Cannabis News

Cannabis Banking Today – Canna Law Blog™

Published

12 months ago

November 16, 2023

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We are helping build out another marijuana banking program here in Oregon. My law firm has done a series of these for credit unions (“CU”s) and other financial institutions (“FIs”) going back to 2014. We have also handled a good bit of hemp banking work– mostly in 2019 and 2020 before that industry cratered. In this post, I’ll sketch out some considerations for FIs looking at banking marijuana-related businesses – or, as they are known in the common parlance, “MRBs”. And I apologize in advance for all the acronyms. That’s banking.

MRB defined

The term “MRB” is used pervasively in cannabis banking, yet this term is not defined in the moldering 2014 Financial Crimes Enforcement Network “FinCEN” Guidance. It’s also not defined in the 2020 National Credit Union Administration Guidance on banking hemp-related business (“HRB”s) (which we helped write) or the 2020 FinCEN Guidance on that related topic.

The lone federal definition we have is from a 2018 Small Business Administration (“SBA”) Policy Notice, as revised, which categorizes MRBs as “direct marijuana businesses”, “indirect marijuana businesses”, and “hemp-related businesses.” Here is my shorthand:

“Direct Marijuana Business.” A business that grows, produces, processes, distributes or sells marijuana or marijuana products. Applies to personal and medical use activity.
“Indirect Marijuana Business.” A business that derived any of its gross revenue for the previous year from sales to Direct Marijuana Businesses. Examples include testing labs and sellers of grow lights or smoking devices.
“HRB” A business trafficking in hemp which “can demonstrate that its business activities and products are legal under federal and state law.” Examples given are paper, rope and clothing companies.

I have written on this blog that “all businesses are marijuana businesses” in the MRB context. In that piece, I also explained that FIs don’t really use the SBA definitions set forth above. Instead, early, state-chartered CUs began using a three-tiered system to analyze potential MRB clients within the FinCEN framework. That system was first expounded in 2016 by Steve Kemmerling of CRB Monitor, before “hemp” was removed from the definition of “marihuana” under federal law. The CRB Monitor system involved the following categories (which SBA probably referenced):

‍Tier I MRB: “Plant touching” businesses licensed by the state. Cannabis dispensaries, cultivators, processors and testing facilities all fall under this definition. These are the highest risk businesses for banks and constitute the majority of suspicious activity report (“SAR”) filings.
Tier II MRB: Businesses that rely on Tier I MRBs for the majority of their revenues and play a large role supporting the industry. See: equipment suppliers, consultants and industry associations. These businesses are lower risk for banks than Tier I. However, banks target them for enhanced KYC (“know your customer”) protocols.
Tier III MRB: Businesses that service Tier I businesses, but do not rely on the cannabis industry for their primary source of revenue. Classic examples include lawyers, accountants, property management firms and utility companies.

It’s worth noting that CRB Monitor revised and further parsed its definitions in 2020, but in my experience, most FIs keep it simple with the legacy framework or something similar. It isn’t a legal framework, after all. It’s just an expedient model that has been adopted widely by FIs given the federal leadership vacuum.

The bottom line here is that any FI looking at banking MRBs – or HRBs, for that matter – needs to come up with definitions and criteria for what an MRB or HRB actually is and does. That criteria can be shared with potential clients, or not, during the screening and ongoing KYC processes for industry accounts. In my experience, drawing lines around “indirect marijuana businesses” / “ancillary businesses” / Tier III MRBs is the most challenging area here.

Ownership tracking parameters

Inside and outside the MRB context, FinCEN requires FIs to track and report “beneficial owners” of the businesses they bank. Beneficial ownership reporting is a core industry requirement, with a new rule coming down the pike January 1, 2024, in fact. A “beneficial owner” for FinCEN purposes is anyone who: (a) has significant responsibility to control, manage or direct a legal entity customer; or (b) directly or indirectly owns or controls 25% or more of a company’s equity. (Again, my shorthand.)

In the MRB context, FIs often hold clients to a heightened disclosure standard. This isn’t merely due to the nature of the industry. Most state marijuana programs have ownership disclosure standards which require disclosure of anyone: (a) with control over the cannabis business, or (b) who owns equity in a cannabis business. The thresholds tend to be lower than the “beneficial owner” numbers– sometimes 20%, 10%, or even lower. Disclosure doesn’t always mean vetting, but the names must be surrendered.

