Economics

The Music Modernization Act May Limit Big Name Recording Artists’ Leverage in Negotiations with Music Streaming Companies

By: Julia Lisi, MJLST Staffer

Encircled by several supportive recording artists, President Trump signed the Music Modernization Act (“MMA”) into law on October 11, 2018. Supporters laud the MMA as a long overdue update for U.S. copyright law. Federal law governs roughly 75% of recording artists’ compensation, according to some estimates. The federal regulatory scheme for music license fees dates back to 1909, before the advent of music streaming. Though the scheme has been tweaked since 1909, the MMA marks a major regulatory shift to accommodate the large market for music streaming services like Spotify and Apple Music.

Prior to the MMA, streaming services virtually had two options for acquiring music catalogs: (1) either acquire licenses for each individual song or, (2) provide music without licenses and prepare for infringement suits. Apple Music adopted the first strategy and as a result initially suffered from a much leaner music catalog. Spotify went with the second strategy, setting aside funds to weather litigation.

The MMA offers a preexisting mechanism, the mechanical license, on a broader scale. Once the MMA takes full effect, streaming services can receive blanket licenses to entire catalogs of music, all in one transaction. The MMA establishes the Mechanical Licensing Collective (the “Collective”), a board of industry participants, which will set license prices. The MMA is, in part, meant to ensure that more participants in the music industry will be paid for their work. For example, music producers and engineers can expect to receive more compensation under the MMA.

While the MMA may broaden the pool of industry participants who get compensation from streaming, the MMA could weaken big name artists’ bargaining positions with streaming services. Recording artists like Taylor Swift and Adele have struggled to keep their albums off streaming services like Spotify. Swift resisted music streaming based on her conviction that streaming services did not fairly compensate artists, writers, and producers. While Swift may have come to an agreement with Spotify and allowed her albums to be streamed, there are still holdouts. More than two years after its release, Beyoncé’s Lemonade still is not on Spotify.

With the Collective controlling royalty rates, big name artists might not have the holdout power that they wield now. If Swift’s music had been lumped into a collective mechanical license, she may not have had the authority to withdraw or withhold her albums from streaming services. The MMA’s mechanical licenses are compulsory, indicating the lower level of control copyright owners may have. Despite this potential loss of leverage, the MMA is widely supported by artists and industry executives alike. Only time will tell whether the Collective’s set prices will make compensation within the music industry fairer, as proponents suggest.


Sulfur-Ore Mining in Minnesota: Are Near-Term Economic Gains Worth Long-Term Losses?

Sam Duggan, MJLST Staffer 

Mining copper and nickel from sulfur-ore in Northern Minnesota is different than mining iron from taconite, and the environmental consequences are orders of magnitude greater. Unfortunately, the public discourse around developing copper and nickel reserves largely fails to consider this. As a result, the public is not armed with information needed to rationally debate whether sulfur-ore mining is a good choice for Minnesota.   

Taconite is a relatively unreactive iron-containing mineral. Although miners exposed to asbestos-like compounds from taconite dust are likely at increased risk of mesothelioma, proper dust mitigation practices and sound environmental planning/reclamation can limit long-term consequences to a scarred landscape. However, as with other types of mining, there are consequences associated with boom-or-bust economics.   

In stark contrast to taconite, sulfur-ore is highly reactive and has a particularly insidious property. A decommissioned mine slowly fills with rain, snowmelt and ground water. Sulfur reacts with water and oxygen to produce sulfuric acid, which dissolves metals contained in the sulfur-ore. Like a liquid miner, this acid liberates geologically sequestered metals into a dissolved, bioavailable and toxic form. As metals dissolve from the mine walls, more sulfur is exposed to oxygen and water. This produces more sulfuric acid which dissolves more metals. Through this chain reaction, the mine “mines” itself for centuries or more after its decommission. Importantly, mining target metals (i.e., copper, nickel) never occur alone. They co-occur with non-targets (i.e., lead, cadmium, manganese, arsenic, sulfate) that also dissolve from mine walls. Over time, concentrations of toxic compounds grow higher. Once the mine fills, acidic and metal-rich water (acid mine drainage) leach down-gradient and poison the watershed. Similar processes also occur in tailings piles stored outside the mine.

