[House Hearing, 116 Congress] [From the U.S. Government Publishing Office] UNLOCKED POTENTIAL? SMALL BUSINESSES IN THE CANNABIS INDUSTRY ======================================================================= HEARING BEFORE THE COMMITTEE ON SMALL BUSINESS UNITED STATES HOUSE OF REPRESENTATIVES ONE HUNDRED SIXTEENTH CONGRESS FIRST SESSION __________ HEARING HELD JUNE 19, 2019 __________ [GRAPHIC NOT AVAILABLE IN TIFF FORMAT] Small Business Committee Document Number 116-028 Available via the GPO Website: www.govinfo.gov _________ U.S. GOVERNMENT PUBLISHING OFFICE 36-715 WASHINGTON : 2019 -------------------------------------------------------------------------------------- For sale by the Superintendent of Documents, U.S. Government Publishing Office, http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center, U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free). E-mail, [email protected]. HOUSE COMMITTEE ON SMALL BUSINESS NYDIA VELAZQUEZ, New York, Chairwoman ABBY FINKENAUER, Iowa JARED GOLDEN, Maine ANDY KIM, New Jersey JASON CROW, Colorado SHARICE DAVIDS, Kansas JUDY CHU, California MARC VEASEY, Texas DWIGHT EVANS, Pennsylvania BRAD SCHNEIDER, Illinois ADRIANO ESPAILLAT, New York ANTONIO DELGADO, New York CHRISSY HOULAHAN, Pennsylvania ANGIE CRAIG, Minnesota STEVE CHABOT, Ohio, Ranking Member AUMUA AMATA COLEMAN RADEWAGEN, American Samoa, Vice Ranking Member TRENT KELLY, Mississippi TROY BALDERSON, Ohio KEVIN HERN, Oklahoma JIM HAGEDORN, Minnesota PETE STAUBER, Minnesota TIM BURCHETT, Tennessee ROSS SPANO, Florida JOHN JOYCE, Pennsylvania Adam Minehardt, Majority Staff Director Melissa Jung, Majority Deputy Staff Director and Chief Counsel Kevin Fitzpatrick, Staff Director C O N T E N T S OPENING STATEMENTS Page Hon. Nydia Velazquez............................................. 1 Hon. Steve Chabot................................................ 2 WITNESSES Ms. Shanita Penny, President of the Board of Directors, Minority Cannabis Business Association, Portland, OR.................... 4 Mr. Eric Goepel, Founder & CEO, Veterans Cannabis Coalition, Walnut, CA..................................................... 6 Ms. Dana Chaves, Senior Vice President and Director of Specialty Banking, First Federal Bank, Lake City, FL..................... 8 Mr. Paul Larkin, John, Barbara, and Victoria Rumpel Senior Legal Research Fellow in the Meese Center for Legal and Judicial Studies, The Heritage Foundation, Washington, DC............... 10 APPENDIX Prepared Statements: Ms. Shanita Penny, President of the Board of Directors, Minority Cannabis Business Association, Portland, OR....... 30 Mr. Eric Goepel, Founder & CEO, Veterans Cannabis Coalition, Walnut, CA................................................. 63 Ms. Dana Chaves, Senior Vice President and Director of Specialty Banking, First Federal Bank, Lake City, FL....... 72 Mr. Paul Larkin, John, Barbara, and Victoria Rumpel Senior Legal Research Fellow in the Meese Center for Legal and Judicial Studies, The Heritage Foundation, Washington, DC.. 75 Questions for the Record: None. Answers for the Record: None. Additional Material for the Record: CUNA - Credit Union National Association..................... 93 ETA - Electronic Transactions Association.................... 94 Florida Department of Agriculture and Consumer Services...... 95 Full Spectrum Omega, Inc..................................... 97 NCIA - National Cannabis Industry Association................ 103 NORML - National Organization for the Reform of Marijuana Laws....................................................... 105 SARBA - Safe and Responsible Banking Alliance................ 107 Statement of Dan Anglin, Loveland,CO......................... 109 UNLOCKED POTENTIAL? SMALL BUSINESSES IN THE CANNABIS INDUSTRY ---------- WEDNESDAY, JUNE 19, 2019 House of Representatives, Committee on Small Business, Washington, DC. The committee met, pursuant to call, at 11:30 a.m., in Room 2360, Rayburn House Office Building. Hon. Nydia Velazquez [chairwoman of the Committee] presiding. Present: Representatives Velazquez, Finkenauer, Golden, Kim, Crow, Davids, Evans, Schneider, Espaillat, Delgado, Houlahan, Craig, Chabot, Hagedorn, Stauber, Burchett, and Joyce. Chairwoman VELAZQUEZ. Good morning. The committee will come to order. I thank everyone for joining us this morning, and I want to especially thank the witnesses who have traveled from across the country to be here with us today. We are here to draw what I believe is needed attention to an industry that is rapidly evolving. As more and more states take steps to bring cannabis to commerce, we are seeing small businesses at the forefront of this expanding industry. As the only House committee dedicated solely to the needs of small firms, it is important for us to be shedding light on the challenges these small entities face, as well as the economic potential they offer. That is why I have called today's panel, and I look forward to hearing more from our witnesses and thank them for taking the time to be with us this morning. In recent years, there has been a rapid shift in the legal treatment of cannabis, often led by voters at the local and state levels. Today, nearly every American lives in a state where cannabis is decriminalized to some extent, and legal business activity is permitted to certain degrees. This rapid growth of the legal cannabis industry has had a considerable impact on our nation's broader economy. In 2018, consumer spending in this industry passed $10 billion for the first time, and consumer spending is expected to increase to $23 billion by 2022. Investment activity also increased dramatically last year up $13.8 billion in 2018, compared to only $3.6 billion in 2017. Clearly these figures illustrate a market that is ripe for entrepreneurship. Despite growing economic opportunities around legal cannabis, factors like federal law enforcement, conflicting rules among the states, and our current banking regulations are hindering the ability for entrepreneurs and small businesses to fully engage in this new industry. So today, we will have a chance on this committee, to spark the dialogue over the role of the federal government, and particularly, the Small Business Administration, can plan in supporting entrepreneurs in this sector. By reducing financial barriers to entry in cannabis-related businesses, SBA can play a critical role in offering affordable access to capital and counseling services. That is why I am currently working on legislation that will work to open some of the agency's programs to businesses in areas where the industry is legal. We know the cannabis industry is quickly evolving but is mired with inconsistent federal and state laws that are creating barriers for small businesses. We are here today to listen to the challenges and opportunities small firms face in this industry. Before I yield to my friend, Ranking Member Chabot, I want to mention that I understand that there are differing views on the legalization of cannabis. Our committee has had a long history of approaching issues in a thoughtful and constructive way to best represent the interests and concerns of entrepreneurs and small businesses. As the Ranking Member and I always say, there are no Republican small businesses nor Democratic small businesses, only American small businesses. And our role on this committee is to fight for them. I encourage everyone to keep that in mind and remember that we can disagree without being disagreeable. Again, I want to thank the witnesses for being here today, and I now yield to the Ranking Member, Mr. Chabot, for his opening statement. Mr. CHABOT. Thank you, Madam Chairwoman. I would like to thank the witnesses for being here today. And as you look around the room, I would just say that it is clear that there is considerable interest in this topic because the room is packed. And as most people know, we like to think that this is the most bipartisan Committee in Congress. Both Ms. Velazquez and I have had the opportunity to lead this Committee over the past several years, and regardless of who is in charge, we have worked together and moved bipartisan legislation together. And as she mentioned, when we disagree, we do it without being disagreeable, usually. Unfortunately, today is one of those times where the philosophical divide between our respective perceptions of how we should move forward deviates. But as is our custom, I am confident that we will do so respectfully. Marijuana is the most commonly used illicit drug in the United States. Its use is associated with a range of adverse health effects. Short-term effects include altered senses, reduced motor coordination, diminished memory, and impaired problem-solving abilities. Recent research suggests that the early use of marijuana may adversely impact long-term thinking, memory, and learning. Marijuana use is also associated with addiction to other substances and dependency, respiratory problems, child developmental problems related to use during pregnancy, and mental health problems. These are not my opinions; these are facts backed up by decades of academic and medical research. In June 2018, scientists at the University of Pennsylvania discovered that young people who use marijuana frequently were more likely than nonusers to have lower scores on memory tests, have greater difficulty learning new information, and show less than higher level problem solving. Other studies have also found that teen brains are more vulnerable to the effects of marijuana than alcohol. And while I understand that the majority, if not all the states and municipalities have decriminalized marijuana to some degree, have implemented an age limit of 21, another study, this one by the National Institute for Drug Abuse for Teens, found that nearly 33 percent of 10th graders reported having used marijuana at least once. It does not stop there. A 2018 University of Michigan study found the percentage of 8th graders, 10th graders, and 12th graders who reported using marijuana is at the highest rate in history. The U.S. Constitution established a government based on Federalism because a state is typically in the best position to legislate the laws most appropriate for its citizens. However, the drug market is a multi-billion dollar, nationwide business and its repercussions do not stop at state borders. It is my belief that the use of marijuana can be harmful to both family and society. Additionally, prohibiting marijuana sends a clear message to young people that this drug is not only illegal but dangerous. I have concerns that opening this door as quickly and as widely as various states and municipalities are pushing will have a negative effect on our young people and on society at large. While I understand there may be entrepreneurial opportunities in this area, it is my opinion that the dangers to our Nation and the communities within it outweigh those opportunities. I yield back. Chairwoman VELAZQUEZ. The gentleman yields back. I would like to take a minute to explain the timing rules. Each witness gets 5 minutes to testify and the members get 5 minutes for questioning. There is a lighting system to assist you. The green light comes on when you begin, and the yellow light means there is 1 minute remaining. The red light comes on when you are out of time, and we ask that you please stay within the timeframe to the best of your ability. I would