An FI should want to know at least as much about the ownership of its member or customer as state cannabis regulators– especially in the absence of federal industry regulation on that topic. Typically, the FI will shortcut this inquiry by requiring the MRB to produce its application and license records with the state. And the FI will not open an account until the state has actually issued a marijuana regulatory license, in most cases. Which brings me to my next point.

Working with state regulators

FIs that wish to bank MRBs need to request and receive records from state regulators on a regular basis. This ties into KYC considerations, which include not relying on the customer (or member) representations to the FI. In the cannabis context, FIs have an obligation via FinCEN to double-check state regulators’ work, essentially.

State regulators do tend to publish basic information on their licensees: the company name, type of license it holds, license number, and sometimes published decisions or disciplinary proceedings. However, I don’t know of any state that publishes information on the ownership structure of its cannabis licensees. This means that information which isn’t statutorily subject to redaction (e.g. social security numbers, site security plans) will be available only via a public records request.

Public records requests can be time-intensive and expensive. From experience, cannabis regulators may struggle to fulfill them regardless of legal requirements. Thus, FIs that wish to bank MRBs generally enter into information-sharing agreements with the relevant state regulator(s). At this point, many state agencies are accustomed to such arrangements.

Forms

FIs will have various intake forms for all potential members and customers. These forms must be tailored for MRB and HRB applicants, and supplemented to boot. Here’s a typical universe of forms an FI will send to any cannabis industry applicant:

Enhanced Monitoring Account (EMA) Cannabis Industry Certification
EMA Supplemental Agreement
CRB or HRB and Ancillary Business (AB) Supplement
CRB or HRB or AB Attestation
Consent to Release Form (for state regulators, see supra)

The forms, in turn, will require various submissions by the applicant, from regulatory license packets on down. Here at the law firm, I expect we will revisit many of these forms for FI clients in the near future, owing to changes in the hemp space under the 2023 Farm Bill. And perhaps again with respect to marijuana if moved to Schedule III.

Transaction monitoring, detection and reporting

The federal government has put FIs in a truly awkward position on MRBs. Bank Secrecy Act / Anti-Money Laundering (“BSA/AML”) compliance is a significant undertaking for FIs even outside the cannabis space. However, the FinCEN Guidance bumps things up a level by essentially deputizing FIs as federal law enforcement auditors. FinCEN requires FIs to monitor their MRB customers and members perpetually, including what they sell and to whom, and to watch for indicia of adverse information.

These FI obligations commence immediately and ensue perpetually. Specifically, the FI is required to file an initial SAR within 30 days of onboarding. The FI must also file continuing SARs every 90 days after that, in addition to “marijuana limited”, “marijuana priority” and “marijuana termination” SAR filings, as needed, based on any number of events – or suspected events – set forth in the 2014 FinCEN Guidance. To say nothing of all the currency transaction reports (“CTRs”).

These filing obligations, and all of the software and training that goes with them, are frequently cited by FIs as a primary justification for the increased fees paid by MRBs. Law enforcement may hardly be acting on them, but FIs need to comply.

Services to offer

Most FIs that work with MRBs offer limited services, or basic depository accounts. That said, we’ve worked with a couple of CUs that offer a full suite of banking and lending services. There are limits, of course, to what even the most enterprising FIs can do. They cannot offer bank card transaction processing for cannabis purchases (at least, not anymore). If the FI is smaller, like many state-chartered CUs, it will be limited in its deposit carrying capacity; this makes for an awkward constraint in a cash-laden industry.

Many FIs that get into cannabis banking are pulled into the space by one or two high-net-worth customers. Then, they will slowly branch out to a wider client base and often a wider suite of offerings. Others are more intentional, and set out to target the industry.

Regulatory dynamism

I mentioned the Farm Bill is up for renewal this year, directly affecting banking for HRBs, and that “marijuana” may also move to Schedule III sometime in 2024. In addition, the specter of legislative reform is forever hanging about the industry (via the SAFE Banking Act, though I’ve called it oversold). Locally, new state cannabis programs continue to come online. This sometimes results in modest state-level legislation to insulate FIs from local prosecution for banking cannabis, even if such changes do not create a federal safe harbor or touch on BSA/AML strictures.

Overall, any FI that moves into this space should be prepared to roll with some changes over the next couple of years. Those changes are happening, however, because the cannabis industry is growing. It’s not a bad time to get in right now. It’s probably better than ever, in fact.

