Cannabis Capital Podcast

Transcript

[00:00:00] Welcome to another episode of Cannabis Capital, the podcast. I'm your host, Ross O'Brien, founder of Bonaventure Equity, Venture Capital Fund, and author of Cannabis Capital, the book. I'm excited to bring you another incredible conversation. today with really nothing short of an icon in the cannabis space.

Somebody who's, uh, been out in front of, uh, the regulatory environment really since inception. So we are excited to take you beyond the headlines and dig in and have a great conversation today with Ed Perlmutter. Ed is a eight times member of the U. S. House of Representatives and two times Colorado State Senate.

And Ed was really one of the first elected officials to embrace cannabis reform and [00:01:00] regulation. And I've had the distinct pleasure of having a number of conversations over the years with Ed. So, Ed, welcome to our podcast. Thank you, Ross. It's good to be here. It's great to have you. I'm really excited for the conversation today.

Another prescient conversation, I would imagine, between it seems like every time we get together, something major is happening. There's votes having this. I remember, I think one of our first meetings was really around the actual. First voting of the Safe Banking Act. So for those who don't know, why don't we back up for a second, tell us a little bit about your practice now at Holland and Knight, a little bit about your background and specifically some of the early sort of cannabis reform.

We'll go from there. Well, I'm a Colorado native, uh, born and raised and half my family is there. My wife and I, it's our second marriage. We've got six kids, five of them live in the Denver area, which is wonderful. I went to the university of Colorado where I got my law license, practiced law for a long time before.

I was elected first to the state Senate and then to the United [00:02:00] States House of Representatives. And as you said, I served eight terms and now I retired. On January 3rd of this year. And I started at the law firm of Holland and Knight on January 4th. So I'm practicing law again, both in the Denver office and the DC office, doing some public policy, some lobbying, got some litigation.

So a mixture of things, but primarily working in the public policy. Arena and advising clients about the best way forward, whether it's kind of state legislation or federal legislation. Well, I know we keep your phone lines jammed up with all the questions and everything, especially in cannabis. I know you work in a number of other areas of government as well, but specifically around cannabis reform and regulation, it seems like there is a new headline every week.

Things move very, very quickly. And yet here we are. What's [00:03:00] seven times eight times now for the Safe Banking Act. So it feels like we move really quickly and then things kind of pause along the way. So maybe that'd be a good place to start. Maybe let's go through a little bit about what's happening today with safe banking.

Well, today things are actually moving. There's, you know, that seems to be a little break in the log jam, but this has been a long time coming. And as you said, I've worked on this subject for quite a while now, Colorado. Was the first state to legalize cannabis. Uh, did that back in 2012 by an initiative from the people.

So it wasn't legislation. It was, uh, you know, a ballot issue and the people of Colorado voted pretty sizably in favor of legalizing cannabis for anybody 21 and older. And Washington, the state of Washington followed closely on the heels of Colorado. So. Way back then, I was asked to take up the issue of banking and cannabis by Barney Frank.

[00:04:00] Plus, I had some friends who'd run into some difficulties. Where they had a lot of cash in a dispensary and were robbed at gunpoint. And so I took up the issue. We work with the Obama administration, which was prepared to go with what's called the Cole memo and the FinCEN guidance, which just said cannabis enforced, you know, bringing people in.

Because of a violation of a cannabis law was low on the federal priority. And if you followed a few things and kept cannabis out of the hands of kids, you were transparent about the business. If you stayed away from any kind of organized crime, then you were going to be very low on the list of priorities.

And that sort of remained the law, even though it was just an executive order, more or less. Until we decided we had to bring the safe banking bill to lock it into the law. And as you said, we really started gaining traction [00:05:00] about five years ago, when it passed first out of committee and then passed the floor of the house to the Senate, where we sent it to the Senate seven times, but they sat on it.

Now, today, the Senate is moving, uh, moving safe banking, which is now called safer banking. They've made some changes to it, primarily in the banking section, not in the cannabis section. And I think that there's a real opportunity to make progress on this subject, uh, even though it's been stalled for about five years.