now like to introduce our witnesses. Our first witness is Ms. Shanita Penny, a cannabis advocate, business professional, and entrepreneur. Her boutique consulting firm provides management and strategy consulting to startups and small businesses in the legitimate cannabis industry. She proudly serves as president of the Board of Directors for the Minority Cannabis Business Association, and is also a member of the New Jersey Cannabis Industry Association's Board of Trustees. Ms. Penny is a proud alumni of North Carolina A&T State University where she earned a bachelor's of science degree in transportation and logistics management. Our second witness is Mr. Eric Goepel, the founder and CEO of the Veterans Cannabis Coalition, a nonprofit advocacy group dedicated to ending cannabis prohibition and guaranteeing equal access to cannabis for veterans and all Americans. He enlisted in the U.S. Army at the age of 18, served for 7 years, providing communications and intelligence support in the Special Operations community. During that time, he deployed twice to Iraq and once to the Philippines. At the end of his enlistment, Mr. Goepel worked as a defense contractor in Afghanistan before returning to the U.S. to attend and graduate from the University of California-Berkeley, with a B.A. in Political Science. Prior to founding the Veterans Cannabis Coalition, Eric was the Assistant Director of the American Legion's National Security Division where he developed positions for the legion on the opioid crisis, cybersecurity, and transnational organized crime. Welcome to all of you. Our third witness today is Ms. Dana Chaves, the Senior Vice President and Director of Specialty Banking for First Federal Bank of Florida. She has been building strategic banking financing and legislative relationships to further the cannabis industry access to banking and financial services for more than 5 years. Ms. Chaves also currently serves as Chair of the National Cannabis Industry Association's Banking Access Committee. Prior to joining First Federal in February of this year, Ms. Chaves worked at Hybrid Payroll as the Director of Banking Relations at Colorado Credit Union, providing some of the earliest access to banking services to the cannabis industry. Welcome, Ms. Chaves. I would now like to yield to Mr. Chabot to introduce our final witness. Mr. CHABOT. Thank you, Madam Chair. Our final witness will be Paul Larkin, a senior legal research fellow in the Meese Center for Legal and Judicial Studies at The Heritage Foundation. Mr. Larkin works on criminal justice policy, drug policy, and regulatory policy. Before joining Heritage, he held various positions within the Federal Government. At the U.S. Department Justice from 1984 to 1993, he served as an assistant to the Solicitor General and argued 27 cases before the U.S. Supreme Court. He also was an attorney in the Criminal Division's Organized Crime and Racketeering section. He also served as counsel to the Senate Judiciary Committee and head of the Crime Unit for Senator Orin Hatch. He received his law degree from Stanford Law School and received a master's in Public Policy from George Washington University. We thank you for being here, Mr. Larkin, and I yield back. Chairwoman VELAZQUEZ. The gentleman yields back. And now, Ms. Penny, you are recognized for 5 minutes. STATEMENTS OF SHANITA PENNY, PRESIDENT OF THE BOARD OF DIRECTORS, MINORITY CANNABIS BUSINESS ASSOCIATION; ERIC GOEPEL, FOUNDER AND CEO, VETERANS CANNABIS COALITION; DANA CHAVES, SENIOR VICE PRESIDENT AND DIRECTOR OF SPECIALTY BANKING, FIRST FEDERAL BANK; PAUL LARKIN, JOHN, BARBARA, AND VICTORIA RUMPEL SENIOR LEGAL RESEARCH FELLOW IN THE MEESE CENTER FOR LEGAL AND JUDICIAL STUDIES, THE HERITAGE FOUNDATION STATEMENT OF SHANITA PENNY Ms. PENNY. Good morning, Chairwoman Velazquez and members of the Committee. Thank you for your leadership on the effort to provide the regulated cannabis industry with access to Small Business Administration services. As the president of MCBA, I lead an organization with the mission to create equal access to the cannabis industry to economically empower our communities. We work collaboratively to create equitable cannabis policy that encompasses restorative justice, community reinvestment, and of course, economic empowerment which I will focus on today. Equitable economic development and empowerment unlock the full potential of the local economy by dismantling barriers and expanding opportunities for low-income people and communities of color. Through accountable public action and investment, the cannabis industry will help grow quality jobs and increase entrepreneurship, ownership, and wealth. Our latest resource for policymakers, a model municipal social equity ordinance is intended to be used by municipalities that have adopted or are currently considering drafting ordinances to regulate, zone, and license local cannabis businesses. We started with the framework of the RESPECT Resolution introduced by Representative Barbara Lee last year and borrowed from social equity ordinances in development attempting to improve upon these pioneering works with the benefit of hindsight. I have included a copy of our model ordinance in the appendix of my written testimony. And while we have worked tirelessly to ensure that cannabis policy is equitable on every level, our efforts have been crippled by a lack of access to and support from agencies like the SBA. State and municipal social equity and economic empowerment programs across the country are stalled because they are wasting precious resources testing various solutions when the answer is literally right in front of me. State and municipal social equity programs are doing this work, but like all other small businesses, those wishing to start a state legal cannabis business should be able to access an agency that has, since its founding, delivered millions of loans, loan guarantees, contracts, counseling sessions, and other forms of assistance to small businesses. Six figure to multi-million dollar startup costs make starting and growing cannabis businesses challenging for most, but it is especially difficult for state and city equity licensees. Without access to capital, they are vulnerable to predatory lending and business practices. These business owners need SBA support and resources to start and grow their businesses, not business partners and investors that take advantage of equity programs to enter the market early or tokenize their partners for market share. Small cannabis businesses are often left scrambling to remain compliant when regulations change and must either find new sources of capital to cover the cost of changes or face significant fines for violations. In addition to regulatory changes, uncontrollable factors, such as insect infestation, crop failure, or a natural disaster can often leave business owners with insurmountable debt and no way of making up for lost revenue. As Representative Earl Blumenauer, Chair of the Cannabis Caucus said earlier this year, ``There will be no comprehensive cannabis legalization bill that does not include strong equity components.'' Even narrowly tailored legislation, like the Safe Banking Act or the small business legislation we are discussing today must address business and social hardships that disproportionately impact minority businesses owners and our communities. Representative Perlmutter's amendment added during markup created a requirement that Federal regulators collect data and provide an annual report to Congress on the availability of access to financial services for minority-owned cannabis businesses and that the Government Accountability Office carry out a study on the barriers to entry for minority-owned cannabis businesses. MCBA suggests that Congress require SBA to: (a) collect data on the availability and provision of SBA products and services to minority-owned cannabis businesses; (b) issue an annual report to Congress; and (c) require SBA to collect and report data on the denial of loan and 8(a) program applications on the sole basis of a prior cannabis conviction that would not preclude participation in a state cannabis program. We suggest that Congress direct the GAO to conduct a study on the barriers to marketplace entry, including access to SBA financial services for potential and existing minority-owned cannabis businesses and that Congress require that SBA not preclude participation in the 8(a) business development program or the granting of a Federal contract for cannabis-related business based solely on prior cannabis convictions, again, that do not preclude participation in state legal cannabis programs. Last, we suggest that SBA lift the moratorium on new Community Advantage lenders to ensure sufficient lenders to provide equitable access to Community Advantage Loans in affected communities. Thank you again for the opportunity to testify today. I look forward to working with you to create equitable cannabis policy that addresses the needs and concerns of often-forgotten stakeholders, small businesses, and the communities devastated by the failed war on drugs. Chairwoman VELAZQUEZ. Thank you, Ms. Penny. Mr. Goepel, you are now recognized for 5 minutes. STATEMENT OF ERIC GOEPEL Mr. GOEPEL. Chairwoman Velazquez, Ranking Member Chabot, and members of the House Committee on Small Business, the Veterans Cannabis Coalition would like to thank you for the opportunity to address the Committee on veterans and cannabis issues currently under consideration. We would especially like to thank the Committee for its foresight in tackling some of the many challenges that have arisen as citizens grapple with the conflict between Federal and state laws regarding cannabis. I served for 7 years on active duty in the U.S. Army, which included two deployments in Iraq. I cofounded Veterans Cannabis Coalition with Bill Ferguson, an infantry combat veteran of the invasion of Iraq and a long-time veteran advocate because we saw the need for effective treatments for vets and the potential for cannabis. We recognize in ourselves and in our sisters and brothers in arms the struggles with physical and mental health and, as they would say in the military, their second and third order effects that negatively impacted our relationships, our housing, and our employment. For too many in our community, those struggles ended in suicide and overdose. Our generation of veterans has the distinction of having served in the longest conflicts in U.S. history that saw nearly 7,000 service members killed in action while an estimated 100,000 veterans died at home of suicide and overdose. At least 20 veterans die by suicide and overdose a day, month after month, year after year, while their friends and family are left to pick up the pieces. We know the factors leading to suicide and overdose are complex but they are understandable. And we have come to understand the often unspoken role that legal pharmaceuticals played in many untimely deaths. Hundreds of veterans have told us about being prescribed cocktails of opioids, sedatives, stimulants and numerous other psychotropic substances and experienced severe suicidal ideation or attempted suicide. Many more have discussed varying reactions to these drugs like major depression, sleep disturbances, or fits of rage. Enter cannabis. The American Legion Iraq and Afghanistan Veterans of America have both conducted surveys