In our view, whether to make a loan secured by commercial property with a licensed medical marijuana dispensary as a tenant is a business decision for your bank. The customer would be considered an “indirect” marijuana related business (MRB), since it leases property to a medical marijuana dispensary, which is a “direct” MRB. Before making this decision, we recommend reviewing and (if necessary) updating your bank’s policies and procedures with respect to banking indirect MRBs and carefully assessing the risks involved in extending this loan.

The FinCEN Guidance on banking MRBs does not expressly define “direct MRBs” but indicates that such businesses generally are directly involved in growing, distributing or dispensing marijuana. Likewise, the guidance does not expressly define “indirect MRBs” but recognizes that many banks provide financial services to customers who themselves provide goods or services to direct MRBs, such as “a commercial landlord that leases property to a marijuana-related business.” According to the FinCEN Guidance, whether a bank wishes to accept deposits from and provide other financial services to these indirect MRBs is a risk-based business decision. If a bank knowingly does so, it generally should look to the rules for filing standard SARs, as opposed to the three types of marijuana-specific SARs required by the FinCEN Guidance for direct MRBs.

While duly-licensed medical marijuana dispensaries are legal under Illinois law – which also will permit them to sell marijuana (and other cannabis products) to all adults 21 and over beginning January 1, 2020 – it remains illegal under the federal Controlled Substances Act to manufacture, distribute or dispense marijuana. The federal law also provides that anyone who “aids, abets, counsels, commands, induces or procures its commission” is punishable as if they were a principal to the crime. The fact that federal entities such as FinCEN and the U.S. Department of Justice have published guidance on maintaining relationships with MRBs does not change the underlying federal law, which continues to treat marijuana — even medically prescribed marijuana — as an illegal controlled substance.

In addition – and pertinent to your question – the federal “Crack House Statute” makes it illegal under federal law to knowingly lease or rent a property for the purpose of “manufacturing, distributing, or using any controlled substance,” or to manage or control a property “as an owner, lessee, agent, employee, occupant, or mortgagee” and to “knowingly and intentionally rent, lease, profit from, or make available for use, with or without compensation, the place for the purpose of unlawfully manufacturing, storing, distributing, or using a controlled substance.”

Nonetheless, these activities already are taking place in two-thirds of the states across the country, and Illinois financial institutions increasingly will need to address their policies and procedures in relation to indirect MRBs even if they choose to not offer their services to direct MRBs. Notably, the range of potential indirect MRBs is almost limitless; technically, it includes all businesses that service direct MRBs, such as commercial landlords, seed and equipment suppliers, security firms, transportation companies, utility companies, attorneys, accountants, and a host of other legitimate businesses — as well as all individuals who are employed by MRBs (and technically speaking, while not addressed in any guidance or literature, even the state, local and federal governments when they collect taxes and fees from the MRBs).

Needless to say, the risks involved in banking these various parties will vary widely, and it would be untenable from both a business and an operational standpoint to refuse to provide banking services to all of them or to file SARs on all their banking transactions. Consequently, your bank may wish to consider adopting a policy that differentiates between circumstances under which it will or will not provide services to or file SARs on indirect MRBs. For example, your bank may choose to bank indirect MRBs and file or not file SARs on their transactions only when they derive less or more than a certain percentage of their revenues from direct MRBs.

As part of your risk assessment for this customer, your bank may wish to conduct a limited due diligence to verify that the MRB tenant is duly licensed under state law, which can be accomplished on this State of Illinois website for dispensaries: https://idfpr.illinois.gov/profs/medcan.asp.  If your bank chooses to make the loan and take a security interest in the property with the MRB tenant, we believe your bank should file a standard SAR for all loan payments that aggregate at least $5,000, with ongoing monitoring and continuous SAR filings made for each 90-day reporting period thereafter, for as long as necessary until your customer ceases to lease the property to the MRB tenant.

Regarding your remedies should the customer default on the loan, we caution against enforcing the assignment of rents clause in your mortgage and accepting any rents from the MRB tenant. We believe this would be a violation of the Crack House Statute, which indiscriminately forbids mortgagees from profiting from a property that it manages or controls and is used for the purpose of distributing a controlled substance. Your bank also may wish to consider this proscription when deciding whether to make this loan.

