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Filibuster and Federal Marijuana Legalization

Filibuster and Federal Marijuana Legalization

Filibuster and Federal Marijuana Legalization

Filibuster and Federal Marijuana Legalization

Filibuster and federal marijuana legalization

Last years have been very important for cannabis legalization. Currently, fifteen states, two territories and the District of Columbia have legalized cannabis for adult recreational use. New York is the most recent state to legalize cannabis, which was passed in late March 2021, during New York’s 2021 session. 

And the road ahead seems promising for states Cannabis legalization, with states like Virginia or New Mexico that have proposed the implementation of recreational marijuana legalization bills that would establish a regulated commercial market. More and more states are taking the initiative to decriminalize or directly legalize recreational marijuana. 

However -on the other hand- federal legalization doesn’t look so favorable. Recently, Michigan urged Congress of the United States to clarify its position on the legality of marijuana under the Federal Controlled Substances Act. 

Under federal law -unfortunately- marijuana is still a Schedule I illegal substance. And considering that there’s a 50-50 split in the 117th U.S. Congress, federal legalization probably won’t be happening anytime soon, as the Republicans would be able to repeal it by filibustering.

What’s a Filibuster?

A Filibuster, according to the United States Senate’s glossary, is an “informal term for any attempt to block or delay Senate action on a bill or other matter by debating it at length, by offering numerous procedural motions, or by any other delating or obstructive actions”.

The most common form of filibuster occurs when one or more senators attempt to delay or block a vote on a bill by extending debate on the measure. The Senate rules permit a senator, or a series of senators, to speak for as long as they wish, and on any topic they choose, unless “three-fifths of the Senators duly chosen and sworn” (currently 60 out of 100) vote to bring the debate to a close by invoking cloture -AKA: a motion to end a debate- under Senate Rule XXII.

However, today -even though the filibuster is more common than ever- it is not necessary for a senator to talk for hours to maintain a filibuster. Nowadays, all it takes to perform a filibuster is for a senator to state his intention to launch a filibuster against a bill or motion. 

Immediately after the senator’s intention is stated, a vote has to be taken, and only after getting at least 60 votes any action could be taken on the matter, getting less than 60 votes would mean the bill or motion got blocked. 

It can be described -basically- as a move in which senators demand a supermajority to cut off debate and move to an actual vote.

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History of the Filibuster

Being able to block a measure through extended debate was generated as a side effect of an 1806 rule change. 

This tactic was infrequently used during much of the 19th and 20th centuries. In 1970, the Senate adopted a “two-track” procedure to prevent filibusters from stopping all other Senate business and thus . 

The minority then felt politically safer in threatening filibusters more regularly, which became normalized over time to the point that 60 votes are now required to end debate on nearly every controversial legislative item.

Laws that expressly restrict the time for Senate discussion, such as the Congressional Budget and Impoundment Control Act of 1974 -which established the budget reconciliation mechanism- have been used to limit the procedure. 

Changes in 2013 and 2017 now require only a simple majority to invoke cloture on nominations, although most legislation still requires 60 votes. Although one or more senators can still hold the floor for a prolonged period of time on occasion, often without the Senate leadership’s knowledge. 

However, since the Senate’s ability to act eventually depends on whether there are enough votes to invoke cloture and proceed to a final vote on passage, these “filibusters” generally only cause small delays and have little influence on the outcome.

Filibustering was actually created by accident in 1806. In 1789, the first U.S. Senate adopted rules allowing senators to move the previous question by simple majority vote, which meant ending the debate and proceeding to vote. 

At that time, Vice President Aaron Burr argued that the previous-question motion was redundant, had only been exercised once in the preceding four years and, therefore, it should be eliminated, which was done in 1806.

These changes on the Senate’s rules made filibustering possible, as it didn’t create another alternative to terminate the debate.

The senate allowed the tactic to be used until more than a century later, in 1917, when -during World War I- a rule allowing cloture of a debate was adopted by the Senate after the urging of President Woodrow Wilson, after a group of 12 anti-war senators managed to kill a bill that would have allowed Wilson to arm merchant vessels in the face of unrestricted German submarine warfare. 

From 1917 to 1949, the requirements for cloture were two-thirds of the senators voting. During this period of time, there were times where politicians recited Shakespeare and read out recipes for hours at a time, some of them occupying as long as 15 hours of debate. 

In 1949 the Senate made invoking cloture even more difficult by requiring two-thirds of the entire Senate membership to vote in favor of a cloture motion. Then, ten years later, in 1959 -anticipating more civil rights legislation- the Senate restored the cloture threshold to two-thirds of those voting.

In 1970 the Senate introduced a “two-track system”, which would allow the majority leader -with unanimous consent or the agreement of the minority leader- to have more than one main motion pending on the floor as unfinished business. 

Under this system, the Senate can have two or more pieces of legislation or nominations pending on the floor simultaneously by designating specific periods during the day when each one will be considered.

Filibusters became easier for the minority to retain as a result of this change. This also led to the modern era in which an effective supermajority requirement exists to pass legislation, with no practical requirement that the minority party actually hold the floor or extend debate.

In 1975, the Senate revised its cloture rule so that three-fifths of sworn senators (60 votes out of 100) could limit debate, except for changing Senate rules which still requires a two-thirds majority of those present and voting to invoke cloture. 