asking veterans questions about cannabis. Across both surveys, at least one in five veterans reported using cannabis for their service- connected conditions. In our work, many of those same veterans who struggled under the weight of taking dozens of pills a day found immense relief through using cannabis, finding it far more effective at managing their injuries, like post-traumatic stress disorder and chronic pain, than drugs like anti- psychotics and ibuprofen. This is where the Veteran Cannabis Coalition stands. We see the bright light between cannabis and improved health because have witnessed the positive changes in the lives of many in our community who chose cannabis as an alternative to a slew of toxic, addictive pharmaceuticals. We also understand the broad potential of a plant that has numerous medical, commercial, and industrial applications and what that means for millions of veteran patients, employees, and employers. Despite the current field of international multi-billion dollars cannabis corporations, the movement to reform cannabis laws in the U.S. was centered on the needs of patients, not the potential for profit. But while many patients in the past were able to rely in donation networks and co-ops, the scale required today to reach everyone interested in cannabis often necessitates complex supply chains made more complex by the double-edged sword of heavily regulated state systems and Federal prohibition. These complexities favor heavily capitalized businesses who have the resources necessary to comply with burdensome rules and massive tax liabilities. This presents a huge threshold to entry for small businesses made more difficult because they are cut off from raising capital from traditional sources. Financial services, including basic access, like deposits in checking, are often denied to legal cannabis businesses by vendors who fear Federal reprisal. For example, Berkeley Patients Group, the Nation's longest-running cannabis dispensary and co-owned by a Gulf War veteran, has had their bank accounts closed nearly 40 times in 20 years. Multiple times per year, BPG is forced to pay taxes in the hundreds of thousands of dollars in cash at great personal risk to both employees and government workers who have to deal with massive amounts of currency. The denial of access to traditional financing forces cannabis businesses to seek vendors offering far less favorable terms. Ancillary services in the cannabis industry, including payroll, IT, and insurance are extremely limited due to potential sanctions by the Federal Government on firms that participate in any way in the cannabis industry. This, in turn, enables those providers who do participate to charge exorbitant rates. Just as the Federal and state conflict in cannabis laws damages the ability of cannabis touching small businesses to be successful, it discourages the participation of indirect businesses which further negatively impacts direct cannabis businesses and their ability to deliver accessible, affordable medicine. Millions of patients across the country have a need for equal access to cannabis, which we define as a combination of affordability, physical accessibility, and a standardized quality. We have seen the benefits veterans have experienced using and working with cannabis and we know that in making those benefits as widely available as possible, we can work to reduce the suicide and overdose epidemic that has devastated our community. But everyone who uses legal cannabis relies on licensed cultivators, licensed manufacturers, and retailers and dozens of ancillary businesses that interact with them. We want to see industries small businesses delivering medicine to those in need, developing new devices and treatments, and fully exploring all the pathways the plant contains. And those businesses can be empowered by the actions of this Committee. We hope that you will continue supporting this discussion and work with stakeholders to fulfill the promise and ingenuity of American small businesses in this new and important sector. Thank you for your time. Chairwoman VELAZQUEZ. Thank you, Mr. Goepel. Ms. Chaves, you are now recognized for 5 minutes. STATEMENT OF DANA CHAVES Ms. CHAVES. Chairwoman Velazquez, Ranking Member Chabot, and members of the Committee, I am Dana Chaves, and I am the senior vice president and director of Specialty Banking Services at First Federal Bank of Florida. Thank you for the opportunity to testify before the Committee today to discuss the importance of unlocking access to affordable capital for businesses in the regulated cannabis industry. I am pleased to provide a first-hand account of how local community banks can invest in aspiring entrepreneurs and new businesses to help facilitate economic development and job growth, especially in underserved areas. I will briefly summarize my written testimony and I look forward to answering your questions. First Federal Bank is a federally chartered mutual bank which was established in 1962. We have over 750 employees, with over 24 branches, 17 mortgage offices, and operate in eight states with almost $2 billion in total assets. And that encompasses nearly 75,000 clients. We launched our cannabis banking program on April 1, 2019, and to date, we have opened 62 accounts tied to marijuana- related businesses. We classify these accounts into three separate tiers. Tier I are direct plant touching businesses, such as dispensaries and cultivators; Tier II are ancillary businesses, vendors, investment accounts, and depository accounts; and Tier III are businesses that are involved in the medical side, like the treatment centers or doctors' offices. We also serve CBD companies, as they, too, are dealing with issues related to financial services. We have over 55 Tier I, II, and III pending applications and several are currently under our due diligence review. This process can take up to several weeks to complete. I am also testifying on behalf of the National Cannabis Industry Association (NCIA), the largest national trade association dedicated to protecting state-regulated cannabis businesses and advancing policy reforms needed to align Federal and state cannabis laws. Currently, I am the Chair of the NCIA Banking Access Committee and have helped publish several industry reports to assist and educate financial institutions and state regulatory agencies on cannabis-related banking. To date, 47 states and the District of Columbia, as well as Guam, the Northern Mariana Islands, and Puerto Rico, have passed legislation authorizing some form of cannabis for regulated medical or adult-use purposes. Additionally, 33 states have enacted laws regulating the commercial production and sale of medical or adult-use marijuana, excuse me, including my home state of Florida. However, because cannabis remains a Schedule I drug under the Federal Controlled Substances Act, licensed cannabis-related businesses have been effectively locked out of accessing basic financial services, including the traditional loans and programs established by the Small Business Administration, such as the 7(a) loan guaranty program, the 504 Certified Development Company loan guaranty program, the Microloan program, and disaster relief efforts. With my testimony today, I hope this Committee will develop and pass legislation that expands access to business loans and lending programs under the jurisdiction of the SBA for cannabis-related businesses, many of which are led by aspiring entrepreneurs or are minority or women-owned. Also, I hope the members of the Committee will also support H.R. 1595, the Secure and Fair Enforcement Banking Act. The bill, which currently has over 200 bipartisan cosponsors, would permit banking and depository services to licensed cannabis-related businesses, including ancillary businesses. Given the lack of clarity for cannabis banking, as well as the inability for SBA to partner with community banks to assist MRBs, I have seen, and continue to see, those involved in the state-regulated cannabis industry struggle. As an example, I have an executive who left a Fortune 500 to work for one of our clients who was refinancing his home with a large national bank. The executive had a longstanding relationship with this bank and literally 30 minutes before they were closing his loan they canceled it and decided they could not help him because of where his funds were coming form. We had to step in and assist him with refinancing his home. So while this example had a positive outcome, First Federal has several requests for lending from MRB clients and we are not in a position to provide these services due to the current regulatory environment. Since 2004, the U.S. Department of Treasury's financial crime enforcement network has maintained guidance regarding the conditions under which financial institutions may work with cannabis-related businesses. These conditions include an array of Federal requirements financial institutions must meet to provide banking services to licensed cannabis-related businesses, such as preventing distribution of cannabis to minors, preventing revenue from the sale of cannabis to criminal enterprises and cartels, ensuring cannabis activities and transactions are not being diverted to a state where it is not legal, among others. As a provider of small business loans, it is frustrating that the SBA has not incorporated a similar approach. I want to thank the Chair, Ranking Member, and Committee, for your time to discuss expanding access to SBA loan programs for the regulated cannabis industry. This topic is important and has economic consequences for businesses and community banks all across America. I urge the Committee to develop and pass legislation that allows SBA to provide the regulated cannabis industry with affordable capital necessary to increase economic opportunity and support job growth. Thank you again for the opportunity to submit my testimony today. Chairwoman VELAZQUEZ. Thank you, Ms. Chaves. Mr. Larkin, you are now recognized for 5 minutes. STATEMENT OF PAUL LARKIN Mr. LARKIN. Madam Chairwoman, Mr. Ranking Member, and members of the Committee. I made four points in my written statement and I will summarize only one of them here, and that is this: If Congress were to legalize recreational marijuana use, it should require that states own and operate distribution facilities. Debate over the supply aspect of marijuana legalization is generally focused on the difference between distribution by large and small-scale businesses. I think that is a mistake because those are not the only two options. Distribution by whatever size business is not just the province of private parties, and I think it is important to consider other distribution mechanism. Now, why? It is important to do this because marijuana is not an ordinary commercial product, like batteries or flashlights. It is much closer to alcohol or tobacco. Long-term use can lead to severe problems. We know a certain percentage of people who use it on a long-term basis will become physically dependent or addicted. A certain percentage will suffer severe mental disorders. And people who use it, even on a short-term basis and drive can lead to havoc on the highways. So it is not your average commercial product. It is very different. All of which, I think, can wind up giving rise to the conclusion that we have to be careful about how we wind up legalizing