Sulfur-ore mines are responsible for numerous Superfund sites, including the infamous Berkley Pit copper mine. In 2016, thousands of snow geese landed in Berkley Pit’s toxic water and died en masse. Consider also the 2015 Gold King mine spill. At Gold King, a mine entrance cap was accidentally ruptured during routine monitoring and 3 million gallons of acidic, metal-rich water poured into the Animas River in Southwest Colorado. Related lawsuits seek many millions in damages. The history of mining in the Western U.S. is replete with other examples of sulfur-ore mines contaminating watersheds.

Methods exist for mitigating sulfur-ore mine pollution including capping, chemical neutralization, and constructing water treatment facilities specifically dedicated to the mine. However, these options cost millions and must be perpetually maintained, as it is nearly impossible to prevent water and oxygen from entering a mine. The chain reaction can linger for millennia, continually dissolving metals from rock and leaching toxins into the watershed.

Notably, the mining corporations who reap the lion’s share of a mine’s economic benefit escape long-term environmental liability because bankruptcy law and parent-subsidiary corporate structure often shield parent corporations from their mining subsidiaries’ environmental liabilities. For precisely this reason, the mine permitting process often requires corporations to offer financial assurances for potential environmental damages. However, financial assurances underestimate damages, and taxpayers are left with the bulk of sulfur-ore mine cleanup costs for generations.

The long-term consequences of sulfur-ore mines were recognized by the Obama Administration, particularly regarding mining in Minnesota’s Boundary Waters watershed. In 2016, the Obama Administration instituted a 2-year moratorium on mining permits near the Boundary Waters to study effects of sulfur-ore mining. That study could have led to a 20-year permitting moratorium. However, in 2018, after only 15 months, the Trump Administration decided that the study did not reveal new information and lifted the moratorium. Now, parent companies such as Chile’s Antofagasta can apply for mining permits within the Boundary Waters watershed via their subsidiary company Twin Metals. The permitting process is already underway for Polymet — an open pit, sulfur-ore copper mine just outside the Boundary Waters watershed. Importantly, Minnesota’s sulfur-ore resources could support dozens of mines.  

Given that sulfur-ore mines are economically viable for a few decades and an environmental scourge for centuries or more, decision makers should consider whether near-term economic gains are worth long-term losses.


The Next Chapter for Mining and Energy Law: The Cryptocurrency Miners

Zach Sibley, MJLST Staffer

 

Traditionally, miners enjoyed a position on the supply side of energy production, providing energy inputs like coal that power the grid. The cryptocurrency boom during the last decade, however, has given rise to a new type of “miner” that turns this relationship on its head. Mining for cryptocurrencies like Bitcoin and Ethereum is not providing energy inputs but rather adding a new, massive load to the power grid. Bitcoin globally consumes an estimated 54.88 terawatt hours (TWh) of electricity annual, while Ethereum comes in at 15.74 TWh per year. For comparison, mid-sized countries like Denmark—home to over 5.7 million people—consume approximately 31.5 TWh per year.

 

And like the miners of old, these new miners are flocking to rural American cities and towns. Rather than gold or coal deposits, though, these cryptominers are searching for something more valuable: low energy bills. And rural areas in Washington state and New York running primarily on hydroelectric power are the new goldmines. The influx of new technology—and its high energy demand—now inevitably clashes with the simpler, energy-cheap lifestyle these rural Americans once enjoyed. Now locals are pushing back, leaning on local governments, energy utilities, and public utility commissions to respond.

 

The energy consumers who resided in these areas prior to the cryptocurrency boom fear that all these new loads will require new grid infrastructure investments, incurring capital costs that would be spread across all ratepayers. These concerns have been mitigated to a degree by large hook-up fees charged to new cryptomining operations, but such efforts likely do not fully insulate the prior residents and businesses from upgrade expenses. The concerns stem from constant fluctuation in cryptocurrency pricing, which can lead to two detrimental effects on non-mining residents’ energy bills.