However, by returning to an absolute number of all Senators (60) rather than a proportion of those present and voting, the change also made any filibusters easier to sustain on the floor by a small number of senators from the minority party without requiring the presence of their minority colleagues. 

This further reduced the majority’s leverage to force an issue through extended debate.

Exceptions for the Filibuster

There are some bills that are not subject to the effective 60-vote requirements. These are bills that -under provisions of law- have a limited time for debating them. These limits on debate allow the Senate to hold a simple-majority vote on final passage without obtaining the 60 votes normally needed to close debate:

  • Budget reconciliation. Expedites the passage of certain budgetary legislation.
  • Trade promotion authority. Gives authority to the President to negotiate international trade agreements in a “fast track”
  • Congressional review act. Allows Congress to review and repeal administrative regulations adopted by the Executive Branch within 60 legislative days.
  • National emergencies act. Formalizes the emergency powers of the President.
  • War powers resolution. Generally, requires the President to withdraw troops committed overseas within 60 days, which the President may extend once for 30 additional days. 

How to end a Filibuster

As of today, according to the rules set for debate in the United States Senate, 60 votes are needed to end a filibuster. Once the debate is closed, senators can move forward with consideration of the measure, amendments or final votes. 

The issue is that, nowadays, with the Congress split in half, this isn’t possible, as the Republicans are unlikely to vote against the filibuster. And what’s even more, Democrats would have to tread lightly this session, to ensure they don’t upset the Republicans, as doing so could cost any chance at passing even the smallest reform. 

How could the Democrats kill the filibuster and what’s the “Nuclear Option”?

Another option that the Democrats have in order to pass federal legalization would be the so-called “nuclear option”.

The “nuclear option” is a parliamentary procedure that allows the Senate to override a standing rule of the Senate, such as the three-fifths vote rule to close debate, by a simple majority.

The option is invoked when the majority leader raises a point of order that contravenes a standing rule. The term “nuclear option” is an analogy to nuclear weapons being the most extreme option. 

The “nuclear option” would allow the Senate to override one of its standing rules, including the 60-vote rule to close debate, by a simple majority (51+ votes or 50 votes with the Vice President casting the tie-breaking vote), rather than the two-thirds supermajority normally required to amend the rules. To this day, the “nuclear option” has never been used to kill the filibuster. 

In this sense, it would be possible for the Democrats to change the rules for the filibuster. However, Senate minority leader, Mitch McConnell doesn’t want the filibuster to die, and has decided to not negotiate with Democrats until they agree to keep it in play. 

In the current state of the Senate, where there’s a 50/50 division, it would be fairly complicated to change these rules, as the Senate would need -at least- 51 votes, which means that every single Democrat would need to be on board to change the rules, which can be a bit tricky, as there are some of them who have -openly- been in favor of filibuster in the past.

What’s even more, let’s say that the Democrats find a way to eradicate the filibuster and start passing bills on marijuana legalization. According to Sen. McConnell, this could lead to a situation where any marijuana reform bill passed under Democratic control would just end up tossed off the books once Republicans take back the power.

When Republicans next control the government, we’d be able to repeal every bill that had just been rammed through. But a few years later, Democrats would try to flip it all back. So instead of building stable consensus, we’d be chaotically swapping party platforms.” – Sen. Mitch McConnell

From this point of view, it wouldn’t be the smartest idea to kill the filibuster as it would possibly take away the possibilities of legalizing cannabis on a federal level in an effective -and durable- way. 

It could take away the possibilities of passing any kind of reform the Biden administration would want to pass.

And with the landscape being the way it is, It seems like federal legalization won’t be occurring any time soon.

Free Strategy Session?

For a quick assessment of your needs – let’s talk to discuss how Trusts can help your business. 

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  1. real estate contracts
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  3. Shareholder litigation
  4. cannabis business
  5. fraud actions
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Board Member Agreements & How to Control Corporate Owners

Board Member Agreements & How to Control Corporate Owners

Board Member Agreements & How to Control Corporate Owners

Board Member Agreement

Board Member Agreements & How to control Corporate Owners

In the Cannabis Industry, having the right partners is essential. In practice, a lot of times you will be looking at a “49/51 deal” in which one of the partners has a 51 percent and there’s a second partner –or a number of partners- that share 49 percent ownership of the company.

A partnership is a risky business endeavor because partners can fail to meet their obligations to the organization, which can cause relationships to sour. A partner who owns 51 percent of a company is considered a majority owner. Any other partner in the business is considered a minority owner because he owns less than half of the business.

In this sense, the most important things you’d have to consider about getting into these partnerships can be boiled down to two specific sections: economics and control.

The economics section can be understood, in a fairly simple way, as how much money both parts of the partnership make. Usually –as expected- the person with a higher percentage of ownership will earn more, although this can be leveled through bonuses, salaries, etc. This part is fairly straightforward and will highly depend on the negotiation skills of the partners.

The control section is, on the other hand, fairly complicated. But any business partnership needs to tackle this aspect headon in order to find any success. Long story short: you are never going to have a successful business if you don’t get the nuances of controlling the company right, in a way that works for you.

How can a Board Member Agreement help you gain control over a business

A Board Member Agreement is a written contract setting forth the organization’s expectations for Board members. These contracts help setting clear expectations for the board members.