it if that is your decision. Now, moderate use of marijuana by adults at home is not likely to lead to large-scale social problems or major individual problems. Adults who use a few times a week when not driving, when not working, when not caring for children is going to be an activity that is fairly harmless. But that might describe only about half of cannabis users, and that practice describes only 2 percent of cannabis use. Okay? Which is 2 percent of consumption and only 2 percent of sales and profits. A small number of daily or dependent users consume far more marijuana than the average person who does it on an occasional basis. Cannabis consumption is like alcohol consumption. It follows the 80-20 rule. Eighty percent of consumption is by 20 percent of the users. What does that mean in practice? Since 1996, since cannabis use has been legalized in various states, it has changed from being a weekend activity to sometimes being a daily activity. It has become more like smoking tobacco than drinking alcohol. The number of Americans who self-report using cannabis daily or near daily has increased from roughly 1 million in 1992 to roughly 8 million in 2016. That is a considerable increase. Now, aggravating those factors is this: Just under one-half of consumption is by people who either have been in treatment for some type of substance use disorder or have the symptoms of a substance use disorder and just have not had treatment for it. And since being addicted or being physically dependent is not an activity that generally is one that people consider laudatory, the numbers I have given you may even be conservative. They may even be higher. Moreover, about 60 percent of consumption is by people with a high school education or less, which means they are far more sensitive to declines in prices and prices have dropped, sharply, in fact. But what does that mean? From the perspective of cannabis vendors, marijuana abuse is not an unfortunate side effect of legalization. No. Marijuana abuse is the goal and marijuana abusers are the target demographic. That is the result of the 80-20 rule. Now, the trick, as Professor Mark Kleiman of NYU has said, if you are going to legalize it, is to try to keep at bay the logic of the market because the logic of the market has a tendency to create and exploit people with substance abuse disorders. How then do you do that? There are at least two other options that should be debated. One is endorsed by Professor Jonathan Caulkins of the Carnegie Mellon University. He says the shale should be limited simply to not-for-profit companies. Another option is the one that Professor Mark Kleiman of NYU endorses. He says that the sale should be limited to government businesses, similar to what happens in my own state of Virginia for distilled spirits. I think Professor Kleiman has the better of the argument for several reasons. I mentioned them. Let me just mention one. There is no First Amendment problem whatsoever to preventing advertising of marijuana if it is sold by the states. States are not persons. They have no First Amendment rights and it is easier for the states to keep track of their own stores and their own people. For these reasons, I hope you will, if you decide to legalize it, consider these other two options and avoid recreating what we have with cigarettes and tobacco. Thank you. Chairwoman VELAZQUEZ. Thank you, Mr. Larkin. And thank you to all the witnesses. I will begin by recognizing myself for 5 minutes. Ms. Penny, recent data shows the legal U.S. cannabis industry has a high rate of women in leadership roles with a 36 percent average across the industry and the highest being 63 percent in high-level executive positions in testing labs. We also know that minority business owners generally face greater challenges in accessing affordable capital to start, expand, and operate their businesses, and that the SBA has historically played a role in providing access to affordable capital in emerging industries such as technology and communication services. Should SBA loan programs and entrepreneurial development programs be accessible to small firms in the cannabis industry? Ms. PENNY. Absolutely. We do not have access to institutional lending currently, and so we are left to finance these businesses with private equity. This is usually a very expensive loan. And because most people are not savvy enough, they typically get into situations where as they continue to raise money they lose equity. And so these businesses that were once minority owned, women owned, quickly become, you know, something that is not that. Chairwoman VELAZQUEZ. Thank you. Mr. Goepel, we know that generally veterans try to give back and help fellow veterans, including by hiring them in their businesses. However, we also heard that veterans who receive benefits from the VA have expressed hesitation before entering the legitimate cannabis industry, either as entrepreneurs or as employees for fear of losing their VA benefits. Should the VA issue guidance clarifying that veterans employed in the legitimate cannabis industry will not lose their benefits simply because of the industry in which they are employed? Mr. GOEPEL. Thank you, Chairwoman. Currently, the VA has a directive stating that veterans who self-disclose cannabis use within the VA healthcare system will not be denied benefits or stripped of benefits. However, when you are talking about other non-healthcare related benefits, like VA home loans, the VA looks at where the source of your income is coming from. And if it sees that the major source of your income is coming from a cannabis-related enterprise, then essentially you do not have income. So it disqualifies a lot of veterans because the VA essentially does not recognize the validity of the business they are working in. Chairwoman VELAZQUEZ. So should SBA and the VA enter into a partnership designed to enhance entrepreneurial and employment opportunities for veterans in the legitimate cannabis industry and making sure that because you work as an employee or as a business owner, you would not be denied any type of benefits or your income counting for the purposes of acquiring any type of property? Mr. GOEPEL. That clarification would go a long way to alleviating a lot of the stress and hesitation veterans experience, you know, entering or working in the cannabis industry, essentially being under the gun of some sort of Federal sanction if it were to come out in certain circumstances that they were working in the cannabis industry. So, yes, we would certainly support any effort to, you know, the SBA or, excuse me, the Small Business Committee and the VA working together to clarify that. Chairwoman VELAZQUEZ. Thank you. Ms. Chaves, SBA policy prohibits SBA-backed loans from going to direct or indirect cannabis businesses. The policy defines an indirect cannabis business as one that generates any revenue from the sale of a good or service to a direct cannabis business. That is an incredibly broad prohibition. As a banker, what kind of impact does this have on the small business sector and local communities? Ms. CHAVES. It has a very large impact. These small businesses are not allowed to grow. They are not allowed to expand and help the communities and provide jobs in underserved areas or any other areas. So these loans and this clarification would help immensely for us to be able to help these businesses. Chairwoman VELAZQUEZ. And what are the potential, unintended consequences of denying legitimate businesses traditional banking services and forcing them to operate on an all-cash basis? Ms. CHAVES. The consequences are huge. Operating in an all- cash environment creates a community safety risk as far as their employees, the staff, and the community itself. We do take some cash deposits but we never take a cash deposition in our financial institution. It has always been armored car service. So these risks are huge and they can cause severe damage. Chairwoman VELAZQUEZ. Thank you. My time is up. My time has expired. And now I recognize the Ranking Member, Mr. Chabot, for 5 minutes. Mr. CHABOT. Thank you, Madam Chair. The Chair started out by asking a question about women, so Ms. Penny, let me ask you this: Are you aware that marijuana usage among pregnant women has doubled in recent years? Ms. PENNY. I was not aware of that. I am aware of the fact that a lot of people have replaced harmful pharmaceuticals with cannabis. And so if pregnant women are falling into that category it may be some truth to that statement. Mr. CHABOT. Let me follow up. Are you aware that use of marijuana by a pregnant woman can cause premature birth? It can cause low birth weight, both of which can be harmful to the newborn child and it can cause other problems as well; would you agree with that? Ms. PENNY. I have not seen this science or research that says that specifically. I am aware of what smoking does. Pregnant women today---- Mr. CHABOT. Pregnant women should not be smoking either. Ms. PENNY. Pregnant women today have a lot of options for consuming cannabis safely through topicals, low THC forms of the medicine itself. Mr. CHABOT. Okay. Mr. Larkin, let me move to you. Would you characterize the growing, cultivating, transporting, and selling of a product, any product, across state lines, interstate commerce? Mr. LARKIN. Yes, sir. Mr. CHABOT. Okay. And does the U.S. Constitution give the authority to the Federal Government to ``regulate'' commerce among the several states or does it just leave it up to the states to figure out? Mr. LARKIN. The Constitution expressly grants that power to Congress. Mr. CHABOT. Thank you. Would you think it fair for a state, any state, let's say Vermont since we do not have anybody on this Committee from Vermont, to opt out of a Federal law, perhaps the Clean Water Act or even the Internal Revenue Code by plebiscite or a vote of the people in that state to hold a referendum and say, well, we do not want to pay any more Federal taxes. Why on earth if we would not do it for those things would we do it for marijuana, for example? Mr. LARKIN. I am searching for that answer myself. Historically, it has been up to Congress to decide whether to exempt states from Federal law. It is not up to the states to decide voluntarily to leave. Mr. CHABOT. Thank you. Ms. Chaves, let me ask you this. The additional usage of marijuana, what effect do you think that would have on injuries and deaths on the Nation's roads and highways, if any? Ms. CHAVES. I do not think that the usage is any different than other substances, like alcohol. Mr. CHABOT. Okay. And if people are drinking and driving, that can cause an increase in the injuries and deaths on the highways; is that correct? Ms. CHAVES. Definitely. Mr. CHABOT. And if marijuana usages goes up and people are driving while they are having ingested in some manner marijuana, is it not reasonable to assume that injuries and deaths on the Nation's highways would go up as well? Ms. CHAVES. I am not aware of any studies but there is a possibility. It depends on who is behind the wheel. And there is always that risk. Mr. CHABOT. Thank you very much. Let me go back to you, Mr. Larkin. Justice Brandeis famously stated that we should allow the states to serve as laboratories to try out novel social and economic experiments without risk to the rest of the country. Why should we not apply that to marijuana