More States Looking to ‘Go Green’ In Spite of Banking Woes

This Tuesday, Ohio voters will go to the polls to decide whether to legalize recreational and medicinal marijuana use. But even if the Buckeye State becomes the 24^th (along with the District of Columbia) to legalize some form of marijuana, it will not solve one of the most significant problems facing the burgeoning legal weed industry: the lack of access to banking services that virtually all other legal businesses take for granted. 

 

It is hardly a new problem (See “Legal Weed Outlets Flush in Cash Struggling to Find Banks” in the July 2, 2015 issue of SNCJ). But with Ohio possibly boarding the legal marijuana bandwagon and several states likely to have legalization ballot measures in 2016, it is one that cries for a solution.

 

Since 2012, four states and DC – all of which already allowed medicinal marijuana use - have passed laws legalizing the use by adults of small amounts of marijuana for recreation. Legalization advocacy groups like the Washington D.C.-based National Organization for the Reform of Marijuana Laws (NORML) expect similar bills in between six to eight states next year. This includes California, the first state to legalize medicinal marijuana use (via Proposition 215 in 1996) and home to more than 12 percent of the U.S. population.

 

The prime motivation behind such a relatively rapid push for legalization is simple: money. According to a report released earlier this year by The ArcView Group, a research and investment firm in San Francisco, the marijuana industry took in more than $2.7 billion in 2014, a 74 percent jump from the year before. ArcView predicts that as many as 18 states could pass recreational use laws by 2020, something that could drive cumulative annual revenues as high as $10.2 billion.

 

Much of that is predicated on what happens at the ballot box in California, where voters rejected a marijuana legalization ballot measure in 2010. But with polls showing a majority of Californians now support legalization, proponents feel confident the Golden State may soon be going green.

 

“Should an Adult Use legalization initiative pass in California in 2016 the entire industry could rapidly double in size,” the ArcView report concludes. Another study by New York-based Green Wave Advisors is even more bullish on the so-called “green rush” economy, saying in an October 2014 report that nationwide legalization could push combined medical and recreational retail marijuana sales to over $35 billion a year.

 

If the results in Colorado and Washington - the first two states to make recreational pot legal - are any indicator, it’s not hard to imagine such bold predictions coming true. According to the Colorado Department of Revenue, combined medical and recreational pot sales in August topped $100 million, the first time monthly revenues have reached that plateau. The Centennial State has already taken in over $86 million in marijuana tax revenues this year, more than it collected in all of 2014. Washington, meanwhile, has collected more than $67 million in pot tax revenues in its first year of legalization. Steve Lerch, executive director and chief economist for the state’s Economic and Revenue Forecast Council, told BloombergBusiness in October that Washington expects to take in more than $1 billion in pot-related revenues over the next four years.

 

But while states have no problem processing and banking such large amounts of cash, weed sellers are not so fortunate. With marijuana still barred by federal law, most banks want no part of their money. That leaves the vast majority of dispensaries as strictly cash-only operations – and high-value targets for theft and robbery. It also makes accurately collecting and tracking taxes on those sales much more problematic for state and local officials than for other industries.

 

Colorado has tried to address the situation. In 2014 Gov. John Hickenlooper (D) signed legislation to create a state-chartered credit union that would cater specifically to the state’s nascent legal weed industry. But the legislation had to clear a tall hurdle - federal law requires banks and credit unions to have a master account with the U.S. Federal Reserve in order to process checks and credit cards. The first financial institution created under the new Colorado law, Fourth Corner Credit Union, applied for such an account in December 2014. After months of silence, the Fed rejected Fourth Corner’s application in July, citing marijuana’s illegality under federal law. Fourth Corner has since filed suit seeking to force the Fed to grant them the account. A federal court is scheduled to hear oral arguments on December 28. 