Common Board Member Agreement expectations include the following:

  • Attend at least X% of board meetings
  • Participate in all Board meetings and Board committee meetings using fair, independent judgment, and due care in conducting the business of organization
  • Recuse yourself from any discussions or votes on matters that amount to a conflict of interest with organization
  • Be loyal to the organization, always exercising Board powers in the primary interest of organization, and not primarily for the interest of yourself or others
  • Keep all organization matters confidential
  • Avoid all political campaigns in the name of organization
  • Be available for phone consultation
  • Serve on at least one organization committee
  • Attend at least one signature organization event
  • If appointed to an officer position, fulfill officer duties as stated in the bylaws.
  • Read financial reports and other corporate documents
  • Read reports on corporate programs, finances, and management
  • Direct all media inquiries to the Executive Director or party designated by the Board on a particular matter
  • Promote the organization to your contacts and on social media
  • Communicate to Chair when if you are no longer able to fulfill these duties. 

Board contracts should be customized to reflect the organization’s core values, address any areas that may cause friction, and memorialize any fundraising expectations.

Naturally the partner with a higher percentage of ownership will be able to -pretty much- run the business anyway they want. They can make decisions including, but not limited to:

  • The direction the business will take.
  • Prices for the company’s products or services.
  • Compensation and benefits payable to employees and owners.Entering into a contract unfavorable to the company but to the advantage of one or more of the owners.
  • Selling the company altogether and at what price.
  • Demoting, firing, or decreasing other owners’ pay.

In this sense, a 51/49 deal comes down to trust. With a 51/49, you really have to trust – particularly if you’re the 49 percent person – that the 51 percent is going to hear you. That’s a massive degree of control for what is ostensibly two peers being in business together. You really have to trust that that person’s going to treat you right and handle things correctly.

It is said that good fences make good neighbors. So do good contracts. The time to work out these details is before problems arise, when everyone still has stars in their eyes and is operating with a high degree of trust and good faith.

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What should you include in your Board Member Agreement

Usually, any good Board Member Agreement would include:

  • Services and consideration. In which it would be included the services the 51 percent member (manager) would agree on.
  • Units of the company. How many units have been issued to the manager, what’s the cost of each unit and conditions regarding the possible causes of repurchasing of them.
  • Confidentiality. What constitutes confidential information, limits the manager has using this information and the obligation to return the confidential information the manager possesses to the company in case of termination of the agreement.
  • Ownership of Intangible Property. Determining how the company is going to treat all inventions or creations conceived in whole or in part by the manager that relate in any matter to the business.
  • Return of Company’s Property. The manager’s obligation to return company’s property once its role as board chairman comes to an end.
  • Conflicting Obligations. The obligation of the manager to not engage in any other obligation or agreement that conflicts with the interests of the company.
  • Terms and Termination. Causes for which the board member agreement would terminate.
  • Impossibility of Assignment. Impossibility for the manager of assigning the board member agreement or any other agreement without the consent of the company.

If made right, a good Board Member Agreement would be able to stop any kind of future confrontation thus establishing clear boundaries to corporate owners. If your company doesn’t have a Board Member Agreement yet, you should contact us, so we can work with you and help you figure out what your best options are.  

Free Strategy Session?

For a quick assessment of your needs – let’s talk to discuss how Trusts can help your business. 

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements What is a stock warrant? According to Investopedia, warrants are derivatives that give the right -but not the obligation- to buy or sell a security at a certain price before expiration. The price at which the underlying security is...

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Thomas Howard

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Whether this is your first land use issue or most recent, our office has helped people and businesses alike.

Thomas Howard was on the ball and got things done. Easy to work with, communicates very well, and I would recommend him anytime.
R. Martindale

How to add a new member to an LLC

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Subscription Agreements

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A subscription agreement is an investor's request to become a member of a limited partnership (LP). It also serves as a two-way warranty between a corporation and a new shareholder (subscriber). The company intends to sell a specific number of shares at a fixed price...

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements What is a stock warrant? According to Investopedia, warrants are derivatives that give the right -but not the obligation- to buy or sell a security at a certain price before expiration. The price at which the underlying security is...

Virginia Cannabis Lawyer

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Virginia Cannabis Lawyer Earlier this year, Virginia voted to legalize adult-use marijuana becoming the first southern state to do so. Under the newest legislation on the matter, home cultivation and personal possession will become legal as of July 2021, but retail...

Ohio Cannabis Lawyer

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Ohio Cannabis Lawyer Are you from the buckeye state and want to establish a cannabis business? Having a good cannabis lawyer in Ohio makes the difference between getting a license or not. Even though Ohio’s medical marijuana market had a bumpy start, the market has a...

Michigan Cannabis Lawyer

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Michigan Cannabis Lawyer Are you from the great lake state and want to start a cannabis company or need assistance with an existing one? You probably need a Michigan cannabis lawyer. As the cannabis industry gets more recognition and the market expands, recreational...

Need A Business Lawyer?

Call our law offices with your legal questions for help on:

  1. real estate contracts
  2. business contract disputes
  3. Shareholder litigation
  4. cannabis business
  5. fraud actions
  6. mechanic's liens

 

Victory for Hemp

Victory for Hemp

Hemp Ban Overturned

Hemp is completely legal to grow in Illinois with the proper state license.