So I think it's really important that people pay attention to some of the history here, because I think The signals from the early days with you. I think it's really important people understand this was put forward as a ballot measure, right? To start with, and you know, the trajectory of the Safe Banking Act, when you talk about the Cole memo, who has never thought about it when the Cole memo was published, that there would be the need [00:06:00] for a permanent solution at some point.

I mean, it seems like it was something that was necessary at the time, but. It never appeared to me as if it was something that regulators were saying, Hey, this is going to be the legal precedent for the rest of time. So when we approached and it was Denny Heck, who was in Congress at the time, he's now Lieutenant governor of the state of Washington.

And I approached the Obama administration asking them to just de schedule. And the administration said, no, but we'll make it so. It's a low priority for the Justice Department, low priority for the Treasury Department. And so they were willing to do this Cole Memo and the FinCEN guidance as sort of a temporary measure while we went to Congress to get the law changed.

And the reason it's a temporary measure is from administration to administration from attorney general to attorney general, these guidances, the FinCEN guidance or the Cole memo could be revoked. [00:07:00] And we saw that happen. We saw the Cole memo revoked when attorney general Sessions took over under the Trump administration.

The good news is that under secretary Mnuchin, the treasury secretary, the FinCEN guidance remained in place. But the main import of all this is that we've got to get a law in place. So it can't just be revoked from administration to administration. So then we really got serious about moving the Safe Banking Act and for.

You know, the longest time and Ross, you've heard me tell this story. I used to get what was called the chuckle factor, you know, that it was cannabis and Perlmutter you're from, you know, Colorado, you're a mile high. And folks kind of took it as a joke. And then they realized that it wasn't a joke, that there was public safety at stake.

There was equity at stake and there was a lot of money at stake. And eventually I got [00:08:00] over that chuckle factor. And that's when the bill, uh, people realized this was a serious piece of legislation and they, in the house, especially, uh, saw that it needed to be moved and we had every Democrat and more than half the Republicans.

So. One of the problems Congress has had is, you know, on a number of issues, it's very hard to get. Bipartisan support, but not on this piece of legislation, not on this cannabis and banking legislation. We had big bipartisan support. I remember that specifically as being part of the conversation when I think the first time we spoke is when I interviewed you for the book, which would have been 19, I guess.

And 18 or 19 is more in there. 18 or 19. Yes. And it was really interesting. To hear yourself and others talk about the bipartisan nature of the Safe Banking Act, what do you attribute that to? And how is that carried forward to where we are today? Well, I think there are a number of pieces to [00:09:00] that. I had some great Republican co sponsors, most of them from Ohio, Steve Stivers, Warren Davidson.

David Joyce, but I had strong Democratic co sponsors, uh, Earl Blumenauer out of Oregon, who's really been a champion on this subject for a very long time. You know, folks from California and, and the state of Washington. So one, it took good co sponsors, and then we all worked very hard and pretty persistently to Convince our colleagues or, you know, a vast majority of them that this needed to move forward.

And some of the votes could be because the person was kind of a libertarian and this shouldn't be, you know, prohibited in the first place. Other people, it was a public safety issue because. You know, in Colorado, we had a young man who had just gotten out of Iraq, I think, who was going to college in the daytime, had a young family, was a guard in the [00:10:00] evening named Travis Mason.

And he got killed because there was a stick up and there was a lot of money in the dispensary and he was shot. And so we've, we've seen armed robberies and public safety kind of a threat for years now. And then the equity issue is really important because. If you can't have legitimate banking to support a legitimate business in Colorado or Washington or Montana or wherever it may be, because we've got some 48 states that have some level of cannabis use now, and the federal law under the Control Substance Act said it, cannabis, anything with cannabis is illegal for all purposes.

We need to straighten that up because it just generates all this cash. And and as. Different members heard, you know, our, um, our story or our, our plea to them about let's clean this law up. It doesn't make sense anymore. More and [00:11:00] more of them agreed and saw their states were moving in that direction. So the states were moving in the direction.

There was a good bipartisan dissent. Kind of co sponsorship on this and we were persistent as heck and the industry itself and the banking community were great lobbyists on this subject, certainly in the house. So I think that's really interesting. Uh, there continues to be a lot of support from business for this, whether they're cannabis focused or not.

