Cannabis Law Prof Blog

RECENT CASES: Harvard’s First Medical Marijuana Dispensary Opens Amid Legal Controversy

The Commonwealth of Massachusetts legalized the sale of marijuana for medical use through Registered Marijuana Dispensaries ("RMDs") in 2012, and in May 2013, the Department of Public Health enacted regulations that authorized municipalities to regulate the medical use of marijuana.

Cambridge’s Harvard Square saw its first medical marijuana dispensary open at the start of the year. Healthy Pharms, a registered nonprofit medical marijuana dispensary, opened for business but wasn’t entirely welcomed by its new neighbors. Some Cambridge residents and store owners believed the marijuana dispensary would have a negative effect on the neighborhood.

Property owners in Harvard Square brought a lawsuit claiming they had been injured by the anticipated opening of the licensed marijuana dispensary. Crimson Galeria Ltd. P’ship v. Healthy Pharms, Inc., 2018 U.S. Dist. LEXIS 141689 (D. Mass. August 21, 2018). The property owners asserted RICO claims and sought declaratory and injunctive relief against the dispensary and other related parties for acting and conspiring to distribute marijuana in violation of the federal Controlled Substances Act.

The plaintiffs also brought claims against Massachusetts state and local governments on the grounds that federal law preempts Massachusetts' regulatory regime implementing the legalization of medical marijuana dispensaries.

Background

The City of Cambridge issued Healthy Pharms a special permit to operate a dispensary. Another defendant owned the building and leased the property to Healthy Pharms. The individual defendants are officers or principals of several of the defendant entities, including the bank the dispensary uses.

The plaintiffs allege that the prospect of a dispensary has diminished the market value of their properties because the odor of marijuana will disrupt commercial tenants and interfere with the neighboring owners' use and enjoyment of their property. Also, there’s a stigma associated with the sale of marijuana, they claimed.

Judge’s Decision

U.S. District Judge Allison D. Burroughs explained in her opinion that the plaintiffs' claims against the government defendants weren’t valid because, although the federal Controlled Substances Act criminalizes the possession and distribution of marijuana, the authority to enforce the law rests only with the U.S. Attorney General and the Department of Justice.

Healthy Pharms asked the judge to dismiss all of the RICO counts because the plaintiffs didn’t really suffer an injury caused by the opening of the dispensary. There must be clear and definite damages to state an injury under RICO, the dispensary argued. The plaintiffs claimed injuries included: (1) the proposed dispensary might emit odors of marijuana that would interfere with use and enjoyment of their properties; (2) that banks and investors wouldn’t finance certain planned projects due to the anticipated dispensary; and (3) the stigma associated with marijuana and the fear of increased crime had already diminished the market value of their properties.

The judge agreed with the dispensary, holding that the plaintiffs didn’t dispute that their damages theory relied on the public disclosure of the future possibility of a dispensary, and the plaintiffs hadn’t suffered actual damages.

As far as the bank used by the dispensary, the plaintiffs argued that outsiders who help the enterprise accomplish its illicit goals, “thereby evidencing their agreement to advance the cause, are fully liable” under the RICO statutes. But Judge Burroughs held that the plaintiffs hadn’t adequately shown how providing ordinary banking services to marijuana-related businesses, in compliance with Treasury Department guidance aimed at enabling banks to provide such services, sufficiently demonstrated it joined and intended to further a RICO conspiracy.

The judge found that the plaintiffs’ complaint contained little to no allegations that connect any of the other defendants to the alleged enterprise or conspiracy.

The government defendants' motions to dismiss were granted. The remaining motions to dismiss were denied, but the plaintiffs were allowed the opportunity to amend their complaint as far as the other defendants.

Implication of case

While the ultimate outcome of this case remains to be seen (assuming the plaintiff’s amend their complaint regarding other defendants), the primary implication of this case is that cannabis-related banking organizations are able to provide basic banking services to cannabis industry businesses without the threat of RICO liability hanging over their heads. Thus, while a multitude of risks to those in the marijuana-related banking industry still persist, this is at least one positive development for those organizations, and ultimately cannabis-related commercial activity in Massachusetts as well.

-- Jason Carr

Canopy Growth CEO predicts legal banking for cannabis companies by Christmas

Weed businesses may soon be able to bank legally in the United States, according to the prediction of the CEO of Canopy Growth, Bruce Linton.