Illinois Hemp Ban Overturned in Rural Oakland

The City of Oakland tried to ban hemp farming inside its city limits by claiming authority under the Illinois Municipal Code section regarding Urban Agricultural Areas. Collateral Base represented the prejudiced farmer and had the municipal ordinance tossed by an Illinois Court. Because the City of Oakland is not a home rule community Dillion’s Rule in Illinois barred the City from banning hemp due to its lack of authority. 

Let’s touch on what is a “home rule” or “non-home rule” municipality in Illinois. 39 States follow “Dillion’s Rule” – including Illinois – and it allows municipalities to allow themselves to govern their community with greater detail than the state law applies, but first they must become a “home rule” unit of government.

Q: What is “home rule,” why would a community want to become a home rule unit, and how?

A: In Illinois, home rule is the State constitutional authority of local governments to override the state and self-govern provided the General Assembly did not explicitly limit that power or maintain the exclusive exercise of authority in a specific area, for example the CRTA limited home rule communities from banning home grow cannabis for medical marijuana patients.

Home rule municipalities explicitly have police powers.  Article 7 of the Illinois Constitution regarding home rule provides that they “may exercise any power and perform any function pertaining to its government and affairs including, but not limited to, the power to regulate for the protection of the public health, safety, morals and welfare; to license; to tax; and to incur debt” without specific statutory authority.

 

Hemp Questions?

How home rule is different than non-home rule

Non-home rule basically bows to the state laws, unless the municipality has a statute or enumerated constitutional powers that enable it to create new ordinances. However, a home rule municipality can go beyond state regulations unless expressly pre-empted by statute and can rely on its police powers.  Here we will examine the differences between the language from the Illinois Constitution on home rule units. 

The City of Oakland went beyond its non-home rule powers when making its hemp farming ban.

Ill. Const. Art. 7, § 7 for Non-home Rule Municipalities

  1. to make local improvements by special assessment and to exercise this power jointly with other counties and municipalities, and other classes of units of local government having that power on the effective date of this Constitution unless that power is subsequently denied by law to any such other units of local government;
  2.  by referendum, to adopt, alter or repeal their forms of government provided by law;
  3.  in the case of municipalities, to provide by referendum for their officers, manner of selection and terms of office;
  4.  in the case of counties, to provide for their officers, manner of selection and terms of office as provided in Section 4 of this Article;
  5.  to incur debt except as limited by law and except that debt payable from ad valorem property tax receipts shall mature within 40 years from the time it is incurred; and
  6. to levy or impose additional taxes upon areas within their boundaries in the manner provided by law for the provision of special services to those areas and for the payment of debt incurred in order to provide those special services.

These are the only powers a non-home rule municipality in Illinois may have – so the City of Oakland had to try and find another statute that enabled them to ban hemp farming throughout its city limits.  We will get to that soon, but we note that the City of Oakland then argued that the statutory authority did not matter because they could ban hemp under its police powers – but non-home rule municipalities do NOT have police powers.  As you can see from the powers of the Home Rule Units under Section 6 of  Article 7 of the Illinois Constitution below.

SECTION 6. POWERS OF HOME RULE UNITS

(a) A County which has a chief executive officer elected by the electors of the county and any municipality which has a population of more than 25,000 are home rule units. Other municipalities may elect by referendum to become home rule units. Except as limited by this Section, a home rule unit may exercise any power and perform any function pertaining to its government and affairs including, but not limited to, the power to regulate for the protection of the public health, safety, morals and welfare; to license; to tax; and to incur debt.

We put the police powers in bold.

What are Police Powers in Illinois?

They are: the power to regulate for the protection of the public health, safety, morals and welfare; to license; to tax; and to incur debt.

Urban Agricultural Areas in Illinois

The City of Oakland went to the Illinois Municipal Code and found a restriction against urban agricultural areas that a city can regulate if it bears a direct relationship with the public health, safety or welfare.

The only problem was – this law did not exist until 2019 and Oakland had no urban agricultural area. The City of Oakland tried to find any method they could to ban the hemp farming inside its city limits.  The City argued that its zoning laws from 1968 qualified as an urban agricultural area.  This is not how law works, as statutes do not operate retroactively.

Division 15.4 of the Illinois Municipal Code, titled Municipal Urban Agricultural Areas

The cited statute, 65 ILCS 5/11.4-30(a,) provides in full:

(a) A municipality may not exercise any of its powers to enact ordinances within an urban agricultural area in a manner that would unreasonably restrict or regulate farming practices in contravention of the purposes of this Act unless the restrictions or regulations bear a direct relationship to public health or safety. (Emphasis Added).

The City of Oakland skipped over all the regulatory hurdles to get to its objective of banning hemp.  Illinois amended the Illinois Municipal Code in 2019 to provide for urban agriculture and provided protections and procedures for farmers to establish an “urban agricultural area.” We must review Article 11, Division 15.4 of the Code regarding Municipal Urban Agricultural Areas. The City looked straight past the controlling provisions of the Code in search of its desired ends – banning hemp farming in its City limits. The City skipped right over numerous Sections of the Code that requires prior to adopting an ordinance designating an urban agricultural area, the municipality must:

  1.  receive an application for establishing an urban agricultural area [65 ILCS 5/11-15.4-15(a)]; 
  2. establish an urban agricultural area committee after receiving an application to so establish one [65 ILCS 5/11-15.4-10(a); 
  3. elect a chair for that committee [65 ILCS 5/11-15.4-10(b)]; 
  4. fix a time and place for a public hearing and notify each taxing unit of local government [65 ILCS 5/11-15.4-20]; 
  5. publish notice of this hearing in a newspaper of general circulation for days before such hearing [65 ILCS 5/11-15.4-20]; and 
  6. hold the public hearing; allow any interested person – like the Plaintiffs in this case – to appear and voice objections and comments with respect to the hearing [65 ILCS 5/11-15.4-20].
  7. Only after such public hearing, and in compliance with the procedures as provided in the Code, may the municipality adopt an ordinance establishing and designating an urban agricultural area [65 ILCS 5/11-15.4-20].

