Tag Archives: Controlled Substances Act

It Is Permissible for Federally Insured Credit Unions to Bank Hemp Businesses

Photo of attorney Michael Zullo
Michael S. Zullo

“Credit unions may provide the customary range of financial services for business accounts, including loans, to lawfully operating hemp related businesses within their fields of membership,” says the National Credit Union Administration (NCRU) in its recently released guidance 19-RA-02.

While this is a significant step for hemp businesses seeking banking outlets, it is far from the relief proposed by Secure and Fair Enforcement Act (“SAFE Banking Act”) and does not represent a blanket permission.  Still, the NCRU Guidance signals a recognition of the growing Cannabis industry and the practical need to provide financial services to businesses in the industry.  Here are some key takeaways.

First, the guidance only applies to Federally Insured Credit Unions, not national banks.

Second, the guidance explicitly relates to credit unions serving “hemp” businesses as defined in the Agricultural Improvement Act of 2018 (2018 Farm Bill), which removed hemp from Schedule I of the Controlled Substances Act.[1]  Marijuana remains a Schedule I drug, which restricts banking access of marijuana businesses.

Third, because the USDA has yet to promulgate regulations and guidelines to implement the hemp production provisions of the 2018 Farm Bill, credit unions must ensure members in hemp-related business are operating under the industrial hemp pilot provisions of the Agricultural Act of 2014 (2014 Farm Bill).

Fourth, credit unions that elect to bank hemp-related businesses must maintain robust Bank Secrecy Act (BSA) and Anti-Money Laundering (AML) compliance programs.  This includes:

  • Maintaining appropriate due diligence procedures for hemp-related accounts and complying with BSA and AML requirements to file Suspicious Activity Reports (SARs) for any activity that appears to involve potential money laundering or illegal or suspicious activity.
  • Remaining alert to any indication an account owner is involved in illicit activity or engaging in activity that is unusual for the business.
  • Staying on top of state and tribal laws, regulations, and agreements under which each member that is a hemp-related business operates.
  • Verifying that the member is part of the pilot program created in the 2014 Farm Bill.
  • Adapting ongoing due diligence and reporting approaches to any risks specific to participants in the pilot program.
  • Being familiar with any other federal and state laws and regulations that prohibit, restrict, or otherwise govern these businesses and their activity.

In sum, banking hemp-related businesses is permissible for credit unions.  But they must be diligent in crafting BSA/AML policies.  This is not a complete solution to the existing banking problems facing the Cannabis industry, but it does evidence a growing regulatory desire to provide access for the industry, which could sway policy makers down the road.

[1] The 2018 Farm Bill defines “hemp” as: “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis.”

USDA Issues Guidance on Importation of Hemp Seeds

USDA has issued its first guidance since the passage of the 2018 Farm Bill. Because the Farm Bill removed hemp from the Controlled Substances Act, the importation of hemp seeds will now be regulated by USDA as an agricultural product, not DEA.  USDA stated that by removing hemp from the CSA, the Act “removed hemp and hemp seeds from DEA authority for products containing THC levels not greater than 0.3 percent. Therefore, DEA no longer has authority to require hemp seed permits for import purposes.” Importation of hemp seeds from international sources will now be permitted if accompanied by the appropriate phytosanitary certification and will be subject to inspection by Customs and Border Patrol.

The reference to DEA authority is significant and confirms that DEA no longer has jurisdiction over hemp or products derived from hemp such as CBD oil.  DEA  needs to update its own guidance documents in light of the 2018 Farm Bill. USDA is working on regulations to implement the state cultivation program provisions of the Farm Bill.  They are expected to be in place in time for the 2020 growing season.

NJ Adult Use Cannabis Bill Fast Tracked for March 25th Vote

Gov. Phil Murphy and legislative leaders reached agreement on key provisions to legalize marijuana for adult recreational use, including how to tax and regulate it, and expunging past low-level marijuana offenses for certain users as a step toward social reform per reporting from Dan Munoz.

Per a press release issued by key Assembly Senate and the Governor’s office, we should expect to see the introduction of a cannabis bill within days.
Under the terms of the agreement:

• Adult-use marijuana would be subject to an excise tax of $42 per ounce, which will be imposed when marijuana is cultivated.

• Municipalities that are home to a cultivator or manufacturer would receive the revenue from a 2 percent tax on the product within their jurisdiction.

• Municipalities that are home to a wholesaler would receive the revenue from a 1 percent tax on the product within their jurisdiction.

• Municipalities that are home to a retailer would receive the revenue from a 3 percent tax on the product within their jurisdiction.

