On June 7, 2018, a supermajority of the Washington Legislature blessed financial institutions and accountants providing services for the licensed marijuana industry.[1]

The new law is comfort legislation for a special class in Washington. It is also a protest against impressions about the threat of federal prosecution. But what comfort is the legislation for persons falling outside the protected group? Does it provide any comfort or is it the proverbial cold comfort? The answer may be economics and politics (limited funds to target violent crime, federal/state relations and votes) should reduce the threat of prosecution, regardless of the new legislation.

Discussion

The new state law had broad support; supermajorities passed the law, 81 percent in the senate and 85 percent in the house.[2]

Public safety and other policies. The law targets the public safety problem caused when licensed businesses move cash in 80-pound duffel bags and thieves drill through roofs to steal the stored cash. Overlapping policies support the law:

  • The adage (less cash, less crime);
  • The elimination of the black market;
  • The promotion of transparency and traceability of funds; and
  • The promotion of access to banking and regulated financial services.

Public testimony and lawmakers’ statements.[3] Who supports the Comfort legislation? The support was wide spread.  The Northwest Credit Union Association supported the law. Three credit unions serve the industry and provide almost $1 billion in safe banking. The testimony emphasized the public policies listed above along with the stringent compliance requirements and due diligence for each transaction, and the risk of prosecution for money laundering. Additional policies were the promotion of small marijuana businesses, health research, the protection of employees of the licensed marijuana businesses to have bank accounts and credit cards rather than cash, especially the young, entry-level workers who may be unfamiliar with the financial services world.

Washington Association of Sheriffs and Police Chiefs supported the law as amended. Their support rested on the “incredible public safety issue” stemming from the amount of cash from the industry that was not safeguarded in a financial institution.

The staff summary of the public testimony was:

Washington needs to shut down the black market for marijuana and get cash out of the marijuana market. Having financial services that are traceable would improve the regulation of the industry. Previously, there was federal guidance for financial institutions interacting with the regulated marijuana industry. However, recent guidance by the federal government has caused uncertainty regarding providing financial services to the marijuana industry.[4]

The sound bites from the hearings included:

  • Important first step.
  • Step in the right direction.
  • Can’t wait for the feds to act.
  • Position for time when action is taken by Congress.
  • Eliminate some of the uncertainty resulting from the Sessions memo.

Testimony alluded to one bank stopping services to the industry after the Sessions memo.

But why did the lawmakers feel the need to adopt special legislation when the number of financial institutions nationally reporting that they served state licensed marijuana businesses rose from 340 to 400 by September 2017?[5]

Continue Reading 2018 Washington State <em>Comfort Legislation</em> for the Financial Industry and Accountants Dealing With Licensed Marijuana Businesses

We recently reported that the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) was retaining its Bank Secrecy Act marijuana guidance. Last week, a senior official in the Department of the Treasury indicated that, as a result of U.S. Attorney Sessions’ recent actions, FinCEN is reviewing the guidance it issued on February 14, 2014 entitled: “BSA Expectations Regarding Marijuana Related Businesses.” Any rescission of that guidance is likely to have significant effects on any cannabis business using any forms of payments other than cash.

We’ll continue to keep on top of this issue and share our insights as the federal positions evolve.

As we reported last week, U.S. Attorney Jeff Sessions issued a memorandum on January 4 rescinding the seminal cannabis “Cole Memo” and other DOJ guidance involving cannabis. This has raised continuing issues and confusion for financial institutions concerning what the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) would do concerning the guidance it issued on February 14, 2014 entitled “BSA Expectations Regarding Marijuana-Related Businesses.”

This morning, we received the following note from the FinCEN’s Resource Center:

“The SAR reporting expectations outlined in the February 14, 2014 guidance, FIN-2014-G001 remains in place.  FinCEN will continue to work closely with law enforcement and the financial sector to combat illicit finance, and we will notify the financial sector of any changes to FinCEN’s SAR reporting expectations.”

