The New York State Department of Financial Services (DFS) issued guidance, at Governor Cuomo’s urging, to New York state – chartered banks and credit unions to offer banking services to medical marijuana businesses licensed under the New York State medical marijuana program (Registered Organizations) and to industrial hemp businesses participating in the New York State industrial hemp research program (Research Partners).
The DFS guidance identifies several requirements for banks to consider in providing services to Registered Organizations (ROs), including the following:
- customer due diligence in accordance with established principles and procedures;
- transaction monitoring in accordance with established principles and procedures;
- compliance with New York Compassionate Care Act;
- compliance with applicable regulations and requirement of New York State Department of Health (NYSDOH);
- Cole Memo guidance and priorities (including, among other things, preventing diversion of marijuana to minors and to other states, and the flow of revenue to criminal enterprises);
- FinCEN guidance clarifying Bank Secrecy Act expectations (including, among other things, verifying the business is a licensed RO, reviewing the RO’s application for a license, obtaining information from the NYSDOH on the RO, understanding the ROS’s activities and customers, monitoring public information on the RO, monitoring for red flags based on assessment of revenue, movement of funds, location of ROs, among other indicia); and
- Fling Suspicious Activity Reports (SARs), such as a Marijuana Limited SAR, Marijuana Priority SAR, or a SAR for Termination, depending on the RO’s compliance with NYS law and regulations and Cole Memo, and the bank’s need to maintain effective anti-money laundering compliance program.
With regard to providing banking services to entities that are,or wish to be,engaged as a Research Partner in growing or cultivating industrial hemp under the NYS industrial hemp program, the DFS guidance identifies the following requirements for banks to consider: Continue reading Calling All New York Banks: NYSDFS Issues Guidance for Banks to Service Compliant Medical Marijuana and Industrial Hemp Businesses
The Court of Appeals for the Ninth Circuit revived a chapter 13 debtor’s bankruptcy case holding that the bankruptcy court below made no specific finding that the debtor violated the Controlled Substance Act (“CSA”) to support dismissal of the case.
In In re Olson, 2018 WL 989263 (B.A.P. 9th Cir. Feb. 5, 2018), the debtor, a 92 year old landlord, rented a storefront to a cannabis dispensary. The landlord filed bankruptcy to stay a lawsuit that the tenant dispensary commenced against her. The bankruptcy court dismissed the bankruptcy case based on the ground that the landlord’s rental income constituted illegal proceeds and, thus, the landlord violated the CSA. On appeal, the Bankruptcy Appellate Panel overturned the dismissal holding that the bankruptcy court had not detailed sufficiently its findings with respect to the offending lease to support a conclusion that the landlord violated the CSA. The Panel held that the bankruptcy court could not rely just on the CSA itself to dismiss the case. Continue reading Will the Scope of US Trustee’s Policy on Cannabis-Related Bankruptcy Filings be Limited?
There may be no greater thorn in the side of a cannabis producer, processor or retailer than section 280E of the Internal Revenue Code. Section 280E prohibits businesses engaged in trafficking substances prohibited under the Controlled Substances Act (CSA) from claiming certain deductions and credits on their federal income-tax returns.
In October 2017, a Colorado cannabis retailer, the Green Solution Retail, Inc. petitioned the U.S. Supreme Court to review a decision which held that federal laws, specifically the Anti-Injunction Act and the Declaratory Judgment Act, preclude challenges to the IRS assessments of taxes, as such challenges to disputed sums must be determined in a suit for a refund or deficiency. Green Solution argues in its petition that its claims against the IRS are not challenging the IRS’s assessment or seeking to restrain it, but rather its claims are challenging the IRS’ administrative authority to make determinations as to whether Green Solution is criminally culpable under the CSA. Green Solution pleads that it is concerned about the IRS sharing information it gains as part of the assessment with the Department of Justice (DOJ) potentially triggering criminal repercussions for the dispensary under the CSA. Last week, the Government filed its response to Green Solution’s petition, urging the Supreme Court to deny the request for review. The Government takes the position that any investigation by the IRS of Green Solution’s activities is part and parcel of its assessment of the retailer’s allowable deductions and tax liability. Consequently, the Government argues that such a challenge to the IRS’s assessment activities is barred by the Acts.
This is not the only case against government entities involving cannabis issues before the courts. A case commenced by Marvin Washington and other plaintiffs seeking to hold the Controlled Substances Act unconstitutional is scheduled to be heard next week (in connection with the Government’s request that the court dismiss that case). Could these two cases be the pressure at the judiciary level that result in a reevaluation of the social and political positions on federal drug laws criminalizing cannabis? While Justice Neil Gorsuch, during his tenure on the Tenth Circuit, ruled against owners of another dispensary that were fearful of the IRS sharing information with the DOJ in connection with an IRS audit, Justice Gorsuch also stated in that decision that the federal government was sending mixed messages about distribution of cannabis and he was skeptical about the IRS not divulging information with the DOJ.
The Food and Drug Administration (FDA) is accepting comments to help formulate the United States’ position on the World Health Organization’s recommendations on certain drug substances, including cannabis extracts and cannabidiol (CBD), in preparation of a meeting of the United Nations Commission on Narcotic Drugs (Commission) to be held on March 2018.
