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.

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Foreign Purchases of Some American Businesses Face Government Examination

7/20/15 - The Committee on Foreign Investment, an agency through the United States Treasury Department, is responsible for deciding whether to approve or deny any attempted purchase of an American company by a company based in another country. Some such buy-outs are simple and easily approved. Others, like the purchase of Micron Technology Inc., as discussed by James F. Peltz, in his L.A. Times article, require much more discussion and consideration.

The Committee on Foreign Investment only tends to take issue with purchases when they may affect national security. For example, in 2005, a major Chinese oil company called CNOOC Ltd. made an offer of $18.5 billion to purchase Unocal Corp., a California-based oil company. Politicians took issue with this proposed buy-out because they feared that foreign ownership of the American oil provider could possibly cause major problems for the future of American energy security. Eventually, due to complaints and protests regarding the deal, CNOOC Ltd. decided to retract its offer.

More recently, another Chinese company, Tsinghua Unigroup Ltd., has reportedly been preparing a $23 billion offer for the purchase of Micron Technology Inc., a major manufacturer of dynamic random-access memory chips. While Micron claims that no offer has been received yet, Peltz’s sources believe that the deal may not go through anyway, even without interference from the Committee on Foreign Investment. Micron’s stock prices in December were at $36 per share, and while those prices have dropped throughout the year, analysts still believe that the expected offer of $21 per share will not be enough to convince Micron to sell.

Were such an offer proposed by Tsinghua Unigroup and accepted by Micron, it is unlikely that the sale would be approved without a struggle. The Committee on Foreign Investment would have to come up with some pretty compelling reasons to grant approval for a state-owned Chinese country to gain control of one of the only major American producers of memory chips, found in so many devices from smartphones to personal computers. Memory chips are everywhere, in the public sector and in the government, and the change in ownership could pose a security risk, especially after the large number of recent cyber-attacks that have been traced back to China.

Having spent over $200 billion, last year alone, on importing integrated circuits, China, like other Asian countries, wants to become more independent and work on developing its own network of memory chip production, rather than continuing to purchase from America and other countries. Unfortunately for them, they will probably not achieve this goal through a purchase of Micron. Between the Department of Defense’s responsibility to protect national security and Micron’s high stock prices, it is more than likely that this Micron deal will end the same way as Unocal Corp.’s did.

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Wal-Mart To Increase Minimum Wage to $9 Per Hour

3/13/15 - Statistics show that six out of ten Americans believe that the federal minimum wage should be raised. Many believe the raise is necessary, as a wage of $7.25 per hour is not necessarily enough to live on, especially for individuals trying to support their family. Others believe that if the minimum wage is raised, companies will be forced to lay off some workers, or raise prices on goods, in order to compensate for the extra money being payed to employees. In their L.A. Times articlerticle, Jim Puzzanghera, Shan Li, and Sarah Parvini discuss a recent decision by Wal-Mart to raise their minimum wage and what this decision means for them and their workers in the long run.

After facing intense protests and rallies led by labor groups and increases in state minimum wages throughout the country, Wal-Mart decided to protect its public image and raise its minimum wage to $9 per hour, $1.75 per hour above the federal minimum wage, for around 40% of its employees, starting in April. This will provide about 500,000 Wal-Mart employees a substantial pay increase, and the company plans to raise the minimum wage even more, to $10 per hour, by February 2016.

According to Doug McMillon, a Chief Executive at Wal-Mart, these changes are to help build a stronger business while also providing for the needs of their employees. While the pay raises do place the company in a better light, prevent the federal government from having to propose higher minimum wages, and lower costs incurred by having to continuously train new hires, they will also cost over $1 billion in extra costs during this fiscal year. Shares in Wal-Mart fell 3.2% since the beginning of the fiscal year, but economist Justin Wolfers is confident that the benefits will far outweigh the added costs.

By Wolfers' argument, as an employee's salary increases, so does their productivity. Several companies, including Costco, Trader Joe's, and the Gap, have illustrated this point of view, showing a correlation between happy customers and employee wages well above the federal minimum. Could this just be a matter of correlation versus causation, however?

It makes financial sense for Wal-Mart to increase their wages, and some believe that this may force similar businesses like Target, Safeway, and Kroger to raise wages or risk losing employees. Craig Johnson, president of Consumer Growth Partners, believes that Wal-Mart's changes may convince Target employees to change teams, but he doubts that others will give up good jobs at other stores to join Wal-Mart.