We’ll continue to keep on top of this issue and share our insights as the federal positions evolve.

Determining the fair market value of an interest in a cannabis business is a difficult task. Existing and potential clients frequently ask us how cannabis businesses should be valued and whether or not there are any “trends” in assessing value. These questions are not surprising given the various instances where a valuation is important. You may find yourself asking how much a cannabis business is worth in any of the following circumstances:

  1. Estate Planning
  2. Business Succession Planning
  3. Shareholder/Member Agreements
  4. Business Disputes
  5. Securities Offerings
  6. Dissenter’s Rights
  7. Mergers & Acquisitions
  8. Lending & Finance
  9. Tax Planning
  10. Transfer Pricing

Certified appraisers generally use three different approaches to valuing an asset, including a cannabis business.  Those approaches are:

  1. Asset Approach —Also known as replacement cost. How much would it cost to rebuild the asset?
  2. Market Approach — What are the value-comparable businesses? Relies heavily on the availability of comparable datasets and subjective adjustments.
  3. Income Approach — Commonly used for income-producing real estate. Value is determined using the expected future cash flow of the income-producing asset.

There are advantages and disadvantages to each approach. Furthermore, business owners and potential investors should make valuation adjustments given the inherent risks involved and the speculation of federal legalization. It may be appropriate to discount the value of a business given the inherent risk of federal enforcement. However, it may also be appropriate to inflate the value of a business given the potential impact of federal legalizations.

We encourage our readers looking for additional information from the experts themselves to check out this great blog.

In the past two weeks, the SEC has temporarily suspended two marijuana stocks that trade on the OTC Markets. The suspensions lasting until June 5, involved, respectively, a questionable press release concerning a proposed acquisition and a lack of information provided to investors concerning the company’s controlling interests. While specific to these two companies, it is possible that the SEC may apply more careful scrutiny concerning publicly-traded cannabis-related businesses in the future.

Lane Powell supports the Cannabis Investor Network (CIN) in Seattle.  The mission of CIN is to connect accredited investors with state-legal cannabis businesses that need additional capital.  Lane Powell hosted the inaugural event in our Seattle office earlier this year with about 40 guests, and hosted the second event last night with about twice that number.  Pitches from several segments of the cannabis industry were very well received and everyone seemed to welcome the opportunity to connect with other business people in the industry.  CIN is based in Seattle and open to Accredited Investors and cannabis businesses seeking capital.

How it works:

Those interested in pitching their company to the Cannabis Investment Network begin by submitting their application and materials online through this Deal Funding page. Companies must be beyond the idea phase though they need not have revenue. Candidates for presentation should submit a comprehensive pitch deck, which includes your business plan, financial projections and other relevant company background and information.

Following submission of your application and supporting documentation, CIN will review and evaluate your proposal to ensure it has everything needed to make an informed decision. During this review process, CIN representatives will be in contact with you to source additional details about your company, the management team, operations, marketing plans and financial projections. Once CIN has what it needs and thinks your company would be a good fit to present to its Investor Network, CIN will schedule an in-person meeting or phone screen with you where you walk through your pitch deck.

After the screening meeting, if CIN decides to proceed, CIN will schedule your company to present at an upcoming meeting.

At the investor event, you will be given approximately ten minutes to present and five minutes for Q&A. You should expect that you will be participating with several other companies at the meeting.

Monday, June 20, 2016, was summer solstice. But in Washington, there were two other things to celebrate: a day to recover after the Fremont Solstice weekend, and, for legal marijuana businesses, the first day for the licensed marijuana industry to obtain funds from out-of-state financiers under the new rules from the Washington State Liquor and Cannabis Board (WSLCB).

This post describes the regulatory framework governing loans to Washington-licensed marijuana businesses and the penalties for noncompliance.

Continue Reading Out-of-State, Non-Bank Financing Becomes Available for Washington State Licensed Marijuana Businesses