Cannabidiol (CBD), Hemp And Marijuana Related Businesses/Cannabis

Cannabis is a plant of the Cannabaceae family and contains more than eighty biologically active chemical compounds. The most known compounds are delta-9-tetrahydrocannabinol (THC) and cannabidiol (CBD). Parts of the Cannabis sativa plant have been controlled under the Controlled Substances Act (CSA) since 1970 under the drug class “Marihuana” (commonly referred to as “marijuana”). “Marihuana” is listed in Schedule I of the CSA due to its high potential for abuse, which is attributable in large part to the psychoactive effects of THC, and the absence of a currently accepted medical use of the plant in the United States.

Currently, thirty-three states, the District of Columbia, Guam, and Puerto Rico have all legalized the use of marijuana to some degree. Yet the possession, distribution or sale of marijuana remains illegal under federal law, which means any contact with money that can be traced back to state marijuana operations could be considered money laundering and expose a bank to significant legal, operational and regulatory risk.

CANNABIDIOL (CBD:

CBD derived from marijuana remains in the Schedule 1 of the Controlled Substances Act (CSA) meaning it has no accepted medical use. At federal level, the possession, use, distribution, and transportation of CBD containing more than 0.3% THC legal limit is a federal offense.

HEMP:

At the federal level, the Agriculture Improvement Act of 2018 (the 2018 Farm Bill) signed into law on Dec. 20, 2018, changes certain federal authorities relating to the production and marketing of hemp, defined as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3 percent on a dry weight basis. These changes include removing hemp from the Controlled Substances Act which means that cannabis plants and derivatives that contain no more than 0.3 % THC on a dry weight basis are no longer controlled substances under federal law.

Put differently, CBD containing less than 0.3 percent THC is legal under federal law.

STATE MARIJUANA LAWS:

There are presently 10 US states where Cannabis, including marijuana and hemp, are legal for medicinal and recreational use.

A total of 47 states have legalized marijuana-derived CBD only for medicinal purposes. The qualifying conditions may vary by state; some states are very liberal about the medical use of cannabidiol while others permit this compound only under highly specific circumstances (like an approved medical diagnosis).

Three states have taken a strong stance against marijuana-derived CB — Idaho, Nebraska, and South Dakota. Even hemp-derived cannabidiol is stuck in a legal grey-area in those states.

STATES WITH REGULATIONSS THAT PERMIT USE OF MARIJUANA-DERIVED CBD FOR RECREATIONAL AND MEDICAL USE
Alaska	California	Colorado	Maine	Massachusetts	Michigan	Nevada	Oregon	Vermont
Washington	Washington DC
STATES THAT ALLOW THE MEDICAL USE OF MARIJUANA-DERIVED CBD FOR VARIOUS CONDITIONS
Alaska	Arizona	Arkansas	California	Colorado	Connecticut	Delaware	Florida	Hawaii
Illinois	Maine	Maryland	Massachusetts	Michigan	Minnesota	Montana	Nevada	New Hampshire
New Jersey	New Mexico	New York	North Dakota	Ohio	Oregon	Pennsylvania	Rhode Island	Vermont
Washington	West Virginia
STATES WITH REGULATIONS THAT PERMIT THE USE OF CBD FROM MARIJUANA UNDER CERTAIN CIRCUMSTANCES
Alabama	Georgia	Indiana	Iowa	Kentucky	Mississippi	Missouri	North Carolina	Oklahoma
South Carolina	Tennessee	Texas	Utah	Virginia	Wisconsin	Wyoming

Gilbert Reese continues to monitor marijuana banking regulations as it develops. We are available to consult with you on US marijuana related issues. Tell us your needs and we will do the leg work and get you the answer you need to move your business forward.

Our consultants have experience working with Hemp/CBD banks. We can help you get banking services for your Hemp/CBD business. We do the research and connect you with a banking institution friendly to Hemp/CBD businesses.

CANADA CANNABIS:

Since the Canadian Federal Government legalized Cannabis in 2018, the individual provinces have enacted several Acts/Regulations as it pertains to the use, sale and distribution of the product within their respective jurisdictions. The differences in the respective provinces approach has led to concerns that both direct and indirect sellers of cannabis will not adequately comply with the government regulations making them susceptible to money laundering, terrorist financing and other illegal activities.

For banks doing business with cannabis retailers and entities, certain customers may pose greater risk with respect to money laundering, terrorist financing, and financial crimes, thus requiring enhanced scrutiny. This could be result of the nature of the client’s business, where they do business, predisposition of illegal elements and their ability to infiltrate, among others.

Gilbert Reese provides research and regulatory compliance consultation for both banks and sellers of legal Marijuana in Canada:

Banks: We assist banks in establishing robust due diligence processes including Enhanced Due Diligence (EDD) and Specialized Due Diligence (SpDD):
1. EDD: We help you draft your policy and procedures to ensure you clients Cannabis activity (direct, and indirect) are occurring in Canada, so as not to be in violation of any laws outside Canada. Because Marijuana Related Businesses are higher risk for money laundering, we help you understand the business structure of the clients you are dealing and their potential exposure to money laundering risk. We work with you to ensure your clients have the proper licensing from regulators to do business; have adequate controls in place including documented policies and procedures, as applicable.
2. SpDD: Specialized due diligence applies to certain customers that may pose unique money laundering, terrorist financing, and other financial crimes risks, and for whom additional is necessary to determine an accurate money laundering exposure. We work with your internal compliance teams to conduct deep dive into the prospect clients to ensure your bank is not unduly exposed if they decide to board the client.

Payment Processors:
1. We work with payment processors interested in boarding cannabis merchants to set up a robust compliance program to ensure they are not exposing the company to undue risk. Proper due diligence must be conducted on all merchants needing processing for their cannabis business.
2. Banks require that payment processors conduct due diligence and to know their customers (KYC) like the type of due diligence banks conduct on their direct cannabis merchants. We assist your business in setting up their merchant review processes, making sure that they have the required licensing to do business; have dedicated location for the business.
3. We also help payment processors document their cannabis compliance program in order to demonstrate to banks that as an indirect cannabis business participants, they will not expose the bank to undue reputation risk onboarding unlicensed merchants and/or doing business with criminal elements by allowing their processing platform to be used for money laundering.

The risk of an organization failing to conduct proper due diligence on cannabis merchants in a timely fashion could lead not only to reputational damage, but also to the risk of monetary penalties, or regulator fines. These include:

Risk of onboarding a client not properly licensed, who engages in the retail sale of Marijuana. Your firm could be subject to fines, as well as the reputational damage of participating in an illegal activity.
Engage in business with criminal elements. While part of the aim of the Federal government in legalizing Marijuana is to displace criminal elements, the risk of these individuals and/organizations being present remains.
Regulations are still evolving in Canada and subject to change. Failure to monitor your clients properly could result in your firm not having or having outdated information to information your decision regarding that client.

The aim of EDD and SpDD we provide is to help our organization mitigate these risks and ensure your firm understand fully the merchants you are dealing with. Because Cannabis legalization in Canada is still relatively new, it is critical that you remain vigilant in your due diligence to ensure you minimize reputation risk.