This would mean cannabis business owners would no longer have to rely on cash-only business models or cryptocurrencies like Bitcoin, and would be able to get loans far more conveniently. 

The prediction apparently came from a conference for cannabis businesses, according to the Forbes article by contributor Sara Brittany Somerset.

Somerset explained in the article that Linton's prediction was due to a sequence of events indicating that established structures may support legal cannabis banking. 

Linton expressed confidence that since his cannabis company infiltrated the New York Stock Exchange –although they were not allowed to ring or even touch the opening bell– that banking will naturally follow suit.

Linton elucidates that being listed on the exchange validates the company's adherence to anti-money laundering rules, which in turn meant that about a month ago, Bank of America could lend Constellation Brands Inc. -the company behind Corona beer -about CAD five million to give to him. Canopy Growth's game-changing deal with the producers of Corona has more than doubled the pot producer's stock price. Linton, however, attributes Canopy's sky-high valuation to the global medical marijuana market. 

Either way, Linton is confident that this sequence of events provides enough "momentum and weight to cause the banking conundrum to be resolved soon."

The CEO also used the conference to talk about a "port-a-potty theory" involving the impacts of locally sourced resources, according to Somerset's article. 

Linton admits he is "nuts about" his port-a-potty theory, and views it as the cornerstone of local economic stimulation. He insists it creates a snowball effect. "We have almost two thousand employees and they all know what the rules are about renting port-a-potties locally," he insists.

His theory is if he wants to hire Ph.D.s in a local town, he has to purchase port-a-potties for his construction sites locally, so that the port-a-potty vendor will take his new-found extra income and go out for dinner more often, which will, in turn, create better restaurants, then the local car dealerships will improve. Next, the houses will transition, so that when his Ph.D. hires begin to work there, they won't say, “God, what an awful town."

The article's writer seemed unimpressed with other aspects of Linton's speech, such as a "white-washed, non-diversified video commercial for Canopy Growth" and the reaction to his "gentrification ideals" being "stunned, stony silence from the audience and incredulous side-eye from the few Jamaicans in attendance." 

As for Linton's prediction of legal banking by Christmas, only time will tell whether it proves accurate. 

-- Alex Bennett

Budding Industries: How Cryptocurrency Might Solve The Cash-Only Cannabis Problem

Where traditional efforts to comply with financial and logistical regulations have failed, blockchain industrialists believe that cryptocurrency could solve the "cash-only" cannabis problem by reducing the amount of capital moving through the system in the form of cash and increasing the efficiency, security, and predictability of payments.

Although some form of cannabis is legal in thirty of the fifty states, it remains classified as a Schedule I narcotic under the Controlled Substances Act (CSA) and is illegal on a federal level; therefore, it is impossible for cannabis businesses to get bank accounts from federally chartered banks. As a result, policy, as it currently stands, forces cannabis companies to operate on an all-cash basis. Despite $10 billion worth of sales transactions occurring within the cannabis industry last year, anyone involved in the business operation is susceptible to federal prosecution and left with limited financial service options.

For context, in mid-June, the Senate Appropriations Committee moved to block an amendment that would have allowed cannabis businesses to store their profits in financial institutions. Forbes reporter, Tom Angell provided insight of the Senate bill:

In a 21 - 10 vote, the Senate Appropriations Committee tabled an amendment on Thursday that would have shielded financial institutions that open accounts for cannabis businesses that are complying with state laws from being punished by federal regulatory authorities.

Moreover, just a week earlier the House Appropriations Committee voted to reject a similar proposal, also reported by Angell:

A powerful congressional committee voted on Wednesday to reject a measure to protect banks that open accounts for marijuana businesses from being punished by federal financial regulators. Supporters then scrambled to craft a more limited measure focused on medical cannabis businesses, but it was ultimately withdrawn before a vote could take place.

 

The broader measure would have prevented the U.S. Department of Treasury from taking any action to "penalize a financial institution solely because the institution provides financial services to an entity that is a manufacturer, producer, or a person that participates in any business or organized activity that involves handling marijuana or marijuana products" in accordance with state or local law.