 

First, when the value of cryptocurrencies are high, in increase in transactions creates a high demand for mining. Miners may push the limits of current infrastructure capacity or spike demand peaks faster than the local energy utilities plan for or more rapid than they can get generation assets online to handle. Unanticipated spikes require distribution utilities to purchase power from “spot markets,” which is often a double or triple digit multiplier compared to their normal generation expenses. These measures also fail to protect residents from footing the bill if the cryptocurrency boom becomes a bust. If prices dip low enough for long enough, bankruptcies and sudden departures of cryptomining operations leave remaining residents and business to pay the costs of stranded assets.

 

Concerned over the local effects of a volatile commercial cryptomining industry, the mayor of Plattsburgh, New York introduced an 18-month local moratorium on commercial cryptomining operations in the city’s common council. If passed, the moratorium will test constitutional challenges based on the Fifth Amendment’s substantive due process jurisprudence or its regulatory takings jurisprudence. It is likely that substantive due process claims will fail because the moratorium is substantively justified, i.e. reasonably related to the mayor’s police power to protect the health, safety, and wellbeing of the residents from economic shock and high utility costs. This reasoning would follow a 2006 Western District of New York decision upholding a town’s development moratorium on a wind energy project. The temporary duration of the moratorium and that substantive police powers underpinning would likely also defeat categorical and non-categorical regulatory takings claims, respectively.

 

The legitimacy of cryptomining moratoria will allow local governments to engage in meaningful debate with commercial cryptocurrency miners, energy utilities, and the local ratepayers. Establishing sufficient connection prices, demand charges, and contingency pricing to compensate for the risk of stranded assets takes time. These tariffs must be carefully crafted to comply with state retail electricity rate standards, such as just and reasonable and non-discriminatory. Allowing any cryptomining boom to continue uncoordinated only increases the exposure of innocent, permanent residents.

The tension between the commercial cryptomining market and the rural residents of low-cost electricity towns begins a new chapter for energy justice advocates and miners. The new miners, however, find themselves on the opposite side of the scales, potentially harming residents and businesses in rural America. Local governments require regulatory tools like land use moratoria to better coordinate energy loads and protect its citizens from financial uncertainty unique to cryptocurrency rapid boom-and-bust cycles. Residents do not enjoy the same locational flexibility as these cryptomining operations nor are these cryptominers bringing significant business or jobs to the area—a large cryptomining facility can be monitored by a single employee. The division between cryptomining’s small local benefits and its high local cost will likely lead to interesting litigation as rural localities and sophisticated cryptominers attempt to navigate the crossroads of energy law, land use regulation, and emerging technologies.


An Automated Armageddon

Jacob Barnard, MJLST Staffer

 

In the 1970’s, hundreds of millions of people starved to death – 65 million of them Americans. In the 1980’s, world oil production peaked and it was soon followed by the depletion of all available sources of lead, zinc, tin gold, and silver in 1990. To make matters worse, all computers stopped working on January 1, 2000. Fortunately, we were all put out of our misery when the world ended on December 21, 2012.

But now, after all of that, we must face a new threat. This one comes in the form of (killer)robots. That is correct; now, in addition to immigrants and other countries, robots are stealing our jobs.

Of course, this is not an entirely new threat. The industrial revolution threatened farmers through advancements in agricultural productivity, as well as increasing worker productivity in general. Yet, as economist Walter Williams explains, this was never actually a problem. In the United States, farmers were 90% of the labor force in 1790, but this decreased to 41% in 1900 (and is down to under 3% currently). All this means, however, is that increases in productivity allowed individuals who would have otherwise been farmers to seek employment in other fields (no pun intended).

Say’s law, commonly misunderstood as “supply creates its own demand,” can be more correctly understood through the insight of W.H. Hutt: “All power to demand is derived from production and supply. . . . The process of supplying—i.e., the production and appropriate pricing of services or assets for replacement or growth—keeps the flow of demands flowing steadily or expanding.” As each person becomes more productive, therefore, they are able to demand more in return for their increased production, which allows others to maintain their employment as well.