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Latest Trump Weed Rumor – Trump Will Federally Deschedule and Decriminalize Cannabis, but Not Legalize It

Published

9 hours ago

November 14, 2024

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trump on marijuana reform

In a recent interview, former New Jersey Governor Chris Christie made headlines by asserting that President-elect Donald Trump will pursue significant reforms in federal policies regarding marijuana and cryptocurrency. As the nation grapples with evolving attitudes toward cannabis and the burgeoning digital currency market, Christie’s predictions have ignited discussions about the potential implications of such changes on both industries. This article delves into Christie’s insights, the current state of marijuana and cryptocurrency regulations, and the broader implications of these anticipated reforms.

The Current Landscape of Marijuana Legislation

Federal vs. State Laws

Marijuana remains classified as a Schedule I substance under the Controlled Substances Act (CSA), which places it in the same category as heroin and LSD. This classification has created a complex legal landscape where states have moved to legalize cannabis for medical and recreational use, while federal law continues to impose strict prohibitions. As of now, over 30 states have legalized marijuana in some form, leading to a burgeoning industry that generates billions in revenue.

Challenges Faced by the Cannabis Industry

Despite its legality in many states, the cannabis industry faces significant hurdles due to federal restrictions. These challenges include:

Banking Access: Many banks are hesitant to work with cannabis businesses due to fear of federal repercussions, forcing these businesses to operate largely in cash.

Taxation Issues: The IRS enforces Section 280E of the tax code, which prohibits businesses engaged in illegal activities from deducting normal business expenses, leading to disproportionately high tax burdens for cannabis companies.

Interstate Commerce: The lack of federal legalization prevents cannabis businesses from operating across state lines, limiting their growth potential.

Chris Christie’s Perspective on Marijuana Reform

Christie, a former presidential candidate known for his tough stance on drugs during his tenure as governor, has evolved his views on marijuana over the years. In his recent statements, he emphasized that Trump is likely to pursue descheduling cannabis, which would remove it from the Schedule I classification. This move would not only provide clarity for businesses operating in legal markets but also open avenues for banking and investment.

Christie highlighted that descheduling would allow for a more regulated market where safety standards could be established, thus protecting consumers. He believes that this approach aligns with a growing consensus among Americans who support legalization and recognize the potential benefits of cannabis use for both medical and recreational purposes.

The Future of Cryptocurrency Regulation = The Rise of Cryptocurrencies

Cryptocurrencies have surged in popularity over the past decade, with Bitcoin leading the charge as the first decentralized digital currency. The market has expanded to include thousands of alternative coins (altcoins), each with unique features and use cases. As cryptocurrencies gain traction among investors and consumers alike, regulatory scrutiny has intensified.

Current Regulatory Challenges

The cryptocurrency market faces several regulatory challenges that hinder its growth and adoption:

Lack of Clarity: Regulatory frameworks vary significantly across states and countries, creating confusion for investors and businesses.

Fraud and Scams: The rapid growth of cryptocurrencies has led to an increase in fraudulent schemes targeting unsuspecting investors.

Consumer Protection: Without clear regulations, consumers are often left vulnerable to risks associated with volatile markets.

Christie’s Vision for Crypto Regulation

Christie believes that under Trump’s leadership, there will be an effort to find a “sweet spot” for cryptocurrency regulation balancing innovation with consumer protection. He argues that overly stringent regulations could stifle growth in this emerging sector while too little oversight could expose consumers to significant risks.

In his view, a balanced regulatory framework would include:

1. Clear Definitions: Establishing clear definitions for different types of cryptocurrencies and tokens to differentiate between securities and utility tokens.

2. Consumer Protections: Implementing measures to protect investors from fraud while promoting transparency within the market.

3. Encouraging Innovation: Creating an environment conducive to innovation by allowing startups to thrive without excessive regulatory burdens.

Christie’s insights reflect a growing recognition among policymakers that cryptocurrencies are here to stay and that appropriate regulations are necessary to foster growth while safeguarding consumers.

Implications of Proposed Reforms

Economic Impact

The potential reforms proposed by Christie could have far-reaching economic implications:

Job Creation: Legalizing marijuana at the federal level could lead to significant job creation within the cannabis industry—from cultivation and production to retail sales.

Investment Opportunities: Descheduling cannabis would open up investment opportunities for institutional investors who have been hesitant due to federal restrictions.

Boosting Local Economies: Legal cannabis markets have proven beneficial for local economies through increased tax revenues and job creation.

Similarly, clear regulations around cryptocurrencies could stimulate investment in blockchain technology and related industries, fostering innovation and economic growth.