The restrictive regulatory system leaves cannabis businesses open to organized crime like money laundering, theft, and cheating on payroll and taxes; however, there is speculation that cryptocurrency can ease these pains. Nick Meyers of The Phoenix New Times describes the premise of cryptocurrency in his article, Weed Money: Cryptocurrency May Be Key to Unlocking Bank Vaults for Cannabis Industry:

The basic idea of cryptocurrency is that it’s decentralized money, acting as both a currency and a transaction system.

. . .

Unlike official currencies such as the dollar, euro, or yen, no government authority tracks how much cryptocurrency is in circulation or who’s using it. Instead, these all-digital currencies use a process called blockchain.

 

The easiest way to think of a blockchain is as an electronic ledger that gets updated with each transaction. 

 

Every time someone makes a cryptocurrency transaction, that data, along with all previous transactions in the chain, gets stored in a new block.

 

The kicker is that blockchains are secure by design. Because transaction information gets stored in every new block, it’s difficult to tamper with or alter that data without compromising its authenticity.

In addition to solving the "cash-only" problem, the emerging blockchain industry can provide support regarding helping cannabis companies "meet regulatory requirements by offering immutable records showing the source of each plant in a harvest, where it is processed, how it is shipped and where it is distributed," as reported by John McMahon of News BTC. 

Moe Asnani, owner of Downtown Dispensary and D2 in Tucson, also stated that "anti-money-laundering laws are some of the biggest hurdles to legitimate cannabusiness banking, and having the verifiable ledger stored in high-security blockchains would demonstrate the market's legitimacy."

Asnani and McMahon's sentiment is shared amongst other cannabis and blockchain experts who say that blockchain platforms create transparency in the cannabis supply chain, and various cryptocurrencies, like HempCoin and ParagonCoin, are taking proactive approaches to solve the cash dilemma. 

Both cannabis and cryptocurrency are budding industries, and their similar challenges create the opportunity for joint growth; as cryptocurrency provides transparency to the cannabis business and marijuana operators can supply a stable customer base for the use of cryptocurrencies, perhaps this partnership will be the future of finance in the cannabis industry.

(For those unfamiliar with blockchain, Forbes and BlockGeeks are accessible resources.)

-- Gianna Redeemer

Massachusetts Cannabis Cash Finds a Home at Federal Credit Union

It's no secret that recreational marijuana is a cash cow, but until recently, retailers have had no piggy bank in which to deposit all their earnings. However, thanks to the efforts of Gardner Federal Credit Union, marijuana dispensaries in Massachusetts may have found a home for their earnings. The Boston Business Journal has the story:

The bank said Friday afternoon that it would begin banking for the industry, working with Safe Harbor Services, a
wholly-owned affiliate of Partner Colorado Credit Union that is the leader in compliance-based cannabis banking services.

 

“As a credit union committed to helping people and serving the underserved, we found in Safe Harbor a partner who offered a viable and proven compliant-based cannabis banking option and a way to keep our communities safe. Our board of directors recognizes the need to provide banking services for the safety of our citizens in reducing the ‘cash on the streets’ and I applaud them for their vision and commitment to providing public safety," said GFA Federal Credit Union’s CEO, Tina Sbrega.

Banking has long been a thorn in the side of recreational marijuana retailers. Because marijuana is still illegal at the federal level, if a bank were to accept funds derived from marijuana sales, that would constitute money laundering. The resulting friction between state legalization and federal drug policy has created an business ecosystem where cash is king. Colorado marijuana entrepreneur Babak Behzadzadeh told The New York Times: "If we had bank accounts, it'd be much easier."

Safe Harbor Services began helping local banks and credit unions in Colorado accept marijuana money in 2014, serving a vital–and very profitable–role in the cannabis industry. The company has expanded its reach outside of Colorado, now offering its services to credit unions like Gardner Credit Union in Massachusetts. The company is able to help its customers deposit their cannabis profits "legally" by ensuring that none of the money is derived from activities specifically prohibited by the Cole memorandum, and that the banks who accepted cannabis cash were careful about what they did with it–specifically ensuring that it did not migrate outside of states in which marijuana was legal. However, with the recent rescission of the Cole memorandum by Attorney General Jeff Sessions, it is not clear that Safe Harbor will be able to continue offering their services to financial institutions. 

