The Spring 2011 Real Estate, Construction & Land Update contained an article describing lender and landlord risks associated with extending loans and leasing property to individuals and entities that are engaged in the business of growing and dispensing medical marijuana (MMJ). Over the last month, the legal and banking landscape for MMJ has changed. This article provides a brief update.
To recap, in 2009 the Department of Justice (DOJ) issued the "Holder Memorandum," which states that, while growing and distribution of marijuana are a crime under U.S. laws, U.S. attorneys will not focus federal resources on individuals "whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of marijuana." In states such as Colorado, which has adopted a comprehensive regulatory scheme for MMJ, most growers and dispensers have taken some solace from this memorandum, in the fact that U.S. attorneys will look the other way in their enforcement activities.
However, as noted in a recent The Denver Post article, the DOJ recently issued a policy memo to federal prosecutors, stating that marijuana dispensaries and licensed growers in states with MMJ laws could face prosecution for violating federal drug and money-laundering laws. Much of this action has been focused in California where abuses of the medical marijuana system are prolific. U.S. Attorneys have notified many California dispensaries that those dispensaries must shut down within forty-five days or face criminal prosecution, notwithstanding the fact that the dispensaries may be operating legally under California's MMJ law. To our knowledge, Colorado dispensaries have yet to receive any notices from the Justice Department; however, it is possible that U.S. Attorneys could take similar action in Colorado and other states.
Other governmental agencies are joining this crackdown on MMJ businesses and MMJ use. Last month, the Bureau of Alcohol, Tobacco, Firearms, and Explosives issued a letter stating that it is illegal for MMJ patients to own firearms. As a result, permitted users of MMJ will either lose their gun permits or be less than truthful about their use of MMJ in gun-license applications.
Finally, as indicated in our previous article, very few banks in Colorado accept deposits or conduct a banking relationship with MMJ dispensaries. As reported in The Denver Post, the Colorado Springs State Bank announced its decision to close accounts for MMJ dispensaries. To our knowledge, Colorado Springs State Bank was the last bank in Colorado to accept deposits for MMJ businesses. As a result, MMJ dispensaries are operating on a cash basis once again.
While the Colorado MMJ laws remain unchanged and no clear areas of abuse have been uncovered, it is becoming more difficult for MMJ businesses to operate in Colorado. If the federal government determines to enforce its laws in Colorado, which it has every right to do, there are real concerns that landlords may have their property seized and that lenders will be at risk for dealing with customers who operate an illegal business.
In our previous article, we stated that only "time will tell" if MMJ businesses will become acceptable borrowers, account holders and/or tenants. Based upon recent events, it appears that MMJ businesses will face even greater hurdles in their attempts to enter and continue operations in the mainstream of Colorado commerce.