Week in Review: Big legal victory, nervous credit union & unrequited love in MA

By Omar Sacirbey and John Schroyer

The marijuana industry scores a big legal victory, a credit union in Alaska gets cold feet, and a Massachusetts city nixes a controversial business deal with a medical cannabis dispensary.

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

A big win … for now

A federal appeals court in San Francisco this week sided with the legal marijuana industry against the U.S. Department of Justice, ruling the federal government couldn’t spend money to prosecute cannabis companies that abide by state laws.

The 9th Circuit Court of Appeals decision could provide solid protection against criminal prosecution for MJ businesses that play by the rules – but it may not last, according to California attorney Michael Chernis.

“It’s a big deal. But it has significant caveats,” Chernis said.

For starters, the DOJ could ask the court to reexamine the case, with additional judges on the court weighing in instead of just the three-judge panel that issued the ruling, he said. Or the case could get kicked up to the U.S. Supreme Court.

The other issue, Chernis said, is that the decision may not fully apply to businesses in California. That’s because California doesn’t yet have state medical marijuana regulations in place, as opposed to markets such as Colorado.

That could leave the door open for other prosecutions in California, Chernis warned, and he pointed to the fact that the appeals court sent this case back to a lower court to determine whether or not the businesses had complied with state law.

Several defendants in the case, he noted, were busted for growing 30,000 plants in Fresno County, California, which almost certainly is well above the state limit.

“Thirty thousand plants is not something that could be defended under California’s MMJ law, unless you had a collective out there with 5,000 people,” Chernis said dubiously.

The worst-case scenario, arguably, is that Congress could fail to pass the same amendment to a budget bill in December that the court based its ruling on – the Rohrabacher-Farr Amendment, which has so far passed twice – in 2014 and 2015 – as part of massive spending measures. The amendment must be passed annually, in its current form.

“So we may not have heard the last of this,” Chernis said.

Banking in new cannabis markets

Attention marijuana entrepreneurs aiming to launch a business in Maryland, Ohio, Pennsylvania – or any other new cannabis market. Take note of what just happened in Alaska, which is rolling out its recreational market.

Alaska USA Federal Credit Union this month told 10 people who had applied for state marijuana business licenses to close their personal accounts. These individuals hadn’t even opened a business. But the credit union wanted to avoid scrutiny by the feds.

While it’s common knowledge that banks have closed or rejected marijuana business accounts, personal accounts are another matter.

“It’s not common that individual accounts are shut down. But it has happened,” Christian Sederberg, of the law firm Vicente Sederberg in Denver, said.

Banks typically spurn marijuana businesses in new markets. Bankers there are unfamiliar with the marijuana industry and fearful of cannabis business clients. These banks haven’t yet devoted the time or money needed to build due diligence safeguards.

Bankers in newer market often relax and accept cannabis customers once the market matures and there are enough potential clients to support the needed investment in due diligence.

Consider Colorado, where financial institutions initially shunned new marijuana businesses. Today, however, these institutions increasingly are accepting cannabis clients.

While banks in new markets will continue to be cautious, Sederberg reckons they’ll become increasingly comfortable now that banks in other states have demonstrated how it can be done.

“I’m hopeful the transition won’t be as difficult. But it’s never going to be easy,” Sederberg said.

Can’t buy MA love

Talk about rejection.

Lawmakers in Springfield, Massachusetts, this week killed an unusual deal the mayor negotiated that would have allowed the Hampden Care Facility to become the city’s first and only medical cannabis dispensary.

Under the proposed “host-community agreement” between Hampden and the city, according to MassLive.com, the dispensary would have:

  • Paid the Springfield police department $50,000 annually
  • Paid the city between 2%-6% of its annual revenue

In return, Hampden would have secured permission to open, and it would have won the exclusive right to be the only dispensary in Springfield for five years. That latter provision didn’t sit well with the city council.

In the end, city councilors killed the deal, having concluded the city was giving up too much by not allowing other dispensaries to enter during those five years.

“This is the first time I’m aware of that one of these applicants negotiated (a host-community agreement) with the mayor and then had it rejected by the city council,” said Kris Krane, managing partner of 4Front Advisors, a cannabis consulting firm in Boston.

The incident shows how dispensary applicants are at the mercy of local governments in the Bay State, where host-community agreements are a matter of course.

“It’s fairly unique to Massachusetts,” Krane of the arrangement. “I would be surprised if it happens in some other places, but for the most part it’s a Massachusetts phenomenon.”

Massachusetts’ licensing procedures require applicants to go through 12 steps, including one mandating that they prove they’ve received a “letter of non-opposition” from the town.

While dispensaries in most states are not-for-profit and do pay local taxes, dispensaries in Massachusetts are nonprofits. According to Krane, the nonprofit dispensaries don’t pay local taxes.

To make up for the lost tax revenue, local governments in Massachusetts demand that dispensaries sign revenue-sharing agreements in exchange for a non-opposition letter.

“The overwhelming majority of towns ask for these host-community agreements,” Krane said.

Boston is the exception, he noted. Michelle Wu, the city council president there and a legalization supporter, has opposed the arrangements.

Omar Sacirbey can be reached at [email protected] 

John Schroyer can be reached at [email protected]

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 1 Comment

  1. Rickety Rack August 20, 2016

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