Polls show that the majority of Americans favor legalization of marijuana, and 30 states have legalized the drug in some form. With this increasing momentum in favor of legalization, states have expressed an interest in allowing banks to accept money derived from marijuana sales in order to quell threats of violence and robbery to marijuana businesses, who generally carry large amounts of cash on hand. Whether the current administration will crack down on organizations like Safe Harbor and their partners like Gardner Credit Union in Massachusetts remains to be seen, but something will have to be done with all of the cash currently being generated by the marijuana industry.

 -John Robinson

Banks: We won't take your cannabis money

The state-legal U.S. cannabis industry now has $9 billion in annual sales but some 70 percent of companies in the industry have bank accounts, according to a recent story in Forbes.  

Although medical marijuana is legal in most states, it remains illegal, listed as a Schedule 1 drug, under the federal Controlled Substances Act.  The federal prohibition is what makes banks unwilling to touch this industries money. As we've noted in the past, Any bank that provides services to a legal marijuana business faces possible criminal prosecution for “aiding and abetting” a federal crime along with money laundering.

The banks that are brave enough to risk such daunting penalties are met by a mountain of red tape and stipulations, such as requiring banks to file Suspicious Activity Reports for transaction involving the marijuana business. And when I say every transaction, The filing of suspicious activity reports even extends to legal businesses that also do business with the marijuana business, such as accountants, cleaners, you name it. With such harsh penalties and expensive requirements necessary to provide financial services to the cannabis industry, most banks simply choose not to deal with it.

The Forbes article quotes financial services firm Cowen & Co. as estimating that the industry is set to grow $50 billion within the next few years, and botes that with such explosive growth on the horizon, many in Congress have taken notice. However, at the moment, cannabis businesses are stuck in limbo. Business owners cannot accept credit cards, make wire transfers to other businesses, or even pay their payroll taxes by check. Many of these businesses operate strictly with cash and even deliver their taxes to the IRS in cash.

Although money is green, it seems that some money may be too green for the banking system's comfort. 

 --Colin Heinrich

 

 

Wells Fargo, politicians, and cannabis banking

Banking giant Wells Fargo caught flak last week for its decision to terminate the account of one Nikki Fried, a hitherto unknown Florida politician who told the bank that she took campaign contributions from medical marijuana businesses.  Critics have claimed that the bank was somehow violating her “constitutional right to freedom of speech, that this was an “abhorrent” “attempt to restrain speech,” and even that it’s some kind of conspiracy between Big Pharma, the Republican Party, and the Florida state legislature to defeat Fried,  who sis running for state agriculture commissioner.

All this is nonsense.  Yes, Wells Fargo has probably gone a little overboard--most banks are probably not as paranoid as WF (which has been hit by billions of dollars in fines in the last few years) about violating regulatory restrictions.  And yes,m the fact that cannabis businesses cannot get reasonable access to banking services is a major problem that I’ve noted frequently. 

But what happened to Fried has nothing to do with her political speech.  It has to do with the fact that under federal law Nikki Fried is guilty of the federal crime of laundering drug money.  And any bank that takes that money, knowing that it comes from an illegal source and mingling it with other money, is also guilty.   

This is not not criticism of Fried, hyperbole, or sensationalism.  It's a plain fact.  As people in the industry know, anybody who accepts money derived from marijuana sales and puts it into a bank is by definition guilty and is facing big fines and a substantial prison sentence that can reach 20 years.  Under federal law (and the laws of a whole lot of other nations), taking money from Uncle Bob's Holistic Healthful Medical Cannabis Company is no different than getting it from the Medellin Drug Cartel.  

Fried is different and noteworthy only in that she is the first politician who is facing the consequences everybody else in the business has faced for years.

You may, of course, think it outrageous that simply providing banking services for a state-legal business should result in criminal liability.  I agree entirely.  But that bridge has already been crossed  During the Obama Administration the Justice Department weaponized bank enforcement.  Its notorious Operation Chokepoint tried, with some success, to coerce banks to drop accounts for perfectly legal businesses like firearms dealers, tobacco sellers, payday lenders, dating services, that sold lawful goods and services such as firearms, ammunition, tobacco, payday lenders, dating services, debt-collection services, pawn shops, gold and silver dealers, and others.  And more recently states like New York have tried to put lawful enterprises out of business by pressuring their banks.

