Michigan Industry Day Cannabis Banking

Transcription

1 Michigan Industry Day Cannabis Banking October 3, 2017

2 Today s Agenda Your Turn: Questions Debate History of Cannabis & the Law States Break Ranks Issues for EVERY CU Cannabis in 2017 Cloudy View: The DOJ Weighs In

3 About NASCUS The Voice for the State Credit Union System Ø Founded in 1965 Ø Defends the State System and State Autonomy Ø Advocates for Smart Effective Regulation Ø Focused on Ensuring Viability of State System Ø Membership = State Regulators, Credit Unions, Leagues, Consultants and CUSOs

4 Disclaimer The information contained in this presentation does NOT represent legal advice. It is no way intended to represent a formal determination made by any regulatory agency on any specific matter. Issues at any credit union are fact specific and you should seek legal counsel or formal supervisory determination to guide any course of action.

5 So What is the Problem? The problem is that regardless of whether a state legalizes, decriminalizes, or in some manner tries to legitimize cannabis activity, it remains a prohibited Schedule I narcotic under federal law. Therefore, in the eyes of federal law, virtually ALL state sanctioned cannabis activity is still a crime. In the eyes of federal law the $$ related to state sanctioned cannabis activity is still the proceeds of criminal activity. Therefore banking it is money laundering.. Schedule I Controlled Substances ü Substances in this schedule have no currently accepted medical use in the United States, a lack of accepted safety for use under medical supervision, and a high potential for abuse. Examples of Schedule I Narcotics: Ø Heroin Ø Cannabis Ø LSD Ø Ecstasy Examples of Lesser Schedule Narcotics: q Cocaine q Morphine q Oxy q Vicodin

6 Before We Get Started: Terminology Cannabis Marijuana

7 Before We Get Started: Terminology Decriminalization Legalization

8 Before We Get Started: Terminology Recommending Or Certifying Prescribing

9 And More Terminology Marijuana Related Business (MRB) Ancillary Business

10 103 Years of Federal Government War Against Cannabis q Harrison Act q 1930 Narcotics Bureau formed q 1935 Uniform State Narcotic Law q 1936 Reefer Madness q 1937 Marijuana Tax Act q 1952 Boggs Act q 1968 Bureau of Narcotics & Dangerous Drugs q 1970 Controlled Substances Act q 1973 Drug Enforcement Agency formed q 1986 Anti Drug Abuse Act 1986 q 1988 Anti Drug Abuse Act 1988 q 2005 SCOTUS decides Gonzales v. Raich -Promotional Poster, Reefer Madness, circa 1936

11 The States Break Ranks 1970 Decriminalization movement 1972 Shafer Commission Report 1996 Passage of Proposition 215 in CA 2008 MI passes Medical Marijuana 2012 Colorado and Washington legalize recreational

12 Cannabis Legalization in Michigan Ø In 2008 Michigan became 13th state to legalize medical cannabis for serious and terminally ill patients (Prop 1 passed w/63% in favor) Ø Known as Marihuana in Michigan Ø Licenses will begin to be issued in December Ø 244,000 licensed patients Ø Estimated $ 837m industry Ø No statewide framework in place yet Ø The hundreds of dispensaries around MI likely operating illegally

13 Nationwide Cannabis Outlook in 2017 Ø Ø Ø Ø Ø Ø 30 states and DC have legalized some form of cannabis usage 8 states have legalized recreational adult use of cannabis 17 other states allow cannabis oil VT on verge of legalization by legislature 59.3% of US population lives in legalized state $7 billion in sales projected to grow to $30 billion by 2020

14 Ø As of March 2017, 368 FIs report banking marijuana related businesses (MRBs) Ø 62 of them credit unions Ø 585 different banks/cus have at some point served MRBs (meaning 274 have dropped out at some point) q "If a credit union decides to serve a marijuana business, that's a business decision for that credit union. NCUA will expect that credit union to have performed the necessary risk analysis and put mitigation plans in place to address that risk" - John Fairbanks (NCUA)

15 Consider This: Macro Economics 350, , , , , ,000 50, , ,000 Employment by Industry 169,000 Cannabis Pharmacists Massage Therapists 76,572 Coal Mining 195,000 Dentists

16 State Licensed Cannabis is Big Business ü Scotts Miracle Grow ü Massachusetts Medical Cannabis Center ü AbbVie Incorporated ü NFL & Research

17 Cloudy View: The DOJ Weighs In 2009 Ogden Memo Oh, We ll Arrest Grandma 2011 Cole Memo # Cole Memo # 2 Keep it out of the Shadows: SAR Limited 2014 Valentines Day FinCEN Memo 2014 Cole Memo # 3 And Tribal Land? 2014 Wilkinson Memo We re Not Arresting Grandma The 8 Priorities Yeah, What FinCEN Said