I mean, we deal with, you know, banking issues all the time, right? Um, because it is still considered, it is a schedule one. You know, illegal substance and that opens up an entire can of worms and a lot of banks, even to this day, just have a no go zone on this. Right, right. It's interesting as you sort of unpackage, you know how this is coming together the necessity just for simple basic services in order to allow businesses to operate freely.

Seems to be the uniting factor, sort of, of [00:12:00] all people of different, you know, groups, whether it's the banking groups or whether it's people looking at, you know, decriminalization, whether it's the advocacy groups, whether it's us like investors, whether it's operators, you know, Republicans, Democrats alike, seem to be able to come around.

This really basic concept that this is now a legitimate business. This has nothing to do with the stigma. This is a legitimate business. We just need the basic tools in order to allow people to operate. And then we can start to look at some of the other issues. That's precise. It's a legitimate business and a legitimate business ought to have legitimate banking services.

Checking accounts, payroll accounts, deposit accounts, credit cards. All those things. And so it made sense to a lot of folks, but there are some on the left who would like to see it go much further in terms of, uh, legalization generally across the country, but, you know, there just aren't enough votes for that.

Then there are those on the right that this goes way too far, but for most of the [00:13:00] folks in the middle, and at least in the house, two thirds of the votes in the house were in support of this legislation. And then we would run into. Kind of this, uh, no go zone, as you've described it in the Senate. Well, now the Senate, which, you know, has its own rules and it takes 60 votes to bring it to the floor.

They took step one, which was to pass. The banking committee and it passed with a bipartisan vote. I want to say 14 to nine. Steve Daines is the lead Republican has really been doing a good job. You got Wyden and Merkley are the, the primary Democrats moving the legislation. So now it's out of committee.

Chuck Schumer, the majority leader said he wants to bring it to the floor. And if he brings it to the floor, he's going to need to get 60 votes. So we think. There are more than 60 votes between the Democrats and the Republicans to bring it to the floor, to pass it in the Senate and send it back to the House of [00:14:00] Representatives, where it gets a little dicier than it's been in the last four or five years.

Cause you have the Republicans have the majority, uh, with Kevin McCarthy. He was a supporter of the legislation. If Jim Jordan becomes the speaker, he's not a supporter of the legislation. So it gets a little dicier in the house than it's been. But we know that there are plenty of votes in the house, if it's allowed to move to pass the safer banking bill, which is what it's called today, you know, and that we haven't even started on the steps that the administration, the Biden administration has taken.

To do some rescheduling. That's the other very important element here, you know, very timely kind of a thing that's occurring while we're even doing this podcast, right? So let's, let's talk about that. I think that's really interesting. What do you attribute to this momentum around rescheduling and just to sort of frame for those who are listening, you know, schedule one [00:15:00] is by definition.

highly addictive and without medical necessity. Is that right? The general sort of framework of what ends up on schedule one, because a lot of people miss this, right? That I think these conversations are so important because controlled substances play a role in health care across the board. There's hundreds of substances on that are scheduled and things like morphine.

Right. So I sometimes feel like there's just a knee jerk reaction to controlled substances as a concept, but it's really important. And it's important that these substances are controlled so that they can ultimately get to the patients that need them the most. Right. So what do you attribute to some of this momentum around rescheduling?

What does rescheduling mean? Why now? How is the DEA reacting? Great question. So let's just go back in history again. So cannabis was not scheduled. Right. At all until about 50 years ago or 51 or two years ago under Richard Nixon, all of a sudden it went from kind of a nothing burger, you know, there was some noise about it to a schedule one drug, [00:16:00] which, as you said, is illegal for all purposes.

You can't sell it. You can't buy it. You can't smoke it. You can't eat it. You can't research it. I mean, you can't do anything. And so, um, so as with the Obama administration, there were people who, and Troy Carter is, uh, really had, has taken a lead on this. He's a Congressman from the New Orleans area, uh, working with the Biden administration saying, look, we need to do something.

And, and, uh, to his credit, the president said, all right, let's let. Health and Human Services do a study and see what they come up with, whether they think this should be de scheduled or rescheduled or just left as a Schedule 1 drug. So went to Health and Human Services and they, uh, Under the direction of the White House, right?