And unlike marijuana production and distribution, those businesses are, in fact, perfectly legal.  Despite a lot of wishful thinking, marijuana is still a Schedule I controlled substance and is still completely, totally, unmistakably illegal everywhere in the United  States.

In my opinion, the chance that Wells Fargo and its employees could be penalized for taking money from Nikki Fried are very small.  That's why other banks seem to have stepped up to take her accounts.  But the risk isn't zero, and were I the bank's lawyer I would be compelled to point that out to them and let them decide whether the possible gain is worth the risk.

As I noted before, the bright side of this is that once politicians start having trouble putting political donations into a bank, they are likely to start taking action to resolve the problem.  There is, in fact, no good reason not to allow marijuana deposits in banks.  Allowing businesses to take credit cards, pay vendors by check, and deposit cash should make it much easier to track illegal payments than does the current system involving wheelbarrows full of currency,

--Frank Snyder

Cannabis Law Institute program set for September in DC

The National Cannabis Bar Association's "Cannabis Law Institute" is just two weeks off.  The two-day event features more than 70 speakers from the legal, business ,and political worlds, and looks to have some terrific programming.  Check out the conference web site for schedules, registration, and other information.

I'll be seeing you there!

--Frank Snyder

Politician's bank account closed for accepting contributions from cannabis businesses

Either Wells Fargo is taking nervousness about marijuana to a new extreme, or the banking giant has figured out a great way to force Congress to deal with the cannabis banking problem.  In Wells Fargo Closes Florida Politician's Account Due To Marijuana Donation, Forbes reports that the nation's fourth biggest bank canceled the account of Nikki Fried, who's running for Florida Agriculture Commissioner.  Fried is a professional lobbyist who has lobbied for medical marijuana business in Tallahassee, but Well Fargo cut her loose because her campaign accepted donations from MMJ lobbyists.

"As part of the onboarding of the client it was uncovered some information regarding the customers [sic] political platform and that they are advocating for expanding patient access to medical marijuana," . . . a vice president and senior relationship manager at Wells Fargo, wrote in a July 11 email to the Fried campaign's compliance officer.

After the campaign confirmed in a reply that Fried has indeed received contributions from cannabis industry leaders—and had no intention of stopping—Wells Fargo confirmed the closure of the account in an August 3 letter.

"Periodically, we review our account relationships as part of our responsibility to oversee and manage banking risks," the letter said. "As a result of a recent review of your account relationship, we determined that we need to discontinue our business relationship and close the account above within 30 days from the date of this letter."

If the move represents a new company-wide policy—whether or not it spreads to other banking institutions—it could have implications for dozens members of Congress and other politicians who regularly accept campaign contributions from people involved in the marijuana industry.

Maybe the best way to push Congress to act is to suggest that their campaign contributions depend on it.

--Frank Snyder

Hawaii Dispensaries to Go Cashless

Although Hawaii has struggled to legalize marijuana for adult use, it is ahead of the game when it comes to paying for medical marijuana. According to KATU, this week Hawaii announced that its dispensaries would start using the mobile debit app, CanPay, as a payment method for purchasing marijuana. 

In an effort to prevent robberies and other crimes targeting dispensaries, state leaders announced Tuesday that a cashless payment system will be implemented in October.

"This cash-free solution makes sense," said Hawaii Gov. David Ige. "It makes dispensaries' finances transparent."

The implementation of this method of payment will address a persistent concern coming from those opposed to marijuana legalization: safety. 

A cashless system would reduce, if not eliminate, the desirability of robbing marijuana dispensaries. The app is one method of payment, which can help to reduce the amount of cash on site at any given time. It should be noted, however, that although opponents of legalizing marijuana claim the presence of dispensaries increases crime, several other studies, like those reported in Civilized, The Cannifornian, and NY Daily News, have actually found the opposite.

While Hawaii has not gone completely cashless, it is unclear whether they will do so in the future. However, it may be preferable to use both payment methods in conjunction with one another. A mixed payment system could serve the needs of those who prefer to use cash due to information safety and privacy concerns, while also reducing the overall amount of cash kept in the retail shop throughout the day.

Furthermore, the CanPay payment app ensures that only legally compliant transactions are made using the app. According to CanPay, because it uses a Closed-Banking Feedback Loop, "only cannabis retailers working with financial institutions operating compliance programs built around the Cole Memo and FinCEN Guidance will be allowed to participate in the CanPay network." This compliance guarantee feature gives retailers a sense of financial security when deciding whether to accept the app as a payment method at their stores. 