18 The 8 Cole Memo # 2 Priorities Prevent Distribution to Minors Prevent Funding of Criminal Enterprise Prevent Diversion of State Legal Cannabis to other States Prevent State Legal Weed to Mask Illegal Narcotics Sales Prevention of Violence & Use of Firearms in Cultivation/Distribution Prevent Increase in Drugged Driving & other Negative Public Health Prevent Growth & Use on Public Lands Prevent Use or Possession on Federal Property

19 FinCEN s February 14, 2014 Guidance Bringing the proceeds of state licensed cannabis business into the mainstream financial system allows for monitoring and reduces chances for diversion Its still Schedule I under Federal Law! The obligation to file a SAR is unaffected by state law that legalizes marijuana activity. A FI institution is required to file a SAR if, consistent with FinCEN regulations, the FI knows, suspects, or has reason to suspect that a transaction conducted or attempted by, at, or through the financial institution: (i) involves funds derived from illegal activity or is an attempt to disguise funds derived from illegal activity; (ii) is designed to evade regulations promulgated under the BSA, or (iii) lacks a business or apparent lawful

20 FinCEN s February 14, 2014 Guidance Marijuana Limited Marijuana Priority Marijuana Termination

21 FinCEN Guidance Footnote # 7 q There is a debate as to the meaning and the reach of FN # 7: For some, FN #7 is a greenlight for any ancillary business to be banked w/o worry. For others, FN #7 is a warning that FIs must treat at least some ancillary businesses as high risk and perhaps even as high a risk as the marijuana related business itself. ü ü ü ü Landlord Armored car company FI that is banking an MRB Local market? FinCEN recognizes that a financial institution filing a SAR on a marijuana-related business may not always be wellpositioned to determine whether the business implicates one of the Cole Memo priorities or violates state law, and thus which terms would be most appropriate to include (i.e., Marijuana Limited or Marijuana Priority ). For example, a financial institution could be providing services to another domestic financial institution that, in turn, provides financial services to a marijuana-related business. Similarly, a financial institution could be providing services to a non-financial customer that provides goods or services to a marijuanarelated business (e.g., a commercial landlord that leases property to a marijuana-related business). In such circumstances where services are being provided indirectly, the financial institution may file SARs based on existing regulations and guidance without distinguishing between Marijuana Limited and Marijuana Priority. Whether the financial institution decides to provide indirect services to a marijuana-related business is a risk-based decision that depends on a number of factors specific to that institution and the relevant circumstances. In making this decision, the institution should consider the Cole Memo priorities, to the extent applicable.

22 To Bank State Licensed Cannabis or not to Bank State Licensed Cannabis 1) Every credit union should consider whether it will seek to accommodate MRBs or ancillary businesses. 2) The credit union s decision must be an informed decision. 3) Even if the decision is No the CU still has issues!

23 We will not bank Cannabis! But what does that mean? MRBs Landlords Employees of MRB? 1 off Business New Accounts v. Existing Members

24 Even if the Credit Union Says No Ø Are the Credit Union s HR Policies in Sync? 1) Substance abuse in work place defined? 2) Drug testing? 3) Medical conditions? 4) Off-duty conduct policies? 5) Social media policies?

25 Banking Cannabis: Credit Union Says Yes BSA AML CFT Operational The Risks are LEGION Reputation Balance Sheet

26 The Risks of Yes BSA/AML/CFT Reputation Balance Sheet Operational Can the Cole Memo expectations truly be met? Are the credit union members on board? Concentration risk HR & Employee Policies Lending risks Insurance/Bond Ability to give due attention to MRBs and look for the other bad actors? Is the community on board? Liquidity risk Financial (the credit union s need for financial products)

27 Enhanced BSA Program for Yes : Seeing the Red Flags ü Business as a Front does the $$ flow make sense? ü Cutting Corners does the business have complete documentation? ü Proud is the business up front about being an MRB? ü Check the Tabloids has the business or its owners been in the news? ü Good neighbors do the owners live in the state? ü CDD are there silent silent partners? ü Duh! is the business in violation of the Cole Memo? ü Road Trip have you seen the business w/your own eyes?

28 Why Does Anyone Take the Risk to Bank Cannabis? To serve their communities For the public safety Because they support legalization $$$$$$$$$$$$$$$

29 What the Future Holds States Likely to Move on cannabis Legalization in 2018 Ø Vermont (by legislature) Ø New Jersey (Gubernatorial election will shape) Ø Arizona (2 nd time around) Ø Michigan (ballot initiative) Ø Rhode Island (playing it slow & watching Massachusetts) Ø Connecticut (2018 budget appears to rely on cannabis regulation) q And at least 5 other states w/ballot initiatives passage more uncertain)

30 QUESTIONS? Brian Knight NASCUS Executive Vice President & General Counsel (703) See What is NASCUS:

31

32 Upcoming in 2017 q Nov , Las Vegas q Sponsored by NASCUS - CUNA q The premiere BSA conference for CU system q A forum for discussing & learning about the complex federal BSA laws.

33 The End