In 2014, Florida voters narrowly failed to approve a proposed constitutional amendment that would have legalized widespread marijuana growing and use in our state for medicinal purposes. Currently, a limited ‘medical marijuana’ scheme — “Charlotte’s Web” — is being launched under close State supervision. The Florida Supreme Court is currently weighing whether the 2016 ballot will include another constitutional amendment proposal.
As these new frontiers emerge in Florida, businesses must be sensitive to the fact that while Florida regulators will soon permit medical marijuana growing or use, federal law still does not. So what protections exist for Florida businesses in this arena?
On February 14, 2014, Deputy U.S. Attorney General James Cole issued a memorandum for all United States Attorneys, providing “Guidance regarding Marijuana Related Financial Crimes.” That memorandum built upon Cole’s memorandum issued August 29, 2013 in which he had described eight priorities guiding federal prosecutors in the enforcement of the Controlled Substances Act concerning marijuana-related conduct. Those eight priorities focused on preventing distribution of marijuana to minors; preventing marijuana sales revenue from going to criminal enterprises; preventing diversion of marijuana from states where it is legal under state law to other states; preventing state-authorized marijuana activity from providing “cover” for trafficking or other illegal activity; preventing violence in the cultivation and distribution of marijuana; preventing drugged driving and other public health consequences of marijuana use; preventing the growing of marijuana on public lands, and preventing marijuana possession or use on federal property.
The 2014 Cole memorandum was released in coordination with a guidance memorandum issued the same day by the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) to “clarify Bank Secrecy Act expectations for financial institutions seeking to provide services to marijuana-related businesses.”
The FinCEN memorandum discussed diligence that financial institutions should conduct in order to best ensure that they are not participating in activities that fall within the eight federal prosecutorial priorities outlined in the Cole memoranda. This “customer due diligence” includes: verifying whether the business is duly licensed and registered; reviewing the license application and related documentation submitted by the business for obtaining a state license to operate its marijuana-related business; requesting available information from state authorities about the business and related parties; developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the types of customers to be served; ongoing monitoring of publicly available sources of adverse information about the business and related parties; ongoing monitoring for suspicious activity, and refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk. A financial institution may reasonably rely on the accuracy of information provided by state licensing authorities.
The FinCEN memo also identified several “red flags” indicating activities that may implicate the Cole Memo priorities. Many of the “red flags” (e.g., the business is depositing more cash that is commensurate with the amount of revenue it is reporting for state or federal tax purposes) appear somewhat onerous to discover or track. Another “red flag” is that the “business is unable to produce satisfactory documentation or evidence to demonstrate that it is duly licensed and operating consistently with state law.”
FinCEN provided to banks a laundry list of things to do and keep top of mind when servicing marijuana-oriented customers, in order to remain compliant with federal policy.
After all, banks will be at the front line of the medical marijuana industry, will have the best chance to monitor business activities and revenue generation/deposits and, accordingly, will bear the most risk of running afoul of federal law.
These same diligence points may prove helpful to other businesses that become associated with those participating in the medicinal marijuana industry in Florida. For instance, using the FinCEN diligence list as a guide, commercial real estate owners should assess the risks of violating federal policy when leasing lands or warehouse space to medical marijuana growers or distributors. Those same landowners should consider whether they might violate covenants made to their lenders by doing business with the medical marijuana industry; the risks of triggering federal forfeiture laws must also be carefully weighed.
Florida businesses should avoid any contracts or arrangements with vendors, lessees, customers or investors that may cross the lines described in the Cole Memos or fail to meet the diligence encouraged by the FinCEN memo. Over the coming months, businesses in Florida should carefully assess their risks of transacting with the budding medical marijuana industry.