 

Another possible avenue opened up in May with the formation of CannaNative, the brainchild of a trio of Native American businessmen in Southern California who want to unite over 550 Western tribes in the cannabis business. In a statement, CannaNative co-founder Anthony Rivera says the tribes would use their expertise in running casinos on sovereign land to set up financial services for weed dispensaries. In doing so, he says, tribes would use the fast-growing weed industry “to gain true sovereignty” in a way that is both economically and environmentally sustainable.

 

“CannaNative will usher a new age for sovereign nations, as Native American tribes have unique rights that allow for cannabis (marijuana and industrial hemp) cultivation, manufacturing, marketing, sales, use, distribution, medical research and even banking institutions for the rapidly growing cash-and-carry industry,” he said in a statement.

 

But while that might sound good to weed sellers desperate to find a bank, it seems highly unlikely that such a scheme will ever come to fruition.

 

“I don’t see how they would have the leeway to do something like that,” says Khurshid Khoja, the founder of Greenbridge Corporate Counsel in San Francisco, which represents numerous clients in the cannabis industry. “Even with tribal sovereignty there are things they can’t do. I just question how much leeway they would have to exempt themselves from federal anti-money laundering laws.”

 

The answer is very little, according to Brian Pierson, an attorney who specializes in working with Native American tribes for the law firm Godfrey and Kahn in Milwaukee. 

 

“Certainly there is tremendous need in Indian country, and it’s fair for tribes to explore every potential means for economic development,” he says. “But with respect to commercial activity focused on non-Indians living off reservation, there is no judicial authority for immunity or exemption from federal law.”

 

Technology is now also offering potentially much simpler possibilities for weed entrepreneurs. Companies like Denver-based FlowHub and Integrated Compliance Solutions, based in Las Vegas, offer “seed to sale” accounting and point-of-sale solutions that allow cannabis dealers to meet the strict guidelines laid out by the U.S. Department of Justice and the U.S. Financial Crimes Enforcement Network (FinCEN) for ensuring dispensaries are not laundering money or running afoul of racketeering laws. Others, like California-based Hypur, are promoting software they claim can almost fully automate the compliance process for banks, thus drastically reducing the amount of time they take to service a marijuana client.

 

But while technology offers wondrous new tools, it does not by itself solve the basic problem facing financial institutions that work with cannabis companies.

 

“At the end of the day, it is still the bank’s responsibility to make sure there’s no mistakes made with one of these accounts, regardless of what software they are using,” says Beth Mills, Vice President for Communications and Marketing for the California Bankers Association. 

 

That reality is why most observers still look to Congressional action for a resolution. But the wait has so far been frustrating. Multiple bills have been introduced in Congress, including HR 2076 by Colorado Rep. Ed Perlmutter (D). The “Business Access to Banking Act” would grant civil protections for managing accounts with legal weed dispensaries, but it has so far languished in a House subcommittee with no sign it will ever get a vote. With an often dysfunctional and hyper-partisan Congress heading into an election year, its prospects appear dim.

 

But there remains one small ray of hope for those who support a Congressional solution. An amendment to the tentative budget agreement reached last month between the White House and Congress included an amendment authored by Oregon Sen. Jeff Merkley and Washington Sen. Patty Murray, both Democrats, that would bar the Dept. of Justice from using federal funds to go after banks that provide services to marijuana businesses that are operating legally within their own states. It is yet to be seen if the amendment survives the complicated budget negotiation process. Even if it does not this time, NORML Deputy Director Paul Armentano says the expansion of the legal marijuana industry in the states is likely to force Congress’s hand sooner rather than later.

 

“Ultimately, this is an issue for Congress,” he says. “It is federal law that is preventing these state-compliant businesses from gaining access to financial services, and ultimately it is Congress that has to deal with this issue head on.”

 

 

 

 

Follow Rich on Twitter at @WordsmithRich

States Play Conflicted Role in Immigration Debate

With national immigration reform stymied by partisan division, several states have extended privileges associated with U.S. citizenship to millions of unauthorized immigrants. At the same time states are leading the legal charge against President Obama’s executive orders protecting up to 5 million immigrants from deportation.

