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Commercial Cannabis Banking
The first event for the National Association of Cannabis Accounting and Tax Professionals featured Steve Schain from Hoban Law Group, a firm dedicated entirely to cannabis and hemp law. Steve, renowned for his expertise in finance, banking, and capital markets, delved into various aspects of commercial cannabis banking. He emphasized that cannabis businesses should view banking from the lender’s perspective to better understand and fulfill the requirements for obtaining bank accounts or loans.
Cannabis Compliance and Risk Management
Steve highlighted the importance of cannabis compliance and risk management, especially in navigating the complex legal environment of cannabis businesses. Compliance is crucial due to the dual legal status of cannabis at the federal and state levels. He pointed out that understanding both plant-touching and non-plant-touching aspects is vital for risk management. Plant-touching entities include those involved in growing, processing, selling, or transporting cannabis, while non-plant-touching entities might be banks, lawyers, or software providers.
Cannabis Risk Management Framework
A significant part of the talk was dedicated to establishing a cannabis risk management framework. Steve described a ‘waterfall’ model, starting with the Controlled Substance Act at the federal level and cascading down to various state laws and regulations. He explained that effective risk management in cannabis involves understanding this layered legal landscape and adopting a proactive approach to compliance.
Cannabis Entity Formation
In the realm of cannabis entity formation, Steve stressed the importance of choosing the right business structure. He mentioned the prevalence of LLCs for their ease of management but also acknowledged the protective benefits of corporations under certain circumstances. He reminded the audience that the choice of entity has significant implications for future growth and risk management.
Cannabis Licensing Applications
Regarding cannabis licensing applications, Steve highlighted the importance of accuracy and compliance. He noted that the application process is public and scrutinized, and any misrepresentation could lead to legal challenges. He also emphasized the importance of understanding the specific requirements of each state and locality.
Cannabis Financial Services
Steve discussed the unique challenges of accessing cannabis financial services. He explained that most banks are hesitant to serve cannabis-related businesses due to the federal illegality of marijuana. This situation leads to issues in managing large cash transactions, as most cannabis sales are conducted in cash. He also mentioned the FinCEN guidance, which offers some direction but doesn’t fully resolve banking challenges for cannabis businesses.
Cannabis Supply Chain
The talk also touched upon the complexities of the cannabis supply chain, from cultivation to sale. Steve pointed out the importance of understanding each stage of the supply chain for compliance and risk management. He particularly emphasized the impact of IRS tax code 280E, which severely limits tax deductions for cannabis businesses, affecting their profitability.
Cannabis Legal Landscape
Finally, Steve provided an overview of the cannabis legal landscape, explaining the discrepancies between federal and state laws. He noted that while cannabis remains illegal federally, it is legal in various forms in many states. This patchwork of laws creates a challenging environment for cannabis businesses, necessitating expert guidance for navigation and compliance.
Steve’s talk offered a comprehensive overview of the challenges and considerations in cannabis banking, compliance, and risk management. His insights into entity formation, licensing applications, and the overall legal landscape of cannabis were invaluable for professionals in the field.
More Cannabis Banking Disscussions:
- Cannabis Banking Updates With Green Check Verified’s Stacy Litke
- Cannabis Banking in Oklahoma w/ Mel Barnes
- Cannabis Banking Decoded – How to Get a Bank Account
Catch the replay at NACAT Pros. Join for just $1 for the first 30 days.
Steve Schain, Esq.
Senior Attorney, Smart-Counsel LLC
2019 National Law Journal “Finance, Banking, & Capital Markets Trailblazer” award winner, Steve Schain chairs global cannabis law firm Hoban Law Group’s PA and New Jersey practice and chairs its Financial Services Group. With 17 offices and 52 lawyers, Hoban Law Group is only practice 100% devoted to cannabis and hemp law.
Admitted to practice in PA and New Jersey, Steve represents entities, governments and individuals in litigation, regulation, compliance, preparing and submitting license applications, entity formation, and drafting legislation. A nationally recognized consumer finance litigation, banking law and cannabis law expert, Steve is a The Legal Intelligencer, New Jersey Law Journal, and Cannabis Business Executive columnist, frequent Pennsylvania Bar Institute and National Bar Institute author and lecturer and serves as a court appointed judge pro tempore and arbitrator.