in this particular instance? Mr. LARKIN. It is a great phrase but it has its limitations because after all, Dr. Frankenstein had a laboratory, too. What we have decided for a very long time, 80 plus years, in fact, is that we should leave, for example, the question of whether a particular item is a drug. And if it is a drug, whether it is safe and effective to the Food and Drug Administration to resolve. In 1937, Congress in the Marijuana Tax Act effectively prohibited the interstate distribution of marijuana. The following year, in the Federal Food, Drug, and Cosmetic Act, it entrusted the FDA with the responsibility to decide what is safe, and in 1962, also what is effective. If the question is whether marijuana is a safe and effective drug, we should leave it to the Food and Drug Administration to decide. We should not leave it to the states. That is exactly the wrong way about going about this. We do not by plebiscite decide what drugs can be distributed in interstate commerce because they are safe or effective. We rely on the expert judgment of the commissioner of Food and Drugs and the staff at the FDA. We should do the same with respect to all the drugs that are regulated by Congress. Mr. CHABOT. I am just about out of time. Mr. Goepel, let me ask you this to conclude. Are you aware that studies have shown that marijuana usage among teens oftentimes leads to suicidal thoughts? Mr. GOEPEL. I believe a lot of those studies that link psychosis or suicide or schizophrenia to cannabis use run into major issues when it comes to directionality. Mr. CHABOT. Would you agree they are linked to anxiety and depression and memory loss and a number of other---- Mr. GOEPEL. I mean, there have been links but there is not anywhere close to a definitive correlation between the two. Mr. CHABOT. My time is expired. Thank you. Thank the panel. Chairwoman VELAZQUEZ. The gentleman's time has expired. And now we recognize Mr. Jason Crow, Chairman of the Subcommittee on Innovation and Workforce Development from Colorado for 5 minutes. Mr. CROW. Thank you, Chairwoman. Mr. Goepel, thank you for joining us today. I also am a fellow veteran, and anecdotally through my work with veterans in Colorado, I have seen and heard what you described of earlier, this effect of veterans going to cannabis to self- medicate and going away from more lethal prescription drugs and opioids and the lifesaving impact that that has had. Can you just elaborate a little bit more on some of the experiences that you have had on that and some of the data that suggests that this is a positive impact for veterans overall? Mr. GOEPEL. Sure. So, for example, the Department of Veterans Affairs in a 2014 study basically found that half of all veterans have chronic pain. Untreated chronic pain is one of the biggest drivers in suicide. What the Department of Veteran Affairs and let's just say more broadly, the private healthcare system would provide to veterans who have indications like PTSD and chronic pain, anxiety, depression, is essentially a cocktail of medications individually that all carry risks combined. There is zero research to back giving someone combinations of sedatives, opioids, stimulants, and a variety of other drugs that are intended to treat these very narrow indications, but in turn, create other problems which require other medications to treat. And now you have veterans taking 20, 40 pills a day, you know, between 6, 8, 10, 12 medications a day. That is not a sustainable lifestyle. Certainly, it is not a sustainable treatment program. And yet, that is what the VA and private health care have provided us. So obviously, we see a lot in our community where people have tried the pharmaceutical route. They have been driven near suicide. Someone, usually a friend or someone trusted, comes to them and brings them cannabis and the relief that they experience is almost immediate and incredible comparative to years of not sleeping, for example, where a lot of veterans are taking medication either because of their underlying conditions or the medications themselves are unable to really ever stabilize or get healthy. Mr. CROW. And I would add to that that there is this tradition of veterans protecting and helping other veterans. And what I have seen in Colorado is veterans who have had positive experience with cannabis as an alternative to more lethal drugs and opioids in particular are starting cannabis businesses to help their fellow veterans. And I am assuming you have seen that at a national level as well? Mr. GOEPEL. Yes. We deal with veteran entrepreneurs who generally have started out with the intent to, yes, they see some future in cannabis as an industry but they also see the benefit that being a cannabis entrepreneur can bring to others in the community. Mr. CROW. And Ms. Penny, as you know, I am from Colorado, and we have been one of the leaders in cannabis legalization and creating a system that works well and is responsible to the community. And I have a number of cannabis businesses in my district and I have yet to see and ever run into a business that feels like running afoul of the law or giving cannabis to individuals who are abusing it is a good business model. In fact, I see that people go out of their way to actually be responsible and to be good stewards of the community and do it the right way because they want to serve as an example for the community that this can be done. And I just would love your thoughts on that and whether that has been your experience at a national level as well. Ms. PENNY. Yes. Colorado has been a model for a lot of the other states that have legalized. You see elected officials traveling to Colorado to visit these businesses. You see interested parties who are entering the cannabis industry go to Colorado. You have a great deal of small business owners and entrepreneurs in Colorado. A lot of the other state programs were not created in that way and as the Colorado market matures, regulatory changes that have taken place have really impacted the small businesses there. So access to SBA services and institutional lending will impact Colorado greater, but the impact that it can have on new programs and developing programs is an even larger opportunity. Mr. CROW. Thank you, Madam Chair. I yield back. Chairwoman VELAZQUEZ. The gentleman yields back. The gentleman from Minnesota, Mr. Hagedorn, is recognized for 5 minutes. Mr. HAGEDORN. Madam Chair, thank you for the opportunity and holding this hearing. Ranking Member Chabot, and the rest of you, the witnesses. At full disclosure, I am one of those that grew up in the Nancy Reagan era of ``Just Say No'' but I am not here today to pass any judgment. I just want to talk about the issue. In fact, I would like to switch gears a little bit from the legalization of marijuana for recreational purposes and medical to the concept of the industrial hemp and using low dose THC for pain management and things of that nature. We have businesses in southern Minnesota that are exploring this. Farmers, manufacturers. I toured a plant recent, a whole production facility in Waseca, Minnesota, and listened intently as to what was going on. There are a lot of issues that might be impediments as you are talking about in this area for industrial hemp and for the pain management, the oil. And you are looking at it, as farmers, and you want to go out and grow, but you can have some crosspollination problems where if two farmers are too close together and one plant impacts the other, it can destroy crops. And you have other situations where right now for agriculture there is no specialty crop insurance for industrial hemp. That is something they are looking into. I talked with the Secretary of Agriculture and others on down and they say maybe in a couple of years as they move forward, since this is an emerging crop, that might be something they look at. But, you know, there are other areas. Regulations. Federal, state, and other regulations as to whether or not the products that are produced, are they pure? Do they meet standards? Are they going to do what they say? Do they have the level of oil in there that they claim? You are looking at international trade issues where the Chinese dump product that might not be sufficient and good for the American people or again, follow up on their claims. The Ranking Member brought up the commerce clause and the banking issues. And there are regulations by the police and investigations to make sure that the specialty crop for industrial hemp is not something other that the state does not allow or should not be grown. So those are the types of things that we are looking at and I am going to try and represent the district in the interest of everyone at heart. But just a couple of questions. Is it Goepel? Is that how you are pronouncing it, sir? Mr. GOEPEL. Yes, sir. Mr. HAGEDORN. I appreciate our advocacy for veterans and everything that you are trying to do to make sure we can prevent suicides, help them manage pain properly. Let me live the best life possible. Give them the benefits they deserve and everything else. One of the things I am working on with some members is to try to make sure we have choice for veterans for mental health capacities and others. They should be able to go choose the mental health provider of their choice, not necessarily have to rely on the VA, and get that as soon as possible. But for veterans that are dealing with pain management, do you think that--you advocate for the medical marijuana, but do you think that they should have to try low dose oils with THC levels lower before they would move on to medical marijuana? Mr. GOEPEL. I think you make a great point, Congressman. Basically, there needs to be some sort of established protocol for introducing people to cannabis. And introducing them in a way that allows them to find the right dosage and the right ingestion method to meet whatever their healthcare needs are. We do not necessarily advocate for just the straight smoking of cannabis. Mr. HAGEDORN. So those types of standards you think might be okay. What about the idea of finding other delivery methods than smoking it? Would that be beneficial in the long run, do you believe? Mr. GOEPEL. Most definitely. We have seen, especially in California, for example, and Colorado, certainly, the proliferation of different methods of ingestion. And many of them are more efficient than smoking. Mr. HAGEDORN. All right. Mr. Larkin, I was going to go down this road because I met with a law enforcement officers in southern Minnesota, and they all kind of tell me the same thing. They tell me that the marijuana of today is a lot different than it was 20 or 30 years ago. It is many, many times stronger. They believe, the law enforcement, that it is a gateway drug. They believe that for that reason they oppose it. You seem to have a lot of knowledge in this area. Do you have any comment to that? Mr. LARKIN. Yes. First, it is far more powerful. Mr. CHABOT. The mic. The mic there. Pull the mic towards you. Mr. LARKIN. Oh, I apologize. The marijuana that people used back in the 1960s when it became a symbol of opposition to the government was maybe 1 to 3 percent THC. Nowadays, you can have marijuana that is in the teens. You can have hashish that is higher. And if you have the right facilities, you can manufacture a substance that can be used that is up in the 90s. So as a factual