 

California is in the forefront of states accommodating unauthorized immigrants. Hundreds of thousands of them flocked to 150 Department of Motor Vehicle offices and four special processing centers last month as the Golden State rolled out a law allowing anyone 18 and over to obtain a driver’s license after passing road knowledge and driving tests. Two of three persons who took the written test in a language other than English failed to pass on the first try. Even so, the DMV licensed 40,000 new drivers in January and is on track to reach a three-year goal of 1.4 million new licenses.

The new law has been largely welcomed by law enforcement officers as a safety issue. Julie Powell, a spokeswoman for the California Highway Patrol, said that requiring unauthorized immigrants already on the road to pass a driving test and obtain insurance will bolster public safety.

California’s liberalized policy on driver’s licenses is the latest in a series of laws that have eased the lives of unauthorized immigrants, called “undocumented” by their advocates and “illegal” by their detractors. California is home to nearly a fourth of all such immigrants in the United States -- 2.8 million out of 11.6 million, according to Pew Research figures.

In 2014 California enacted 26 laws on immigration, many removing long-existing barriers. Unauthorized immigrants in California can now receive subsidized health care, student loans and financial aid and licenses to practice law and medicine. Child welfare courts no longer make immigration status a determinant of guardianship.

 

These laws reflect the liberal political leanings of a state where Democrats hold every statewide office and control the legislature. More fundamentally, they reflect a sea change in public perceptions of Latin American and Asian immigrants, not long ago regarded as a drain on the state. In 1994, California voters approved a ballot initiative intended to deny educational and medical benefits to unauthorized immigrants. Courts found most of this initiative unconstitutional but vestiges remained on the books until 2014, when they were repealed at the behest of Latino legislators.

 

A recent survey by the Public Policy Institute of California (PPIC) found that Californians are more likely to say that immigrants are a benefit to California because of their hard work and job skills (63 percent) than to say that immigrants are a burden to the state because they use public services (32 percent). A solid majority (69 percent) support President Obama's executive action of Nov. 20, 2014, that could shield as many as five million immigrants from deportation. 

 

It’s not only California where attitudes and laws are changing. Ten states and the District of Columbia now issue driver’s licenses to unauthorized immigrants and another three states offer conditional licenses. Eighteen states grant immigrants in-state college tuition. Five states -- California, Minnesota, New Mexico, Texas and Washington -- provide financial assistance for immigrant students.

 

On the other side of the coin a lawsuit filed by 26 states would roll back Obama’s executive orders and make it easier to deport immigrants. Texas, which originated the suit, demonstrates the paradox of the states’ response to illegal immigration. On the one hand, the Lone Star State provides financial aid to immigrants; on the other, it spearheads a lawsuit that could speed their deportation.

 

The lawsuit seeks to block implementation of Obama’s immigration orders, Deferred Action for Childhood Arrivals (DACA) and Deferred Action for Parental Accountability (DAPA), which the federal government will roll out in May. These programs shield from deportation the “Dreamers” who were brought to the United States illegally as children and parents who’ve lived in the United States continuously for at least five years.

 

Texas, led by Gov. Greg Abbott, a Republican who was the state attorney general when the lawsuit was filed, chose the federal court in Brownsville, Texas in the hope of drawing U.S. District Judge Andrew Hanen, known for conservative views on immigration issues. The case was indeed assigned to Hanen, who has heard arguments and could rule at any time.

 

Whatever Hanen decides, the ruling will be only the beginning of a protracted legal battle. Mayor Eric Garcetti of Los Angeles, one of 33 big-city mayors who have filed briefs in support of Obama’s executive orders, anticipates that Hanen will rule against them but expects the orders to be upheld on appeal. The U.S. Supreme Court has long held that immigration is a federal responsibility.