So, Is that right? So HHS is told we want to go learn about this. Okay. Yes. So the White House said, look, we got to [00:17:00] study this a little bit. So we're going to have HHS. Study it. And the secretary there is Javier Becerra. And about a month ago now, uh, HHS came out and said it will be our recommendation to the drug enforcement agency, the DEA.

to reschedule this from a schedule one drug to a schedule three drug, which has some big implications. So the two biggest implications, uh, and effects and consequences are one, a cannabis business, which now cannot take any business deductions. Section 280 of the tax code will, because it's now a scheduled drug, be able to take tax deductions and two, it will allow for research that is really needed in terms of standardizing and, and really determining whether there are positive [00:18:00] effects or negative effects or.

You know, no effect at all when somebody either eats or smokes or takes cannabis in some form. So research is able to move forward. You know, that could be at a state university, at a laboratory, a number of different places and Cannabis businesses will be able to take tax deductions that they've not been able to take up and up to this point.

So this is monumental, right? In terms of, and I think it's important that people understand the 280e tax issue is not addressed under the Safer Banking Act, correct? Correct. Yeah, I mean, if you were a very, uh, Innovative and inventive lawyer. You might be able to get there, but it's, it's much clearer by rescheduling, right?

So as a rescheduling matter, the big builder around the sector and around the industry is going to be that this will be a catalyst for profitability. Right, because these [00:19:00] companies now they cannot take any deductions. So you're, you're, you're paying taxes on your gross receipts. And secondly, that research can start to flow into studying.

What do we really have here? What I find so interesting about this is, you know, our thesis around how we invest in the space as we're looking at it is a regulatory arbitrage, right? So, you know, we know that today 70 percent of all pharmaceuticals that are consumed are plant based in origin. And yeah.

This is a whole plant based resource that has been prohibited from investigating as to its medicinal properties. And then we also know anecdotally that people use it because it works, whether it's inflammation, sleeplessness, you know, pain, you know, across the board. Let me give you one more. Another reason I was interested in this.

One of my kids has epilepsy. Oh, of course. And so, you know, we had tried. We tried different medicines. I mean, wonderful young woman worked in the Obama administration. Now is in the, [00:20:00] in the, uh, home building business. Uh, she works for a big home builder in Colorado, but she continued to have seizures from the time she was five until about 32 or 33, and we were sort of at which end she tried everything.

We were ready to go to cannabis in Colorado. Clearly one of the things that was moving forward was. Sort of medicinal cannabis use for epilepsy. Now the FDA changed or came out with a drug or allowed a drug that had been a Parkinson's medicine to be used for epilepsy. And that did the trick for her. So we did not turn to cannabis, but that certainly is where we were going to go.

Plus I had a brother in law who had melanoma and the only thing that gave him any relief and allowed him to keep any food down. And so there was also a medical piece, uh, to my interest in this subject. So take us back to some of those conversations, if you don't mind. I'm going to start calling you Professor Perlmutter, by the way, with the history lesson I'm getting [00:21:00] here today.

And I think everybody's just going to be thrilled with this when the. Ballots are put forward to start to include cannabis in Colorado. This is very early. I mean, this is way out in front of any other state at this point, the family component that you just talked about, the community component, what were the conversations like around.

You know, is this, were you contemplating, is this something that we need to get behind? Is it something we should embrace? Should we not? What are the implications? What was that like in those early days? So I can, I can tell you that my brother in law who had been very sick and then ultimately the melanoma got him, but, uh, he was clearly supportive.

My sister, uh, obviously very supportive. My daughter, very supportive. Then there was my father. Who was supportive, but my mother not, and very much opposed to cannabis. My wife was for it. I was sort of [00:22:00] political going, okay, I, you know, this has got a stigma and do we really want to do this? But because of the family element to this, I became more and more supportive.

And then we've got a bunch of other kids and they were all. You know, very supportive. So when we came to legalizing it in Colorado, so there are 10 of us that we're going to vote on the matter and between the kids and my parents and my wife and me, and it was, I want to say seven, three. In favor of the legislation or favor of the initiative.

So there were these kinds of conversations going on across the state. It ended up passing almost by 60%, I think 58 or 59 percent solid majority. And. You know, it's been a pretty positive thing since then. There was real worry about kids. That seems to be handled. The tax proceeds to Colorado has been substantial.