matter, marijuana can be far more potent today than it was back then. Mr. HAGEDORN. All right. My time is up. I just have one more quick question. On the issue of liability, dispensaries, should they be held to the same standards, for instance, as maybe bars and others where if you overserve or you do things in a bad capacity that they should be liable for problems? Mr. LARKIN. Absolutely. If they are contributing---- Chairwoman VELAZQUEZ. Be brief, please. Time has expired. Mr. LARKIN. Yes, yes, yes, yes. Mr. HAGEDORN. Thank you, Chair. Mr. LARKIN. If they are contributing to injuries and deaths on the highway, they should be responsible as well. Mr. HAGEDORN. I am not saying I subscribe to all that. I am just asking your opinion. Thank you. Thank you, Chair. I yield back. Chairwoman VELAZQUEZ. Thank you. The gentleman's time has expired. Now I recognize the vice Chair of the Committee, Mr. Evans from Pennsylvania for 5 minutes. Mr. EVANS. Thank you, Madam Chair. And I thank the Ranking Member for the purpose of this hearing. I come from the Commonwealth of Pennsylvania. When I was in the state legislature I voted for medical marijuana, and it is ironic that I am here. I was on the Agriculture Committee and I voted for the Farm Bill, which we deal with the issue of hemp. So the question I want to go to is Ms. Perry. A couple questions real quick. Can you explain how the 8(a) program you spoke to about leveling the playing field for economic disadvantaged people, and why is it important for SBA to allow individuals with prior cannabis convictions to participate? Ms. PENNY. Thank you. It is important for us to allow the people who have been impacted by prohibition to participate in this industry because essentially, the industry was built on their backs. So we want to embrace them. They have experience that with the proper training and polishing, they could be business leaders, innovators, thought leaders as this industry evolves. And so when we look at the services and support offered by SBA, we want to make sure that we are not creating an environment where these programs are assisting people who do not really need additional assistance. We have seen programs in the past that have been kind of hijacked. You know, a white woman-owned business being positioned as a minority-owned business. We do not want to see that in the cannabis industry. So we want to be specific in these targeted funds for the groups that have been impacted. We want to see specific funds for minorities, and we want to identify those groups that were impacted by the war on drugs. And we know that in this country, black and brown people are four times more likely to be arrested for cannabis possession than anyone else, even with similar usage. Mr. EVANS. Okay, Ms. Penny, can you explain the types of jobs this industry created from the cultivating to distribution? Ms. PENNY. Sure. You have everything from the horticulturist, or the botanist, the person responsible for that strategy and what you are going to grow. You then have processors, people with chemistry backgrounds, chemical engineers, folks that understand formulations and how to make medicine, down into the dispensary portion of the supply chain. You have retail management, pharmacists. To support these businesses, you have a ton of professional services, the same services that any other business would have. In the next few years, cannabis is going to outpace manufacturing in the number of jobs created, and if we are not developing a pipeline of talent, there is no way that we are going to have a diverse industry. And the SBA also needs the support of the existing operators so that you have expertise at the SBDC, so that you can actually provide the technical assistance that is promised in most of these social equity and economic empowerment programs. Mr. EVANS. Mr. Goepel, what are some of the obstacles unique to veteran startups in the cannabis industry? And I am going to do a follow up so you can get it in. What can the Small Business Administration do to focus its existing efforts to empower the veteran-owned business population? Mr. GOEPEL. Well, we can look at, excuse me, the Committee can look at the declining rate of veteran entrepreneurship and perhaps see an opportunity in cannabis to enable veterans who have an interest, who have a connection to cannabis as patients oftentimes to participate. And I think one of the best ways to do that is training and loan programs. And that is something that the Small Business Committee already oversees at the SBA. There is a lot of opportunity for veterans to become valuable members of the industry. They already possess a lot of talents and skills that would be useful in the context of cannabis. And so I think there are a lot of areas there for the Committee to empower and incentivize vets. Mr. EVANS. One last question to Ms. Penny. What do low- income neighborhoods and communities of color stand to lose if they are left out of the cannabis policy? Ms. PENNY. They will remain devastated. They will remain food deserts. They will remain places where you cannot access health care or any of the other things that you need in any community. Mr. EVANS. I yield back the balance of my time. Thank you. Chairwoman VELAZQUEZ. The gentleman yields back. And the gentleman from Tennessee, Mr. Burchett is recognized for 5 minutes. Mr. BURCHETT. Thank you, Chairlady and Ranking Member. I speak to a lot of groups. One of the groups I speak to, I have in the past, is the Libertarian group. And they brought to me a lot of these statistics, facts and figures, one way or the other. But I think the reality is we can talk about the medicinal purposes and the oils and everything, but people want to get high. I mean, that is the reality of this industry, I believe. And I think that if we do not acknowledge that and the effects that that could have on society, then I think we are missing the boat. Mr. 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 over marijuana? Mr. LARKIN. No, sir. I think that would be quite silly. In 2009, Congress decided for the first time heavily to get into the business of regulating the safety, to the extent you can, of cigarettes and the like. They empowered the FDA to regulate cigarettes, tobacco, and the like. There is no reason not to do the same thing here. Mr. BURCHETT. Okay. Mr. LARKIN. Oh, and by the way, you mentioned the real reason. You know, you are not alone in that. Dr. Peter Bach wrote an article in The Wall Street Journal earlier this year entitled, ``If weed is medicine, so is Budweiser.'' So it is not just you thot thinks what we are really talking about is the value in having that euphoric feeling. He is a physician at Memorial Sloan Kettering Cancer Institute. He said the exact same thing. Mr. BURCHETT. Yes, sir. Because I do know that, for instance, THC can be created in the lab and it can be through the use, I believe the drug they use is called Marinol, and it has the same euphoric effect that would be just of smoking marijuana from what I understand. Mr. LARKIN. Yes. Mr. BURCHETT. And I do not support that but it is just the reality of where we are at. And at some point I think folks should just say that. I would ask the whole Committee, the group that is gathered here, what small business owners and what sector of small businesses would benefit and which would be most directly hurt if we were to legalize marijuana? Because we have available dollars. You are going to spend them on something. I mean, is it going to affect, as you said, is it going to affect Budweiser or is it going to affect something else? Because it is not going to be this new money is just going to appear. People have available funds to spend on something. What will it affect? And I would ask all the Committee members up here. Mr. LARKIN. Well, I am glad to start. I think to the extent people use marijuana for the euphoric effect it creates, it is going to create a similar effect to what you have when you use alcohol. So whatever they take money away from to purchase alcohol, they will probably also use that same source to purchase marijuana. Or they may take even more because they may purchase alcohol and marijuana because the two are often used together. Mr. GOEPEL. If I could answer that question. I think the idea that the vast majority of consumers are using cannabis specifically to get high very much undermines the medical value that especially veterans have experienced. The drugs that veterans are prescribed, opioids, sedatives, stimulants, antipsychotics, a lot of these all carry euphoria as a side effect but we do not necessarily dismiss those things just because they have a euphoria attached to them. Now, they are also very psychoactive and incredibly impactful on mental health and other aspects of physical health. So we have a situation here where I believe cannabis is a dual purpose substance, whereas, cannabis can be used recreationally, it can be used medicinally. That cannot be said the same for alcohol or tobacco because there are no children who are seizure-free because they are drinking Budweiser. Mr. BURCHETT. I realize that except the CBD oils and things, they are, as was stated earlier, I believe 47 states have something, as does my own state. So it would go back to the original premise though. I mean, if those things are already there, then what is the further purpose of marijuana past that? Mr. GOEPEL. I mean, there still needs to be massive amounts of research. I mean, we want to see cannabis medications in the Department of Veterans Affairs and we cannot get there without research. And we cannot get research without ending prohibition. Mr. BURCHETT. Ma'am? Ms. CHAVES. I am not here to discuss the particulars of the components of the drug itself because that is not my area of expertise. My area of expertise is in the banking of these businesses and getting the cash off the streets. Chairwoman VELAZQUEZ. The gentleman's time has expired. The gentlelady from Iowa, Ms. Finkenauer, Chairwoman of the Subcommittee on Rural Development, Agriculture, Trade and Entrepreneurship, is recognized for 5 minutes. Ms. FINKENAUER. Thank you, Madam Chair. And thank you all for being here today, sharing your views, but then also your expertise and scientific facts. It means a great deal that you took the time to come and chat with us today. And I have to tell you, before I had the great honor to be a congresswoman from Iowa's 1st District, I was also in the State House in Iowa for 4 years. So I got an up-close experience of the journey of cannabis law and regulations very specifically in my home state. And I would like to share with you all just a moment that had really impacted myself as a legislator and also on this issue in particular. It was 2017. We were at the end of session, so it was the last night of session. We were all there until I think it was 7 o'clock in the morning trying to get something done. There were two bills left that we were trying to get done. One had to do with CBD oil and medical cannabis, and one had to do with water quality. And I remember that night, again, folks showing up into the gallery who had been working on both of these issues, and I walked up there and I got to meet a little boy named Brady and his mom Quincy. You see, Brady and Quincy are of the Sac and Fox Tribe and they are Meskwaki. And so they had come back to Iowa after living in Colorado