For resources related to our guidance, please see:

• FinCEN Guidance, FIN-2014-G001 BSA Expectations Regarding Marijuana-Related Businesses (February 14, 2014) (“Similarly, a financial institution could be providing services to a non-financial customer that provides goods or services to a marijuana-related business (e.g., a commercial landlord that leases property to a marijuana-related business). In such circumstances where services are being provided indirectly, the financial institution may file SARs based on existing regulations and guidance without distinguishing between 'Marijuana Limited' and 'Marijuana Priority.' Whether the financial institution decides to provide indirect services to a marijuana-related business is a risk-based decision that depends on a number of factors specific to that institution and the relevant circumstances. In making this decision, the institution should consider the Cole Memo priorities, to the extent applicable.)

• FinCEN Guidance, FIN-2014-G001 BSA Expectations Regarding Marijuana-Related Businesses (February 14, 2014) (Outlining three marijuana-specific SARs for marijuana-related business customers and when to file them)

• FinCEN Guidance, FIN-2014-G001 BSA Expectations Regarding Marijuana-Related Businesses (February 14, 2014) (“In assessing the risk of providing services to a marijuana-related business, a financial institution should conduct customer due diligence that includes: (i) verifying with the appropriate state authorities whether the business is duly licensed and registered; (ii) reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business; (iii) requesting from state licensing and enforcement authorities available information about the business and related parties; (iv) developing an understanding of the normal and expected activity for the business, including the types of products to be sold and the type of customers to be served (e.g., medical versus recreational customers); (v) ongoing monitoring of publicly available sources for adverse information about the business and related parties; (vi) ongoing monitoring for suspicious activity, including for any of the red flags described in this guidance; and (vii) refreshing information obtained as part of customer due diligence on a periodic basis and commensurate with the risk.”)

• Compassionate Use of Medical Cannabis Pilot Program Act, 410 ILCS 130/1 (Illinois law that permits the medical use of marijuana for certain patients and the operation a limited number of dispensing organizations for medical marijuana, scheduled to be repealed July 1, 2020.)

• Cannabis Regulation and Tax Act, Public Act 101-0027 (Illinois law that permits the personal use of marijuana for persons 21 years of age and older and the operation of a limited number of dispensing organizations for medical and personal use marijuana, beginning January 1, 2020.)

• Controlled Substances Act, 21 USC 841(a)(1) (“Unlawful acts. Except as authorized by this subchapter, it shall be unlawful for any person knowingly or intentionally — (1) to manufacture, distribute, or dispense, or possess with intent to manufacture, distribute, or dispense, a controlled substance; . . . .”); 21 USC 802(6) (A controlled substance is “a drug or other substance, or immediate precursor, included in schedule I, II, . . .”); 21 USC 812(c)(c)(10) (Schedule I drugs include marijuana.); 18 USC 2(a) (“Whoever commits an offense against the United States or aids, abets, counsels, commands, induces or procures its commission, is punishable as a principal.”)

• FinCEN SAR Rules, 31 CFR 1020.320(a)(2) (“A transaction requires reporting under the terms of this section if it is conducted or attempted by, at, or through the bank, it involves or aggregates at least $5,000 in funds or other assets, and the bank knows, suspects, or has reason to suspect that (i) The transaction involves funds derived from illegal activities . . . as part of a plan to violate or evade any Federal law or regulation or to avoid any transaction reporting requirement under Federal law or regulation; . . . ”)

• FFIEC BSA/AML Manual, Suspicious Activity Reporting (“FinCEN’s guidelines have suggested that banks should report continuing suspicious activity by filing a report at least every 90 calendar days. Subsequent guidance permits banks with SAR requirements to file SARs for continuing activity after a 90 day review with the filing deadline being 120 calendar days after the date of the previously related SAR filing. Banks may also file SARs on continuing activity earlier than the 120 day deadline if the bank believes the activity warrants earlier review by law enforcement.”)

• Crack House Statute, 21 USC 856(a) (“Except as authorized by this title, it shall be unlawful to— (1) knowingly open, lease, rent, use, or maintain any place, whether permanently or temporarily, for the purpose of manufacturing, distributing, or using any controlled substance; (2) manage or control any place, whether permanently or temporarily, either as an owner, lessee, agent, employee, occupant, or mortgagee, and knowingly and intentionally rent, lease, profit from, or make available for use, with or without compensation, the place for the purpose of unlawfully manufacturing, storing, distributing, or using a controlled substance.”)