The Cannabis Control Commission (CCC) assembled on July 20, 2020, to approve draft changes to the cannabis adult-use, medical-use, and colocated operator regulations. A Virtual Public Hearing on the draft regulations was held on August 3rd and public comments will be accepted until August 14th.
The new draft regulations encompass various changes across the board – from new CCC approval procedures, operational requirements, licensing updates, and receivership processes. Given the expansiveness of the proposed changes, it is critical for current and future operators as well as investors, lenders, and financial institutions engaging with industry participants to review and understand the additions and modifications.
Colocated Marijuana Operators (CMOs). In regard to the promulgated regulations concerning Colocated Marijuana Operators, the CCC has proposed to combine the regulations previously set forth in 935 CRM 502.000 with the existing 935 CMR 500.000 (Adult-Use Regulations) and 935 CMR 501.000 (Medical-Use Regulations) due to redundancy in the currently effective colocated operator regulations.
Licensure/Certifications. Some key developments in the new regulations regarding licensure include:
- Expansive processes pertaining to patient certification/registration such as:
- permitting patients with certain identified hardships to renew on a 2-year basis instead of annually
- expressly adding telehealth visitation
… Keep reading
The staff (the “Staff”) of the Securities and Exchange Commission’s Office of Compliance Inspections and Examinations (“OCIE”) recently issued a Risk Alert focused on certain key compliance issues for registered investment advisers that manage private equity funds or hedge funds (collectively, “private fund advisers”). OCIE’s Risk Alert highlights certain common deficiencies the Staff has observed, and its publication demonstrates the Staff’s continued focus on regulating private fund advisers. For purposes of this Cannabis Business Advisory blog, private fund advisers and investors alike in the cannabis space are advised to carefully take note of this Risk Alert, especially given the already enhanced scrutiny of the industry.
The Staff emphasizes three general areas of deficiencies OCIE has identified in examinations of private fund advisers: (1) inadequate disclosure of conflicts of interest, (2) inaccurate allocations and disclosures of fees and expenses, and (3) failure to properly maintain, establish and enforce policies and procedures relating to material non-public information (“MNPI”).
Conflicts of Interest Disclosures
The Staff underscores the antifraud provisions in Section 206 of the Investment Advisers Act of 1940 (the “Advisers Act”). In particular, the Staff cautions advisers who are subject to these antifraud provisions to eliminate or otherwise make “full and … Keep reading
Scott Moskol and Katrina Skinner joined Mike Kennedy of Green Check Verified, Ryan Canin of DocFox, Adam Crabtree of NCS Analytics, and Tony Repanich of Shield Compliance for a panel discussion on automated cannabis banking solutions.
Click here to watch the full webinar.… Keep reading
FinCEN’s most recent information regarding financial institutions providing services to cannabis-related businesses (“CRBs”) indicates a slight decline in the overall number of depository institutions providing such services during the first quarter of 2020. FinCEN speculated that the decline might be short-term and attributable to late Suspicious Activity Report filings. Regardless, the number of financial institutions actively banking cannabis has stayed steady for over a year. Although there may be many reasons preventing new entrants from coming into the space, one of the biggest hesitations relates to the Senate’s failure to pass the SAFE Banking Act, or some version of it. As the November elections near, it may seem even more unlikely that the SAFE Banking Act will finally become law; however, with the GOP controlled Senate preparing its own version of a second coronavirus stimulus package, there is still a chance that the Senate could include provisions of the SAFE Banking Act similar to those included in the HEROES Act passed by the House in May. Strategically and practically, it would make sense.
Since it passed in September 2019, the SAFE Banking Act has been stalled in the Senate’s banking committee led by Sen. Mike Crapo of Idaho. In … Keep reading
Frank A. Segall and Scott Moskol, Co-Chairs of the Cannabis Business & Law Advisory group, facilitated a discussion with Katrina Skinner on the cannabis industry’s most pressing banking issues for businesses and financial institutions.
Click here to watch the full webinar.… Keep reading
With recent COVID 19-related mandates, such as the shelter-in-place orders or social distancing requirements, many businesses and cannabis companies have reached out to the governor’s office or other state and local officials with attempts to influence relief legislation or to request an industry-wide exception to a regulation. Did you know these types of activities may be considered lobbying and in some jurisdictions require registration as a lobbyist?