CanPay is also currently available in Oregon, Washington, California, Colorado, Florida, and Maine.

 

--Taylor Wood

Arkansas banks hesitant to get Involved with medical marijuana businesses

The medical marijuana business in Arkansas, like that in a lot of places, s shrouded in legal uncertainty. And the banking industry, being traditionally risk-averse, apparently isn't prepared to test the waters just yet. From Arkansasonline.com: 

The medical marijuana business in Arkansas will not be cash only, as feared by opponents during last year's campaign for the Arkansas Medical Marijuana Amendment. 

 

But banking services for the business will be expensive, secretive and legally dubious, according to representatives of the financial industry. 

 

Right now, medical marijuana banking is tentatively allowed under guidance from federal regulators. According to federal figures, 368 banks and credit unions were serving the industry nationally in March, an increase of 63 from a year prior. 

 

"The fact is that the legalization in Arkansas is not a defense for nor a cover for the legality by the federal laws, and all banks -- whether they're state chartered, nationally chartered or anything else -- are under the federal laws and regulations," said Bill Holmes, president of the Arkansas Bankers Association. 

So without banking, the medical marijuana industry in Arkansas may wind up relegated to operating on a cash basis, which poses numerous financial difficulties. In addition, there is a potential crime and safety issue. Holmes went to to say: 

"I'm not on a side for or against medical marijuana, but I understand why folks are concerned when you look at the problems that have arisen in some of the other states. It is a cash business at this point. With what we've had in Little Rock, let's be honest, do you want to inflame that and have cars driving around with bags full of $100 bills? I don't think so." 

Little Rock, capital of Arkansas, has one of the highest crime rates in America. Cash-heavy businesses are potential targets for crime, which endangers not only the businesses, but the people involved in them as well—cashiers, delivery drivers, security personnel, not to mention the customers themselves (who better a criminal target than someone headed into a business who must be carrying cash or leaving with marijuana?).

This isn’t to say that droves of violent criminals are suddenly going to be targeting medical marijuana businesses and customers, but it does seem, at least theoretically, that a heightened crime risk exists. And therein lies a paradoxical effect embedded in the current federal drug policy: a criminal law, which among its aims should reduce crime, could actually end up generating more crime. 

-- Christopher Daves

Related articles

One Florida bank is willing to risk it all on cannabis when others won't

Florida bank is first to accept marijuana deposits

The lurking dangers of money laundering charges have led most U.S. banks to avoid taking deposits from medical marijuana businesses, but one rather unusual Florida bank has decided to go for it.  First Green Bank, headquartered in Orlando, is now working with six of the seven Florida MMJ licensees, and has a crew of six employees dedicated solely to marijuana compliance.   

    Lex Ford, a senior vice president at First Green Bank, said he couldn't think of a competitor in Florida who was willing to try.

    "It was interesting at first, when we're telling these high net worth CEOs how little we could let them dictate the process. We expected frustration," Ford said about working with marijuana companies. "But everyone in it understands this is how it has to go."

 

    First Green Bank is a fairly small operation with just six branches, mostly in Central Florida and one in South Florida. It manages about $622 million in assets. The bank doesn't have a branch in Tampa Bay yet. Ken E. LaRoe, a seasoned banker, founded First Green Bank with a specific purpose in mind. The bank firm actively promotes environmental and social responsibility and is known for offering discounts and low-interest loans on "green" initiatives, like electric cars, LEED-certified construction and solar systems. Now it's added cannabis to that list.

    "Ken's wife used marijuana as treatment for seizures and it changed her life," said Ford, who describes himself as LaRoe's "wingman." "That's what started us down this path in 2010, about a year after the bank was founded. By 2012 to 2013, we were coming up with a plan and got approvals by 2014."

It's a risky move for the bank, but one that may carry a substantial reward.  The next move is up to federal regulators, who last year shut down a Colorado credit union that sought to serve the cannabis industry.

 

Federal Judge Nixes Cannabis Credit Union Appeal

A proposed cannabis credit union in Colorado lost another round this week.  U.S. District Judge Brooke Jackson threw out a lawsuit by Fourth Corner Credit Union challenging the Federal Reserve's refusal to issue a "routing number" to the FCCU.  Without a routing number, FCCU cannot access the federal check-clearing process and can't function as a credit union.  The Denver Post has details of the decision.

