Federal-state divide on cannabis still makes for risky business

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June 16, 2021 – Cannabis legalization was one of the big winners of the 2020-2021 legislative cycle, with major states like New York and New Jersey significantly expanding their medical cannabis programs, while at the same time creating an entirely new adult-use cannabis industry in the heart of the East Coast.

Proponents of this most recent push are a coalition of social equity advocates seeking to rebuild communities devastated by the war on drugs, individuals who believe that existing drug laws unnecessarily restrict their freedoms, and those who see the enormous financial potential of the cannabis industry.

However, while medical cannabis is legal in some form in 36 states, and adult-use cannabis has been legalized in 17 states and the District of Columbia, classification of cannabis as a Schedule I drug by the federal government still creates significant legal and business risks for industry participants.

This appropriations rider is commonly known as the “Rohrabacher Amendment,” and has been authorized annually since 2014.

In practice, it appears to have remained in force, both because department attorneys still retained their discretion, and because it remained incorporated into bank guidance provided by the Financial Crimes Enforcement Network , which is the financial crimes arm of the U.S.

Operating in the cannabis industry exposes individuals to federal prosecution for conspiring to manufacture and distribute marijuana .

This, coupled with the conviction of two businessmen for bank fraud for helping a company called Eaze dupe banks and credit card companies into processing cannabis related transactions earlier this year, is a reminder that federal enforcement may not be as “hands off” as industry insiders would like to believe.

In major markets, the process is very competitive and unsuccessful applicants often cannot recoup the application fee, let alone the money invested in preparing the documents and consulting with advisors.

Because many outside investors will usually wait until an application is secured, this makes it difficult for anyone but the very capitalized to compete.

This includes constrained access to banking, no access to legitimate credit card processing, the costs of implementing seed-to-sale tracking, and the inability to employ traditional economies of scale since each state must be siloed to prevent even a hint of diversion of cannabis across state lines.

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He contributed the chapter, “Banking and Investment Considerations for Cannabis Businesses” in “Health Care and the Business of Cannabis: Legal Questions and Answers,” .

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