Proposed Changes to Federal Laws Look to Remove Industrywide Marijuana Hurdles

Cannabis in glass jar on desk.

Many states, including New York, have recently legalized recreational marijuana; however, the current federal banking laws prohibit most banking institutions from any involvement in the cannabis industry. Proposed amendments to the relevant federal statutes seek to remove this hurdle.

Despite the fact that marijuana is now legal, in some form, in more than thirty states, cannabis remains classified as a controlled substance under federal law. The Controlled Substances Act (“CSA”) is the common name of the Comprehensive Drug Abuse and Prevention and Control Act, which was enacted in 1970 to regulate and penalize the manufacture, importation, use, possession and distribution of certain substances. Marijuana is currently classified as a “Schedule 1 Controlled Substance” under the CSA.

Banking & Marijuana’s Status as a Controlled Substance

As a result of marijuana’s controlled substance status under federal law, many banks and credit unions are wary of the possibility of violating federal anti-money laundering and other laws by engaging in transactions involving the proceeds of federally illegal cannabis businesses. This has forced many marijuana firms, including New York State marijuana retailers, to operate on a cash basis, which creates a variety of logistical issues.

The primary federal law that affects the provision of banking services to marijuana or cannabis related businesses is the Bank Secrecy Act of 1970 (“BSA”). One of the functions of the BSA is to require banks to report suspicious activity that might indicate money laundering, tax evasion, or other criminal activity. These reports are known as “suspicious activity reports” (“SARs”). The federal anti-money laundering statutes make it a crime to knowingly engage in monetary transactions involving proceeds of certain unlawful activity, including the sale of marijuana. Under these laws, all proceeds generated by cannabis related businesses (even in states where cannabis is legalized) are unlawful, and financial transactions with such proceeds (including accepting deposits, making loans, and other banking services) may constitute illegal money laundering.

Federal Marijuana Law Amendment Proposals

Various forms of legislation have been proposed at the federal level to legalize marijuana and/or to give marijuana and cannabis businesses access to banking services. The Secure and Fair Banking Enforcement Act of 2019, known as the “SAFE Act”, which recently passed in the House of Representatives for the third time (it passed for the first time in September 2019), is currently gaining momentum in Congress, with eight Republican co-sponsors in the Senate.

The SAFE Act would offer protection to financial institutions providing banking services to cannabis related businesses and account holders affiliated with such businesses. If the SAFE Act passes, it would be followed by federal guidance detailing about how financial institutions can work with cannabis businesses within the confines of federal law and would effectively remove one of the significant issues currently faced by the marijuana industry.

House Republicans David Joyce and Don Young also recently introduced legislation to remove cannabis from the federal Controlled Substances Act. While this legislation does not appear to have the same level of support as the SAFE Act, it certainly seems to reflect the growing partisan support for legalization of marijuana at the federal level. 

Take Action

If you are considering applying for a marijuana dispensary license in New York State, please contact Alexandra B. Becker, Esq. by e-mail (abecker@nhkllp.com) or phone (518.432.3188) for a no-cost consultation to see how the attorneys at Nolan Heller Kauffman may be able to assist.

Cannabis: Green Gold Mine or Divisive Drug?

Cannabis in glass jar on desk.

On March 31, 2021, New York became the fifteenth state in the United States to legalize recreational marijuana. Recreational marijuana has been legal in Massachusetts  for several years and New Jersey recently enacted legislation making it legal there as well. Part of the impetus for legalizing cannabis in New York was a concern that residents would simply purchase their cannabis from neighboring states, with New York thus losing out on substantial marijuana tax revenue.

From The Governor’s Office

According to Governor Cuomo’s Office, the recreational marijuana industry could be worth an estimated $350 million in annual New York State tax revenue alone.  Under the legislation, the tax rate on cannabis will be 13%. Of that 13%,  9% will accrue to the State, and 4% will go to local governments.

The New York State marijuana legislation contains provisions allowing municipalities to opt out of having retail dispensaries located within their bounds. Any municipalities that wish to opt out must pass a local cannabis law on or before December 31, 2021.  Municipalities that choose to opt out will not share in the cannabis tax revenue from the industry.

Municipalities Have a Choice

Municipalities that choose to allow retail marijuana dispensaries are still able to exercise some control over locations within the municipality where dispensaries will be permitted. On top of that, the licensing procedures by the New York State Office of Cannabis Management set forth additional restrictions, like those imposed on retail liquor stores. No license will be granted for a cannabis dispensary where the proposed premises would be located within 500 feet of a school or within 200 feet of a house of worship, and applicants must provide documentation showing that their premises meet these requirements.

Many municipalities are now grappling with the decision of whether or not to allow retail dispensaries. The City of Albany has already said that it will be opting in and is now working on determining specific areas of the City where marijuana dispensaries will be allowed.

Given the intensely regulated licensing process, as well as the substantial tax benefits, it seems that most municipalities should opt to allow marijuana dispensaries, at least in some limited areas. If, however, a given municipality opts out, local residents can put together a petition, and attempt to force a referendum on the local law.

Take Action

If you are considering applying for a marijuana dispensary license in New York State, please contact Alexandra B. Becker, Esq. by e-mail (abecker@nhkllp.com) or phone (518.432.3188) for a no-cost consultation to see how the attorneys at Nolan Heller Kauffman may be able to assist.