrom and to comply with the law, rules and regulations for testing”
• Sale, leasing, or renting of real estate
• The sale of insurance or surety products

As you can see, H.R. 8200 intends to cover most if not all standard business services.

Why Does the CLIMB Act Matter?

Many of the services that fall under “business assistance,” face an unwritten “cannabis tax” up-charge in today’s current market. This results in legitimate cannabis operations paying more for standard business activities (and often receive less in exchange). The “cannabis tax” is most significantly seen as it relates to banking and financing, and insurance coverage. This up-charge is frequently passed down to cannabis consumers by businesses beholden to investors and their fiduciary duties.

The National Association of Insurance Commissioners describes what is at stake in the areas of insurance and finance for cannabis-related businesses (“CRBs”) under current federal law:

CRBs share the same general liability and other risks agricultural and manufacturing businesses face. This includes workplace accidents, damage to property and crop failure. CRBs are especially prone to fires from both wild and internal sources.  Some of the biggest risks involve theft, general liability and product liability. Companies functioning within state legality face severe banking restrictions due to federal regulations. It is estimated that approximately 70% of CRBs operate solely as a cash-only business and have no formal relationship with a bank.  As a result, CRBs may be forced to handle large sums of cash, subjecting them to a higher risk of theft and increased liability.

Sadly, despite the same needs of your standard legitimate business (e.g., credit card transactions and adequate insurance coverage), cannabis businesses remain exposed and exploited.

Where Will the CLIMB Act Go Next?

The CLIMB Act is an efficient, 7-page bill that would go into effect 180 days after enactment. As of June 23, 2022, the bill still sits in the House Committee on Financial Services.

The bill’s short, narrow, common sense composition and bipartisan support give it a good chance of gaining traction. When cannabis bills become too broad and try to cover too many issues, they tend to get caught up in disputes and discarded for more pressing issues during legislative sessions.

This bill is unlikely to garner opposition from outspoken social equity advocates that have slowed previous legislation, including the S.A.F.E. Banking Act, because third-party services provide a low barrier point of entry for communities impacted by cannabis prohibition to generate wealth within today’s regulated cannabis market.

If stakeholders and top lobbyists—such as the U.S. National Cannabis Council which includes many of the U.S. cannabis market’s major players—get behind H.R. 8200 alongside state and local-level stakeholders, we may just see our first significant law in federal cannabis reform.