PEP Episode 028 — Cannabis Law Evolution: Impact on Fintech & Payments Industry

Podcast Description:

This is the Payments Experts Podcast!  Are you ready to understand the transformative power of changing marijuana regulations on both fintech and Payments? Join us for an eye-opening discussion with managing partner James Huber and associate attorney Matthew Luciani as we explore the high stakes surrounding marijuana law reform. From the staggering incarceration rates for marijuana offenses to the profound racial disparities in drug law enforcement, we’ll examine how potential rescheduling could revolutionize the landscape. Discover historical milestones like the Ogden memo and consider the potential easing of banking restrictions that could benefit cannabis businesses.

Learn how the classification of marijuana as a Schedule I drug has far-reaching consequences for sentencing, business operations, and financial regulations. We investigate the implications of the Safe Banking Act and the potential shift to Schedule III, which may unlock opportunities in tax deductions and streamline banking processes for cannabis enterprises. Engage with our in-depth analysis on how regulatory changes could distinguish between recreational and medicinal dispensaries, affecting payment processing and federal banking interactions. This episode is a must-listen for anyone eager to stay informed about the evolving regulatory environment of the cannabis industry.

Podcast Transcription

James Huber (00:00):

Are they going to let people out of jail that are in there for weed?

Matthew Luciani (00:04):

I don’t know if they’ve really decided on that yet. I would like

James Huber (00:08):

The prison system. It’d be like the commercial real estate market of like, well, we better go find some more people arrest it. I think this, Jeremy, you probably know what the statistics of people in jail for marijuana. It’s

Jeremy Stock (00:23):

Very, very high now. There have been in some states, even in California, some initiatives to kind of clear some of that out over the years. But yeah, it would probably clear out a lot of people on long sentences too.

Speaker 4 (00:37):

Welcome to the Payments Experts podcast, a podcast of global legal law firm. We hope you enjoy this episode.

Jeremy Stock (00:51):

We have a studio today managing partner James Huber, as well as associate attorney Matthew Luciani. Gentlemen, welcome to the podcast. Today you’re talking about marijuana and pot. The laws are changing

James Huber (01:05):

Marijuana and pot.

James Huber (01:08):

Yeah, I mean, we run into, there was a green rush that everybody thought everyone was going to get rich. We had a bunch of clients actually that went out and said, Hey, I’m going to go be a farmer and this, that. The other thing, not a lot of people did it because they overregulated it in California. I think they run all the dispensary like the med mens and all of them. They say they’re running at a loss leader because they’re paying so much tax and everything like that, and it’s something that continues to get regulated. So it’s hard to process payments for these companies, but a lot of people have figured it out. But you got to keep your head on a swivel. We see these things go up. I mean, how people were processing weed for in the beginning is they get ’em a striper square account and you’re up for three months and then you’re shut down.

James Huber (02:03):

And then they just do the same thing with all the other processors. And what we found is nobody really seems to care. And the ecosystem first, the card brands don’t care. The processors don’t care. They all just don’t want to know about it. So when people are out selling this or thinking about selling it, it’s keep your head on a swivel because these opportunities come up. And what we’re here today is to talk about a new regulation. And so hopefully that gets some people’s creative juices flowing about how to sell weed in the least risky fashion.

Matthew Luciani (02:39):

So to James’s point, this is kind of a deregulation that’s happening to a certain extent. It’s going to be take place over quite a few months, but the Department of Justice issued a notice of proposed rulemaking and they are going to reschedule marijuana, which would actually allow a lot less red tape from the standpoint of banking and electronic payments because it would now be on the same schedule or classification as drugs like Tylenol with codeine. So one of the biggest issues that James mentioned is before it was more of turn a blind eye to it, and there were compliant ways to actually process payments, but you technically couldn’t do it on a credit card because of the card brands’ rules and how marijuana was technically illegal under federal law. And the first time that there was really a change in the treatment from a formal standpoint that was probably most significant was 2009 with the Ogden memo.

Matthew Luciani (03:51):

And then that was when we kind of started to see some people argue in, and there’s three pretty major public opinions that came out between 2013 and 14 after the Ogden memo, two of which they used the Ogden memo as the basis for their arguments to some extent, and actually tried to argue that it was a defacto rescheduling of marijuana because it was the first time that the federal government acknowledged that there were some medical benefits. But really all that was guidelines for federal prosecutors in states where it was legal medicinally and how to prosecute it. It didn’t actually change anything other than some express guidelines.

James Huber (04:38):

Right. Well, I think just you wrote in your memo is just looking at use your discretion with prosecutors, which my red flag goes up is like, look out black people because that’s mainly how these things are enforced.