The City of Oakland did none of these things in banning hemp farming from its City limits. Instead, it just said that it did, which the court pointed out that it clearly did not and had no ‘urban agricultural area’ to regulate. Therefore, the City’s ban on hemp failed under judicial review.  The City of Oakland may try to appeal the decision, but that won’t fix the problems with its hemp ban. 

Illinois hemp bans may not be possible in home rule municipalities either because of the State’s comprehensive hemp licensing program, but that issue remains for another day.  

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements What is a stock warrant? According to Investopedia, warrants are derivatives that give the right -but not the obligation- to buy or sell a security at a certain price before expiration. The price at which the underlying security is...

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer Earlier this year, Virginia voted to legalize adult-use marijuana becoming the first southern state to do so. Under the newest legislation on the matter, home cultivation and personal possession will become legal as of July 2021, but retail...

Thomas Howard

Thomas Howard

Cannabis Lawyer

Whether this is your first land use issue or most recent, our office has helped people and businesses alike.

Thomas Howard was on the ball and got things done. Easy to work with, communicates very well, and I would recommend him anytime.
R. Martindale

How to add a new member to an LLC

How to add a new member to an LLC

Generally speaking, to add a new member to any LLC, you must first follow the operating agreement or the state law regarding LLCs. Though there are some additional things to take into consideration. Most operating agreements lay out how to add a new partner on their...

Need A Business Lawyer?

Call our law offices with your legal questions for help on:

  1. real estate contracts
  2. business contract disputes
  3. Shareholder litigation
  4. cannabis business
  5. fraud actions
  6. mechanic's liens

 

Banking For Cannabis Companies in Illinois

Banking For Cannabis Companies in Illinois

Banking For Cannabis Companies in Illinois

Cannabis companies are notoriously tricky clients for banks and credit unions. An innovative program in Illinois hopes to fix that.

cannabis banking consulting

Cannabis is a classic example of an “underbanked” industry. The tangled and contradictory web of state and federal laws have convinced many banks that cannabis simply isn’t worth the trouble. Illinois hopes to fix that.

We’ve written many times before about the problems facing cannabis businesses as they try to get access to basic banking and payment processing services. Over the past couple of years, there has been a surge of legislative effort to try and help the chronically underbanked cannabis industry. Unfortunately, many of these efforts are being stymied by the ongoing COVID-19 crisis as states and Congress effectively grind to a halt.

Nevertheless, many states are still undertaking innovative programs to help their burgeoning cannabis companies get access to financial services. In this particular article, we’re going to look at the current state of cannabis banking, and look at one particularly promising initiative out of Illinois.

Cannabis and Banking: A Brief History

The first major crack in federal marijuana prohibition came in 2013 from the Obama Administration. Deputy Attorney General James Cole put out a memorandum entitled “Guidance Regarding Marijuana Enforcement”, known more commonly as the Cole Memorandum. Essentially, the Cole Memo set a policy at the Department of Justice to deprioritize enforcement of the Controlled Substances Act (CSA) in states which had legalized marijuana. The Cole Memo was rescinded in 2018 by then-Attorney General Jeff Sessions. However, the one-page memo from Attorney General Sessions effectively left CSA enforcement to the discretion of local prosecutors. As we’ve seen in Illinois, local federal prosecutors don’t seem to have any particular interest in enforcing the CSA in the face of a booming cannabis industry.

 

Shortly after the Cole Memo, the Federal Crimes Enforcement Network (FinCEN) issued guidance to financial institutions regarding their obligations under the Bank Secrecy Act (BSA). The FinCEN guidance notes that, due to the CSA, financial institutions are still required to file suspicious activity reports (SARs) when dealing with cannabis businesses. FinCEN creates three categories of SARs for financial institutions dealing with cannabis businesses: (1) “marijuana limited” SARs with limited information for otherwise legitimate banking clients; (2) “marijuana priority” SARs, for banking clients which implicate the Cole Memo concerns like non-cannabis crime, and; (3) “marijuana termination” SARs, where there’s clear criminal activity like money laundering. Cannabis clients operating legitimate businesses in legal markets, such as dispensaries and growers in Illinois, are likely to fall into the “marijuana limited” category. This is essentially a way for banks to comply with the BSA, while telling FinCEN that the client isn’t a priority.

Recent Developments in Cannabis Banking

cannabis banking consultingDespite the support provided by the Cole Memo and FinCEN, many banks are understandably extremely reluctant to enter into the cannabis market. After all, these documents are merely guidance memos, subject to the political winds of the day. As a result, there have been several major legislative efforts on behalf of the underbanked cannabis industry.

