Legislature passes changes to cannabis laws
One of the biggest questions community bankers are asking right now is how to bank individual and business customers who derive revenue from activity related to the cultivation, production and sale of marijuana.
While marijuana remains illegal at the federal level, as a Schedule 1 substance under the Controlled Substances Act, only four states (Idaho, South Dakota, Nebraska and Kansas) currently lack some kind of public cannabis access program. While states like Colorado and Washington get all of the attention, Texas has had a program in place since 2015 that allows individuals access to low-THC cannabis for the treatment of specified medical issues.
Low-THC cannabis is defined as “any compound, manufacture, salt, derivative, mixture, preparation, resin or oil” of the plant Cannabis sativa L. that contains not more than 0.5 percent by weight of tetrahydrocannabinols (THC) and not less than 10% by weight of cannabidiol (CBD).
Recent changes to that law have enlarged the pool of eligible patients, which may increase the demand for more producers of low-THC cannabis. As a result, Texas banks may have to examine their policies related to marijuana-related businesses (MRB) since more people and businesses will likely be involved in this industry over time.
The Texas Legislature enacted the little-known Texas Compassionate Use Act in 2015 (S.B. 339) to allow neurologists to prescribe low-THC cannabis to patients who have been diagnosed with intractable epilepsy. The law required the patient to be diagnosed by two qualified neurologists.
On June 14, Gov. Abbott signed a revision to the act (H.B. 3703) into law that extends coverage to patients with all forms of epilepsy, seizure disorders, multiple sclerosis, spasticity, amyotrophic lateral sclerosis (ALS), terminal cancer, autism and incurable neurodegenerative diseases.
The revision eliminates the requirement for a dual neurological diagnosis. The 0.5 percent THC restriction remains in effect. Texas Occupations Code §169.001 specifically excludes smoking from the definition of “medical use.”
The act requires the Texas Department of Public Safety to create a secure registry of prescribing physicians and to license at least three dispensing organizations (effectuated by Chapter 487 of the Texas Health & Safety Code). The license authorizes the organizations to cultivate, process and dispense low-THC cannabis to prescribed patients.
Employees must also register to work at the licensee. The dispensing organizations’ employees will be delivering prescriptions, as well as potentially filling prescriptions over the counter. While DPS is not currently accepting applications for new licensees, it may increase the number of licensees if it determines that more are required in order to ensure reasonable statewide access.
While the revisions to the act will not dramatically change the landscape of Texas MRBs in the near future, it is a good reminder for Texas banks to consider the potential changes to their business models and regulatory policies as a result of these shifts. As the number of businesses that derive all or a part of their revenue from an activity that touches marijuana continues to increase, banks have to make risk-based decisions as to whether to bank these businesses and how to determine whether their customer actually is an MRB. That decision should be based on an intimate understanding of state laws and definitions (which is hard to come by right now) and also a conclusive policy statement as to whether the bank does business with MRBs and who the bank considers to be an MRB. The bank should also have a discussion with its regulator to understand expectations beyond FinCEN’s stated guidance as there is no other federal regulator that has made any official guidance, and state regulatory guidance is varied. The Texas Department of Banking has not published guidance on this subject.
This year’s No. 1 BSA topic is how to develop marijuana-related business policies and, more importantly, how to even define “marijuana-related businesses.” At the moment, there really isn’t federal guidance so banks are left to make those interpretations for themselves.
There are a variety of methods to go about that, from the three-tier approach to the zero-tolerance approach and to the “we are choosing not to make an interpretation in our policy” approach. Without a set industry standard, banks are working from scratch via member groups — like Compliance Alliance huddles and training sessions and workshops — to feel their way through the changing landscape.
A zero-tolerance approach to MRBs has generally included not doing any business with companies that have any relation to MRBs, directly or indirectly. Direct marijuana business under this approach includes businesses that grow, distribute, sell or produce items that do not fall under the definition of “hemp” under a state-licensed or federal program.
Indirect businesses provide services to MRBs — like landlords and business supply companies. While this is the most conservative approach, it has its downside. This interpretation includes businesses that perhaps did not provide services in the past but do now — like office supply businesses or gardening supply companies. If in the middle of a long-term business relationship — like a closed-end loan — it will be up to the bank to determine how to wrap-up the relationship in order to comply with their own policy.
Right now, with many overlapping and contradictory interpretations from different federal agencies related to regulating MRBs, it is easy to feel like there are more questions than answers on this topic. Compliance Alliance continues to help its members decide whether and how to effectively bank these potential customers. In addition to the frequent discussion related to MRBs on our monthly Huddle, Compliance Alliance continues to develop the tools and training to our members related to MRBs.