While I haven't seen the opinion, the ruling was hardly unexpected.  As Judge Jackson apparently noted, selling marijuana is a federal crime, handling marijuana deposits and using the banking system for marijuana profits is a separate crime ("money laundering"), and thus the Federal Reserve had no obligation to help further the NCCU's.

The decision leaves cannabis businesses in the banking limbo they've been in since quasi-legal marijuana sales began a decade ago.   But until the Obama Justice Department moves to reschedule marijuana, or Congress changes the law, it's hardly likely that the Federal Reserve (or the National Credit Union Administration, which FCCU is also suing) will change the rules to allow illegal businesses to use the banking system.

 

 

 

Related articles

And While We're Talking About Marijuana and Financial Institutions . . .

Banks Caught in the Middle of the Marijuana Debate

Upcoming Session on "Financial Planning for Your Marijuana Business"

Starting any new business is risky.  Starting a new business that the federal government still considers a felony, and in which most of the legal rules that govern other businesses don't apply or are seriously unsettled, only raises the risk.

Bold entrepreneurs are finding it worth doing, but they obviously need to do what they can to limit their risk.  Potential Washington business owners have got a special program coming up this Saturday that sounds like it will be worthwhile:

    Members of the professional cannabis world in Washington have an opportunity this weekend to attend a special event organized by the Marijuana Business Association (MJBA) and hosted at the Bellevue, Washington Red Lion.  Entitled “Dollars & Sense of Risk & Financial Planning for Your Cannabis Business,” the event is slated to run from 9am to 5 pm this Saturday, November 22nd and features educational presentations from established financial professionals.

    The event will be limited to 100 participants, but there are still some spaces available. The smaller size of the event allows for audience members to ask direct questions of the presenters. There will be professionals from Cornerstone Financial Group, Salal Credit Union, CIPS, Cannabis Commodities Exchange, and Cannabis Merchants present, among others. The experts will be speaking on a wide range of topics, from insurance and taxes to business planning and development.

    Unlike some educational or networking events in the cannabis industry, this “Dollars & Sense” event stands out because despite limiting attendance to 100 participants, there is no ticket fee to I-502 licensees or applicants or those who have memberships to the Marijuana Business Association. For those interested in the cannabis industry who haven’t actually taken the plunge yet, tickets are only $10 (plus processing fees).

    You can purchase or reserve tickets via the Eventbrite page for financial planning event.

The event is free to MJBA members and I-502 applicants; price for the general public is $10.

And While We're Talking About Marijuana and Financial Institutions . . .

. . . JULIE ANDERSEN HILL (Alabama Law) has a new article making a similar point (although she knows more about bank regulations than I do) in a new article, Why won't banks dance with Mary Jane?  You should read the whole thing, but there are, to cut to the chase, three reasons (I've excerpted these paragraphs from the piece:

    Anti-money laundering laws impose a high compliance burden on banks. Banks must report suspicious transactions involving more than $5,000 to the federal Financial Crimes Enforcement Network (FinCEN). FinCEN says virtually every transaction involving marijuana money is suspicious. . . .  Mistakes can lead to criminal charges or fines. Some banks are unwilling to undertake this compliance burden and the risk that comes with it.

    Banks in the United States cannot operate without deposit insurance. The FDIC warns that banks “need to assure themselves that they are not facilitating [their customers’] … illegal activity.” If a bank ignores the warnings, the corporation may revoke deposit insurance and force closure of the bank.

    Banks that help the marijuana industry could be found guilty of “aiding and abetting” marijuana manufacturing or “conspiring” to dispense marijuana. It is also a crime to launder money – to engage in transactions knowing that the money came from marijuana.

Or, to put it more succinctly, you can (1) go through a lot of paperwork so that you can (2) risk having your bank fail, and maybe even (3) go to jail.

New Mexico Credit Union Association Advises Members to Avoid Marijuana Business Clients

THE APPALLING LACK OF GUIDANCE from Congress, the Obama Administration, and U.S. financial regulators means that American banks, savings associations, and credit unions are treating marijuana businesses the way New York is treating nurses who may have been exposed to Ebola: avoid any contact with them if at all possible.