Matthew Luciani (04:55):

Racial profiling is always going to be a massive, massive impact on anything drug related because of the way that crime statistics are even to a certain extent. But what’s really,

James Huber (05:09):

Are they going to let people out of jail that are in there for weed?

Matthew Luciani (05:13):

I don’t know if they’ve really decided on that yet. I would like

James Huber (05:17):

The prison system would. It’d be the commercial real estate market of like, well, we better go find some more people arrest it. I think, Jeremy, you probably know what the statistics of people in jail for marijuana,

Matthew Luciani (05:31):


Jeremy Stock (05:31):

Very, very high now. There have been in some states, even in California, some initiatives to kind of clear some of that out over the years. But yeah, it would probably clear out a lot of people on long sentences too. Just weed. Yeah, I mean, it’s hard to say. I would

James Huber (05:48):

Say 10, I would guess

Jeremy Stock (05:49):

Six to 10, something like that.

Matthew Luciani (05:51):

Yeah, that’s still high.

James Huber (05:53):

But it’s also, are you in there? So you’ve got arrested weed and then I murdered a guy, so I’m in there longer because of that.

Matthew Luciani (06:02):

That was actually one

James Huber (06:03):

Of the Get that guy out.

Matthew Luciani (06:04):

Yeah, exactly. That was actually one of the criminal law cases that happened in 2013 when the guy tried to argue that the schedule of marijuana as a schedule one at that point and how it affected his sentence was unconstitutional, but it didn’t weigh.

James Huber (06:24):

That creates quite a conundrum because the sentencing, yeah, it’s going to be you’ve exponentially, so if you just wipe off one of ’em, do you get resentenced? Have they ever done that?

Jeremy Stock (06:39):

That’d be interesting. The re strikes law, right? The way that

Matthew Luciani (06:41):

There’s a lot of states to do that.

Jeremy Stock (06:43):


James Huber (06:44):

Yeah. That’s interesting.

Matthew Luciani (06:46):

Yeah, I mean, obviously that argument didn’t win because the CSA Controlled Substance Act has a very defined eight factor evaluation for the scheduling. I mean, the funny thing is you look at that and you think of marijuana, and it probably doesn’t fit the bill for at least half of those things to really classify it as a dangerous drug. But the one thing that was the biggest impact, I know. Yeah, it’s a gateway drug, right?

James Huber (07:16):

I’ll say it’s so strong. I have a friend who says, look, you either with marijuana, you’re either all in or you’re all out if you use it just occasionally you’re wrecked. But same thing with alcohol. Well, no, I think you build up a tolerance to alcohol, don’t you? Yeah. Because when I was 12 or however young, maybe I was a little older than 12, but not much. Do you guys, yeah, I drink like two beers. Do you

Jeremy Stock (07:46):

Think there’s truth to, my dad has said he grew up smoking pot in the sixties, right? He says that the stuff that they’re producing nowadays is substantially stronger than a hundred

Matthew Luciani (07:58):

Percent of the things. Yeah, no, there’s scientific evidence of the THC levels being significantly higher. You could go to a dispensary and I find THC levels as much as 30% even somehow for

James Huber (08:08):

Research purposes, which is

Matthew Luciani (08:09):

Crazy. That’s right. Yes. For research purposes. But does a high person get in a fight with they’re just high?

James Huber (08:19):

No, they might crash

Matthew Luciani (08:20):

Their car hypothetically. Right? So they’re probably drunker on something else. Also, more of a, I think people think of it as a happy drug than a angry drug, per se.

James Huber (08:34):

Yeah. Well, I mean, look, so the Safe Banking Act hasn’t passed. That said, the Safe Banking Act is, look, anybody who’s dealing with marijuana in the bank, in the payments, well banking, but it would trickle down and you’d think it would fall to the processors and everybody we’re not going after you. And that’s gotten held up. But it’s basically been the rule of the land. And I think we all agree. I don’t know if I could see Biden, maybe if he does it, he could push it through. I mean, he did this move. It’s probably a little political, but I could see, well, I, everything would be political, but I think that I could see him doing it. Trump’s not going to touch it. He’s not going to pass safe

Matthew Luciani (09:20):

Banking. No. But I think as far as the rescheduling, that still gives a large amount of reprieve. Obviously banks are going to have to adjust from a risk tolerance perspective, even processors will. But the biggest differentiating factor, you mentioned it earlier, some of these companies are kind of running at losses on paper because of how high the taxes are.

James Huber (09:43):

Well, it’s the

Matthew Luciani (09:43):

City. And as a Schedule one drug, these businesses have certain penalties related to being associated with a Schedule one drug, or they might not even have certain deductions available because of its status as a schedule one drug. So I think two of the biggest things that this could potentially do from the banking perspective and also the individual cannabis businesses is increased revenue, but also

James Huber (10:15):

How does it increase revenue?

