Banking

Featured on CUInsight | Reading the Fine Print: Are Your Directors and Officers Protected?

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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The SAFE Banking Act: A Reasonable and Narrowly Tailored Approach to Addressing Public Safety Concerns and Lack of Financial Services in Today’s Cannabis Industry

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

Eaze Case Puts Financial Institutions on Notice

On March 24, 2021, Defendants Hamid (Ray) Akhavan and Ruben Weigand were found guilty of defrauding banks as part of a scheme they had set up to help cannabis company Eaze accept credit card payments for marijuana purchases. During the trial, former Eaze CEO James Patterson testified that he and other Eaze employees, Eaze board members, and even the dispensaries they served, knew that they were disguising the payments to appear as if they originated from non-cannabis businesses because banks and the major credit card networks did not allow credit cards to be used for marijuana. The Defendants argued that although banks may claim that they do not want nor allow marijuana transactions, they, in fact, know they are facilitating marijuana-related payments and profit from doing so.

Although a prosecution witness from Bank of America testified that the bank’s policies strictly prohibit doing business with cannabis-related companies, he also admitted that Bank of America profits from marijuana credit card purchases when customers maintain balances on their cards. Bank of America stated that it monitors for cannabis-related transactions by screening merchant names and if an investigation reveals that a merchant is a cannabis-related business, it reports the merchant to Visa … Keep reading

Eaze Criminal Case Underscores the Importance of Transparency in Cannabis Cashless Payment Transactions

This week, federal prosecutors in the Southern District of New York will try their case against Defendants Ruben Weigand and Hamid “Ray” Akhavan for one count each of bank fraud in violation of 18 U.S.C. § 1349 related to the purchase of marijuana through Eaze, a California cannabis delivery platform. Specifically, the indictment alleges that Defendants Weigand and Akhavan – along with co-conspirators – created a transaction laundering scheme that facilitated over $100 million of credit and debit card payments to licensed cannabis operators by disguising the transactions to appear as if they were unrelated to cannabis. Prosecutors allege that the scheme was executed due to the fact that most banks are unwilling to facilitate electronic payment transactions related to cannabis, even if those transactions are legal under state law.

Weigand and Akhavan have pleaded not guilty and are set to begin trial on March 1, 2021. However, on February 19, 2021, the former CEO of Eaze Technologies, LLC, James Patterson – who resigned from Eaze in 2019 – pleaded guilty to one count of conspiracy to commit bank fraud and agreed to assist prosecutors with their case against Weigand and Akhavan. In doing so, Patterson told the court … Keep reading

Exclusion of the SAFE Banking Act in Coronavirus Relief Doesn't Mean It Won't Pass in 2021

Despite best efforts by the U.S. House of Representatives in 2020, provisions related to the SAFE Banking Act were not included in the $900 billion Coronavirus relief bill passed on Monday in the U.S. Congress. Supporters of the banking reform legislation included, among others, a group of bipartisan Attorneys General, state treasurers, and a majority of the members of the House. Unfortunately, those opposing any form of marijuana policy reform prevailed, and depending on the outcome of the Georgia Senate race in January, those same leaders may continue to impede reform efforts if the Republicans retain control of the U.S. Senate.

Nevertheless, the cannabis industry and financial institutions serving or considering serving the cannabis industry remain hopeful that the SAFE Banking Act may still pass in 2021 when the President-elect Joe Biden is in office and if Pennsylvania Republican Pat Toomey becomes the new chair of the Senate banking committee. In an interview with Politico, Senator Toomey said that he is “sympathetic to the idea that people who are involved in the cannabis industry—in an entirely legal fashion, in the state in which they operate– ought to be able to have ordinary banking services.” Toomey will become the chair … Keep reading

Now is the Time to Change the Downward FinCEN Cannabis Banking Trend

Despite the “green wave” America experienced on Election Day, and the increased success the legalized U.S. cannabis industry has experienced in 2020, the number of financial institutions providing banking services to cannabis-related business (“CRBs”) appears to be decreasing. In fact, this was the third quarter in a row that FinCEN’s quarterly report has shown that fewer banks and credit unions filed requisite suspicious activity reports (“SAR”s) indicating that they service cannabis clients.

While one of the reasons for the steady decline may be attributable to FinCEN’s June guidance that removed mandatory SAR filing for hemp-related businesses and therefore those financial institutions that only serve hemp customers are no longer reflected in the report, another factor may be that cannabis-related SARs are being filed late due to staffing constraints brought on by the COVID-19 pandemic. Regardless, the troubling downward trend supports the contention that not enough financial institutions are entering into the cannabis banking space to meaningfully change the landscape for cannabis business operators.

With new states legalizing medicinal cannabis and more states legalizing cannabis for adult-use, the need for cannabis banking that provides robust service offerings and competitive pricing is only going to grow.  The expanding market will provide … Keep reading

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