It is common knowledge that the federal government’s Schedule I classification of marijuana makes it illegal. Many people also understand that any money earned by selling marijuana is classified as “criminally derived proceeds,” which leads to money laundering when a person tries to spend those marijuana revenues. However, what many people do not know nor understand, is the double standard that takes place in the American economy.
How is it that one company may fund a marijuana business’s expansion while another may not? How is it that the Department of Justice will prosecute a bank that commits money laundering but not a real estate investment trust that launders money?
How is it that the Securities and Exchange Commission, which states on its website that its mission is to protect investors and promote fairness, allow investors to buy and sell stocks listed on the NYSE whose business model only operates on the assumption that the federal government will not prosecute them?
To begin with, there are various ways to launder money. One type of money laundering occurs when someone knowingly spends or attempts to spend more than $10,000 in criminally derived proceeds (marijuana revenues).“This statute applies to ‘even the most open, aboveboard transactions’ that would otherwise be innocent and lawful.”
Therefore, can a marijuana business go to a bank for a loan for an infusion of capital to expand their operations? No! If a person pays down a bank loan with marijuana revenues then they would be laundering money.
Another type of money laundering is called promotional money laundering. “Promotion money laundering is a crime in which illicit funds are used in a financial transaction to further the aims, goals or success of a specified unlawful activity.”
For a successful conviction, the government must prove that (1) “the defendant conducted or attempted to conduct a financial transaction (2) which the defendant then knew involved the proceeds of unlawful activity (3) with the intent to promote or further unlawful activity.”
For this form of money laundering the banks would be the ones in the prosecutor’s crosshairs. A bank that gives a loan to a marijuana company would undoubtedly know that they would be receiving marijuana revenues in the form of loan payments. Also, the banks would have the intent to promote or further the unlawful growing and selling of marijuana, because if the bank did not have that intention, then they would not have the expectation of receiving another loan payment.
If a bank cannot expand a marijuana company’s operations through an infusion of capital then no other company can do the same as well, right? Wrong. Real estate investment trusts, or REITs, have popped up in recent years to fill the need. REITs will purchase a marijuana company’s facility and pay them millions of dollars for the building so that the marijuana company may expand their operations, all in the effort to receive lucrative rental payments.
Innovative Industrial Properties is the prime example of how breaking the law can pay. Innovative is listed on the NYSE and has seen tremendous growth in its share price. Innovative has purchased many buildings from marijuana growers and in turn leased them back to the growers. Since banks are mostly unwilling to fund a marijuana company’s expansion, Innovative has stepped in and filled the void. Innovative is walking in the shoes of banks in the marijuana industry, but unlike banks, Innovative has decided that receiving marijuana proceeds is worth the risk of punishment.
Some people may think that Innovative is conducting their operations under the table or away from the eyes of regulators, but they would be mistaken. Representative Lundgren who once said, “it is time for us to tell the local trafficker and everyone else, (i)f you know that person is a trafficker and has this income derived from the offense, you better beware of dealing with that person,” would be shocked at the federal government’s lack of action.
Innovative makes it unambiguously clear that they know and understand that they are breaking the law as expressed through their 2018 annual statement which they submit for all of the public to read:
“Cannabis is a Schedule I controlled substance under the CSA. Even in those jurisdictions in which the manufacture and use of medical cannabis has been legalized at the state level, the possession, use and cultivation all remain of federal law that are punishable by imprisonment and substantial fines. Moreover, individuals and entities may violate federal law if they intentionally aid and abet another in violating these federal controlled substance laws, or conspire with another to violate them. The U.S. Supreme Court has ruled in United States v. Oakland Cannabis Buyers’ Coop. and Gonzales v. Raich that it is the federal government that has the right to regulate and criminalize cannabis, even for medical purposes. We would likely be unable to execute our business plan if the federal government were to strictly enforce federal law regarding cannabis.”
It is blatantly clear that Innovative only has life because it will do what banks will not do, which is break the law. It appears that the SEC will not take any action and protect American investors from aiding Innovative in their operations, nor will the Department of Justice prosecute Innovative for money laundering.
Is this the double standard that we desire in our economy? Should a company be rewarded for their blatant disregard of the law while other companies (banks) be punished if they take the same actions?
In the current situation, marijuana companies are forced to sell their buildings to a REIT if they need an infusion of capital, even though a bank would be more than willing to give a loan. In my opinion, America’s economy works best when everyone plays by the same rules creating a competitive marketplace. However, that will only happen when either marijuana becomes federally legal or prosecutors start enforcing the laws of the land.
If we as Americans do not want to criminalize marijuana anymore, then we should elect officials that will change the Scheduling of marijuana. However, as long as marijuana is a Schedule I drug, our government agencies with the responsibility to enforce the laws of this great country should enforce those laws. The current situation only benefits the people who are willing to break the law while the honest American businessman is on the outside looking in.
U.S. v. Stanford, 823 F.3d 814, 849 (5th Cir. 2016) (citing U.S. v. Brown, 553 F.3d 768, 782 (5th Cir. 2008)).
 Matt McCall, Why Marijuana REITs Are One of the Best Investments Today, Investorplace.com (March 19, 2019), https://investorplace.com/2019/03/why-marijuana-reits-are-one-of-the-best-investments-today/.