In November 2017, after the WHO Expert Committee for Drug Dependence (Expert Committee) met, the Expert Committee issued its recommendations for scheduling various substances under international control, pursuant to international treaties such as the 1971 Convention on Psychotropic Substances (1971 Convention) and the 1961 Single Convention on Narcotic Drugs (1961 Convention). The Expert Committee did not include CBD among those substances, stating instead that “there is no evidence that CBD as a substance is liable to similar abuse and similar ill-effects as substances in 1961 or 1971 Conventions.” The Expert Committee concluded that the current information does not justify scheduling of CBD.
The Expert Committee went on, however, to note that CBD is produced for pharmaceutical purposes as an extract of cannabis, and cannabis extracts and tinctures are included in the 1961 Convention. In that regard, cannabis extracts are listed in Schedule I of the 1961 Convention which contains drugs subject to the least stringent controls, unlike Schedule I of the US Controlled Substances Act (CSA) which contains substances subject to the most stringent controls. The requirements for substances identified on Schedule I of the 1961 Convention, such as cannabis extracts, include import and export authorization, licensing of manufacturers/ distributors, recordkeeping requirements, medical use prescriptions, annual estimates of needs, quotas and statistical reporting, and limitations on use for medical and scientific purposes. As part of its recommendations report, the Expert Committee advised that it will conduct a pre-review of cannabis extracts and tinctures at its next meeting in May 2018, and it recommend that it also carry out at that meeting a critical review of cannabis extracts and preparations that contain almost exclusively CBD. Continue reading FDA Accepting Comments on CBD for UN Commission Meeting
On January 22, 2018, Congress came to an agreement on a resolution that continues funding the government, including the Department of Justice, through February 8, 2018. The funding resolution leaves in place protections for state medical marijuana programs from prosecutions by the Department of Justice by restricting its funding. The protections are found in legislation now sponsored by Reps. Dana Rohrabacher and Earl Blumenauer (formerly by Sam Farr instead of Blumenauer) that became law as part of the omnibus spending bill (and are known as the Rohrabacher- Farr Amendment, or the Rohrabacher-Blumenauer Amendment).
The Amendment provides that none of the funds made available to the Department of Justice in the Appropriations Act may be used to prevent states from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana. In light of recent steps taken by the administration to rescind the Cole Memo and review the FinCEN guidelines that have put the cannabis industry on alert, cannabis businesses can find some comfort, albeit temporary, in Congress’ continuing limitation on the funding extended for the Department of Justice.
On Thursday, the House had passed a continuing resolution to the Appropriations Act which would have kept the government funded through February 16, 2018. That resolution kept in tact the protections for state medical marijuana programs from prosecutions by the Department of Justice, by restricting its funding. The Senate, however, would not agree to the resolution (because it included protections for young immigrants from importation) and the government has shutdown as of midnight on Friday.
The protection for medical marijuana operators that is typically included in the government’s budget, known as the Rohrabacher-Blumenauer amendment (f/k/a Rohrabacher – Farr Amendment), provides that none of the funds made available to the Department of Justice in the Appropriations Act may be used to prevent states from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana.
This provision had been contained in the appropriations act (Consolidated Appropriations Act, 2017, PL 115-31, Division B section 537), which funded the Department of Justice and other government departments through September 30, 2017. The provision was carried over through the appropriations act (Appropriations Act 2018, PL 115-56, Division D, section 101(a)(2)) that funded the Department through December 8, 2017, and was thereafter extended by Congress through two continuing resolutions through January 19, 2018. With the failure to pass a resolution to continue funding the Justice Department, the limitations on that funding, including those provided by the Rohrabacher Amendment, have no effect (since no funds have currently been approved to begin with).
This may raise more questions in the marijuana industry given Attorney General Jeff Session’s rescission of the Cole Memorandum on January 4th. The Cole Memorandum had provided guidance to federal prosecutors not to enforce federal marijuana laws against those marijuana businesses that were compliant with state law where the federal priorities were not implicated. Based on that rescission, the U.S. Treasury Department, on January 17th, stated that it is reviewing the FinCen guidance for financial institutions that provide services to marijuana businesses. Continue reading Rohrabacher-Blumenauer Amendment On Hold; FinCen Guidance Reviewed; and Cole Memo Rescinded
As part of Governor Cuomo’s FY 2019 budget for New York, the Governor intends to not only continue the investment that the state has made into the hemp industry, but for New York to become a leader in the hemp industry.
In 2015, New York launched its Industrial Hemp Agricultural Research Pilot Program after Congress had passed the Agricultural Act of 2014 (aka 2014 U.S. Farm Bill), which permits universities and state agriculture departments to grow industrial hemp as part of their state’s agricultural pilot program. In 2017, New York expanded its pilot program to authorize farmers and businesses to grow and research hemp as a research partner in the state’s program. In addition, the Governor made up to $5 million available in grants for research and production, and another $5 million in grants to eligible businesses for capital costs related to processing industrial hemp.
Now the FY 2019 budget provides $650,000 for an industrial hemp processing facility in the greater Binghamton area, and another $2 million for a program to certify and breed seeds, so that New York can start to produce unique seeds. In addition, the state intends to import thousands of pounds of industrial hemp seed to alleviate some of the burdens faced by farmers.
Given that industrial hemp can be used in the manufacture of over 25,000 products, including foods and beverages, cosmetics and personal care products, nutritional supplements, fabrics and textiles, yarns, paper, construction and insulation materials, fuel and other products, businesses are increasingly capitalizing on the hemp market. With the New York State’s budget support for its industrial hemp program and the state’s population being estimated at 20 million, businesses may be enticed to consider New York in their hemp related business plans.