Cannabis banking can offer many valuable financial benefits for credit unions choosing to serve the industry. However, implementing a well-managed, compliant cannabis banking program requires considerable planning and an understanding of all potential areas of risk. This includes ensuring that the credit union’s directors and officers are covered by their institution’s Directors and Officers (D&O) liability insurance policy. Shield sat down with corporate and finance-focused attorney Scott Moskol, a partner of Boston-based law firm Burns & Levinson and co-chair of the firm’s Financial Restructuring & Distressed Transactions and Cannabis Business & Law Advisory practices. Named an inaugural “Cannabis Trailblazer” by The National Law Journal in 2018, Scott has been providing corporate counsel to clients in the cannabis industry since 2013 and offers his insights on this complex issue.
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This past week, Senate Majority Leader Chuck Schumer (D-NY) unveiled the first draft of his long-awaited bill to legalize marijuana at the federal level. Along with Senate Finance Committee Chairman Ron Wyden (D-OR) and Sen. Cory Booker (D-NJ), Sen. Schumer presented the proposal at a July 14 press conference. Titled the Cannabis Administration and Opportunity Act, the legislation – which was partly modeled after the social equity-focused Marijuana Opportunity Reinvestment and Expungement (MORE) Act – largely aligns with advocate and stakeholder expectations.
See “MORE Act: Federal Cannabis Legalization Reintroduced in House” for discussion of the House legislation and its social equity provisions.
“Communities that have been most harmed by cannabis prohibition are benefitting the least from the legal marijuana marketplace,” reads the findings section of the bill, further noting that a “legacy of racial and ethnic injustices, compounded by the disproportionate collateral consequences of 80 years of cannabis prohibition enforcement, now limits participation in the industry.” If enacted, the senators’ bill would decriminalize and deschedule cannabis, expunge prior convictions, and allow the states to create their own marijuana policies.
The proposal is multifaceted and comprehensively addresses several critical issues:
- Federalism: States may decide whether or how
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When New York became the 15th state to legalize recreational cannabis on March 31, 2021, it opened one of the largest cannabis markets globally. Not surprisingly, the state’s capital raises and M&A activity in the cannabis space have meteorically accelerated following the legislature’s legalization of adult-use cannabis.
Gov. Andrew Cuomo signed into law the New York State Marijuana Regulation and Taxation Act (MRTA) to legalize recreational use of marijuana for adults over the age of 21, although the recreational market in New York will take longer to bloom. The state’s timeline for opening recreational cannabis dispensaries was originally expected to take at least 18 months, but this projection may be further delayed due to an apparent legislative impasse over who should lead the new Office of Cannabis Management and the Cannabis Control Board, which were created under the MRTA to regulate New York’s legal cannabis industry.
Nonetheless, the enthusiasm of the capital markets cannot be contained. A recent graph from Viridian Capital Advisors tracks year-to-date capital raises and M&A deals with New York-based companies as either acquirers or targets:
As noted by Viridian, both capital raises and M&A transactions have skyrocketed to record levels since New York … Keep reading
Compared to businesses in other industries, there is no debate that legally operating cannabis-related businesses (referred to herein as “cannabis companies”) are disadvantaged in their efforts to raise capital and thus grow their business. This disparity is especially stark as it relates to cannabis companies seeking to raise debt capital through loan arrangements with financial institutions and private lenders. As a result of the continued federal illegality of marijuana, would-be lenders are hesitant (or, more commonly, outright unwilling) to deploy their capital to cannabis companies for fear of being penalized by federal banking regulators. The primary justifications for assessing penalties on lenders who do transact with cannabis companies are (1) that the proceeds of a loan to a cannabis company inevitably fund “unlawful activity” (i.e., the cultivation, processing and sale of cannabis products) and/or (2) the proceeds deposited by cannabis companies in saving institutions are deemed generated from unlawful activity and are therefore subject to anti-money laundering (AML) regulations.
How Limited Financial Services Affect the Cannabis Industry
The unwillingness of many banks and other financial institutions to provide financial services to cannabis companies hamstrings the companies in a number of ways; most prominently, it (1) limits the financial services … Keep reading