Banking

Does the SAFE Banking Act Still Have a Chance?

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

New FinCEN Due Diligence Guidance for Hemp-Related Businesses

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

FDIC Chairwoman McWilliams Remains Consistent Regarding Cannabis Banking

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

Now More Than Ever, Local Communities Need Cannabis Banking

Change and the discomfort that often accompanies it is inevitable, and it is difficult to remember a recent time that has brought as many changes as the world has experienced in 2020. As of this writing, our society is reeling from the effects of COVID-19 as well as nationwide protests spurred by the killing of George Floyd (and many others). Mr. Floyd’s death underscored the racial and economic disparity that continues to exist within our society as well as the cannabis industry, but more and more people are engaging in conversations that may offer new solutions to some of our most persistent problems. While these solutions may be homegrown, they need community backing to take hold and make a lasting difference, and local financial institutions are well-positioned to do their part in support of these grassroots efforts by providing financial services to local cannabis-related businesses (“CRBs”).

The cannabis industry has long been tied to social justice, and although efforts to repair the damage done to communities that have been disproportionately affected by failed drug policy through marijuana legalization have begun, they have a long way to go before they can be considered successful. The protests and renewed calls for … Keep reading

United Cannabis Chapter 11 Bankruptcy: Plant-Touching Litmus Test

United Cannabis Corporation (“United Cannabis”) and its wholly-owned subsidiary, UC Colorado Corporation, filed for Chapter 11 bankruptcy protection in the Bankruptcy Court for the District of Colorado on April 20, 2020. United Cannabis’ primary line of business is operating extraction facilities to convert compounds of industrial hemp flower into finished CBD products, while also deriving a limited amount of revenue from licensing its IP to plant touching businesses. The United Cannabis bankruptcy proceeding could be a unique test case for the cannabis industry.  Here is what you need to know:

Cannabis:  How Much is Too Much? What makes this case so fascinating is that, following the passage of the 2018 Farm Bill, certain hemp/CBD companies are now able to file for federal bankruptcy protection, which relief was denied to plant-touching and, for the most part, ancillary businesses.   United Cannabis’ business generates nearly all of its revenue from CBD product sales, with only (at most) a de minimis amount of revenue derived from IP licensing fees to medical and recreational marijuana businesses. According to the company’s recent SEC filings, the United Cannabis reported substantially all of its revenues – nearly $13 million – were derived from the sale … Keep reading

Cannabis, COVID-19, and Cashless Transactions

In certain states (not currently including Massachusetts), cannabis-related businesses have been deemed “essential” businesses by local governments. In those states, medical and/or adult-use programs have continued to operate during the COVID-19 pandemic. Nevertheless, cannabis business operators have had to quickly adapt to the changing environment and implement new safety protocols, including limiting the number of patients and customers in retail shops at one time, and providing new online and telephone ordering channels for products that can now be delivered and/or picked up curbside. Changes to standard operating procedures bring new challenges to the industry, including how to accept payment for purchased products.

Historically, state-licensed cannabis-related businesses have been cash intensive because marijuana remains illegal under federal law. Not only has the conflict between state and federal law caused banks and credit unions to stay away from marijuana-related business relationships, but it has also caused the largest payment card networks to prohibit cannabis credit card transactions.

Cash intensive businesses are often considered higher risk entities, in part, because of safety concerns that include being easy targets for theft. These concerns are heightened with the COVID-19 pandemic and worries about viral transmission via cash. Regardless of whether the new COVID-19 cash … Keep reading

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A Conversation with Massachusetts Cannabis Control Commissioner, Steven Hoffman – Part II

Below is the conclusion of the conversation that Burns partner and Cannabis Business Advisory Group co-chair Frank A. Segall had recently with Steven Hoffman, Chairman of the Massachusetts Cannabis Control Commission, regarding the state of the industry in the Commonwealth.
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FRANK SEGALL: Let’s talk about [the 3% sales tax incentive]. Host-community agreements have received some attention – for those in the audience, the regulations are pretty clear: Towns can charge up to 3% of gross revenue, with respect to costs that are associated – we’ll say directly, but it’s not clear – with operating an establishment. What we’re seeing is, it’s pretty much 3% flat, with no analysis as to the costs. And there are additional requests that towns have been making – we’d like that new fire truck, we’d like that new park – that have created some consternation and raised questions about whether the rules are being followed and the playing field is level. What are your thoughts on that?

COMMISSIONER HOFFMAN: This is a complicated issue – there’s been a lot of comment and feedback on this. We’ve looked at 15+ host-community agreements that we’ve signed thus far, and there are three things that we … Keep reading