Matthew Luciani (10:17):

It increases revenue by limiting some of the expenses that they formerly had and making more deductions available from a business and tax. That’s

James Huber (10:26):

True. Yeah. Yeah. They get nailed because they can’t write anything off.

Matthew Luciani (10:30):


James Huber (10:31):

Okay. Yeah, that’ll be huge.

Matthew Luciani (10:32):

So that’s huge from that standpoint. There’s going to be some big tax implications from that standpoint. And then to James’s point about the Safe Banking Act, we’re kind of operating under that, but from the same standpoint, if it was a Schedule three as opposed to a Schedule one or in any different category where you’re starting to treat it a little bit more like prescription drugs, then it really lifts almost all of the restrictions off of your availability to bank with a federal bank.

James Huber (11:08):

So it’s scheduled with Tylenol with coding, but Tylenol with coding, I think you have to be a doctor and you have to get a prescription, right. So CVS processes payments all day, no problem. Knowing’s coming after them. And then so is it just, it’s schedule two for us, but what does that mean? What does that mean for the dispensary selling it? I mean, you see what I’m saying?

Matthew Luciani (11:38):

So I think how that gets affected is recreational dispensaries still won’t be able to process credit cards. They’ll still have to go the cashless ATM route or the cash route, because it’s not a prescription drug at that level. But from the medicinal standpoint, I think you can, I don’t see why you wouldn’t

James Huber (12:01):

Be able to anymore. I think you could. Yeah. So what do you call it? The medical dispensary, is that

Matthew Luciani (12:07):

Word for that? I think the, do those even

James Huber (12:09):


Matthew Luciani (12:10):

Not really in California anymore, right?

Jeremy Stock (12:12):

They’re all kind of

James Huber (12:13):

The same, but if you are a medical one, I think you can still get your medical card in California. I don’t know why anybody would, but

Matthew Luciani (12:22):

Less tax on the purchase

Jeremy Stock (12:23):

Maybe if they’re concerned if their job is going to do a check or something, but

James Huber (12:27):

It’s legal.

Matthew Luciani (12:27):

Well, it’s also less tax on the purchases.

James Huber (12:30):

Well, yeah, but how does the dispensary get anyone, the medical one, get anyone to come in their doors If you have to go get a card, unless there’s a guy, I remember in Venice, it would be like, here’s the doctor you go through on the way in. I heard,

Matthew Luciani (12:47):

So in New Jersey, when they passed recreational, they would sell recreational and medicinal out of some of the same dispensaries in some instances. And if you had your medical card, you wouldn’t pay the same level of tax.

James Huber (13:03):

So you could, I mean, you could say, come get your medical card and I won’t surcharge you like crazy or cash discount you, because I can process over here in a compliant manner. But some states are all medical, so it’s great for them. Florida and then some states, they still do have the medical dispensaries. I know I think in Oregon they still exist and they’re pretty robust.

Matthew Luciani (13:33):

So in those circumstances, I would expect them to.

James Huber (13:35):

Guys are

Matthew Luciani (13:36):

Hooked up, get ISOs now.

James Huber (13:37):

Yeah, they should be good.

Matthew Luciani (13:39):

They should be able to, ISOs should be able to service them now. And that’s one of the things with ISO a lot of times is they operate in niches. So this does open the door for cannabis, ISO per se, you know what I mean? As it is right now, we deal with a lot of CBD ISOs even.

Jeremy Stock (14:02):

What do you guys think overall in terms of the payments industry? You guys see this as a positive step forward?

James Huber (14:11):

Yeah, absolutely. I mean, I think that’s a great idea is go target all the medical dispensaries, go get ’em. They’re going to be pumped, but you’d want to hire some lawyers to probably get those all pushed through to give you a solid package and then an opinion letter being, Hey, this is legit now Biden and saved us all by this heroic anyways.

James Huber (14:41):

So yeah, I think it’s trending in the right direction, but it also goes again to, no one’s going to touch this stuff. No, you all should be fine. They should be getting credit card processing, and I don’t really know why they’re terminating them. Well, they have to if they find out, but it should, yeah, everything’s trending in the right direction because California, we were talking yesterday, there’s like two of ’em popped up right around here, and I think that they do a lot of transactions, and I think they would be lucrative if they weren’t getting taxed so hard then I forgot that. Yeah, they can’t write anything off. I mean, I’m sure they get creative around that, but it’s interesting that these two, I mean, the one of ’em is on Main Street Encinitas, so that one would probably be pretty profitable because it’s like town is run by teenagers and Wait, how old do you have to be? 21,

Matthew Luciani (15:41):

Isn’t it? 21? I think it is actually. Yeah,

James Huber (15:45):

  1. Okay. Well, I mean, I’ve had a fake ID since I was 15, so I don’t have one now.

Matthew Luciani (15:55):

Now I still have one. No, I’m joking.