When analyzing whether you or your business may be lobbying, it’s helpful to keep in mind a broad and basic definition of lobbying. Lobbying in a nutshell could be considered any act that attempts to influence a government official or employee regarding a government action or issue. The challenge of lobby laws is that there may be up to three layers – federal, state, and local. Federal lobby laws are covered by The Lobbying Disclosure Act of 1995, however, there is not a universal definition of lobbying on the state and local level, and each state, city, municipality, or another local area may adopt its own definition and registration requirements. Therefore, as a matter of regulatory compliance, cannabis companies should have an awareness of the lobby laws where they operate and do … Keep reading
On June 29, 2020 (“June Guidance”), the Financial Crimes Enforcement Network (FinCEN) issued additional guidance for financial institutions providing, or considering providing, financial services for hemp-related businesses. The June Guidance supplements the interagency statement issued on December 3, 2019, and provides clarity on what steps a financial institution can take to conduct due diligence on hemp-related businesses in order to comply with BSA requirements. The new guidance is detailed enough that FinCEN should easily accomplish its goal of making transparent financial services readily available to hemp-related businesses.
Specifically, FinCEN directed financial institutions to conduct customer due diligence (“CDD”) of hemp-related businesses in accordance with their current risk-based policies and procedures, including those that apply to ongoing account monitoring. Rather than mandate specific due diligence requirements, FinCEN said that the information sought by a financial institution should depend on the risk attributed to each type of customer after conducting an appropriate risk assessment. Nevertheless, FinCEN did provide several examples of types of information that may be gathered to help ensure that a financial institution knows its hemp-related business customers and that it can identify and report suspicious activity, including those red-flag activities outlined in the June Guidance.
Notably, the June … Keep reading
Class action lawsuits against publicly traded cannabis-related companies more than doubled from 2018 to 2019, with 13 class action cases filed in 2019 compared to 6 class action cases filed in 2018 – a staggering 116% increase. Lawsuits against cannabis-related businesses continue to grow concurrently with the expanding industry growth and mostly focus on disclosure issues. Such lawsuits are ordinarily filed by shareholders in an attempt to recover investment losses, often after a company’s stock price decreases, and are asserted, in the event that the company allegedly made false and misleading statements or omissions in connection with a securities offering, under the Securities Act of 1933 or the Securities Exchange Act of 1934 for public company disclosures.
For example, on January 16, 2020, Aurora Cannabis Inc. (TSX: ACB), in Warren v. Aurora Cannabis Inc., et al., No. 20-cv-00555, received claims for allegedly making false and misleading statements and/or failing to disclose adverse information regarding Aurora’s business and prospects. Claims against Aurora were brought under the Securities Exchange Act of 1934 after the company announced disappointing results for Q1 2020 (reporting a 25% sales decline) and that the company was halting construction on its operating facilities in various regions – … Keep reading
Financial institutions considering implementing cannabis banking programs should take comfort in recent comments made by FDIC Chairwoman Jelena McWilliams during virtual meetings held with bankers in Michigan and Arizona. While McWilliams said she could not “give blanket immunity” to banks or “bless them and say ‘go ahead and do it’” because marijuana remains illegal at the federal level, McWilliams stated that she thought bankers would be “OK” with regulators if they conduct due diligence that ensures licensed entities comply with state regulations and follow the 2014 FinCEN guidelines, including the filing of suspicious activity reports (SARs).
The direction provided by McWilliams and the FDIC remains consistent and echoes that of other regulatory agencies that continue to await comprehensive marijuana reform, or the passage of the SAFE Banking Act that stalled in the Senate after passing in the House last year. Despite not sharing any new insights, McWilliams’ unchanged position, coupled with FDIC efforts to support cannabis banking by educating its examiners, may mean that entering the cannabis banking space now is the least risky it has ever been, or will be, until the federal government changes its marijuana policy. Likewise, acting now may create business opportunities that will … Keep reading
On May 25, 2020, George Floyd, a black American, lost his life to police brutality. The senseless killing of Mr. Floyd at the hands of police, while he was being arrested for a nonviolent crime, was a racist act. For nearly nine minutes, the arresting officer knelt on Mr. Floyd’s neck and ignored his victim’s impassioned pleas that he could not breathe. Three other officers either assisted in restraining Mr. Floyd or watched and did nothing as he took his last breath. All four officers were eventually fired, one has since been charged with second-degree murder, and the three others have been charged with aiding and abetting. Over the past several weeks, outcry over the systemic racism and institutionalized harassment of people of color has been heard at protests across our country and the world.
Institutional racism casts a shadow on all areas of our society and is glaringly evident in the newly legalized cannabis industry. The origin of the prohibition of marijuana lies in the racist history of this country. Some historians claim that the beginnings of this policy originated from the start of the Mexican Revolution in 1910 when Mexicans began to immigrate to the United States … Keep reading