TitleBytes News & Happenings

“Weed” Control”

Feb 5, 2018

By Phillip Neuman

A “burning” topic these days is marijuana. Currently (as of November 30, 2017), 29 states and the District of Columbia have enacted laws to legalize the use of medical marijuana. Nine states and the District of Columbia have voted to legalize the drug recreationally, and Michigan will have a ballot proposal this November to legalize recreational marijuana. In Michigan, the Michigan Medical Marihuana Act (the “Act”) was approved by voters in November, 2008 by a wide margin (63% to 37%) through a ballot initiative.

In light of the exponential growth of medical marijuana in Michigan, as well as the uncertainty regarding the legality of marijuana dispensaries, the Michigan Legislature recently approved a series of bills that among other things created the Medical Marihuana Facilities Licensing Act (“MMFLA”). The MMFLA provides for a state regulatory structure to license and regulate medical marihuana growers, processors, provisioning centers, secure transporters, and safety compliance facilities. Essentially, the MMFLA allows for the manufacture and use of marijuana-infused products by Qualifying Patients and for the manufacture and transfer of such products by Primary Caregivers. The Bureau of Medical Marihuana Regulation, created by the MMFLA, is now accepting applications for marijuana facilities. The non-refundable application fee is $6,000. According to the Detroit Free Press, as of January 19, 2018 only 20 applications have been fully completed, with another 123 applicants having submitted pre-qualification applications that will allow the state to begin background checks.

One critical issue that remains in a deep state of flux is the interplay between state and federal law on marijuana. Marijuana is still considered a Schedule I controlled substance under the Controlled Substances Act (CSA), meaning that it has a high potential for abuse, has no currently accepted medical use in treatment in the US, and there is a lack of accepted safety for use of the substance under medical supervision. Therefore, any use of marijuana, medical or otherwise, is a clear violation of federal law.

In 2013, then-Deputy Attorney General James Cole issued a memorandum outlining the circumstances under which the US Attorney’s office would prosecute marijuana related businesses. This memorandum was issued to provide guidance to federal prosecutors concerning marijuana enforcement under the CSA, and established certain criteria that would be used to determine whether to prosecute a person or entity that was engaged in the sale or use of marijuana in a state where medical or recreation marijuana was legal. On January 4, 2018, Attorney General Jeff Sessions announced that the Cole Memorandum was being rescinded effective immediately. Sessions stated in his memorandum “In deciding which marijuana activities to prosecute under [the Controlled Substances Act, money laundering statutes, the unlicensed money transmitter statute and the Bank Secrecy Act] with the Department’s finite resources, prosecutors should follow the well-established principles that govern all federal prosecutions. . . . These principles require federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes on the community.”

As a result of the rescission of the Cole Memorandum, there is tremendous uncertainty as to whether or not the US Attorneys in the Eastern District and Western District of Michigan will attempt to prosecute those who are involved in some way in the medical marijuana business. To date, title insurers have by and large avoided issuing title commitments and policies where the land is known to be used as a marijuana growing facility or provisioning center. Chicago Title Insurance Company, for example, includes a notice on Schedule B that states “Please be aware that due to the conflict between federal and state laws concerning the cultivation, distribution, manufacture or sale of marijuana, the Company is not able to close or insure any transaction involving Land that is associated with these activities.”

Even if a title company were willing to handle a closing involving a marijuana facility, there are significant financial concerns associated with the transaction. The provisions of the money laundering statutes, the unlicensed money remitter statute, and the Bank Secrecy Act remain in effect with respect to marijuana-related conduct. Additionally, the Financial Crimes Enforcement Network (FinCEN) has issued guidance to financial institutions seeking to provide services to marijuana-related businesses. See, “BSA Expectations Regarding Marijuana-Related Businesses”, FIN-2014-G001, issued February 14, 2014. While the guidance provides a “safe harbor” for financial institutions, it is possible that this guidance will be rescinded by the Secretary of the Treasury just as the Cole Memorandum was rescinded by the Attorney General. As of January 19, 2018, FinCen indicated that the FinCen Guidance was still in effect.

In sum, the world of medical marijuana holds great promise for businesses of all kinds, including title insurers and agents, but only if Congress moves marijuana off Schedule I and eliminates the tremendous uncertainty created by the conflict between state and federal law.

Phillip J. Neuman
Couzens, Lansky, Fealk, Ellis, Roeder and Lazar
39395 W. Twelve Mile Rd., Ste. 200
Farmington Hills, MI. 48331
(248) 489-8600 x382

1 https://www.freep.com/story/news/local/michigan/2018/01/19/medical-marijuana-applications-trickle-only-20-completed-so-far/1049411001/

2 https://www.dorsey.com/newsresources/publications/client-alerts/2018/01/fincen-guidance-on-banking-marijuana

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