Empirical studies on the current effects of automation support this view of the situation as well. A 2017 study by Greggory, Salomons, and Zierahn with the Mannheim Centre for European Economic Research found that routine-replacing technological change accounted for a net increase in labor demand of about 11.6 million jobs across 27 EU countries from 1999-2010 (in comparison to a total growth of 23 million jobs over the same period). In 2015, Graetz and Michaels, working with the Centre for Economic Performance, found “the increased use of robots raised countries’ average growth rates by about 0.37 percentage points. We also find that robots increased both wages and total factor productivity. While robots had no significant effect on total hours worked, there is some evidence that they reduced the hours of both low-skilled and middle-skilled workers.”

This last point is what may create an actual problem. Automation is unlikely to eliminate employment as we know it, but it will likely require a shift away from low-skilled labor. Like the farmers of the 18th and 19th centuries, many low-skilled workers may find their specific jobs being eliminated in favor of more technical employment. If people are given incentive to avoid this shift, it may result in unnecessary hardship for low-skilled workers.

Predictably, this has led some to advocate exactly that. A universal basic income, as suggested by Elon Musk and others fearing a robot takeover, would only give low-skilled workers greater incentive to avoid investing in their educations, slowing the increase in human capital that would maintain high levels of employment as automation becomes more prevalent.

A more reasonable policy recommendation would be to amend the tax code to reduce the disincentive to enter new fields of employment. Currently, education expenses for entering a new trade or business are not deductible. In addition, expenses incurred seeking employment in fields other than an employee’s current trade or business are not deductible because they are not “carrying on” the trade or business when they incur the expense. Simply allowing these two deductions would make it easier for workers to adapt to the changing demands of an evolving economy.

Even if these changes are not enough and the Luddites are correct about robots stealing all of our jobs, there still would not be a problem because there will be plenty of lucrative work available as robot-smashers.


Prevalence of Robot-Assisted Surgery Illustrates the Negatives of Fee-For-Service Systems

Jacob Barnyard, MJSLT Staffer

 

In 2000, the Food and Drug Administration approved the use of the da Vinci Surgical System, a robot designed to aid surgeons perform minimally invasive surgeries. The system consists of multiple arms carrying a camera and surgical instruments controlled by a nearby surgeon through a specialized console.

While few would argue the cool-factor of this technology, the actual benefits are significantly less clear. Researchers have conducted multiple studies to determine how the system affects patient outcomes, with results varying based on the type of procedure. One finding has been fairly consistent, however: unsurprisingly, costs associated with the use of robots are significantly higher.  

The use of the da Vinci Surgical System has increased enormously since its initial release, even in surgeries with little or no evidence of any benefit. A rational consumer, however, would try to maximize expected utility by only undergoing robotically-assisted surgery if the expected benefits for that particular surgery outweighed the expected increase in cost. A possible explanation for part of the growing popularity of this technology may be the prevalence of fee-for-service models in the U.S. healthcare system.  

In a fee-for-service model, each service provider involved in a patient’s care charges separately and charges for each service provided. As a result, these providers have an incentive to perform as many different services as possible, frequently providing unnecessary care. The consumer has little reason to care about these increased costs because they are often paid by insurance companies. Consequently, when a surgeon suggests the use of the da Vinci Surgical System, the patient has no incentive to research whether the system actually provides any benefits for the surgery they are undergoing.

A proposed alternative method to the fee-for-service model is a system using bundled payments. Under this system, a provider charges one lump sum for its services and divides it between each party involved in providing the care. This eliminates the incentive to provide unnecessary care as that would only increase the provider’s costs without increasing revenue. Robots would theoretically only be used in surgeries if they actually provide a net benefit. A potential drawback, however, is a decrease in potentially helpful services in an effort to cut costs. Currently, the available evidence suggests that this is not an issue in practice, however, and that some performance indicators may actually improve.  

The Affordable Care Act included incentives to adopt the bundled payment system, but fee-for-service is still vastly more common in the United States. While bundled payments have been shown to lead to a modest decrease in healthcare costs, many physicians are unsurprisingly opposed to the idea. Consequently, change to a bundled payment system on a meaningful scale is unlikely to occur under the incentive structure created by current laws.