At the federal level, there is the “SAFE Banking Act”, which we’ve covered here in much greater detail. Essentially, the bill provides a safe harbor for credit unions and private banks to get a limited-purpose state charter to allow them to provide services to state-legal cannabis businesses. The SAFE Banking Act was introduced by Congressman Ed Perlmutter (D-CO) and co-sponsored by a bipartisan group of Congressmen. The bill passed the House of Representatives last September by a bipartisan 321-103 vote. It still has to make it through the Senate, where it has 33 co-sponsors including five Republican Senators. Of course, between the upcoming Presidential election and the COVID-19 near-shutdown of Congress, the SAFE Banking Act is unlikely to become law this year.

At the state level, there are some encouraging developments. In Colorado, Governor Polis unveiled his administration’s “Roadmap to Cannabis Banking & Financial Services.” Unfortunately, the Roadmap is little more than a series of goals and vague plans, with concrete policies to follow at some later date. California has provided some more robust guidance to help financial institutions develop the appropriate compliance protocols. Illinois has had some legislative proposals, which we have discussed elsewhere.

SUPPORT FOR CANNABIS IN ILLINOIS

The one major bright spot in Illinois is the “Community Invest Cannabis Banking Services” initiative put out by the Illinois State Treasurer. The idea behind Community Invest is fairly straightforward. The program provides investment capital at a reduced rate to qualified financial institutions so they can expand services to cannabis-related businesses. The capital comes in the form of two-year term deposits, with a variable monthly rate based on Federal Overnight Excess Funds. The application process is also fairly simple:

  1. Step 1:  Become an Approved Program Depository: depending on the total deposits and collateral pledged by the bank, there are different application forms. The applications focus on financial disclosures by the applicant so that they can get on the list of approved institutions to participate in the Treasurer’s Community Development Link Deposit and Access to Capital Programs. To get a better idea of the institutions involved, a full list of approved depositories is available here.

 

  1. Step 2: Review Eligibility and Submit Application: applicants need to fill out the form and provide a host of detailed information, including a business plan with information like risk assessment and mitigation strategies.

Unfortunately, the Illinois State Treasurer seemingly has not done much to promote this program. The State of Illinois has a robust opportunities for institutions looking to invest in historically underserved communities. Indeed, the Cannabis Regulation and Tax Act places special emphasis on “social equity” and Disproportionately Impacted Communities, or DIAs. The state will be announcing the winners of the most recent round of dispensary applications next month, so the need for cannabis banking services is about to increase tremendously in Illinois. Banks and other financial institutions would be wise to take a look options for serving cannabis businesses sooner rather than later.

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements What is a stock warrant? According to Investopedia, warrants are derivatives that give the right -but not the obligation- to buy or sell a security at a certain price before expiration. The price at which the underlying security is...

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer Earlier this year, Virginia voted to legalize adult-use marijuana becoming the first southern state to do so. Under the newest legislation on the matter, home cultivation and personal possession will become legal as of July 2021, but retail...

David Silvers

David Silvers

Regulatory Lawyer

Whether this is your first land use issue or most recent, our office has helped people and businesses alike.

Thomas Howard was on the ball and got things done. Easy to work with, communicates very well, and I would recommend him anytime.
R. Martindale

How to add a new member to an LLC

How to add a new member to an LLC

Generally speaking, to add a new member to any LLC, you must first follow the operating agreement or the state law regarding LLCs. Though there are some additional things to take into consideration. Most operating agreements lay out how to add a new partner on their...

Subscription Agreements

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A subscription agreement is an investor's request to become a member of a limited partnership (LP). It also serves as a two-way warranty between a corporation and a new shareholder (subscriber). The company intends to sell a specific number of shares at a fixed price...

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements What is a stock warrant? According to Investopedia, warrants are derivatives that give the right -but not the obligation- to buy or sell a security at a certain price before expiration. The price at which the underlying security is...

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer Earlier this year, Virginia voted to legalize adult-use marijuana becoming the first southern state to do so. Under the newest legislation on the matter, home cultivation and personal possession will become legal as of July 2021, but retail...

Need A Business Lawyer?

Call our law offices with your legal questions for help on:

  1. real estate contracts
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  3. Shareholder litigation
  4. cannabis business
  5. fraud actions
  6. mechanic's liens

 

How To Raise Money Through A Private Placement Memorandum

How To Raise Money Through A Private Placement Memorandum

Private Placement Memorandum

Raising Money PPM

A PRivate Placement Memorandum (PPM) is a complex legal document that provides great detail into a company and offers a portion of its ownership for sale to an investor, often an Accredited Investor as defined under Regulation D for the SEC. 

Private Placement memorandums could be used to raise capital when a company cannot otherwise access the capital markets.  Perhaps a bank would not loan the company money, but an investor may for a stake in the game.  The PPM would provide detailed information of the equity state being offered in the business.

Private Placement Memorandums in the Cannabis Industry

PPMs are popular in the cannabis industry because of the lack of financing options resulting from its federal prohibition.

Why You Should NOT Use Templates for your PPM

using templates to do your private placement offering is okay – when you are in good hands and they have used such templates to craft and customize private placement offerings for the unique conditions of the specific business deal being offered. 

Unfortunately, some entrepreneurs want to keep legal and consulting costs to an absolute minimum and take a form they got on the internet and try to stick their names in the right places.  This could cause headaches and huge problems if anything goes wrong, which is more likely to happen when you are cutting corners instead of doing the due diligence required.

