I previously wrote in January about the Federal Actions related to the revocation of the
and its potential impacts on legal cannabis activity in California. This has been a particularly tricky issue since the voters of California voted to fully legalize cannabis in California. This article is an update on the recent actions at the federal level related to cannabis. The intersection of state legalization and federal criminalization has been a difficult road for businesses, real estate professionals, and investors to navigate. Contracts have become more complicated, disclosures more nuanced (is cannabis cultivation a material defect that must be disclosed) leases more difficult, administrative oversight more burdensome as the all of these sectors work through the difficulties of an emerging market place.
The intersection of the competing legal schemes played itself out concerted fashion when the Feds raided and seized nearly 100 homes in the Sacramento metro area in April in a marijuana cultivation bust. Clear evidence that civil forfeiture was a very real penalty that the Feds will use. Many of those properties are working through the federal legal system under a civil forfeiture action.
As more and more states have taken steps to legalize cannabis in some form or another, it has created problems for investors, owners, real estate professionals and businesses. While the state seeks to collect the tax revenue from the market place, how are the payments for mortgages, leases and taxes to be made when federal law does not allow for the deposit of funds related to drug activity in to a deposit account with a federally chartered bank. It has made the practical functions of operating a cannabis business nearly impossible to carry out.
However, there may be significant changes to the cannabis industry on the way. On June 27, 2018 Senator Schumer introduced the “Marijuana Freedom and Opportunity Act” (“MFOA”). This bill takes a very moderate position with respect to the legalization of cannabis at the federal level. While the bill, if enacted, would decriminalize cannabis, it would also leave in place each state’s ability to determine whether cannabis would be legal or illegal at the state level. Further, federal law enforcement would be able to prosecute crimes related to the transportation or distribution of cannabis when such actions cross state lines and take place in a state where cannabis is illegal at the state level.
Moreover, if the bill is passed in its current form it frees up many of the business and real estate related concerns. Property would no-longer be subject to civil forfeiture. Banks would be allowed to accept deposits from funds sourced through legal cannabis businesses or legal cannabis transactions. Leases would not suffer from the real risk of a court applying incorrect law related to illegal activity. Conventional financing would free up for the purchase of cannabis related real estate. Title companies would readily insure and close transactions related to cannabis businesses or previously used in a cannabis business.
Further, the bill also provides financial incentives to encourage the growth of small cannabis related businesses by allocating a minimum of $10 million to a trust fund to be made available for small businesses owned and operated by women and economically disadvantaged individuals. It allocates up to $250 million for highway safety research over the next five years related to THC impaired driving. The MFOA also authorizes up to $500 million for public health and medical research related to medicinal qualities of cannabis and creates a regulatory scheme for federal agencies to regulate advertisements and prohibit promotion to individuals under the age of 18 much like is already done with tobacco products.
The bill has a long way to go and who knows what will happen when the bill gets to the House of Representatives. But this bill appears to be written in format that can appeal to the masses and has something for everyone. If this bill does indeed pass it will pave the way for stabilizing at a national level the cannabis industry, normalizing certain real estate transactions and allowing for the free flow of commerce within the cannabis industry.