The Rise and Fall of A Scholarly Crowdfunding Article

Tim Joyce, Editor-in-Chief, MJLST Vol. 18

Print publication of science and tech articles is a weird thing. On the one hand, a savvy articles selection team will prioritize articles on the most pressing and innovative advancements in the field. On the other, though—and precisely because these articles are so current—a draft piece can be partially outdated even before the publisher’s pressing start rolling. So it is that a little piece on investment crowdfunding, conceived in September 2015, meticulously researched throughout the 2015–16 academic year, and selected in April 2016, for publication in January 2017, can transform from forward-looking thinkpiece to historically-dated comparison piece.

My recent article with MJLST, 1000 Days Late & $1 Million Short: The Rise and Rise of Intrastate Equity Crowdfunding, compares the newly-activated federal Regulation Crowdfunding to Minnesota’s intrastate investment crowdfunding model MNvest. When the piece was originally conceived both of these laws were not yet active; in fact, it was not yet clear that the SEC would ever release final rules for what would become Regulation Crowdfunding. When the issue was ultimately sent to the printers, each of the laws had been active for at least 6 months. Like I said, weird.

This post is intended to update the curious reader on current happenings with investment crowdfunding on both a federal and a state level.

On the federal level, Regulation Crowdfunding rules have been final since October 2015 and active since May 2016. Nearly 200 offerings later, analysts and scholars are already starting to crunch the numbers. [Full disclosure: I am one of those academics. Our paper (co-author Zach Robins of Winthrop & Weinstine) will be presented at the Mitchell-Hamline Law Review Symposium next month, if you’re interested.] Similar to rewards-based crowdfunding models like Indiegogo and Kickstarter, there appear to be some things a crowdfunding issuer can do to increase the likelihood of success of their offering. Here are some examples.

First, a clear business plan is essential to attracting investors. After all, the “crowd” is made of lots of folks without sophisticated investing experience; so you have to find a creative way to hook them without violating securities disclosure restrictions. This isn’t always as easy said than done, and some portal operators have already gotten in serious trouble for violating their obligations to ensure offering accuracy.

Second, and perhaps a bit counterintuitive, the most successful Regulation Crowdfunding issuers actually have slightly higher minimum investments than you would expect. There is no dollar floor to the investment under the rules of Reg CF, but a small minimum opens the door to a potentially unwieldy cap table. In addition, a high minimum investment decreases the number of available spots for investors in the targeted offering amount; there is a very real “exclusivity” effect. To illustrate: it takes 10,000 investors at $10/per to get to $100,000 offering, but you could raise the same $100,000 with only 100 investors at $1,000/per. Issuers get to choose which investors they take on in oversubscription situations, and it can’t hurt to create a little buzz as investors “compete” for limited spots in the offering.

Finally, communicating the business plan using a strong video is a must—industry analysts report that campaigns using any video at raised significantly more money that those without (on the order of 11:1 times more money!). If that video is of good enough quality, according to those same analysts, your offering does even better. Of course, video quality only matters if your network is sufficiently large to reach enough potential investors. For issuers hoping to raise $50,000, that generally means connecting with more than 3,000 people.

There are plenty more nuggets of wisdom to glean from the first 8 months of federal investment crowdfunding offerings, and this post only scratches the surface. For more, see our forthcoming paper in Mitchell-Hamline Law Review’s symposium issue later this year.

As for MNvest, unfortunately, while the law has been technically available for Minnesota crowdfunders since June 2016, it took until the end of the year for the Department of Commerce to approve any portals. So only a handful of issuers and portals are currently active in the space. True to form, for federal crowdfunding offerings at least, craft breweries are making a strong showing (read: in Minnesota, 4 of the first 4 MNvest issuers are breweries!). Hopefully we’ll see more of them as the vehicle becomes more well-known.

