Gov. Jim Justice challenged lawmakers to “solve the riddle” and find a banking solution for the state’s soon-to-launch medical marijuana program.
Attorney General Patrick Morrisey furthered that aim Friday in an advisory opinion, urging the Legislature to carefully balance its regulation of a market sector that’s technically illegal yet practically unenforceable.
“We conclude that, notwithstanding West Virginia law, marijuana’s federal status as a controlled substance makes it very difficult for medical marijuana businesses to operate in a way consistent with federal law, and that by extension financial institutions providing services to these entities may be at risk of federal civil or criminal liability,” the opinion states.
“Nevertheless, we are aware of no federal enforcement actions for services related to the marijuana industry in states where medical marijuana is legal, and ‘safe harbors’ against federal enforcement have existed for years.”
The report concludes that, while the Legislature cannot mitigate the risks entirely, it can pass laws to help businesses adhere to some of the “safe harbors.”
In 2017, Justice signed legislation enabling the state’s medical cannabis program, scheduled to launch July 1, 2019. However, its future turned uncertain when the state’s vendors informed the treasurer that they would not bank marijuana businesses.
Democrats in the House of Delegates have made a banking fix for the state’s nascent medical marijuana program a priority of theirs, and have support from GOP majorities and Justice.
At issue is the federal Controlled Substances Act, which lists marijuana as a Schedule-I substance, on par with heroin or LSD. The law renders it illegal for banks to serve a cannabis business.
However, language written into every federal spending bill over the past four years prohibits the Department of Justice from interfering with medical marijuana businesses operating legally under state law.
Congress could remove this protection in any subsequent spending bill. Amplifying the risk, the DOJ could prosecute retroactively if Congress removed the amendment, according to the opinion.
Other laws, regulations and federal guidance have enabled 486 financial institutions to provide services to cannabis businesses as of September 2018 that are consistent with the U.S. Treasury’s Financial Crimes Enforcement Network’s reporting requirements, according to the opinion.
Morrisey’s take largely aligns with findings of a working group arranged by the state of California regarding public banking options for its recreational marijuana program. The working group found that although the California businesses are already in operation, their financial systems are potentially in violation of federal law, but a complete fix would require federal legislation.
In sum, the West Virginia report concludes while there is some legal cover, any banking fix from the Legislature is not without its risks, although there is a path forward.
“In short, because marijuana is illegal under federal law, providing banking services to cannabis businesses carries some inherent risk of federal civil or criminal action even in states where medical marijuana is legal,” the opinion states.
In a statement, Treasurer John Perdue said the opinion seems to allow the Legislature to move forward with a banking switch, but at the same time, any permanent fix must come from the federal government.
West Virginia’s fix
While lawmakers and Diana Stout, general counsel for the state treasurer’s office, have kicked around other ideas, legislation allowing credit unions to act as depositories has emerged in recent days.
Delegate Mike Pushkin, D-Kanawha, supported the original legislation enabling the program and attempted to fix the banking issue last year. He said he’s sponsoring a credit union bill this time around. It has not yet been formally introduced.
“I think the best solution is a simple solution, it’s a free market solution, and that’s just to add credit unions to the definitions of the type of financial institution that can act as a state depository,” he said.
“The free market solution is to open it up to more entities to bid on it, and if their respective boards vote and decide it’s worth taking the risk because they know they can’t be prosecuted — and the attorney general’s opinion reinforces that they can’t be prosecuted — I think more and more boards of financial institutions are going to vote to take that risk.”
According to research from Perdue’s office, two states — Ohio and Hawaii — use credit unions to bank medical marijuana programs.
Such legislation would need to come through the House Banking and Finance Committee, chaired by Delegate Eric Nelson, R-Kanawha. In an interview Thursday, before the release of the advisory opinion, Nelson said a banking fix would be “front and center” on his agenda.
When asked if he’s comfortable moving forward with legislation that could pose legal risks at a federal level, he sidestepped the question and said he would like to see more information from local stakeholders, some of the other 30-plus states with medical or recreational marijuana, and the treasurer.
He said he would be open to hearing testimony from Mike Stuart, U.S. Attorney for the Southern District of West Virginia, an outspoken critic of recreational and — to an extent — the state’s medical marijuana program.
In December, Stuart hosted a private event titled “Marijuana Symposium: A Look Back at the Colorado Experiment and What You Need to Know,” which featured presentations like “The Truth About Marijuana: Not So Harmless Anymore.”
In an email, Stuart said the following:
“I don’t plan to issue a statement regarding the WV attorney general’s report. No need,” he said. “I have been very clear and consistent of my obligation to enforce all federal laws regardless of subject matter and to comply with all Congressional mandates. I enforce all federal laws and will continue to do so with respect to money laundering, marijuana and every other issue.”