Here’s a link to Private Placement Memorandum Template Library

FINANCING YOUR BUSINESS THROUGH A PRIVATE PLACEMENT MEMORANDUM

As this article is written, small businesses are being ravaged by the effects of COVID-19. The Small Business Administration is stepping up with all kinds of offerings to help small businesses weather the storm. Still, times are very difficult and uncertain for business owners, and there’s a good chance that credit will be tight over the coming months. For prospective small business owners, the hardest part might be simply finding a bank that is even open and available to meet during the ongoing COVID-19 pandemic.

Fortunately, budding entrepreneurs don’t have to rely on taking on big, high interest loans from a bank. Instead, there is an alternative: the private placement memorandum, or PPM. The federal Securities and Exchange Commission (the “SEC”) provides this helpful guide on the legal basics of a PPMs. In this article, we’re going to go over some of the highlights of the PPM route, which will help you determine if a PPM is the right course for your business.

  1. What Is A PPM?

Generally, when someone wants to sell securities in a company, they have to go through the registration process with the SEC. This applies not only to the Googles and Facebooks of the world, but also to much smaller companies as well. After all, small businesses have shareholders too. 

A PPM is, in simple terms, a way to raise funds without going through the SEC’s burdensome registration process. Instead, you go directly to potential investors. This is a very common route for small businesses, even ones with pretty big budgets. For our Chicago-area readers, some of the city’s most famous and lucrative restaurants, such as Chicago Cut, are actually owned by a small group of shareholders. 

To raise money through a PPM, entrepreneurs can make use of Regulation D, Sections 504, 505, and 506, depending on certain conditions such as the amount of money being raised. Section 504 is limited to fundraises of under $1,000,000, and so is unlikely to be useful for people hoping to open a typical cannabis business, especially a craft grow cultivation facility. For most entrepreneurs, they’re going to be raising money from Accredited Investors.

  1. Accredited Investors & PPMs

Regulation D sets out the definition of an accredited investor. Different kinds of institutions (banks, LLCs, trusts) can be accredited investors, but in general you’re talking about wealthy individuals. These are individuals or couples who meet the following criteria:

  • earned income that exceeded $200,000 (or $300,000 together with a spouse) in each of the prior two years, and reasonably expects the same for the current year, OR
  • has a net worth over $1 million, either alone or together with a spouse (excluding the value of the person’s primary residence and any loans secured by the residence (up to the value of the residence)).

Private placements are risky by their nature- these are brand new companies fundraising with relatively little government oversight. Investors could very easily lose everything. That’s why it’s so important that accredited investors be sophisticated and financially capable of absorbing the full loss. A typical PPM doesn’t require much information from an accredited investor. They simply have to certify that they meet the criteria. Some entrepreneurs may want to get independent verification, such as bank statements or CPA letters, but that’s not necessary to meet the requirements of Regulation D.

 

  • Why Should I Try A PPM?

 

Starting a business is hard. We just finished submitting all of our clients for the State of Illinois’s competitive cannabis cultivation and transporter application process, and boy did we learn a lot. Your average craft grow facility can cost upwards of $4,000,000 to fully build out. Worse yet, many traditional banks are still reluctant to work with cannabis clients.

The PPM bypasses regulatory hurdles and allows you to go directly to individuals who want to get involved in the industry. These can be people in your community who you know, who have the money but don’t know how to get involved. Accredited investors can be wealthy lawyers, bankers, restauranteurs, real estate brokers, or any number of people who are simply your friends and neighbors.

We’ve put together a PPM package for our clients to help them get started in their entrepreneurial pursuits. The best part about a PPM is that it is highly customizable. You can sell ten shares at $300,000 each, a hundred shares at $10,000 each, or nearly any combination that best suits your needs. Moreover, you can raise money in multiple rounds. We’ve designed our package so that investors can contribute a small, initial sum to help cannabis entrepreneurs finance their application, with the second, larger round contingent on the company actually being awarded the license.

There are countless other ways to customize a PPM to suit your needs and the desires of the investors your hoping to recruit. If you’ve got a plan and a vision, but you don’t quite have the capital, a PPM could be just the solution you need.

Private Placement Memorandums Are Not General Solicitation 

A private placement, unless it is using 506(c), you do not solicit in general to people to raise the money. It is a private placement memorandum – it is a private offering of an ownership stake in your company. So it means that you have a few investors. Your first meeting is a general meeting to get to know if your investor is right for you.  Then you can follow up with them if they are interested in learning more. Often times your PPM includes investment from friends, family, close network connections that you and your business may have.  

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements What is a stock warrant? According to Investopedia, warrants are derivatives that give the right -but not the obligation- to buy or sell a security at a certain price before expiration. The price at which the underlying security is...

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer Earlier this year, Virginia voted to legalize adult-use marijuana becoming the first southern state to do so. Under the newest legislation on the matter, home cultivation and personal possession will become legal as of July 2021, but retail...

David Silvers

David Silvers

Regulatory Lawyer

Whether this is your first land use issue or most recent, our office has helped people and businesses alike.

Thomas Howard was on the ball and got things done. Easy to work with, communicates very well, and I would recommend him anytime.
R. Martindale

How to add a new member to an LLC

How to add a new member to an LLC

Generally speaking, to add a new member to any LLC, you must first follow the operating agreement or the state law regarding LLCs. Though there are some additional things to take into consideration. Most operating agreements lay out how to add a new partner on their...

