New York legalizes marijuana – where is the US going? – Finance and banking

New York legalizes marijuana – where is the US going?  – Finance and banking

The prospect of major reform of federal marijuana laws remains
uncertain as a closely divided Congress and new Biden
Administration work to address numerous competing crises. While
there is currently no federal marijuana legalization bill that has
been introduced in either chamber of Congress, leading
congressional Democrats have announced their intent to introduce
“comprehensive cannabis reform legislation” in “the
early part of this year.”12 In the last session of
Congress, the House of Representatives passed two marijuana reform
bills that could significantly alter the risks of doing business
with MRBs: (1) the Secure and Fair Enforcement (SAFE) Banking Act
and (2) the Marijuana Opportunity Reinvestment and Expungement
(MORE) Act. And in late January, Representative Greg Steube (R-FL)
introduced the first marijuana reform bill of 2021-the Marijuana
1-to-3 Act of 2021. The SAFE Banking Act and the MORE Act appear to
be the two most likely paths to marijuana reform legislation,
though other bills, such as the Strengthening the Tenth Amendment
Through Entrusting States (STATES) Act, may also receive renewed
support. II. Predictions on Marijuana Reform Legislation A. SAFE Banking Act

Notwithstanding the proliferation of marijuana-related commerce
in states across the country, the manufacture, sale and
distribution of marijuana remain prohibited under the federal
Controlled Substances Act (CSA). MRBs are generally operating in
violation of federal law, even in states where recreational or
medical marijuana sales are legal. I. The Federal Legal Landscape

As a result, engaging in business with MRBs carries two primary
risks: First, depending on the specific facts and circumstances,
engaging in business with an MRB could expose a company to risk of
aiding and abetting or conspiring to commit a violation of federal
narcotics law.10 Second, funds received from an MRB
could expose a company to risk of violating the US money laundering
laws. Federal money laundering laws criminalize conducting or
engaging in a financial transaction with proceeds of
“specified unlawful activity.” See 18 U.S.C. §§
1956, 1957. Because proceeds from the manufacture, sale or
distribution of marijuana are considered proceeds of “specific
unlawful activity” in the money laundering context, a company
could violate US money laundering laws by engaging in a financial
transaction with an MRB with the knowledge that the transaction
involved proceeds of marijuana sales and with the intent to promote
the unlawful activity. If the transaction is in an amount greater
than $10,000, the risk is higher, because the government need not
prove intent to promote unlawful activity. See 18 U.S.C. §
1957. In such cases, the government would only need to establish
that a company knowingly engaged in a monetary transaction
involving more than $10,000 in funds derived from specified
unlawful activity.11 However, it remains unclear whether Congress and President Biden
will enact legislation that would
legalize marijuana at the federal level,
given the razor-thin margins in the Senate, other pressing
legislative priorities, and uncertainty as to whether congressional
leaders and the Biden Administration want to expend political
capital to push for full legalization. Legalization in Mexico is
likely to add further momentum to the US legalization movement, but
marijuana reform in the United States appears likely to take a more
moderate approach. Below, we analyze the primary risks from
engaging in business with US marijuana-related businesses (MRBs)
and the potential legislative and other reforms that could alter
those risks.

It’s been an eventful week for the marijuana industry. After
years of false starts, New York legalized the use of recreational
marijuana on March 31-just hours later, New Mexico legislators
passed a bill to do the same.1 Meanwhile, Mexico is
expected to legalize recreational marijuana later this month and,
with a population of 120 million, is poised to become the biggest
marijuana market in the world.2 If Mexico’s bill is
enacted into law, Mexico would become the third country after
Uruguay and Canada to legalize marijuana nationally. With these
developments, many are asking: Is marijuana legalization at the
federal level on the horizon? Amid growing public support, momentum at the state level, and
the shift of power in Washington, the prospects for marijuana
reform legislation are as elevated as they have ever been. Last
year, public support for legalization of marijuana in the United
States hit a record 68%,3 and voters in Arizona,
Montana, New Jersey and South Dakota approved ballot initiatives to
legalize the cultivation, use and distribution of
marijuana.4 In total, 47 states and the District of
Columbia have legalized some form of marijuana use.5
Sixteen states have legalized recreational marijuana, while 36
states and the District of Columbia have legalized medical
marijuana.6 With US marijuana sales hitting $18.3
billion last year-a 71% increase in revenue over 2019-several more
states are looking to marijuana legalization to increase
revenue.7 In recent weeks, governors in
Pennsylvania8 and Wisconsin9 have renewed
calls or introduced proposals to legalize adult recreational use of
marijuana, in part to raise revenue to fill COVID-19-related budget
holes. The SAFE Banking Act was designed to increase public safety by
providing “cannabis-related legitimate businesses”-i.e.,
state-licensed MRBs-with access to financial services and by
reducing the amount of cash held by such businesses.15
The proposed law would create several protections for financial
institutions that serve MRBs. First, the SAFE Banking Act would
create a safe harbor for financial institutions by directing
federal banking regulators not to “prohibit, penalize, or
otherwise discourage a depository institution from providing
financial services to a cannabisrelated legitimate business or
service provider.”16 It would also forbid bank
regulators from terminating or limiting deposit insurance for
financial institutions solely for providing services to
MRBs,17 and protect financial institutions from
“criminal, civil and administrative forfeiture” of any
collateral interest in financial products or services provided to
MRBs or owners of real estate and equipment leased or sold to
MRBs.18 The SAFE Banking Act would also protect
employees, officers and directors of financial institutions from
potential criminal liability based solely on providing financial
services to or investing income from providing such services to
MRBs.19 Finally, the SAFE Banking Act would direct
FinCEN to issue written guidance for financial institutions serving
MRBs, and mandate that such guidance “not significantly
inhibit the provision of financial services” to
MRBs.20

On September 25, 2019, the House of Representatives passed the
SAFE Banking Act with broad bipartisan support, garnering votes
from 229 Democrats, 91 Republicans and one Independent. In total,
321 representatives supported the bill compared with 103 who
opposed its passage. The SAFE Banking Act was reintroduced on March
18, 2021.13 While dozens of advocacy and industry
groups, such as the American Bankers Association, quickly expressed
their support for the bill, many of these groups also supported the
2019 version of the law.14 To date, there is no
indication that senators who did not support the bill in 2019 will
change their position and support the current version of the
bill. Many financial institutions refrain from providing banking
services to marijuana businesses given the risk of violating the US
narcotics or money laundering laws. As a result, many MRBs operate
on a cash-only basis or pay exorbitant fees to maintain bank
accounts with state-chartered banks. In response to increasing
public support for decriminalization/legalization of marijuana and
the marijuana industry’s chronic lack of access to banking and
financial services, several members of Congress have supported
legislation to create safe harbors for financial institutions that
provide banking services to the marijuana industry.

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