Missouri’s Commercial Financing Disclosure Act: A Benefit to Court-Appointed Cannabis Receivers

Another State Eases Access to Banking Services Pending a Federal Solution

On July 6, 2023, Missouri Governor Michael L. Parson signed into law Senate Bill 187 (S.B. 187), also known as the Commercial Financing Disclosure Act. This legislation continues the trend at the state level to ease access to capital for cannabis-related businesses. S.B. 187, and legislation like it, come to the benefit of court-appointed cannabis receivers as well, given their efforts to streamline financing within the industry. This all comes as particularly welcome news, given the rise in cannabis receiverships across the country.

The Federal and State Divide

Because of the difference in federal and state law regarding cannabis, many federal banking institutions continue to shy away from engaging the industry due to both the legal risk and logistical hurdles. For example, while the Federal Financial Crimes Enforcement Network has stated that it will not take enforcement actions against financial institutions offering services to cannabis-related businesses, other federal agencies have not made similar commitments. Notably, in 2018, Attorney General Jeff Sessions withdrew the 2013 ‘Cole Memorandum,’ which stated that federal authorities would not prosecute cannabis offenses in states where it was legalized. Despite calls to reinstate the memorandum, its status remains rescinded.

On the other hand, any federal regulations that do permit financial institutions to serve cannabis-related businesses impose extensive due diligence requirements. The burden imposed by these requirements can be a significant deterrence to financial institutions seeking to enter the industry and may cause some to avoid the space altogether. The institutions that choose to navigate these additional hurdles may eventually pass on the added costs to the customer,  the cannabis business, in the form of service fees.

Innovation at the State Level

Despite the hurdles posed by the federal and state divide on cannabis, states like Missouri are implementing legislation to encourage financial institutions to work with cannabis-related businesses.

Missouri

Under S.B. 187, Missouri’s regulatory agencies will now be able to share a business’s information, including the company’s initial application, regulatory details, and financial information, with financial institutions, thereby streamlining the financing process.

For court-appointed cannabis receivers in Missouri, S.B. 187 may alleviate the task of tracking down information that may already be in the possession of an administrative agency. This could also minimize costs and avoid duplicative efforts for financial institutions that may now rely on information housed with applicable state agencies. Receivers who are looking to liquidate assets held by a cannabis-related business may also find the legislation beneficial because it can promote quicker financing and underwriting for any prospective buyer.

S.B. 187 is just one example of efforts at the state level to promote access to basic banking services for cannabis-related businesses.

Illinois

On January 1, 2020, Illinois launched the Community-Invest Cannabis Banking Services Program, which provides qualified financial institutions access to low-rate state-impact investment capital. Financial institutions are then able to use these funds to offer basic banking services to cannabis-related businesses at a similarly low rate.

California

On September 29, 2020, California Governor Gavin Newsom signed Assembly Bill No. 1525, which, among other things, authorized state agencies and licensing authorities to share information with each other and financial institutions to promote access to banking services.

Implications for Court-Appointed Cannabis Receivers

Without federal legislation that clarifies the regulatory landscape for financial institutions in the cannabis industry, states will continue to implement laws such as those profiled in Missouri, Illinois, and California. These laws will be vital to businesses and any court-appointed cannabis receivers as they will help facilitate access to capital and banking services and streamline financing applications.

While legislative innovations at the state level come mostly as welcome news, the added demands they can place on the industry can also extended to court-appointed cannabis receivers. For example, Missouri’s S.B. 187 requires “employees, contractors, owners, and volunteers of marijuana facilities” to submit fingerprints to the Missouri State Highway Patrol for criminal background checks. This is not only required for new applicants but is also mandatory for new employees, volunteers, owners, and contractors. Washington State, Arizona, and Colorado have similar requirements.

Hope at the Federal Level?

The US Senate Banking, Housing, and Urban Affairs Committee recently introduced the Secure and Fair Enforcement Regulation (SAFER) Banking Act, which would create safe harbors for financial institutions that provide banking services to cannabis-related businesses. The SAFER Banking Act, among other things, would also extend protections to mortgage lending, payment processing, and other types of transactions. On a broader scale, the Justice Department recently recommended reclassification of cannabis as a Schedule III drug (down from Schedule I). If ultimately reclassified, cannabis would remain a controlled substance, but it could bring significant tax benefits to the industry.

While the SAFER Banking Act remains in the Senate, and cannabis’s reclassification is pending, both are a welcome sign to the cannabis industry and financial institutions that change is on the horizon.

We think you’ll also like:

1. Cannabis Receiverships: A Creative Solution for Bankruptcy Protection
2. 90 Second Lesson: Deciphering California Receiverships
3. 90 Second Lesson: What is a state law receivership?

[Editors’ Note: To learn more about this and related topics, you may want to attend the following on-demand webinars (which you can view at your leisure, and each includes a comprehensive customer PowerPoint about the topic):

1. Restructuring, Insolvency & Troubled Companies Series 
2. The Nuts & Bolts of Bankruptcy Law Series 
3. Cannabis Law Series 

This article was originally published on July 8, 2024.]

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