One thing that should further aid MNvest issuers is that the SEC recently released final rules that will make it easier and safer for intrastate issuers to use the internet to advertise. Before the rules update, issuers were bound by advertising and solicitation restrictions drafted in the 1970s (that is, before the interwebs). As crowdfunding, almost by definition, requires the use of the internet to reach a crowd, these updates should streamline and loosen up the fundraising process. The new final rules create a new exemption (Rule 147A); state legislatures that based their intrastate laws on old Rule 147 will need to update their laws accordingly first.

Investment crowdfunding laws of the intrastate and federal varieties hold promise for many issuers. And, while there is not yet a perfect model or a one-size-fits-all strategy for fundraising, it is clear that investors and issuers alike are excited by the promise this investment vehicle holds.

Who knows—perhaps in another 18 months the way we crowdfund will have experienced as much change again, to make this piece as quickly “historical” as my earlier article!


Court’s Remain Unclear About Bitcoin’s Status

Paul Gaus, MJLST Staffer

Bitcoin touts itself as an “innovative payment network and a new kind of money.” Also known as “cryptocurrency,” Bitcoin was hatched out of a paper posted online by a mysterious gentleman named Satoshi Nakamoto (he has never been identified). The Bitcoin economy is quite complex, but it is generally based on the principle that Bitcoins are released into networks at a steady pace determined by algorithms.

Although once shrouded in ambiguity, Bitcoins threatened to upend (or “disrupt” in Silicon Valley speak) the payment industry. At their core, Bitcoins are just unique strings of information that users mine and typically store on their desktops. The list of companies that accept Bitcoins is growing and includes cable companies, professional sports teams, and even a fringe American political party. According to its proponents, Bitcoins offer lower transaction costs and increased privacy without inflation that affects fiat currency.

Technologies like Bitcoins do not come without interesting legal implications. One of the oft-cited downsides of Bitcoins is that they can facilitate criminal enterprises. In such cases, courts must address what status Bitcoins have in the current economy. The Southern District of New York recently held that Bitcoins were unequivocally a form of currency for purposes of criminal prosecution. In United States v. Murgio et al., Judge Alison Nathan determined Bitcoins are money because “Bitcoins can be accepted as payment for goods and services or bought directly from an exchange with a bank account . . . and are used as a medium of exchange and a means of payment.” By contrast, the IRS classifies virtual currency as property.
Bitcoins are uncertain, volatile, and complex, but they continue to be accepted as currency and show no signs of fading away. Going forward, the judiciary will need to streamline its treatment of Bitcoins.


Policy Proposals for High Frequency Trading

Steven Graziano, MJLST Staffer

In his article, The Law and Ethics of High Frequency Trading, which was published in the Minnesota Journal of Law, Science, and Technology Issue 17, Volume 1, Steven McNamara examines the ethics of high frequency trading. High frequency trading is the use of high-speed algorithms to take advantage of minor inefficiencies in trading technologies, and in doing so gain large market returns. McNamara looks into ethical, economic, and legal aspects of high frequency trading. In the course of his discussion McNamara determines that: high frequency trading is a term that actually describes an assortment of different practices; the amount of dollars involved in high frequency trading is declining, but is still a concern for certain types of investors and regulators; a proper analysis of high frequency trading requires use of expectation-based, deontological moral theory; and that modern technology may call into question the use of the Regulation National Market System regime. McNamara concludes that even though high frequency trading may lower costs to most investors, many practices associated with high frequency trading support the position that high frequency trading is not fair.

Securities and Exchange Commission Chair Mary Jo White has recently commented on the legality, and potential ways to approach, high frequency trading. White, while testifying before the Senate Appropriations Subcommittee on Financial Services and General Government, informed the Congressional Committee that “You don’t paint with the broad brush all high-frequency traders — they have very different strategies.” This sentiment mirrors McNamara’s assertion that the term high-frequency trading actually involves various practices. However, White is seemingly defending some practices, while McNamara has a more negative view.

Differing still from these two views are the results of a study done by United Kingdom’s Financial Conduct Authority. That study concluded with the conclusion that high-frequency trade technologies are not rapidly predicting marketable orders and then trading those orders. However, the study examined practices in Europe, which has less market participants and a slower moving market than the United States.

