Week in Review: Banking scare, marijuana ballot roundup & water rules in California

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By Omar Sacirbey and John Schroyer

An Illinois bank sparks fresh concerns about cannabis and financial institutions, the number of states with certified pro-marijuana ballot measures hits an all-time high, and California MJ growers face new water-use rules.

Here’s a closer look at some notable developments in the marijuana industry over the past week.

Banking scare?

Don’t panic! Just keep good track of your business.

That’s the message a prominent Illinois attorney and former regulatory czar is telling cannabis business and banking leaders following a report that a small bank had landed in legal hot water for violations allegedly relating to cannabis.

In March, Millennium Bank, with one branch in Des Plaines, Illinois, signed a consent order – a voluntary agreement with court-enforceable terms – with the Federal Deposit Insurance Corp. and the Illinois Division of Banking over alleged violations of the Bank Secrecy Act.

The order doesn’t mention marijuana; but The American Banker, which reported the story, said a source told it the bank’s violations were marijuana-related.

The news could chill banks’ willingness to accept cannabis accounts. But it shouldn’t, said Manuel Flores, a Chicago attorney who specializes in banking regulation and cannabis law.

“I doubt they’re being looked at just because of cannabis. There had to be another reason. Maybe a lack of internal controls? We just don’t know,” said Flores, the former Acting Secretary of the Illinois Department of Financial and Professional Regulation, which regulates the state’s banking and medical cannabis industries. “It would be wrong to jump to conclusions that make banks afraid to bank marijuana businesses.”

Even if the consent order has to do with cannabis violations, regulators probably aren’t scrutinizing Millennium just because it had cannabis clients. Rather, contended Flores, it was more likely tied to specific violations.

A February 2014 letter from the U.S. Treasury Department’s Financial Crimes Enforcement Network essentially states that banks with marijuana business accounts would be left alone as long as they meet certain compliance standards.

Since that time, there has been a dramatic increase in the number of financial institutions doing business with cannabis companies.

In March of this year, 301 financial institutions were working with marijuana companies, according to federal data obtained by the Associated Press.

That was up from just 51 in March 2014 and a three-fold increase from later that year, when an estimated 100 banks and credit unions worked with the industry.

While banks need controls to properly service cannabis businesses, these businesses can make banks’ lives – and their own lives – easier by implementing internal controls for tracking MJ inventory, purchases and patients, Flores said.

“It’ll allow your bank to be in a better position to serve you. They’ll be able to say, ‘I know what safeguards my customers are taking. I can show you what they’re doing to prevent the diversion of product,’” Flores explained.

Ballot roundup

Is the marijuana business at a tipping point?

Pro-cannabis campaigns in Massachusetts and Montana qualified for their respective statewide ballots this week, officially making 2016 possibly the biggest year ever for the marijuana movement. As of now, voters in seven states will be going to the polls this fall to consider the matter. Those states extend from the East to the West Coasts.

Pro-legalization campaigns in at least five more states are planning to submit signatures to make the November ballot – or are waiting learn whether they’ll be certified to go before voters. All told, up to a dozen states could have pro-cannabis measures on the ballot related to recreational or medical MJ.

The upshot: 2016 could go down in history as the most successful and influential year in the cannabis industry’s history – that is, if enough voters pull the yes lever in at least seven states come Election Day.

Along with Massachusetts and Montana, the five other states with initiatives that will definitely appear on the ballot include: Arkansas, California, Florida, Maine and Nevada.

Previously, the biggest year that saw the most pro-cannabis successes was 2014, when the legislatures of Maryland, Minnesota, and New York all legalized medical marijuana. That same year, voters in Alaska, Oregon and Washington DC voters approved recreational marijuana – while MMJ failed narrowly in Florida at the ballot box.

Polling suggests that a majority of Americans favor legalizing marijuana. It will now be up to voters to determine whether 2016 is a tipping point for the cannabis industry.

Water rules

California’s drought is producing fallout for the state’s expanding marijuana industry.

Up to 50,000 marijuana growers in California could be required to obtain state permits to use irrigation water under a new law which spells out operating details of the state’s Medical Marijuana Regulation and Safety Act. To get the permits, however, growers must certify where they are getting their water from.

What should cultivators do?

Because water from streams and other natural resources is limited, the first thing growers should do is start coming up with more ways to store rainwater, Hezekiah Allen, executive director of the California Growers Association, said.

It’s not only environmentally friendly, he noted, but completely possible.

“We as an association know with confidence we can grow more than enough cannabis – all with stored rainwater,” Allen said.

Growers should invest in water-catching tubs, Allen said. He also noted that greenhouse roofs can be outfitted to catch water. Allen’s own ranch stands on a steep incline, so he invested about $60,000 in a terraced water-catching system.

The second most important step growers can take: Contact their local or regional water boards and let them know they are interested in securing water rights allowing them to divert water from sources on their land or adjacent land.

The process can often take years, Allen said. But the new water regulations allows cannabis growers to start using those rights as long as they’ve initiated the process with local authorities.

“It provides a nice incentive for people who are trying to do the best job,” Allen said.

Omar Sacirbey can be reached at omars@mjbizdaily.com

John Schroyer can be reached at johns@mjbizdaily.com