 

Meanwhile, the debate continues in Congress and the states with dim prospects for substantive reform. Neither side has distinguished itself. Those who oppose the anti-deportation orders often cite risks to public safety despite studies showing that unauthorized immigrants commit fewer crimes than the general population. But immigrant advocates also exaggerate. Their claim, for instance, that border security is adequate was exposed as dubious last summer when thousands of frightened Central American children walked freely across Mexico and into the United States.

 

Obama’s immigration record is problematic. Campaigning for the presidency, he promised to propose immigration reform legislation. Had he done so in 2009 or 2010 when Democrats controlled both congressional chambers, it is conceivable a bill might have passed. But Obama did not put forward an immigration bill until his second term. By this time, Republicans controlled the House and declined to act on a Senate-passed bill.

 

Before his epiphany last November, Obama had deported more than four million immigrants, in many cases breaking up families for minor offenses. Although the executive orders he announced are welcomed by Latinos, they are clouded by the legal battle over their constitutionality and lack of permanence: the orders will expire when Obama leaves office unless extended by his successor.

 

The plight of these immigrants poses a political danger for Republicans. The GOP took control of the Senate and expanded its House majority in 2014 by winning states and districts with relatively few Latino voters. It will be more difficult to win the presidency on an anti-illegal immigrant platform. Latinos were a key element of the coalition that twice carried Obama to victory. Mitt Romney, the Republican nominee who had called upon illegal immigrants to “self-deport,” received only 27 percent of the Latino vote. Political analyst Larry Sabato estimates the Republican presidential nominee in 2016 will need 40 percent of the Latino vote to win, about what President George W. Bush received when he was re-elected in 2004.

 

Another Bush -- Jeb, a potential presidential candidate -- knows from experience that treatment of immigrants is an issue loaded with pitfalls. In 2004, as governor of Florida, Bush proposed issuing driver’s licenses to unauthorized immigrants. Hostile Republican reaction killed the plan. Bush was left to lick his political wounds and warn that “the situation of illegal immigrants won’t go away.”

 

Twice in the past month the issue has flared along party lines in states likely to be battlegrounds in the 2016 presidential election.

 

In the Virginia Senate the Democratic minority united to kill a bill that would have repealed a law allowing immigrants to obtain in-state tuition. The bill failed by a single vote because one Republican senator defected and another was absent.

 

In Colorado, where Republicans won State Senate control in 2014, a Senate budget committee blocked release of funds for an existing program that provides driver’s licenses to unauthorized immigrants. Such licenses are now being issued in a single southwest Denver office where appointments are booked for the rest of 2015.

 

These actions suggest that treatment of unauthorized immigrants will be a potent issue this year in the states, absent unexpected action on immigration reform in Washington. Republicans and Democrats don’t agree on much, but both sides could say with Jeb Bush that the issue isn’t going away.

 

-- By Lou Cannon

Northeast Govs Now Favor Legal Weed

Saying it was “inevitable” that her state would soon be surrounded by states that have legalized recreational cannabis use, Rhode Island Gov. Gina Raimondo (D) joined a growing number of her Democratic colleagues in proposing to follow suit.

 

Raimondo was hardly enthusiastic about the prospect.

 

“I will say, I do this with reluctance,” she told the Providence Journal. “I have resisted this for the four years I’ve been governor...Now, however, things have changed, mainly because all of our neighbors are moving forward” with legalization.

 

In recent years, Vermont, Maine and Massachusetts have all endorsed recreational weed use. They may soon be joined by New York and New Jersey, where Govs. Phil Murphy (D) and Andrew Cuomo (D) have both called for legalization.

 

In his State of the State address to lawmakers last week, Murphy dubbed cannabis legalization one of his top two legislative priorities in 2019, along with raising the Garden State minimum wage to $15. He made a similar push on weed last year but could not reach an agreement with the Democrat-controlled Legislature. Lawmakers generally support legalization but have been unable to develop a plan on taxation and regulation that all parties can agree on.

