How Decriminalizing Marijuana At Federal Level Could Boost Interstate Sports Betting Compacts

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Marijuana and sports betting

A new administration could portend a new approach to some thorny issues around both marijuana and sports betting.

With Michigan voting back in October to allow for the state Gaming Control Board to enter into lawful interstate and tribal compacts for online poker, a key question that has continued to hound the sports betting world surfaced once again: when will interstate sports betting compacts appear?

Sports betting compacts are not currently feasible by virtue of the Wire Act, but could a Joe Biden administration signal change?

The marijuana industry may give some insight.

Background on marijuana industry challenges with federal law

As you are most likely aware, the legal marijuana industry has taken off in the United States.

Beginning in 1996, states have been legalizing medicinal marijuana despite the Controlled Substances Act of 1970, the federal law that declared that the substance has no accepted medical use, and was a criminal offense to possess or distribute. Despite the federal prohibition, medicinal marijuana is now legal in 34 states.

Another 15 states, along with the District of Columbia and Guam now permit the sale of recreational marijuana – an adoption trend that began in 2012.

Like the expansion of state-regulated sports betting, the scalability of the marijuana industry has been hampered by federal impediments. For instance, many banks have been extremely reticent to even open accounts for marijuana businesses for fear of offending federal authorities because of the looming federal criminality.

Similar but not the same

While sports betting has had fewer banking issues than the marijuana industry. Both industries lack the ability to reach their full potential despite widespread state legalization and public support.

Sports betting’s challenge deals with uncertainty surrounding the Wire Act, which uniquely positions the activity differently than other gambling activities that are largely presumed to be outside the scope of the antiquated statute.

Where is the focus?

While the Biden administration has been on the record of supporting decriminalization of marijuana, and some believe that he will or should support full-scale legalization, there appears to be growing confidence that there is going to be a shift in federal marijuana policy.

The House passed a bill that would decriminalize the substance on Dec. 4. The Senate does not appear poised to follow suit any time soon.

A small but important difference

The difference between decriminalization and legalization might be subtle, but it is significant.

Decriminalization removes criminal penalties but allows for civil infractions. This act effectively would leave marijuana unregulated at the federal level.

Legalization, on the other hand, would enable the establishment of a regulatory environment to be created.

Changing tides

The United Nations recently voted to remove marijuana from its list of narcotic drugs. This, along with a feeling that the Biden administration may be more hospitable to the marijuana industry has sent marijuana stocks up.

The marijuana industry, despite its tremendous growth, has long struggled to find profitability. Indeed, the need to effectively replicate an industry from scratch in each individual state is quite costly.

Congress has acknowledged the challenge of having a growth industry constrained by virtue of a federal law that no longer seems to serve its intended purpose as more than half the states in the country support the activity.

For more than two years, Congress attempted to pass the Secure and Fair Enforcement (SAFE) Banking Act. The bill passed the House 321-103 on September 25, 2019, but has languished in the Senate. The bill would amend federal statutes such that banks and credit unions could safely transact business with cannabis and cannabis-adjacent businesses.

Without legalization or passage of legislation like the SAFE Banking Act, marijuana businesses that use banks must find the few financial institutions willing to take their business and oftentimes pay additional fees.

A new season

The dawn of a new presidential administration could create the change necessary to decriminalize marijuana at the federal level, which would then relieve some of the burden on the marijuana industry.

While legalization is likely the preferred route, decriminalization coupled with some movement from Congress could enable industry growth to reach new levels.

What are interstate compacts?

Interstate compacts are essentially agreements between states that allow operators to pool players from various states into a common group. This type of relationship allows for increased liquidity as players are grouped into the multistate pool.

States still collect tax revenue based on the location of bettors. Interstate compacts have been a popular addition to the regulated online poker industry since 2012.

What about sports betting?

President-elect Biden has suggested a reversion, at minimum, to previous interpretations of the Wire Act (applying to sports betting alone) would be coming. The next president also articulated, according to CDC Gaming Reports, that he “doesn’t support adding unnecessary restrictions to the gaming industry like the Trump Administration has done.”

The failed Hatch-Schumer bill and subsequent Romney-Schumer bill included amendments to the Wire Act that would have allowed for interstate sports betting compacts similar to what exists in poker.

Despite the widespread opposition to both iterations of the bills, interstate compacts are something that many in the industry seem to hope will eventually be feasible. Changes to allow for interstate compacts have the potential to create a more competitive environment for consumers and the potential to allow smaller operators to increase their footprint.

How this could come together

While it is unlikely that sports wagering compacts (or marijuana decriminalization) rank very high on the Biden administration’s list of immediate priorities, movement to allow for the interstate movement of money in the marijuana industry could signify a willingness to allow for the interstate transiting of other legal transactions like those facilitated by interstate sports gambling compacts.