Friday, July 27, 2018

Federal Law Prohibits Banks, Escrow, and Title Companies from Participating in the Sale of Marijuana-Related Businesses

The sale and consumption of marijuana, both medicinally and recreationally, is a pretty controversial topic throughout the United States. Some view marijuana as a dangerous substance that should be banned, comparable to hard narcotics like cocaine or methamphetamine. Many others view marijuana as a substance that should have limitations (similar to the sale of alcohol and tobacco), but not be completely illegal. Then, there's the even deeper issue of medicinal versus recreational usage. Some believe that marijuana should only be used when absolutely necessary (i.e. as a diagnosed treatment for a legitimate medical condition like glaucoma or nausea caused by chemotherapy), and some believe that cannabis isn't dangerous enough to be limited much, if at all.

The main difference between cannabis and substances like tobacco and alcohol is a lack of information. While there has been plenty of research done on the health effects of tobacco (cancer, asthma, etc.) and alcohol (impaired motor skills, liver disease, etc.) and even the effects on a fetus, there really isn't enough evidence to make a conclusive ruling on marijuana. However, for a while, it didn't matter whether marijuana was healthy or not. It didn't matter if it could impair motor skills or give a smoker asthma, because the sale and/or consumption of marijuana was illegal in the U.S., both on a federal and state level.

Over a decade ago, several states (California being one of the first) began to legalize medical marijuana, which could only be purchased from a licensed dispensary with a prescription from a doctor. Then, much more recently, states began legalizing recreational marijuana usage. However, that doesn't mean much from a business standpoint, because although marijuana is now legal in California, it's still illegal according to federal law. That may change within the next several years, but as of this moment, the law is the law, and that's all there is to it.

Because marijuana is still illegal federally, many businesses that must comply with state law (such as escrow/title companies), are not permitted to participate in any transactions regarding businesses that handle the sale of marijuana. In fact, in April of 2017, several national title companies received a memorandum from the Office of the Chief Underwriting Counsel that if the title company gets any indication from a buyer, seller, or broker that the Land will be used for growing, processing, distributing, or dispensing any types of marijuana-based products, they aren't allowed to be involved in the handling of any escrow or other funds of any type, issue any type of zoning coverage, or issue title insurance (except with the inclusion of an exception related to violation of federal law). This policy even applies to an entrepreneur looking to buy property that they will then rent out to tenants who may be involved in the marijuana industry,

Federal laws are taken very seriously by businesses involved in escrow and the transfer of funds, including banks. Banks are federally chartered, insured by the FDI, and use the Federal Reserve wire system. If those banks start breaking federal laws (even laws that don't exist at the state level), the bank can lose its charter and FDIC insurance, and eventually get shut down altogether. Just like banks, escrow companies lose their legal ability to operate if they break federal laws, especially in the financial realm, and for most of those businesses, it simply isn't worth the risk of getting involved in any transaction that might violate federal law.

For that reason, escrow companies (just like title companies and banks) don't take part in transactions involving property (or businesses) that are connected to the marijuana industry. It can be next to impossible for an entrepreneur to start that kind of business with a loan from a bank, because banks won't provide the loans and title companies won't close the sale (a closing is usually required by a lender). However, in some situations (where the sale is an all-cash offer, with no financing), there are law firms with real estate experience that can close real estate transactions. As of now, federal law makes it nearly impossible to do business in the cannabis industry if you need bank financing or plan to go through an escrow company. The laws may change in the future, but for now, it is what it is.

Find out more about us at Any Questions? Contact our Escrow Expert! Sepulveda Escrow Corporation (818) 838-1831. Follow our company on FacebookTwitterLinkedIn, and Google+.

No comments:

Post a Comment