 

In New York, meanwhile, Cuomo unveiled his long-awaited legalization proposal last week. It included three separate taxes at the wholesale and cultivation level, with no additional levies on retail sales. It would also create a state office to oversee the industry, craft a licensing system for growers, distributors and retailers, and give cities and counties the power to reject legalization in their jurisdictions.

 

Raimondo’s proposal also called for what her office said would be the “strongest regulatory framework for adult-use marijuana in the nation.” Raimondo said the state estimates it would garner approximately $6.5 million in new revenues in the first year of legalization. But her Deputy Chief of Staff Kevin Gallagher said money was not the motivation.

 

We’re not doing this for the revenue,” Gallagher told the Providence Journal. “We’re going to be surrounded by [marijuana], and the only way we will be able to control the public health, to make sure we have safe products, control distribution, ensure proper enforcement, is if we take control of our own destiny and establish a framework here that has those significant protections.”

 

Several other Democratic governors have or plan to propose legalization this year, including Colorado Gov. Jared Polis and Illinois Gov. J.B. Pritzker, both newly sworn in. Virginia Gov. Ralph Northam and Pennsylvania Gov. Tom Wolf have also noted their interest, though it is unclear if either will make a proposal this session (NEW YORK TIMES, ALBANY TIMES-UNION, NJ.COM, YORK DAILY RECORD, MARIJUANA MOMENT, BLOOMBERG, PROVIDENCE JOURNAL, DEMOCRAT & CHRONICLE [ROCHESTER])

Politics of Sustainable Investing by Public Funds

Sustainable, or ESG, investing – choosing investments based on environmental, social and governance considerations – has been around for decades. But such investing has really taken off in recent years. According to global investment research and management firm Morningstar, assets in sustainable investments grew more than 500 percent between 2006 and 2016, from 3.78 trillion to 22.89 trillion.

 

Public pension funds have helped fuel that growth, as state and local governments have sought to attract ESG-inclined millennial investors, as well as respond to calls for ESG investments or divestments from some investors. For instance, after the American Federation of Teachers urged teacher pension funds earlier this year to divest from companies that supported private prisons used to house migrants separated from their children at the U.S.-Mexico border, Chicago’s teachers fund did so. Some funds have also faced growing pressure to sell off investments in gun retailers and fossil fuel companies.

 

Critics argue that sustainable investing places political and emotional considerations ahead of the fiduciary duty to provide the best return for investors. That very argument was used to oust the president of the California Public Employee Retirement System’s board of directors, Priya Mathur, an internationally recognized leader in the sustainable investment community, in October.

 

Recent research by the Boston College Center for Retirement Research found that ESG funds haven’t performed as well as unrestricted funds, although the center noted that the underperformance was due at least in part to the much higher management fees charged by ESG funds rather than to the performance of the investments themselves.

 

But Ohio State University law professor Paul Rose makes the case that fiduciary responsibility for public funds extends beyond return on investment. He says such funds also have to consider the fiscal impact of investments on taxpayers, such as whether they will raise government costs for health care or water quality.

 

“You could create a colorful argument that [certain types of] ESG investing does help taxpayers over the long term,” he said.

 

Ohio University’s Rose notes that regardless of the type of investments you’re advocating for or against, “You need to be able to demonstrate that you’ve run the numbers.” (GOVERNING, MORNINGSTAR)

Education - July 24 2017

Education In Kentucky

The KENTUCKY High School Athletic Association adopts rules making the Bluegrass State the first to require all high school softball pitcher and first and third basemen to wear protective masks when in the field. The rule goes into effect in 2018 (LEXINGTON HERALD LEADER).

Education In Florida

The FLORIDA Department of Education determines that nothing in the Sunshine State’s new mandatory recess law prevents schools from holding activities indoors. The law requires elementary schools to set aside 20 minutes each day for “free-play recess” (ASSOCIATED PRESS).