James Huber (16:00):

But yeah, I would assume it’s probably pretty easy to get in there too. And then shoulder tap some guy you remember doing that, you’d be like, Hey, old guy, go buy me some beer. Yeah, yeah.

Matthew Luciani (16:15):

Yeah. I definitely see it as a win for the payment processing world though, because I really think that we’re going to see ISO specifically targeting the niche of medicinal dispensaries now that’s going to come to increased processing revenue. And then from the cannabis standpoint, as we mentioned, the deductions thing is huge. I think that that’s the biggest takeaway and real implication for them. Obviously, there’s the convenience factor of now we can process credit cards after this is finally rescheduled, but those margins are so thin for them right now.

James Huber (16:55):

I got arrested one time and I had my fake idea. I just remembered on me, and it was like a gnarly, gnarly charge because they’re like, you have a falsified government document or something. They trying to really? Yeah, they really got me trying to scare you. Still straight? No. Yeah. I was like, I’m going to fight all that. I punched a bouncer and I got charged with intimidation, threat by intimidation, and I was like, how could I challenge a bouncer? So I was like, take it to trial as in college, because I was like, bouncer, he’s probably huge. Good. I was like, this won’t work. I looked at it, it was like this weird Montana statute that was like, you have to use your force and be all scary, and you probably intimidated with him. It was a weird one. I dunno why it wasn’t just assault or battery or whatever, but it was this weird thing that they tried to do, and I was like, bring him in. Let’s go to the trial. Guy walks in, hi, I’m the buzz. I was like, I plead guilty.

Jeremy Stock (18:00):

Was he really? Was he a smaller

James Huber (18:01):

Guy? A little dude,

Jeremy Stock (18:02):


James Huber (18:03):

Funny. And I cleaned him up. What I was thinking, James, but I didn’t remember what he looked like, so I didn’t know that. I did indeed probably intimidate

Jeremy Stock (18:13):

Him. James’s attorney just does this.

James Huber (18:16):

I was self-represented, se.

Jeremy Stock (18:18):

Oh, yeah.

James Huber (18:19):

Oh yeah.

Jeremy Stock (18:21):

That’s great. You were made to be an attorney, James.

James Huber (18:23):

Yeah, that was my lesson. I was like, yeah. Well, what it

Jeremy Stock (18:27):

Made me think is if the bouncer was a black guy, might’ve been a different story.

James Huber (18:33):

In Montana.

Jeremy Stock (18:34):

In Montana. Well,

James Huber (18:35):

Probably would’ve been a lot on your way, sir. Awful.

Matthew Luciani (18:43):

It would’ve thought that he had slated it.

James Huber (18:45):

Yeah, exactly.

Jeremy Stock (18:46):

Gentlemen, as we come towards the end of this podcast, by the way, I think we should get Ian Rasman back on. I bet you he has some thoughts about this

James Huber (18:55):

Unfortunate thing is I think we’re suing him currently now, so yeah,

Jeremy Stock (19:01):


James Huber (19:02):

It might not be the greatest time to talk.

Jeremy Stock (19:05):

Maybe not. Maybe not. David. I

Matthew Luciani (19:07):

Do have a buddy who is involved in the legislation to some extent in New Jersey who might be interested.

James Huber (19:15):


Jeremy Stock (19:15):

Okay, interesting. What I was curious about is are there anyone, is there in the payment space that this affects negatively? Is there anyone that’s got a niche, has a target on the market and Visa.

James Huber (19:26):


Matthew Luciani (19:29):

Now, they can’t hit you with the NCAs and the reviews for medicinal marijuana. Right? Yeah,

James Huber (19:34):

No, this helps everybody. Cool.

Jeremy Stock (19:36):

Okay. Excellent. Closing thoughts, gentlemen.

James Huber (19:39):

Good to go. Good to go. Thank you.

Jeremy Stock (19:41):

Awesome. This has been the Payments Experts podcast, a podcast of global legal law firm. We’ve had in studio associate attorney Matthew Luciani, as well as our managing partner, James Huber, looking at his next call coming up, you guys, thank you very much. It’s been a pleasure.

Speaker 4 (19:56):

Thank you for listening to this episode of The Payments Experts podcast, a podcast of global legal law firm. Visit us online today at global legal law

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