Social Justice Considerations

Both marijuana legalization and sensible cryptocurrency regulations have social justice implications:

Addressing Past Injustices: Legalizing marijuana could help rectify past injustices related to drug enforcement policies that disproportionately affected marginalized communities.

Financial Inclusion: Cryptocurrencies offer opportunities for financial inclusion for those underserved by traditional banking systems, particularly in low-income communities.

Political Landscape

The political landscape surrounding these issues is complex. While there is bipartisan support for marijuana reform among certain lawmakers, challenges remain in overcoming entrenched opposition. Similarly, cryptocurrency regulation has garnered attention from both sides of the aisle but requires collaboration to establish effective frameworks.

Conclusion

Chris Christie’s predictions about President-elect Donald Trump’s approach to federal marijuana descheduling and cryptocurrency regulation suggest a potential shift in U.S. policy that could significantly reshape both industries. As public opinion evolves on these issues, lawmakers have an opportunity to enact meaningful reforms that promote economic growth while ensuring consumer protection. The anticipated changes could foster a more robust cannabis industry that contributes positively to the economy and addresses social justice concerns, while clear regulatory frameworks for cryptocurrencies could encourage innovation and protect consumers in the digital economy. Stakeholders in both sectors are closely watching these developments, eager to see how potential reforms might impact their futures. While the realization of Christie’s predictions remains uncertain, it’s clear that the conversation around marijuana and cryptocurrency regulation is ongoing and far from settled.

TRUMP 2.0 ON CANNABIS REFORM, READ ON…

TRUMP 2.0 ON FEDERAL CANNABIS REFORM – WHAT DO WE KNOW?

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Webinar Replay: Post-Election Cannabis Wrap – Smoke ’em if You’ve Got ’em

Published

1 day ago

November 13, 2024

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On Thursday, November 7th, Vince Sliwoski, Aaron Pelley and Fred Rocafort held a post election discussion “Post-Election Cannabis Wrap – Smoke ’em if You’ve Got ’em”. Watch the replay!

Key Takeaways from the “Smoke ’em if You’ve Got ’em – 2024 Post Election Cannabis Wrap” Webinar:

Panelists:
- Vince Sliwoski: Oregon Business lawyer specializing in cannabis and commercial real estate.
- Aaron Pelley: Experienced in cannabis law since Washington’s legalization in 2012.
- Fred Rocafort: Trademark attorney working closely with the cannabis team.
Election Results Overview:
- Most 2024 cannabis ballot measures did not pass.
- Florida, South Dakota, and North Dakota saw failures.
- Nebraska became the 39th state to legalize cannabis for medical use when it passed two cannabis initiatives, Initiatives 437 and 438.
Federal and State-Level Developments:
- Medical use is currently legal in 38 states, and 24 states allow recreational use.
- Republican support for marijuana legalization is growing.
Federal Policy Implications:
- Schedule III Rescheduling: The process to move cannabis to Schedule III is ongoing, which could significantly impact the industry.
- Importance of Federal Appointments: The future of cannabis policy depends heavily on who is appointed to key positions in the administration.
International and Domestic Trade:
- Schedule III status could ease import/export restrictions on cannabis.
- Unified control of House, Senate, and presidency might expedite legislative progress.
Economic and Industry Impact:
- Cannabis stocks experienced volatility post-election, reflecting investor uncertainty.
- Federal legalization and banking reforms are crucial for industry stability and growth.
Future Outlook:
- The potential for federal rescheduling remains strong, with hearings scheduled for early 2025.
- State-level initiatives and regulatory developments will continue to shape the industry.

Watch the replay!

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I Had Just One Puff

Published

1 day ago

November 13, 2024

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one puff of a joint a drug test

“How Long Does One Puff of Weed Stay in Your System?”… This topic can be difficult to answer since it is dependent on elements such as the size of the hit and what constitutes a “one hit.” If you take a large bong pull then cough, it might linger in your system for 5-7 days. A moderate dose from a joint can last 3-5 days, whereas a few hits from a vaporizer may last 1-3 days.

The length of time that marijuana stays in the body varies based on a number of factors, including metabolism, THC levels, frequency of use, and hydration.

Delta-9-tetrahydrocannabinol, or THC, is the primary psychoactive component of cannabis. THC and its metabolites, which remain in your body long after the effects have subsided, are detected by drug tests.

Since these metabolites are fat-soluble, they cling to bodily fat molecules. They could thus take a while to fully pass through your system, particularly if your body fat percentage is higher.