For some, the wage increases are not enough. “Ten dollars is pocket change,” says Sanders Mosley, a current Wal-Mart employee. Many feel that companies can afford to and should pay their employees $15 per hour, rather than the ten to thirteen dollar per hour wages on the high end of the spectrum. Is $10 enough to live on, with the rising cost of living and the improving economy? Maybe, maybe not. Can companies really afford to a minimum of $15 per hour and still keep workers employed and shareholders happy? Probably not. While Wal-Mart and many others are raising their wages, they are careful not to go too far, and thus make sure that happy employees are a benefit, not a net financial loss.

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FCC Introduces Rules Promoting Net Neutrality

2/27/15 - One of the most controversial topics in recent discussion is net neutrality. Net neutrality is the principle by which Internet providers provide equal access to all online materials, without favoring particular websites. The push for net neutrality comes from a common practice among Internet providers by which certain online content has slower speeds than others. This “speed discrimination” leaves users with two options: wait extra time to access certain data, or pay to use “faster lanes.” The FCC has, as of Thursday, passed a set of rules that provide for the government's regulation of Internet speeds. Jim Puzzanghera, in his L.A. Times article, discusses what this means, economically and otherwise.

While the Federal Communications Commission claims that these regulations will not be anywhere near as tough as the provisions in other industries, these net neutrality rules mean that the government will have some semblance of control over the Internet. Conservatives and telecommunications companies fear governmental intrusion in a system that is already working well, and liberals applaud the FCC for promoting free and equal access to all legal online materials.

Broadband, just like water and electricity, has become a commodity, a necessity in the everyday life of an average American. However, like with water and electricity, there may be some sense in the government regulating broadband, since it would give everyone access. Quoting similarities to freedom of speech, supporters of net neutrality feel that it is the best way to give everyone equal ability to acquire information.

Generally, neither side of the argument disagrees that Internet providers should have some sort of checks and balances. It is the extent of these regulations that worry many. The Internet, if treated as a commodity, should be as it is now. People can pay more money for a better product, just as people can pay more money for access to a better Internet connection. The two seem very similar. On the other hand, if treated as a utility, like water or electricity or telephone service, broadband seemingly should be equally available to all potential consumers.

In the past, two attempts by the FCC to introduce net neutrality rules have been blocked by federal judges as illegal in some way. Tom Wheeler, Democratic member of the FCC and architect of this net neutrality plan, seems confident that it will be successful. Wheeler decided to classify Internet as a “utility-like” product, which may or may not help his cause. There are sure to be many attempts to throw out the proposed FCC rules, and so, none are quite sure whether net neutrality will be a lasting phenomenon in our future.

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IRS to Undergo Changes Regarding "Structuring"

2/13/15 - The Internal Revenue Service (IRS) is responsible for making sure people pay their taxes. As such, the IRS has many procedures they follow to uphold federal laws. Unfortunately, some of these procedures are flawed in that they can lead to unfair treatment of law-abiding taxpayers. In a recent Los Angeles Times article, the process by which the IRS deals with a practice called “structuring” is addressed.

Under federal law, all bank transactions over $10,000 have to be reported to the IRS. This law is meant to help federal officials catch drug dealers and money launderers. However, it is possible to avoid reporting all transactions to the IRS through “structuring,” by which large deposits are split up in such a way that less than $10,000 is deposited at any given time. The reason structuring is illegal is the assumption that the only people who would need to hide their income from the IRS are those earning money through illegal avenues. It is this practice on which the IRS has been cracking down in past years.

If a trend in your financial history shows many such deposits, which seemingly correspond to a structuring scheme, the IRS has the authority to seize your accounts, with no charges filed, for years on end in some situations. It hardly seems fair.

According to IRS Commissioner, John Koskinen, 60% of the 200 or so cases per year are not pursued by the owners of the seized accounts. This leads many to conclude that those individuals were in fact involved in illegal money practices, which could show that the practice is successful in some respects. But, what about the other 40%?

The problem with the current system is that the IRS doesn't need any proof. They don't have to know that the account holder is doing anything illegal. They just have to see that many deposits of less than $10,000 have been made in any given account. In many cases, there is very little for the law-abiding account-holder to do in response, to try to get their money back.

Some deposit smaller amounts into their accounts so as to not carry around large amounts of money between their place of business and the bank. Others simply make deposits at given times, and happen to deposit less than $10,000 at any given time. No matter what the reason, under current IRS practice, accounts can be seized under mere suspicions of possible wrongdoing. Some victims of the system eventually get their money back, but not after plenty of wasted time, stress, and legal fees.

Although the current way in which structuring is addressed has its major flaws, Koskinen assures the public that changes will be made. Congress and the IRS are working together to make sure that taxpayers are treated fairly, and to make sure that accounts will no longer be seized as long as the money in those accounts was earned legally. Although the changes may take some time to fully come to bear, it appears that when these changes are complete, the IRS will have lost some of its ability to seize money without reasonable cause.

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