To start to address social equity concerns, the revised legislation will likely provide an expedited expungement process for individuals convicted of low-level marijuana offenses, and a separate expungement process that would automatically prevent certain marijuana offenses from being taken into account in particular areas such as education, housing and occupational licensing.

Additionally, there are a number of provisions that aim to ensure broad-based participation for women owned and minority owned businesses, low and middle-income individuals, and disadvantaged communities.

Under the proposed legislation, adult-use marijuana would be governed by a Cannabis Regulatory Commission, composed of 5 members—three appointed directly by the Governor to serve terms of at least 4 years, and 2 appointed by the Governor upon the recommendations of the speaker and Senate president.

The commission would be tasked with promulgating all regulations to govern the industry and overseeing applications for licensing of adult-use marijuana dispensaries.

-Brad A. Molotsky, Esq.

Bill 420 – It’s “That” Time Again!

On 1-9-19, Rep. Earl Blumenauer (D-OR) introduced H.R. 420, the “Regulate Marijuana Like Alcohol Act.” Blumenauer, the co-sponsor of the Rohrabacher–Blumenauer amendment, better known as the on-going appropriations provision that prohibits the Justice Department from spending federal funds to enforce federal law that is in conflict with state medical cannabis laws.

Proposed Bill 420 is a total overhaul of the federal government’s treatment of marijuana. Among other things, the bill:

1. Decriminalizes marijuana by removing it from the Controlled Substances Act;
2. Amends the Federal Alcohol Administration Act to enable the Secretary of the Treasury to issue permits to those who want to to manufacture, distribute, or sell marijuana;
3. Transfers jurisdiction from the DEA to the Bureau of Alcohol, Tobacco, Firearms and Explosives;
4. Prohibits widespread advertising for marijuana; and
5. Grants to the FDA the same authority for marijuana as it has for alcohol.

Rep. Blumenauer noted: “Congress cannot continue to be out of touch with a movement that a growing majority of Americans support. It’s time to end this senseless prohibition.” In this vein, per a Pew Research Center study released last fall, nearly 66% of Americans support legalization at the federal level.

The new co-chairs of the 2019 bipartisan Congressional Cannabis Conference are Rep. Barbara Lee (D-CA) and Dave Joyce (R-OH), Rep. Earl Blumenauer (D-OR) and Don Young (R-AK).

Federal Court Tosses RICO Claim Against California Cannabis Growers, Landlord

On December 27, 2018, the Northern District of California dismissed a civil RICO claim brought against the owners and operators of a Sonoma County cannabis growing operation and the operation’s landlord. See Bokaie v. Green Earth Coffee LLC, 3:18-cv-05244-JST, 2018 WL 6813212 (N.D. Calif. Dec. 27, 2018). The lawsuit was filed by neighbors who alleged that the operation’s “skunk-like stench” interfered with the enjoyment of their property and drove down their property values. The Bokaie court found that such alleged harms did not constitute a “RICO injury,” and thus dismissed plaintiffs’ claim (albeit without prejudice, allowing 30 days to amend).

The Bokaie case is part of a growing trend of RICO lawsuits filed in legalized states—to date, roughly a dozen have been filed in California, Colorado, Massachusetts and Oregon—that seek to exploit the tension between state law and the federal Controlled Substances Act (CSA). RICO defines “racketeering activity” to include CSA violations, and a civil lawsuit can proceed upon allegations that an enterprise’s pattern of racketeering activity caused damage to the plaintiffs’ business or property. 18 U.S.C. §§ 1961(1), 1962(c), 1964(c). RICO’s civil remedy provision awards prevailing plaintiffs triple damages and attorneys’ fees, id. § 1964(c), thus giving “not in my backyard” plaintiffs and their attorneys a powerful tool against their neighbors. By alleging that the smell of cannabis interferes with the enjoyment of their property and drives down their property value, plaintiffs in these cases are effectively elevating common law nuisance claims into federal RICO lawsuits.

Read the full Duane Morris Alert.

The DEA Affirms CBD Derived from “Marijuana” Is Federally Unlawful

Seth Goldberg
Seth A. Goldberg

The Controlled Substances Act defines “marijuana” as:  all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture, or preparation of such plant, its seeds or resin. Such term does not include the mature stalks of such plant, fiber produced from such stalks, oil or cake made from the seeds of such plant, any other compound, manufacture, salt, derivative, mixture, or preparation of such mature stalks (except the resin extracted therefrom), fiber, oil, or cake, or the sterilized seed of such plant which is incapable of germination.

The DEA has recently affirmed its position that CBD sourced from the parts of the plant that are included in the definition of marijuana are unlawful.   This is true even if the CBD does not contain any THC.  CBD derived from the excluded parts of the marijuana plant does not violate federal law.   Were it to investigate/prosecute a business  or individual for possessing CBD, the DEA would place the onus on the target to prove the CBD was sourced from the lawful parts of the plant.