The Credit Union Association of New Mexico has gone on record advising its members to have nothing to do with accounts from medical marijuana businesses legal under state law but still illegal at the federal level.  Financial reporter Missy Baxter has a great Credit Union Times piece on the condundrum that credit unions in the Land of Enchantment (and elsewhere as well) are facing.  It's fairly long, but here's the teaser:

    It's been eight months since the U.S. Department of Treasury's Financial Crimes Enforcement Network issued banking guidelines for state-licensed marijuana businesses, which some heralded as a way to usher the budding industry into the mainstream.

    But since then, some credit unions have closed accounts belonging to cannabis companies due to concerns about federal repercussions, according to industry insiders.

    A New Mexico credit union closed its marijuana business accounts after a negative reaction by a NCUA field examiner, according to Paul Stull, president/CEO of the Credit Union Association of New Mexico in Albuquerque.

    “From what I was told, the field examiner's reaction was quite over the top,” said Stull, who declined to name the specific credit union involved in the alleged incident. “The examiner said there was no way this could be done legally.”

    The credit union closed the accounts after an examiner threatened to issue a letter of understanding and agreement if it didn't do so, Stull said. To his knowledge, there are no credit unions currently offering banking services to New Mexico's licensed medical marijuana businesses.

    Due to the regulatory burden of meeting due diligence requirements, CUANM is advising credit unions to not open the accounts, Stull said.

    “There are no guarantees in the state of New Mexico to hold any credit union harmless and it is clearly a very dangerous situation for any credit union to currently be involved in that business,” he said.

Me, I'm generally risk-averse.  Given the work the feds have done to create as much uncertainty as possible, if I were running a financial institution I wouldn't touch money from a marijuana business with somebody else's ten-foot pole.  Sorry, but my kids have to eat, too, and I'm not willing to risk jail time for money laundering to help somebody else make money.

Marijuana businesses' inability to use the financial system is a serious problem.  It's one that any of the three responsible parties -- Congress, the Administration, and the financial regulators -- could pretty easily resolve.  Frustrated marijuana businesses should blame the feds, not the banks and credit unions.  They want your deposits -- so long as they don't have to risk prison to take them.

Daily News Roundup: Friday, October 10, 2014

Prosecutors Seek to Revoke Adrian Peterson Bail for Marijuana Use:  "Presumably, someone close to Adrian Peterson told the embattled Minnesota Vikings running back to lay low while his felony child abuse case was ongoing and his NFL future was up in the air.  The opposite of laying low would be to smoke some marijuana before a court appearance, then tell a court employee during a urine test that you "smoked a little weed," as Peterson allegedly did on Wednesday according to Fox 26 in Houston."

DEA Taking Close Look at  Marijuana Industry Investors: "U.S. investors in Canada's medical marijuana industry are betting they will not fall under the scrutiny of U.S. law enforcement officers -- but it is a risky bet.  The U.S. Drug Enforcement Administration has already been tracking investments made in state-sanctioned marijuana business in the United States. When asked by Reuters about the DEA's view of U.S. investments in Canadian marijuana, DEA spokesman Rusty Payne said the agency is 'most interested in those types of activities.'  After the Reuters report, shares in Canadian medical marijuana companies fell sharply . . . ."

Marijuana Sales Up in Colorado: Marijuana sales in Colorado saw a 10 percent bump in August — and industry leaders don't expect that growth to slow anytime soon.  The sales of recreational and medical marijuana in Colorado each jumped more than 10 percent from July to August 2014, according to numbers released Thursday by the Colorado Department of Revenue."

Roof Explodes in Florida Grow House Fire:  "A suspected marijuana grow house caught fire in Orange County on Thursday morning . . . .  About $3.2 million worth of marijuana was removed from the home after the fire, according to deputies.  The residents of the home are nowhere to be found.  Neighbors said they've lived in the home for a month or two, and were secretive.  Investigators said the sloppy grow house rigging likely contributed to an electrical fire upstairs."

Analyst:  Marijuana Use Increases Beer Sales:  "Beer has no need to fear weed.  The legalization of medical marijuana has helped beer sales, contrary to previous research that pointed to a decline, according to a note from Sanford C. Bernstein analyst Trevor Stirling."