Cannabis Law and Policy

The Ohio medical marijuana industry is ready to go live, with most of the pieces in place to complete the regulatory structure passed by the Ohio General Assembly in September of 2016. However, like the medical marijuana industry in general, the Ohio market will have a difficult time accessing banking services. This is because while marijuana may be legal under state law, it is still illegal under federal law, and thus banks are reluctant to offer banking services to the industry for fear of violating federal banking laws and rules to which the banks are subject.

However, there are signs in Ohio that banks may be beginning to give the medical marijuana industry a fresh look. Recently, Wright-Patt Credit Union in Dayton, through its board of directors, gave approval for the credit union to begin offering limited services to the medical marijuana industry. At this point, the nature of the services and what they might include have not been specified. Additionally, the Ohio Department of Commerce, through its Division of Financial Institutions, recently issued guidance for banks contemplating getting into the industry.

The decision by Wright-Patt, while isolated in Ohio, reflects a national trend in the industry. By the end of March 2018, 411 banks and credit unions in the U.S. were “actively” operating accounts for marijuana businesses, according to a report prepared by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN). That’s up more than 20% from when President Trump took office.

The business reasons for the timing of the announcement are not entirely clear. Banks and credit unions in other states, mostly state chartered, have quietly served the industry to varying degrees for years. Some banks do increased due diligence on their marijuana clients to ensure compliance with a FinCEN memo of February 2014, while other banks may turn a blind eye. What is becoming clear is that as more states pass laws legalizing marijuana and the federal climate for rescheduling marijuana under the Controlled Substances Act and re-examining cannabis related issues continues to improve, many financial institutions want to be ready to jump into a large and growing marketplace that is woefully underserved.

Frantz Ward attorneys Tom Haren and Pat Haggerty attended the Marijuana Business Conference this past November. Tom was a presenter at the Marijuana Business Crash Course, and Pat attended the Hemp Forum. The biggest takeaway from the conference is that 2019 could be a banner year for cannabis in Ohio and nationwide.

Hemp reform is moving forward.

It has now been confirmed that the 2018 Farm Bill will include the federal Hemp Farming Act, which would remove industrial hemp (cannabis containing less than 0.3 percent THC) from the Controlled Substances Act.

Hemp-derived CBD has been all the rage as of late, with this segment of the industry on track to hit $591 million in 2018. Some analysts predict this could be a drop in the bucket: The Brightfield Group predicts that the CBD industry alone could hit $22 billion by that time.

Legalization of hemp at the federal level is the first step toward a nationwide market for hemp and its derivatives — after passage of the 2018 Farm Bill, it will be incumbent upon the states to develop their own hemp programs.

Broader cannabis reform is possible in 2019.

With the coming change in control of the House of Representatives, many are confident that 2019 will bring significant cannabis reforms. For one thing, the expected Democratic Chair of the House Rules Committee will no longer block cannabis-related amendments from being debated on the House floor.

While that is newsworthy in and of itself, there is also confidence that Congress may finally pass the STATES Act during this session.

The STATES Act would exempt state-compliant cannabis operators from the purview of the federal Controlled Substances Act. In addition to removing the fear of federal prosecution, this change would allow banks to service state-compliant cannabis businesses, and also permit state-compliant cannabis companies to take standard tax deductions on their federal tax returns.

President Trump has indicated that he supports this change, which has bipartisan support in both chambers of Congress.

If you have questions about the 2018 Farm Bill, the Hemp Farming Act, or the STATES Act, please do not hesitate to contact one of Frantz Ward’s Cannabis Attorneys.

 

Last week, a closely-watched trial involving a Colorado cannabis cultivator sued by a neighbor ended with a jury finding in the cultivator’s favor. In Reilly v. 6480 Pickney, LLC, the Reillys complained that their property’s value had decreased due to odor emitted from the cultivator’s property (an unfortunate, if not new, problem in legal cannabis markets) and increased crime in the area. Rather than file a state based standard nuisance claim, however, the Reillys filed claims under the federal Racketeer Influenced and Corrupt Organizations Act (“RICO”).
 
RICO was originally enacted in the 1970s to give law enforcement another tool to fight organized crime. Civil RICO lawsuits provide remedies where plaintiffs allege they have been harmed by “racketeering activity,” which, arguably, includes cultivating marijuana (because it remains illegal to do so under federal law). 
 
Last year, a ruling from the Tenth Circuit Court of Appeals allowed the Reillys to take their civil RICO case to trial, though the court noted that they still had to prove that the cultivator’s activity caused their property value to be diminished. In a landmark victory for the cannabis cultivator, though, the jury found that the Reillys did not make those required nuisance related showings. The jury’s verdict comes after a federal district court in Oregon refused to allow a civil RICO claim to proceed.
 
RICO suits are attractive to plaintiffs because, if they succeed, the plaintiffs can obtain treble damages and attorney fees. Perhaps that is why there appears to be a dedicated effort to use RICO in cannabis-related litigation. Given the increased risks associated RICO litigation, coupled with the fact that more of these cases are likely to be filed in the future, cannabis companies should be prepared to vigorously defend against these claims.