It seems to be pretty well regulated. So we took something that was [00:23:00] clearly in the black market. Believed had medicinal value to it, took it, got it out of the black market, and Colorado has been doing pretty darn well with it since then. Well, and the FDA approved Epidiolex, which is for an adolescent form of epilepsy.

So it's really interesting in that family. Thank you for sharing that in the family story, because these are it being in this space now for a while, as I'm sure you find as well, the The human aspect of this, the human element of this, everybody's lives are touched by it overwhelmingly in a positive way.

Right. So I usually start one of my presentations with a picture of my mom. I'm like, this is my, you know, 76 year old mom and she's got her sunglasses on and standing in a field of roses or something. Right. And I'm like, and this is my mom on drugs. It's her doing CrossFit. Right is the next picture right with a barbell and she takes a CBD tincture because her trainer found something that works for some shoulder pain.

This is she's never drank in her life, [00:24:00] never smoked, never like none of this. So we have this opportunity, right? Which is what I get so excited about. And because of all these data points is the anecdotes of, of belief and acceptance that these things work and has, you know, real value. It's so interesting to me to draw those lines now between sort of the history and now bringing it forward to today where the administration is saying, HHS, go look at this.

And all of a sudden we're having a conversation about rescheduling now back to the DEA rescheduling matter. What's the current sort of, you know, sentiments around this? It's, is it something that the DEA is embracing? Is it, I know there's some lawsuits out there that are also addressing this that I believe the DEA are on the other side of, right?

So, so is there, you know, is there a battleship to move here or is this starting to bring people to the center on the issue? I think it's bringing people to the center. Now, the DEA is a pretty tough hill to climb, but because the administration and [00:25:00] because the health and human services. Uh, department by a pretty thorough study has said, look, we think this thing should be moved from absolutely untouchable off limits, illegal to, okay, let's have it be scheduled three that, you know, is, is, uh, uh, a scheduled kind of drug.

It gives a chance to, to be used and regulated and monitored. So I think the DEA, and it could happen any day, but my guess is it's more like, you know, June of next year is going to be, and anywhere in between, uh, going to reschedule this thing. I really think so, but it's going to be hard to convince them, but I think they will be convinced.

Up to this point, it's been impossible to convince them. Well, and to a certain extent, I mean, I'm certainly one of those individuals that falls in the camp of being sort of pro [00:26:00] business, but pro regulation. Right. I do not believe that no regulation is a good approach for anything. And having spent most of my career in healthcare with other controlled substances and businesses that I was in from compounding pharmacy and medical device, et cetera.

I mean, DA plays a very important role, right? So you're talking about doing the research and things. My head always goes to, you know, it's just, Kind of validation of things that we think we know, let's make sure we know that, right? So toxicity testing, for example, like, is this a suitable ingredient in beverages?

Or, you know, how do we want to consume this? What are the ways in which we can advance the science around it? And the scientific community is And You know, all over this, right? I mean, there, there is not a university that we go to right now that isn't doing some research around cannabinoids and psychedelics, and the data is really compelling and strong.

So we have a resource that can potentially treat a lot of things when the DEA has been issuing research licenses. Right. So, so as a separate matter, there seemed to be a lot [00:27:00] of momentum around the DA saying, okay, well, we are going to issue research licenses so that the research can be started and can go into universities and research organizations.

Does that, you know, start to move the log jam a little bit where, okay, if this is actually being used as any other scheduled substance, should it not be treated that way? So they are giving clues that they're ready to start easing up on this because they were. Really unwilling for decades. To allow any kind of research to be conducted.

The only, I think it was Mississippi state or one, uh, state university med school was allowed to do some research on this. And that was either under, uh, one of the, um, farm bills or something. It got stuck in someplace about 10, 15 years ago. And that's, that was it. Now the DEA has in some very limited circumstances.

[00:28:00] allowed for some, uh, specific research to go forward. That opens up much wider if this drug or if cannabis is rescheduled. To a class three drug, then it's a much easier and much more available for research and monitoring and you don't have to make such specific and, you know, long papers to say, look, I just want to study this stuff.