In conclusion, Steven McNamara offers a very insightful, encompassing look at high frequency trading. His analysis resonates through both White’s testimony, and in the results of the study from the Financial Conduct Authority. Although all three perspectives seemingly stand for somewhat different propositions, what is clear from all three sources is that the practice of high-frequency trading is extremely complex and requires in-depth analysis before making any conclusive policy decisions.


Drug Shortages: A Mask for Reprehensible Activity?

Ethan Mobley, MJLST Articles Editor

Access to life-saving prescription medication grabbed headlines after Turing Pharmaceuticals raised the price of its HIV drug, Daraprim, by about 5,000% overnight. While the Daraprim price hike initially appears to be driven by pure greed, it’s at least conceivable that basic economic principles of supply and demand may have played a minor role. Indeed, many other drugs have undergone serious price hikes arising from innocent supply constraints. While the defensibility of Daraprim price hikes remains uncertain, the story does bring to focus an issue affecting accessibility of hundreds of other life-saving prescription medications—drug supply shortages.

Drug shortages naturally restrict many patients’ ability to obtain life-saving medication, which can have disastrous effects. The Minnesota Journal of Law, Science & Technology addressed the issue in 2013 with a note written by Eric Friske. Friske found that drug shortages are often caused by a “combination of perturbed supply, manufacturing capacity, and utilization.” Friske then analyzed the efficacy of proposed (and now failed) legislation meant to reduce these supply shortages by requiring manufacturers to notify the FDA of impending shortages; the legislation would have also allowed the FDA to collaborate with manufacturers in order to streamline production. However, Friske determined these tools were insufficient to properly combat the shortage problem and proposed his own solution. In addition to notification requirements, Friske pushed for affirmatively incentivizing manufacturers to produce certain drugs and streamlining the drug manufacturing approval process.

Since Friske’s proposal, we’ve seen new legislation and regulation that aims to reduce the number of drug shortages. What’s more, the legislation and regulations contain notification requirements, manufacturer incentives, and streamlined approval processes—just like Friske proposed. While it’s obvious the drug shortage problem has not been solved, it is equally clear drug shortages have decreased over the past few years. Hopefully the trend continues so that life-saving drugs remain accessible to everyone, and drug companies will no longer be able to use supply shortages as justification for obscene price hikes.


Marijuana Industry Continues to Search for Banking Solution

Neal Rasmussen, MJLST Managing Editor

While the legal marijuana industry continues to rapidly expand in the United States, a major question still looms: Where should the millions of dollars generated by the industry be placed? Up to this point the nation’s banks have refused to take money for fear of federal repercussions. The lack of banking is one of the biggest problems the industry currently has and creates a dangerous all cash environment. While it continues to be an industry dominated by cash vaults and armed guards, change could soon be on the way.

While the provisions of the unlicensed money remitter statute, 18 U.S.C. § 1960, the money laundering statutes, 18 U.S.C. §§ 1956, 1957, and the Bank Secrecy Act (BSA) still remain in effect with respect to marijuana-related business, the marijuana industry had hoped to take advantage of the new rules issued by the U.S. Treasury Department in 2014 which “clarifie[d] how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations, and aligns the information provided by financial institutions in BSA reports with federal and state law enforcement priorities.” In addition to the new rules, the Justice Department produced a memorandum calling for relaxed enforcement of the relevant federal banking laws so long as they followed the new rules. However, the most recent attempt by a Colorado state-chartered credit union, The Fourth Corner Credit Union, to take advantage of the new rules and memorandum has faced major opposition from the Federal Reserve Bank, who must provide clearance before the credit union can open.

The Federal Reserve Bank refused to grant the permission need to access the national banking system and The Fourth Corner Credit Union has sued in Federal Court demanding equal access to the federal system. While it remains unclear whether the presiding judge, R. Brooke Jackson, will hear the complaint, most view The Fourth Corner Credit Union as fighting a losing battle. Most believe that entering the federal banking system will be nearly impossible until marijuana becomes legal at the federal level. For now it will remain unclear as to where the industry should place its money.