for a couple of years so Brady could get the treatment that he needed because he has seizures that basically immobilize him. And for years had actually, again, lived in Colorado to be able to treat that. But because of being Sac and Fox, and also obviously Meskwaki, wanted to come back home and be with family. And the year or two before this they came to the state capital and Quincy was told by the state representative that if you care about your son you will go back to Colorado. And I will never forget hearing that story, and I will never forget those moments with Quincy and Brady up in that gallery as I heard their story personally. And again, I knew that we had a heck of a lot of work to do in Iowa and across the country to educate folks about, again, cannabis and its uses. And again, it was quite the journey in Iowa. That year, we did end up passing something that was not what we all wanted but it was a pilot program that made CBD oil available to patients with eligible medical conditions like cancer or Parkinson's disease. Unfortunately, it left off many issues that are considered women's health issues, like polycystic ovary syndrome, endometriosis, just to name a few. And then this year, the State House did make some serious gains trying to expand access to other cannabis products to help treat patients. Unfortunately, and again, many gains were made bipartisanly in the state of Iowa, passing both the Republican-controlled State House and State Senate, but just a few weeks ago our governor happened to veto that bill, the reasons being she said addiction. Although earlier that week she signed a sports betting bill. So again, it is very frustrating on my end being an Iowan and hearing stories that so many of my constituents have dealt with and dealing with, again, lack of certainty and regulations and needing more certainty. And part of that is having access to medical cannabis and cannabis in general in the state of Iowa and making sure that we have the producers in Iowa. And one of the companies that I have talked with, MedPharm, expressed their frustrations where right now they are manufacturing in Iowa and they are trying to make safe, effective products but at the same time are unsure every single day about what the future of the industry looks like. And I do not know if Ms. Penny, I know we only have a few minutes here, but if you can touch on what the uncertainty that we see in states like Iowa can cause manufacturers to be able to deliver product and then also grow their business when there is such an opportunity to do so. Ms. PENNY. Sure. The contradiction between the Federal Government and the state government is a reason for any business owner to pause. When you are well-funded though you will notice that you do not pause as much. When the Cole Memo was rescinded, the members of MCBA were the only people in the industry that I really felt were really concerned because everybody else was going to be able to work around it. When you start to think about a small farmer and their opportunity, we have to end Federal prohibition so that they can feel comfortable getting into this industry and creating the businesses that then create jobs and tax revenues for those communities. Ms. FINKENAUER. Thank you, Ms. Penny. I appreciate it. And I know my time is about to expire, so I yield back. And thank you, Madam Chair. Chairwoman VELAZQUEZ. The gentlelady yields back. And now we recognize the Chairman of the Subcommittee on Contracting and Infrastructure from Maine, Mr. Golden, for 5 minutes. Mr. GOLDEN. Thank you, Madam Chair. Two questions if I have time. First, for Mr. Goepel. You are getting asked a lot about this but I just wanted to give you more opportunities to talk about it because I think it is important. I was actually somewhat concerned and skeptical early on about the potential harmful side effects of marijuana use on veterans. I am one myself in Afghanistan and Iraq. I was diagnosed with post-traumatic stress coming home from Iraq back in 2006. But I have just heard repeatedly from veterans and mental health care experts with specialization in providing care to veterans that it can be life-changing in a positive way for a lot of veterans. And so I have come around to believing it. But I have also heard those same professionals and veterans say that if not used correctly it can have negative impacts as well. You know, there is a fine line there and veterans need guidance. And they need help finding the right approach. And of course, I call it a gag order really where VA--we know a lot of veterans go to the VA for their health care but when it comes to this they are stepping outside the system. They are still going to the VA for their health care because that is what is affordable for them. So what can we do? If it is not the VA and getting rid of the prohibition, what else can be done to help get information to veterans so that they have the best shot at experiencing the positive medical benefits? Mr. GOEPEL. I think, you know, only 6 million veterans use the VA for health care, so that leaves about 14 million veterans outside the VA. Outside VA care either with no care or private care. Or, you know, employer tied care. And this is an issue that I have seen in California where it is legal but there has been no real effort at the state level to educate consumers about what is now legal. And the research that is being produced about cannabis and various cannabinoids, because we talk about cannabis as a plant but that plant holds 120-plus active components which all seem to have some sort of medical effect, and only a few are actually psychoactive or cause euphoria. So to essentially throw the entire plant out because there is a fear of THC making people, I do not know, relaxed or happy. I mean, this is the tension. Right? We are penalized and stigmatized for using something that we recognize to be far less harmful, far more effective while being compelled in some cases to take psychoactive, heavily addictive, toxic medications. There is no known fatal dose of cannabis use. That cannot be said of any other drug veterans are regularly prescribed from nonsteroidal anti-inflammatory drugs, like ibuprofen, to gabapentin, to opioids, again, to benzodiazepines. You can name the sort of class of drugs that veterans get prescribed, and they all carry toxic and destructive side effects. But with cannabis, veterans, and all Americans essentially need an education about what this plant is, and you do that by educating the doctors first because they are usually the gatekeepers of medical knowledge in our society. So I will leave it at that. Thank you. Mr. GOLDEN. Yep. Educate the doctors. You know, the situation I am talking about are those veterans in the VA system though who are choosing to use medical marijuana and then are going to their VA doctors and they are not disclosing, or if they are, being told that it is threatening their VA services and access to it. Right? So it is a huge problem and one that I think we ought to figure out. Ms. Chaves, in Maine, I am only aware of one bank in the entire state, in a state that has now first allowed for medical use and now has decided through voter referendum to do a legalized sale as well on recreational use, only one bank willing to work with any business related with this as we move forward. I thought I might give you an opportunity to kind of talk about how that may have negative impacts on small businesses only having one bank to go to. What are some of the negative consequences for them? Ms. CHAVES. The negative consequences for the bank is---- Mr. GOLDEN. I am more interested for the small businesses. Ms. CHAVES. The small businesses, depending on the size of the bank, and I am sure it is fairly small so they cannot handle a lot of the businesses that are opposing up, the impact that it makes is that these businesses have to stand in line for bank accounts and if they are typically not doing as large a revenue they get pushed toward the bottom of the barrel or the end of the line. So their opportunity for banking is stretched out further away. And so they are unable to do business in a legal manner with banking. Mr. GOLDEN. All right. Thank you for that. What you are describing is inadvertently it is almost encouraging somewhat predatory behavior because like you are saying, if you are not big enough for us to see the most value in it then we are not working with you. We are going to go work with like the bigger businesses; correct? Ms. CHAVES. Definitely. Mr. GOLDEN. Thank you. Chairwoman VELAZQUEZ. The gentleman yields back. Now we recognize the member from New York 19, Mr. Delgado, for 5 minutes. Mr. DELGADO. Thank you, Chairwoman. Thank each and every one of you for coming out and testifying before this Committee. I appreciate your perspective on this issue. Ms. Chaves, there are a lot of dairy farmers in my district who are seeking additional sources of income in a difficult farm economy, as well as communities that are looking to attract new industries to help them revitalize. And New York has until its legislative session ends today to determine if it will legalize recreational use of marijuana. I actually think it may have actually happened in the last hour or two. But which could potentially in a way that is not legal. I am not sure at this point but, which could potentially have a huge economic benefit on the district if it were to be legalized. However, even if the state does legalize cannabis, there will still be many hurdles at the Federal level for folks looking to enter the industry to overcome. What steps, and forgive me if this has been addressed already, but what steps can Congress take to make sure that new startups and existing small businesses can access this market and spur economic growth in rural communities like mine? Ms. CHAVES. For starters, these small businesses need capital to even apply for their license. The licenses in each state, the fees are astronomical and they are getting more and more expensive. So it really knocks out the small business person for these licenses. Second of all, if they get through the process of getting a license, they have no banking. They cannot operate as a normal business would act. They cannot pay their bills. They cannot get lease agreements for their property, their brick and mortar. They cannot operate as a normal business. This impacts the entire community, as well as the economy. Mr. DELGADO. I have one follow up there. I am also on the Agriculture Committee and I know that last year's Farm Bill removed hemp from the Controlled Substances Act, but the FDA still has strict regulations on hemp products. I have heard from folks back home about how this stringency creates a difficult and uncertain business environment. Which steps in your opinion should the FDA take to make it easier for dairy farmers to work in the hemp industry? Ms. CHAVES. It is education and Congress also needs to understand that hemp is not an infused plant. There is no THC value, and therefore, should not be treated as a THC plant. Therefore, regulation should be different from cannabis making it easier for these companies or agriculture to enter the business. Mr. DELGADO. All right. Thank you. I yield back. Chairwoman VELAZQUEZ. The gentleman yields back. The gentleman from Illinois, Mr. Schneider, is recognized for 5 minutes. Mr. SCHNEIDER. Thank you, Madam Chairman. I