Federal Spending Bill Fails to Expand Legal Protection to Recreational Cannabis Industry

Apr 04, 2018

Congress recently failed to protect the recreational cannabis industry from federal law enforcement, choosing instead to maintain a defense only for cannabis operators in states that have legalized marijuana for medical purposes.

In late March 2018 and with little fanfare, Congress renewed the Rohrabacher-Blumenauer amendment, which since 2014 has offered the medical cannabis industry some shelter from the Department of Justice. The amendment precludes the DOJ from spending funds to prevent states that have legalized medical cannabis “from implementing” their laws. The Ninth Circuit Court of Appeals has interpreted the amendment to mean that the DOJ cannot bring enforcement actions against medical marijuana providers complying with those state’s laws (U.S. v. McIntosh, 2016).

The amendment took on added significance in January when Attorney General Jeff Sessions rescinded the Cole Memo, an Obama-era policy advising the DOJ to take a hands-off approach to states regulating medical cannabis in compliance with a list of federal priorities. In response to Sessions’ announcement, a bi-partisan coalition pushed for a new spending bill amendment that would expand Rohrabacher-Blumenauer to recreational cannabis operators that comply with state regulations.

In February, eighteen U.S. Senators, including Kamala Harris of California, signed a letter to the Senate Committee on Appropriations supporting the new amendment. The senators wrote that rescinding years of guidance (the Cole Memo) has created “disruption, confusion, and uncertainty throughout the country. Citizens who have been acting in good faith based on federal and state assurances now feel exposed. This disruption may deny medications to the sick, push individuals back into illicit markets, and nullify the previously-effective regulations – all while thwarting the democratically-expressed will of the states.”

In the end, the effort to protect legal recreational cannabis operations from DOJ enforcement seems to have suffered from bad timing. The proposal came as Democratic and Republican leaders tried to avoid yet another government shutdown and grapple with other controversial issues vying for a place in the spending bill, such as gun rules and border security.  Many in the cannabis industry remain cautiously optimistic that Congress will eventually expand the Rohrabacher-Blumenauer amendment to protect recreational cannabis in states where it has been legalized.


Developing a Plan for Cannabis Industry Banking

Feb 01, 2017

Following voter approval of recreational cannabis, the California State Treasurer’s Office reported that by 2020 cannabis sales will increase by an estimated $6.64 billion. By taxing cannabis, California could bring in an estimated $1 billion dollars in new tax revenue. Yet, as of December of 2015, approximately 70% of marijuana related businesses did not have bank accounts. These businesses are operating as cash operations with employees carrying around duffle bags of cash to complete transactions. These employees literally deliver bags of cash to taxing authorities.

The California Board of Equalization takes in $40 million in tax revenues related to medical marijuana, and  cannabis companies make payments by delivering bags of cash to one of 22 locations in California. Obviously this makes the companies and their employees targets for crime. The cannabis industry needs to be able to rely on a secure banking industry to deposit money for safe keeping, pay bills with checks or wire transfers, obtain loans secured by collateral and, if necessary, file bankruptcy (a federal right for other businesses). The average business takes these operational norms for granted.

The banking problem arises for cannabis businesses because, while cannabis is legal in  California, banks are controlled by federal law, which prohibits them from taking or holding money from companies with illegal operations. Under the Federal Controlled Substances Act (CSA) it is still illegal to manufacture, distribute or dispense marijuana. On August 29, 2013, the U.S. Department of Justice office of the attorney general released the “Cole Memo,” written by Deputy Attorney General James M. Cole, in which Mr. Cole reiterates the federal government’s position that marijuana is a dangerous drug and that its sale provides a significant source of income to large-scale criminal enterprises, gangs and cartels. The Cole Memo sets forth the justice department’s enforcement priorities to prevent the following: distribution to minors; revenue from going to criminal enterprises, gangs and cartels; diversion from states where it is legal to states where it is illegal; state authorized marijuana activity as a cover for trafficking of other illegal drugs or activities; violence and the use of firearms in related use; driving while under the influence of marijuana; growing marijuana on public lands; and possession or use of marijuana on federal property.

Meanwhile, on February 14, 2014, the Federal Financial Crimes Enforcement Network (FinCEN), the Treasury Department bureau that fights money laundering, issued guidance related to the Bank Secrecy Act (BSA) expectations for institutions providing services to marijuana-related businesses. The guidance focused on many of the issues set forth in the Cole Memo. To comply, banks are required to conduct in-depth customer due diligence, which includes reviewing licenses, understanding operations, monitoring activity and, if appropriate, filing quarterly suspicious activity reports (SARS) to ensure that their clients businesses are operating within the FinCEN guidelines. If a company cannot satisfy the bank’s inquiries, the financial institution may be required to file a Marijuana Termination when and if the bank closes the account. To compensate the banks for their unusual vetting, banks are allowed to charge their customers for their services, which costs are at the discretion of the banks and have been known to run as much as $1,000 per month.

California State Treasurer John Chiang is trying to address the cannabis industry banking problem and has established the Cannabis Banking Working Group, which has 15 members, including representatives from the California Bankers Association, California Community Banking Network, Credit Unions, the State Board of Equalization, the E.D.D., the Franchise Tax Board, and the California Cannabis Industry Association. The 15-member group is soliciting public comment in 6 meetings to be scheduled throughout California. The first meeting was held on December 19, 2016, in Sacramento, and the second meeting of the Cannabis Banking Working Group will be held Friday, February 10, 2017 at 10:00 a.m. The meeting will be held in the Southern California Association of Governments Board Room at 818 West Seventh Street, Los Angeles, CA 90017. The agenda includes panel presentations and discussion, and the meeting will be video streamed live.

The March meeting is scheduled for Oakland at a location and agenda still to be determined, and it is expected that it will be followed by three other meetings in California. Each of the meetings will have a slightly different agenda, and it is anticipated that the Oakland meeting will bring in experts from other states to discuss the banking methods that they have adopted. Further information can be found at the California State Treasurer’s website.

In the meantime, to address the duffle bag tax-payment problem, California State Senators Scott Wiener and Toni Atkins introduced the Cannabis Safe Payment Act, which would allow state agencies, local tax collectors and counties to accept cash payments at more locations, thus making it easier to pay taxes until the banking issues get resolved.

If enacted, the Cannabis Safe Payment Act will make it easier for the cannabis industry to pay taxes, and that could increase public acceptance of the industry. However, in order to truly be truly functional, ultimately the cannabis industry needs a banking system in which it can deposit funds, write checks, make electronic payments, borrow money to expand their businesses, and operate like the other legal businesses in California.

And just to add more uncertainty, all of this is subject to change under President Trump, as it remains to be seen how the U.S. Justice Department will proceed under the new president.

About the Author

Tracy Green is an attorney at the Oakland, California law firm Wendel Rosen Black & Dean LLP. She may be reached at (510) 834-6600 or tgreen@wendel.com