Banking

Crimson Galeria Limited Partnership et al (the Plaintiffs) vs. Healthy Pharms, Inc. et al (the Defendants), in Civil Action No. 1:17-cv-11696-ADB (the Complaint), which is currently pending in the United States District Court for the District of Massachusetts, is an interesting case to watch, as it could have far-reaching implications for the cannabis industry. In it, Plaintiffs allege that all Defendants are criminally conspiring to grow and sell cannabis and cannabis products, in violation of the Controlled Substances Act and the federal Racketeer Influenced and Corrupt Organizations (RICO) Act. This is a stretch, as one of the defendants, Century Bank and Trust Company, only provides banking services to Healthy Pharms, Inc., a Massachusetts-licensed registered marijuana dispensary located in Harvard Square. Not to put too fine a point on the dispute, but by invoking the RICO statute, Plaintiffs are attempting to make a federal case out of what amounts to a Harvard Square landlord dispute, because the landlord does not approve of Healthy Pharms, Inc.’s operation and is concerned about the potentially negative ramifications it may have on its own business and real estate value.

On December 15, 2017, Century Bank filed a brief in support of its motion to … Keep reading

The Emergence of Cannabis Banking

In the fast-growing legalized cannabis industry, one of the major obstacles for businesses has been—and continues to be—access to banking services. Because cannabis remains a Schedule I drug and unlawful at the federal level under the Controlled Substances Act, the majority of federally regulated commercial banks will not accept customers that derive funds from cannabis-related activities, whether medical or recreational. While some businesses may attempt to disguise the nature of their funds, risking the potential closure or freezing of their accounts if discovered, many choose to deal primarily in unbanked cash, leading to an entirely different set of potential risks.

Cannabis banking advocates argue that forcing businesses to operate solely in cash can lead to undesirable consequences, including heightened risk in the community and stress on the business’s record-keeping and tax-reporting obligations. In an effort to further legitimize these businesses and reduce the potential risks associated with unbanked cash, some regional credit unions and state-chartered banks—particularly in states where cannabis has been legalized the longest (e.g., Colorado, Washington)—have quietly begun accepting cannabis-related clients, subject, of course, to increased diligence, disclosure, and compliance requirements.

These credit unions and banks work closely with the cannabis-related companies to ensure that all local … Keep reading

Bank On It: States Taking a Proactive Approach to Cannabis Banking

When it comes to the cannabis industry, banks and other financial institutions can find themselves in particularly murky legal waters (see Banking & Cannabis: Where Do Things Stand?). Federal rules dictate that banks and financial institutions that accept deposits from cannabis-related businesses may be liable for penalties, which has led to cannabis-related business in many states being conducted almost entirely in cash. Not only does this result in operational hurdles, particularly when it comes to paying taxes and compensating employees, it can also result in large amounts of cash being stored onsite, which, in turn, can lead to increased crime and an unsafe work environment. As California Senator Robert Hertzberg pointed out, “these business handle significant economic activity, yet they are forced to operate under the table and with little government oversight, as if they’re a black-market operation.”

Historically, under the Cole Memo, the consensus seems to have been that financial institutions would not be penalized in states that have legalized cannabis, unless those financial institutions were willfully ignorant to customer activities that could lend themselves to criminal financial transactions (e.g., the concealment of funds derived from other illegal activity, or the use of marijuana proceeds to support … Keep reading

Cannabis in the Commonwealth: What Are People Saying?

I recently attended the New England Real Estate Journal’s “Cannabis: The Next Phase in Commercial Real Estate” summit, which brought together a number of local players for networking and a high-level discussion of where the industry stands in Massachusetts. In addition to being fantastic networking opportunities, events such as this allow attendees to get a sense of where the conversation on cannabis is heading, and for us, can be invaluable in terms of helping to anticipate concerns that clients will have and issues they’ll face.

Some of my takeaways:

  • Despite the Attorney General’s stance on marijuana, nothing has really changed. For now, the federal government seems content leaving it to state and local authorities to ensure that cannabis industry players adhere to state laws when establishing and operating their businesses.
  • When it comes to launching a cannabis business of any kind, it’s critically important to educate people about what your operation will entail, and what it won’t. You need to meet with municipal boards, with community groups, with public safety officials, to really drive home the message that: “Yes, we’re in the cannabis business, but we’re not the big, bad wolf. We’re just a dispensary, or a
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Following the Money: Analyzing Capital Flow into the Legal Cannabis Industry

At our recent cannabis conference, financial services experts gathered to discuss the evolution of cannabis-related investments. A panel consisting of Kyle Detwiler (Northern Swan Holdings), Jeff Finkle (ARC Angel Fund), Scott Greiper (Viridian Capital Advisors, LLC), and Harrison Phillips (Viridian Capital Advisors, LLC) talked about specific investor trends, and how these trends will shift as the industry begins to mature. Below are a few highlights from that discussion.

What are the current investor types? When will traditional VC and PE funds do more than “dip their toes?” 
Cannabis-related investments have grown exponentially since 2014, in large part due to the engagement of certain cannabis-focused venture capital funds, special-purpose vehicles, family offices, tech-focused VC funds ancillary to the cannabis industry, public companies, high net-worth individuals, professional angel investors, angel networks and funds, individual partners in VC and private equity funds, and even certain accelerators. While there has also been some traditional VC and PE fund activity over the last few years, this activity represents only 20% of the overall investments made, as the traditional VC and PE funds are still hung up on the obvious hurdles to the industry (e.g., regulation, legality, reputation, mature … Keep reading

As banks are learning to navigate the murky legal waters inherent to cannabis-related businesses, they are increasingly becoming open to housing cannabis-related business accounts, even with the substantial burden placed on them by the federal government to comply with their respective state laws.

In August 2013, then-Attorney General James M. Cole issued a memorandum to all U.S. attorneys, which was published by the Department of Justice, setting expectations for the federal government, state governments, and law enforcement on how to address state-implemented, legal-adult-use cannabis programs. In summary, the Cole Memo told states that, if they implement a strict regulatory framework; prevent diversion by employing a seed-to-sale tracking system to monitor the growth, distribution, and sale of regulated cannabis; and create a transparent, accountable market, the federal government will, essentially, leave them alone.

Almost six months later, Attorney General Cole issued further guidance as to how the original memo would impact certain cannabis-related financial crimes. He stated that the provisions of money-laundering statutes, the unlicensed money-remitter statute, and the Bank Secrecy Act remain in effect with respect to marijuana-related conduct, and that Section 1956 of Title 18, otherwise known as the federal anti-money laundering statute, makes it a criminal offense … Keep reading