Just like THC-containing products that are lawful under a state’s marijuana laws, CBD that may be lawful under a state’s marijuana laws, is still federally unlawful if sourced from the parts of the plant included in the definition of marijuana.

Courts Confront Clash Between Federal and State Marijuana Laws

The clash between state and federal law regarding the use of medical marijuana continues to present an ongoing dilemma for courts around the country, as illustrated by a recent decision by the Eighth Circuit. In the United States v. Schostag, the Eighth Circuit affirmed a decision by the District Court of Minnesota barring a felon from using state-legal medical marijuana while he is on supervised release. Continue reading Courts Confront Clash Between Federal and State Marijuana Laws

David Feldman

Senate Passes Bill Legalizing Industrial Hemp

The US Senate, by an overwhelming 86-11 vote, last week approved the sweeping Farm Bill containing language which fully legalizes industrial hemp. As we know, hemp, which is derived from cannabis plants, is used to make products from rope to clothing and does not contain THC, the psychoactive part of the plant. In colonial days hemp was so crucial that farmers, like George Washington, were legally required to grow it.

Most believe the House will follow suit. Hemp has not been legal on a federal level since federal criminalization of cannabis in the 1930s. Many believe that occurred in part because of fears of hemp competing with powerful timber interests and DuPont’s then new patent on nylon.  After the 1930s bill was declared unconstitutional in 1968, the Nixon Administration helped orchestrate passing the Controlled Substances Act. That law, still in force, declared all parts of the cannabis plant as Schedule I drugs, as dangerous as heroin and LSD. A top Nixon aide later admitted, “Did we know we were lying about the drugs? Of course we did.” Constitutional challenges thus far have been unsuccessful.

Legalization of hemp could yield a variety of products that previously could only be produced with imported hemp. These could include food, building materials, paper products and many others. Currently, it it believed that China is the largest producer of hemp, since it is legal to do so in a number of Chinese provinces. They started farming it during the Vietnam War to make more breathable uniforms for their soldiers in the intense heat. This Senate vote is indeed a significant step towards relaxation of federal cannabis regulation.

 

Momentum Builds With Schumer’s Bill To Legalize Marijuana

Seth Goldberg
Seth A. Goldberg

Just weeks after Senators Elizabeth Warren (D-Mass) and Cory Gardner (R-Colo) introduced bi-partisan legislation to make marijuana lawful under a state’s marijuana laws also lawful under the Controlled Substances Act (CSA), Senate Minority Leader Chuck Schumer (D-NY) introduced legislation removing marijuana from the CSA altogether on Wednesday, June 27.  Schumer’s bill also comes just one day after Oklahoman’s passed legislation legalizing medical marijuana in their traditionally red state, and one day before the U.S. Senate passed legislation legalizing hemp for all purposes, including extracts from hemp, such as cannabidiol.

By removing from the purview of the CSA, state-legal cannabis and proceeds derived therefrom, the Warren/Gardner legislation, if passed, would likely have the effect of nationwide legalization, but state operators and consumers would still need to be concerned about marijuana’s Schedule 1 status under the CSA, whereas the Schumer bill, if passed, would eliminate those concerns by removing marijuana from the CSA.

David Feldman

New Bill Would End Most Federal Enforcement of Cannabis

Senators Cory Gardner (R-CO) and Elizabeth Warren (D-MA) today introduced the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act. While we have not seen the text yet, Sen. Warren has published a summary. The bill would amend the Controlled Substances Act (CSA) saying it no longer applies to anyone acting in compliance with state (or tribal) laws relating to the manufacture, production, possession, distribution, dispensation, administration or delivery of cannabis. It also legalizes industrial hemp and removes it from the CSA. In addition to other provisions, the bill prohibits the distribution or sale of cannabis to anyone under 21 other than for medical purposes.

There are a number of pending bills promising various levels of cannabis legalization or decriminalization. This bill is important because it is the result of conversations between Sen. Gardner and the President. When Attorney General Jeff Sessions rescinded the 2014 Cole Memo which de-emphasized cannabis enforcement against legal state actors, Sen. Gardner angrily stopped approving new judicial nominations. That led to Trump’s commitment to Gardner to support “states rights” legislation if brought to him. Advocates hope this bill has a chance to move quickly as a result.

While not listed in the summary, according to MJBizDaily, the bill also would repeal tax code Section 280E which prohibits cannabis companies from deducting their ordinary business expenses, and also would allow federally insured banks greater ease in accepting cannabis customers. Stay tuned!