want to thank the Chairwoman and the Ranking Member for having this hearing. I want to thank the witnesses for your testimony, for sharing your insights and experiences on what is an important issue. As the others have, I am going to focus on you, Ms. Chaves. I apologize. I will try not to be redundant. But it has been talked about the challenges these small businesses are facing without the access to full banking services because of restrictions. I will not repeat the other questions but one of the thoughts I have is not just that it is hard to get started for the businesses that are there. It is hard for them to grow. And I would love for your thoughts on what you are seeing the constraints on growth. Ms. CHAVES. The problems with them being able to grow is they need capital in order to do so. And without that capital or the ability for us to lend them the capital to grow, they cannot expand, they cannot hire new employees, they cannot develop new products, and that really inhibits their entire growth and at times puts them out of business. Mr. SCHNEIDER. Sure. One of the things I know from my experience working with entrepreneurs, entrepreneurs find a way of working around, and I am sure you have seen, as we have seen in Illinois, medical marijuana is not moving to recreational marijuana. These business people are going to find workarounds. What are some of the examples of workarounds you have seen in the marketplace? Ms. CHAVES. They create pseudo companies, holding companies under different names and entities so as to mask their true industry, their true identity so that they can manage to get away and provide, obtain banking access. Unfortunately, banks are getting on to this and they do find out. And when they do find out, these accounts do get closed. Mr. SCHNEIDER. Sure. And one of the other things I am hearing is a lot of these businesses are holding cash. It makes them a target and increases some of the risk to the businesses and the communities within which these businesses are operating. Are you seeing that at all as well? Ms. CHAVES. Yes. And the problem with that is the banks that do decide to create a banking program, we are not able to accept the cash that they have held on to previously so that cash is no good. If we accept the cash from previous sales or previous months, we have to have a forensic accountant come in and validated all that cash. And that is very expensive and time consuming. Mr. SCHNEIDER. Thank you. I will just emphasize as more and more states are moving towards this and trying to create opportunities for businesses, I know the rest of you have talked about opportunities in minority businesses, other situations, the ability to have full access to capital, full access to banking services is crucial, and it is something that I hope we can address here in Congress and work with the states as well to allow these businesses to, as you said, Ms. Chaves, to grow, to create jobs, and to move the industry forward in a way that is constructive for all stakeholders. So again, I want to thank the witnesses for being here today, and with that I will yield back. Chairwoman VELAZQUEZ. The gentleman yields back. Thank you so very much. I just have one question and then the Ranking Member, if you have any other comment or question. Mr. Goepel, we heard statements and comments here like people want to get high or that the use of cannabis will lead as a gateway to other drugs or that it will encourage children and teens to use it. And I have read, and I was not high, that the National Institute on Drug Abuse had found that despite increasing legalization for adult use, it is not leading to corresponding increases in marijuana use for teens. Can you comment on that? Mr. GOEPEL. Yes. The National Institute for Drug Abuse has long been looking for harms for cannabis. You know, the idea that we do not do research on cannabis is not true. We do plenty of research, it is just looking for specific faults essentially. And those are the only studies that essentially can get funded by the Federal Government or get approval by the Federal Government. So for NIDA to release findings that undermine their position, I think it shows just how much or how wrong, excuse me, you know, Congress and the Federal Government has been in the way that they treat cannabis just as a plant. And specifically, the cannabinoids that the plant consists of. For example, you know, the DEA has already rescheduled dronabinol, which was brought up, which is synthetic THC. But it is chemically identical to THC found in the plant. And they put that as a Schedule III drug, which while not a Schedule I, is still inappropriate because that category also contains drugs like ketamine and Vicodin, which I do not think anyone would argue that those drugs are comparable to THC. And the fact that CBD and the FDA sent a letter to the DEA asking for CBD to be put on Schedule V, which is the least restrictive schedule in the Controlled Substances Act because they found that it did not even really meet the requirements for scheduling. So what we have in the cannabis plant is a lot of substances, a lot of compounds. We understand a couple of them. But what we have failed to understand, and largely because of the prohibition on research, is the way that all these compounds interact and influence each other. We understand that CBD, for example, can have an effect on reducing the psycho activity of THC. So if that is a concern, then there are ways to formulate a drug to avoid that terrible outcome of euphoria. I guess the broader point here is that we cannot keep going around and around saying, well, these are the harms, these are some of the benefits, but we cannot actually do substantive research because prohibition exists and because of the scheduling of the whole plant on Schedule I. Chairwoman VELAZQUEZ. Thank you. Now I recognize the Ranking Member for 5 minutes. Mr. CHABOT. Thank you. I will not use the whole 5 minutes, Madam Chair. I would just maybe sum it up on our side to some degree. Chairwoman VELAZQUEZ. Sure. Mr. CHABOT. Mr. Hagedorn mentioned that he kind of grew up during the Just Say No Reagan era, and not as a child he grew up then but he was aware of what was going on at that time as well, and I was, too. I think I was on the Cincinnati City Council during that time. And we had a real problem with crack cocaine that was going on. That was one of the things that led to Just Say No. We had about 10,000 deaths a year due to drug overdoses at that time. Now the most recent year it was 70,000. So from 10,000 to 70,000 overdose drugs. It is not marijuana, obviously. We are talking opioids. But nonetheless, illegal drugs. So it seems somewhat ironic to me that we are having a hearing considering the uses and the effects on small business and in essence it is about legalization and,that is kind of what this ultimately is leading to of marijuana. And at the same time when we have got this opioid crisis that has been epidemic that has killed so many Americans all across the country and we really have not got a complete handle. Yes, we passed CARA. We passed the Support Act about a year ago. And so we have made some legislative progress, but the problem is still out there and people are still dying. But at the Federal level, I mean, clearly all the stuff we have talked about here is inconsistent with Federal law right now. It is illegal if the law was enforced at the Federal level. And that is something that I think probably the Congress ought to take it up and make a decision to let people know what they can do is legal or not. Right now it is illegal at the Federal level and I am also on the Foreign Affairs Committee and the Judiciary Committee as well as being the Ranking Member of this Committee. But on the Judiciary Committee, I remember well asking the new attorney general at that time, Jeff Sessions, what was the administration's policy going to be relative to enforcing the Federal drug laws? Not because I was trying to influence him to go in one direction or another, but just to see what it was. And he indicated to me at that time that they had no plans at that time to do anything inconsistent or dramatically different than the previous administration, meaning the Obama administration, which was basically not to enforce the Federal laws. So I would say in the near future there is probably no reason to think that that is going to change. I think we ought to clarify it one way or the other so the public is out there not breaking Federal law because it could be enforced some day and a lot of people are going to invest a lot of time and money into something which is right now illegal. And so we ought to clarify that. I think we owe that to the public. And I do not know which way the vote would go. I mean, I know the way I would probably vote. I think most of you would know from what I said today. I think it is not a good idea because I think the down sides of this outweigh the up sides. Maybe not from a financial perspective, especially from those that profit from it, but I have not been convinced that the benefits outweigh the dangers. But then I have been around a long time and it seems like the older generation more feel that way. The younger generation seem to be just the opposite. And a lot of things have changed in this country in recent years and that seems to be one of them. So, we will see where this all goes. And I almost did take the 5 minutes. So I will give you one minute back. I yield back. You can wrap this up, Madam Chair. Chairwoman VELAZQUEZ. The gentleman yields back. And definitely, as I stated at the beginning of this hearing, this is a complex and emerging industry, and Ranking Member, public sentiment is everything. Things that we thought we would not deal with 10 years ago, 20 years ago, public policies have changed because research and thought-based information help us craft legislation that will address the new discoveries and the new research. So let me take this opportunity to thank all the witnesses for being here and testifying on this very important issue. My priority is to ensure that small businesses have a seat at the table and can be involved in this emerging industry. The fact and the reality is that the trend of legalization at the state level is not going to slow down, which will lead to more jobs in many sectors of our economy, and we need to see what role the federal government can play. We have now heard about the opportunities and challenges for entrepreneurship and small business growth the legal cannabis industry presents for small firms. It is clear that this conversation is just beginning, and I am hopeful we can take a thoughtful approach to addressing the many aspects of legalized cannabis, particularly as it relates to protecting the interests of the small business owners operating in this space. As I have done with other topics on this committee, I look forward to working with my colleagues on both sides of the aisle to find workable solutions to these problems. I would ask unanimous consent that members have 5 legislative days to submit statements and supporting materials for the record. Without objection, so ordered. And if there is no further business to come before the committee, we are adjourned. Thank you. [Whereupon, at 1:05 p.m., the Committee was adjourned.] A P P E N D I X [GRAPHICS NOT AVAILABLE IN TIFF FORMAT] [all]