By Shuki Greer, Esq.
The security camera footage has been watched thousands of times. Breaking in through a skylight in the ceiling, dropping a ladder down, and methodologically getting away with dozens of bags of finished product. The video clearly shows that this was a professional job carried out by serious criminals. The estimated value stolen was over $1M, meaning an estimated tax revenue loss for Oregon of about $230,000. The culprits remain at large, and they may never be found.
This isn’t the only incident either. A quick internet search highlights several other high-profile incidents, with varying degrees of professionalism, danger, and dollars lost. While each of these incidents have differences, they all share something in common. The legal industry is known for having large amounts of cash on hand, surplus product lying around, with varying amounts of security in place. The industry is susceptible to these kind of targeted robberies, a fact which is unlikely to change in the near future.
Why is this the case? The answer starts with the fact that cannabis remains illegal at the federal level. The government classifies cannabis as a Schedule 1 drug, meaning it is considered to have no medical benefit and a high potential for abuse. Because that is the case, financial institutions have been hesitant to open accounts and do business with MRBs (Marijuana Related Businesses), because they fear financial penalties, asset forfeiture, as well as civil and criminal repercussions.
Beyond the fact that the government considers MRBs to be illegal drug trafficking operations, several related details make banks hesitant. Bankruptcy courts are (almost) completely closed to MRBs. That means that if a company goes under, the bank has no recourse to get its money back. Section 280E of the tax code means that MRBs pay exorbitantly high taxes, making them significantly less profitable, solvent, and viable as account holders. The industry also still carries a stigma that makes some banks concerned about their other clients, who may close accounts upon learning that the banks have been doing business with MRBs.
It’s not all bad news, however. This issue has been talked about for years, and as the number of states with legal cannabis industries grows, banks have become more willing to get involved. The federal government hasn’t been silent either. The well-known Cole Memo, put out by the Obama administration, essentially stated that as long as businesses were operating legally under state law, they were a low priority for enforcement, as federal resources were better spent elsewhere. Subsequently, the FinCEN (Financial Crimes Enforcement Network, a bureau of the Treasury) announced that banks doing business with MRBs should follow the Cole memo’s guidelines to determine whether their customers were operating legally under state law.
When the Trump administration took over, AG Jeff Sessions rescinded the Cole memo, stating that prosecutors already have discretion as to how to use their limited resources, and there was no need to single out MRBs for special treatment. This suggested to some that the DOJ was going to start going after MRBs even if they were operating legally under state law. Thankfully, this didn’t happen, at least not on the large scale that some feared might happen. However, doubt and uncertainly remained for financial institutions, most of whom refused to bank the money from MRBs. Earlier this year, FinCEN announced that they still expected banks doing business with MRBs to be reporting suspicious activity using the Cole memo guidelines. In a backhanded way, this was an announcement that it was ok for financial institutions to do business with MRBs, and many have begun or continued to do so.
As long as cannabis remains illegal at the federal level, there will be fear and risk that comes along with doing business with MRBs. This means that many companies choose to keep large amounts of cash on hand, created the obvious incentives that thieves look for when picking a target. If we don’t want these incidents to continue, we need to redouble our efforts to push legalization so that the financial, security, and investment opportunities catch up to the rate of business growth. Two helpful and relevant bills are currently making their way through Congress, though neither seems likely to become enacted. The MORE Act, a comprehensive overhaul of the cannabis laws recently passed the House Judiciary Committee. However, the bill is yet to be brought to a full House vote, and the Senate is even less likely to bring the bill to the floor. Then there is the SAFE Banking Act, which passed the House 321-109 earlier this year, in a landmark bipartisan victory. But that bill seems to be dead in the House, as Mitch McConnell positions himself as opposed to any movement in the field. As such, the immediate future for the industry does not seem to hold significant change, and these problems will persist. While I certainly do not want to see more of these incidents, we likely have not seen the last one.