THC is absorbed by tissues and organs (including the brain, heart, and fat) and converted by the liver into chemicals such as 11-hydroxy-THC and carboxy-THC. Cannabis is eliminated in feces at a rate of around 65%, while urine accounts for 20%. The leftover amount might be kept within the body.

THC deposited in bodily tissues ultimately re-enters the circulation and is processed by the liver. For frequent users, THC accumulates in fatty tissues quicker than it can be removed, thus it may be detectable in drug tests for days or weeks following consumption.

The detection time varies according to the amount and frequency of cannabis usage. Higher dosages and regular usage result in longer detection times.

The type of drug test also affects detection windows. Blood and saliva tests typically detect cannabis metabolites for shorter periods, while urine and hair samples can reveal use for weeks or even months. In some cases, hair tests have detected cannabis use over 90 days after consumption.

Detection Windows for Various Cannabis Drug Tests

Urine Tests

Among all drug tests, urine testing is the most commonly used method for screening for drug use in an individual.

Detection times vary, but a 2017 review suggests the following windows for cannabis in urine after last use:

– Single-use (e.g., one joint): up to 3 days

– Moderate use (around 4 times a week): 5–7 days

– Chronic use (daily): 10–15 days

– Chronic heavy use (multiple times daily): over 30 days

Blood Tests

Blood tests generally detect recent cannabis use, typically within 2–12 hours after consumption. However, in cases of heavy use, cannabis has been detected up to 30 days later. Chronic heavy use can extend the detection period in the bloodstream.

Saliva Tests

THC can enter saliva through secondhand cannabis smoke, but THC metabolites are only present if you’ve personally smoked or ingested cannabis.

Saliva testing has a short detection window and can sometimes identify cannabis use on the same day. A 2020 review found that THC was detectable in the saliva of frequent users for up to 72 hours after use, and it may remain in saliva longer than in blood following recent use.

In areas where cannabis is illegal, saliva testing is often used for roadside screenings.

Hair Tests

Hair follicle tests can detect cannabis use for up to 90 days. After use, cannabinoids reach the hair follicles through small blood vessels and from sebum and sweat surrounding the hair.

Hair grows at approximately 0.5 inches per month, so a 1.5-inch segment of hair close to the scalp can reveal cannabis use over the past three months.

Factors Affecting THC and Metabolite Retention

The length of time THC and its metabolites stay in your system depends on various factors. Some, like body mass index (BMI) and metabolic rate, relate to individual body processing, not the drug itself.

Other factors are specific to cannabis use, including:

– Dosage: How much you consume

– Frequency: How often you use cannabis

– Method of consumption: Smoking, dabbing, edibles, or sublingual

– THC potency: Higher potency can extend detection time

Higher doses and more frequent use generally extend THC retention. Cannabis consumed orally may remain in the system slightly longer than smoked cannabis, and stronger cannabis strains, higher in THC, may also stay detectable for a longer period.

How Quickly Do the Effects of Cannabis Set In?

When smoking cannabis, effects appear almost immediately, while ingested cannabis may take 1–3 hours to peak.

The psychoactive component THC produces a “high” with common effects such as:

– Altered senses, including perception of time

– Mood changes

– Difficulty with thinking and problem-solving

– Impaired memory

Other short-term effects can include:

– Anxiety and confusion

– Decreased coordination

– Dry mouth and eyes

– Nausea or lightheadedness

– Trouble focusing

– Increased appetite

– Rapid heart rate

– Restlessness and sleepiness

In rare cases, high doses may lead to hallucinations, delusions, or acute psychosis.

Regular cannabis use may have additional mental and physical effects. While research is ongoing, cannabis use may increase the risk of:

– Cognitive issues like memory loss

– Cardiovascular problems including heart disease and stroke

– Respiratory illnesses such as bronchitis or lung infections

– Mood disorders like depression and anxiety

Cannabis use during pregnancy can negatively impact fetal growth and development.

Duration of Effects

Short-term effects generally taper off within 1–3 hours, but for chronic users, some long-term effects may last days, weeks, or even months. Certain effects may even be permanent.

Bottom Line

The amount of time that cannabis remains in your system following a single use varies greatly depending on individual characteristics such as body fat, metabolism, frequency of use, and mode of intake. Frequent users may maintain traces of THC for weeks, whereas infrequent users may test positive for as little as a few days. Hair tests can disclose usage for up to 90 days, while blood and saliva tests identify more recent use. Urine tests are the most popular and have varying detection durations. The duration that THC and its metabolites are detectable will ultimately depend on a number of factors, including dose, strength, and individual body chemistry.