So it's, it definitely opens things up and, and the DEA, I think, has signaled a willingness to do that by granting more of these special licenses. You know, to do some research. Now, we've been using the word cannabis, you know, throughout this. It's my understanding, correct me if I'm wrong, I have not seen the HHS letter, that it was marijuana was the language.

Is there anything to... read into that or take, take away from that? Does it, you know, [00:29:00] uh, was that by design or is it just semantics? I think it's semantics. Uh, when I first took up this cause, I always talked in terms of marijuana and still will do that, but I've, I've sort of changed the vernacular as people have wanted to talk in terms of cannabis.

Uh, but it's really about anything that has THC in it. Except to a degree that it's hemp and then there's limitations, 0. 3 percent and, you know, there's some, uh, some biology and some chemistry that has to go along with the, with the hemp, uh, side of all of this, but, uh, it's cannabis, it's marijuana, it's not hemp.

So hemp has been in, in one of the agriculture bills and the farm bill, I want to say from 2017 or 2018. Uh, there was a provision. But that allowed for it to become legal up to a certain level of THC, uh, in the, [00:30:00] in the hemp product for CBD and some other things. Uh, but it's, it, it, the proposal that was passed in the farm bill was pretty open ended.

And I think we've seen... Uh, some examples where there's really been taken advantage of what was a very loosely written, uh, provision in the farm bill. And so that's, that's something that's going to have to be addressed. And I think the DEA and, and health and human services are looking at that. There's a section in the Safer Banking Act that deals with hemp.

Um, and, um, can probably help kind of move that side of things forward because a lot of bankers are still nervous to deal with hemp because they don't want to be chemists and figure out if, if the hemp that they're, um, lending against or whatever is, has too much THC in it. But I think that's such an important [00:31:00] articulation of the reality of where we are today that.

Um, and let me ask this as a question, as opposed to, to, to my, my belief, but say safer banking moves forward, let's say it passes, uh, D. A. reschedules, um, the work is just going to begin at that point, right? There's going to be a whole, like the, the regulations that will need to be developed around. That's not the, that's not mission accomplished at that point, right?

It's mission has really begun at that point and the, there will be, uh, The states are going to be able to do some more, uh, obviously universities, laboratories on the research side of this thing, the IRS is going to have to develop some regulations as it, uh, as it, uh, applies to tax deductions, business deductions under 280E.

The banking side of this, there'll be some level of it. And then hemp, they'll, you'll kind of [00:32:00] have to develop some more specific regulations, which they're trying to do with hemp right now. That's gone a lot slower than I think anybody thought would happen. But again, we're putting a lot of responsibility on the FDA, but a lot of responsibility on the DEA.

So there will be, you know, some time for them to really get up to speed, but at least The doors open and we can start moving these things. Well, I want to thank you, Professor Perlmutter, for being so generous with your time over the years and joining us today because I do believe this is another watershed moment.

And, you know, I'm sure you see this as well. Um, so many people that I interact with just have such positive experiences on the aggregate that, you know, these are that there are patients that need this. People that knew their business owners that are bringing a lot of economic value to their communities.

It just seems to check a lot of boxes at a moment in [00:33:00] time where there's a lot of confusion over sort of other other things in the world. This seems like things that are really going to be, you know, much needed catalyst. So thank you so much for joining us today. Uh, and again, thank you for all that you've been doing.

Um, I'm sure everybody will. Be delighted with this masterclass, but, um, you know, just always a pleasure to, to learn from you and every one of our conversations. So, um, Ed, thank you so much for and tell folks where they can find you again. So I am now an attorney at the law firm of Holland and Knight, and I'm a partner in the Denver and D.C. offices. We have offices all across the country, down into Mexico, South America, London, and Algiers. I mean, it's a big law firm and I'm very proud to have been able to join it. That's really exciting. We're doing a lot of work with, with you and your team at home tonight with the Modern Health Alliance as well, the new regulatory coalition, um, that we've been a part of.

So, uh, I would like to continue this conversation. I hopefully this is part one, maybe part two will be in Breckenridge. And Part three will be in, uh, Algiers, wherever it was. So we'll take it on the road, right? You got it. You got it. Thank you, Ross, for having me on the show. Been a real pleasure. Thank you so much for your time today.