Banking Issues in the Cannabis Industry: Managing Risk Under State and Federal Law
Course Details
- smart_display Format
On-Demand
- signal_cellular_alt Difficulty Level
- work Practice Area
Banking and Finance
- event Date
Wednesday, February 1, 2023
- schedule Time
1:00 p.m. ET./10:00 a.m. PT
- timer Program Length
90 minutes
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This 90-minute webinar is eligible in most states for 1.5 CLE credits.
This CLE course will examine banking issues presented by the conflict between various states' legalization/decriminalization of cannabis and federal law treatment of it as a controlled substance. The panel will discuss regulatory and enforcement risks associated with financing and taking deposits from cannabis-related businesses (CRBs), and best practices for mitigating those risks. The panel will also discuss proposed legislation that could legalize certain banking activities with cannabis businesses.
Mr. Hosack focuses his transactional practice on commercial real property loan documentation, loan workouts, REO sales and foreclosures. He represents secured lenders and property owners at trial and on appeal in complex real property disputes, including lender liability, fraud, class actions, breaches of contract, wrongful foreclosures, mechanic’s liens, stop notices, judicial foreclosures, receiverships, escrow claims and title insurance claims.
Mr. Elster represents developers, lenders, investors, landlords, and tenants on a variety of real estate transactions, including purchase & sale, mortgage financing, construction lending, leasing, and construction agreements. He also provides counsel on tax planning and controversy. Mr. Elster's clients range from high net worth individuals to Fortune 500 companies.
Mr. Rodriguez is a qualified expert in banking and real estate matters and for the past 17 years has provided a wide variety of real estate brokerage, financial advisory, consulting, litigation support and expert witness services to his clients. He advises law firms, development companies, financial institutions and investors on standard lending practices, market rates of interest, and other business transactions which often involve tens of millions of dollars. He is knowledgeable of capital markets and financing transactions and, as a licensed real estate broker, procures debt and equity capital for his clients from financing sources which include banks, life insurance companies, pension funds, REIT’s and conduit lenders.
While medical use of cannabis is legal in 40 states and recreational use is legal in 19 states and Washington, D.C, cannabis remains illegal at the federal level under the Controlled Substances Act (CSA). Many financial institutions won't provide banking services to CRBs due to this conflict between state and federal laws. Bank counsel must be able to navigate the regulatory complexities created by this conflict in advising banks doing business with CRBs.
Banks face inconsistent regulatory approaches taken by different administrations and different federal agencies. FinCEN issued FIN-2014-G001 in 2017 to clarify how financial institutions can provide services to CRBs and set forth reporting requirements, including suspicious activity reports (SARs). The Attorney General rescinded the Cole Memo in 2018, which correlated to FIN-2014-G001, but the Treasury Department subsequently indicated that FIN-2014-G001 remains in place.
Before taking deposits or transacting business with CRBs, financial institution counsel must understand the relevant Bank Secrecy Act and anti-money laundering (AML) issues and fully comply with federal Know Your Customer (KYC) requirements. Lending to a CRB is risk-inherent because cannabis is a Schedule I drug under the CSA. Enforcement rights for lenders may be curtailed by limiting loan enforcement remedies only to state law and in state court.
The SAFE Banking Act, bipartisan legislation which has passed in the House but has not been considered by the Senate, would allow banks to provide access to checking accounts, loans, electronic banking, and other financial products to cannabis businesses that are operating in compliance with state law. It would not, however, change the status of cannabis as a Schedule I controlled substance.
Listen as our authoritative panel discusses these and other issues confronting banks that propose to take deposits or provide financing to CRBs. The panel will also discuss steps for banks and other financial institutions to avoid regulatory pitfalls and workarounds to resolve enforcement risks.
- Legalization of cannabis at the state level: current status
- Federal regulation
- Controlled Substances Act
- FIN-2014-G001 and the Cole Memo
- DOJ vs. Treasury pronouncements
- Doing business with CRBs
- Reporting requirements under FIN-2014-G001: SARs
- Compliance with AML and KYC requirements and the Bank Secrecy Act
- Enforcement issues
- State level remedies
- Issues in bankruptcy: federal jurisdiction
The panel will review these and other high priority issues:
- How have banks reacted to the legalization of cannabis in various states given its treatment as a controlled substance at the federal level?
- What were the safe harbors provided under FIN-2014-G001 and the Cole Memo and how have policy pronouncements by the new administration affected them?
- What concerns should CRB lenders have in regard to remedies given the illegal nature of the underlying collateral under federal law?
- Why is compliance with AML and KYC requirements especially important before taking deposits from CRBs?
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