We believe your loan customer would be considered an “indirect” marijuana-related business (MRB) if it leases the property to a marijuana dispensary (which would be considered a “direct” MRB), and this carries with it certain risk-related considerations discussed in more detail below. We also would caution against pursuing any remedy in your loan agreement that would involve taking rents from a dispensary or other direct MRB.
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 suspicious activity reports (SARs), as opposed to the three types of marijuana-specific SARs required by the FinCEN Guidance for direct MRBs.
While licensed adult use and medical marijuana dispensaries are legal under Illinois law, 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 banking relationships with MRBs does not change the underlying federal law, which continues to treat marijuana as an illegal controlled substance.
Also, 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.”
Consequently, if your loan customer leases the property to the marijuana dispensary, you may wish to conduct limited due diligence to verify that the dispensary is licensed under Illinois law. Links to the IDFPR’s current lists of licensed adult use cannabis dispensaries and licensed medical cannabis dispensaries are included in the resources below. You may consider filing a standard SAR for loan payments that aggregate at least $5,000, with ongoing monitoring and continuous SAR filings made for each 90-day reporting period thereafter. However, you also may wish to contact FinCEN to inquire if this is necessary if there is no other suspicious activity that would serve as an independent basis for filing a SAR.
Regarding your remedies should your loan customer default on the loan, we caution against enforcing any assignment of rents clause in your loan agreement, which could result in your bank accepting rents from the marijuana dispensary. We believe this would be a violation of the Crack House Statute, which indiscriminately forbids mortgagees from profiting from a property used for the purpose of manufacturing or distributing a controlled substance.
For resources related to our guidance, please see:
- FinCEN Guidance, FIN-2014-G001 BSA Expectations Regarding Marijuana-Related Businesses (February 14, 2014) (“The Controlled Substances Act (‘CSA’) makes it illegal under federal law to manufacture, distribute, or dispense marijuana. . . . Notwithstanding the federal ban, as of the date of this guidance, 20 states and the District of Columbia have legalized certain marijuana-related activity.”)
- 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.”)
- Cannabis Regulation and Tax Act, 410 ILCS 705/1-10 (“‘Adult Use Dispensing Organization License’ means a license issued by the Department of Financial and Professional Regulation that permits a person to act as a dispensing organization under this Act and any administrative rule made in furtherance of this Act.”)
- Cannabis Regulation and Tax Act, 410 ILCS 705/15-5(c) (“No person shall operate a dispensing organization for the purpose of serving purchasers of cannabis or cannabis products without a license issued under this Article by the Department. No person shall be an officer, director, manager, or employee of a dispensing organization without having been issued a dispensing organization agent card by the Department.”)
- Compassionate Use of Medical Cannabis Program Act, 410 ILCS 130/10(o) (“‘Medical cannabis dispensing organization’, or ‘dispensing organization’, or ‘dispensary organization’ means a facility operated by an organization or business that is registered by the Department of Financial and Professional Regulation to acquire medical cannabis from a registered cultivation center for the purpose of dispensing cannabis, paraphernalia, or related supplies and educational materials to registered qualifying patients, individuals with a provisional registration for qualifying patient cardholder status, or an Opioid Alternative Pilot Program participant.”)
- Compassionate Use of Medical Cannabis Program Act, 410 ILCS 130/115(a) (“The Department of Financial and Professional Regulation may issue up to 60 dispensing organization registrations for operation. . . . The organizations shall be geographically dispersed throughout the State to allow all registered qualifying patients reasonable proximity and access to a dispensing organization.”)
- 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.”)
- 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.”)
- 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.”)