Subscription Agreements

Subscription Agreements

A subscription agreement is an investor's request to become a member of a limited partnership (LP). It also serves as a two-way warranty between a corporation and a new shareholder (subscriber). The company intends to sell a specific number of shares at a fixed price...

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements What is a stock warrant? According to Investopedia, warrants are derivatives that give the right -but not the obligation- to buy or sell a security at a certain price before expiration. The price at which the underlying security is...

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer Earlier this year, Virginia voted to legalize adult-use marijuana becoming the first southern state to do so. Under the newest legislation on the matter, home cultivation and personal possession will become legal as of July 2021, but retail...

Need A Business Lawyer?

Call our law offices with your legal questions for help on:

  1. real estate contracts
  2. business contract disputes
  3. Shareholder litigation
  4. cannabis business
  5. fraud actions
  6. mechanic's liens

 


316 SW Washington Street, Suite 1A
Peoria, Illinois 61602

Phone: (309) 740-4033 || Email:  tom@collateralbase.com


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Chicago IL, 60606 USA

Phone: 312-741-1009 || Email:  tom@collateralbase.com


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Woburn, MA 01801

Phone: 617-237-0299 || Email:  david@collateralbase.com

Practicing Law Without A License

Practicing Law Without A License

Practicing Law Without A License

Practicing Law Without A License

Practicing law without a license is a terrible idea that happens to some professionals, consultants or real estate agents may go over the line.

Be careful when carrying out your professional relationships and know where the line is for what your jurisdiction considers the unauthorized practice of law.  

In this article – we cover when some professional may enter into the unlicensed practice of laws and how to avoid it.

Unauthorized Practice of Law

Illinois, like all states, prohibits the practice of law by individuals not admitted to practice in the state. Illinois sets this forth in the Attorney Act, 705 ILCS § 205/0.01 et seq. Section one of the Act provides that:

“No person shall be permitted to practice as an attorney or counselor at law within [Illinois] without having previously obtained a license for that purpose from the Supreme Court of this State[.]”

The Illinois State Bar Association provides a wealth of Ethics Opinions on this topic. 

The Illinois Supreme Court has long held that the practice of law involves giving advice or rendering of services which require the use of legal skills or knowledge. People ex rel. Illinois State Bar Assoc. v. Schafer, 404 Ill. 45, 87 N.E. 2d 773, 776 (1949). That is, the “practice of law” is much more than simply going to court or representing someone in litigation. Here are just a few samples of activity which constitutes the “practice of law” in Illinois:

  1. Representing someone in an arbitration, even if the arbitrators aren’t lawyers (ISBA Opinion No. 12-17)
  2. Assisting or advising someone in completing corporate documents, even documents provided by the Secretary of State (ISBA Opinion No. 95-7)

Representing someone in a property tax appeals in many Illinois jurisdictions (In re Yamaguchi, 118 Ill. 2d 417, 515 N.E.2d 1235 (1987)

What Crosses the Line for Unauthorized Practice of Law?

The line for unauthorized practice can get especially blurry with high volume practices like residential real estate and consumer bankruptcy, in which lawyers rely heavily on paraprofessionals to process a large volume of often duplicative paperwork. The important distinction for these kinds of practices is that non-lawyers can perform administrative tasks like simply filling out information (names, addresses, etc.), but once they start making changes to the forms themselves, they may be stepping over the line and into unauthorized practice. This risk is especially serious for lawyers working in high volume practices, and lawyers who work frequently with other professionals like accountants and financial planners.

Here are some simple tips for staying on the safe side of the law.

  1. ALWAYS ask first. If you have any questions as to whether sometimes constitutes the practice of law, then ask. Lawyers should foster a culture in which paraprofessionals never hesitate to err on the side of caution.
  2. Let your clients know. Make sure they are clear on what kind of services they are receiving, and make sure there’s no confusion as to who is and is not a lawyer. If you work with another professional services firm, make sure to use distinct letterhead.
  3. Create clear Roles, Responsibilities, and Expectations (RR&E, in business lingo). Administrative staff should understand that they’re doing administrative tasks. E.g., they might be filling out information in a form, but they should not be drafting forms.
Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements

Stock Warrant Purchase Agreements What is a stock warrant? According to Investopedia, warrants are derivatives that give the right -but not the obligation- to buy or sell a security at a certain price before expiration. The price at which the underlying security is...

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer

Virginia Cannabis Lawyer Earlier this year, Virginia voted to legalize adult-use marijuana becoming the first southern state to do so. Under the newest legislation on the matter, home cultivation and personal possession will become legal as of July 2021, but retail...

David Silvers

David Silvers

Regulatory Lawyer

Whether this is your first land use issue or most recent, our office has helped people and businesses alike.

Thomas Howard was on the ball and got things done. Easy to work with, communicates very well, and I would recommend him anytime.
R. Martindale

How to add a new member to an LLC

How to add a new member to an LLC

Generally speaking, to add a new member to any LLC, you must first follow the operating agreement or the state law regarding LLCs. Though there are some additional things to take into consideration. Most operating agreements lay out how to add a new partner on their...

Need A Business Lawyer?

Call our law offices with your legal questions for help on:

  1. real estate contracts
  2. business contract disputes
  3. Shareholder litigation
  4. cannabis business
  5. fraud actions
  6. mechanic's liens