Cannabis is still very much in the news. Thirty-three states across the U.S. have adopted some level of legalization of marijuana, and 10 of those plus the District of Columbia have fully adopted it for recreational use. With so many states legalizing marijuana at some level, where is the title industry on this topic?
To answer that question, it’s necessary to examine federal law as it pertains to the handling of a transaction that may involve a marijuana farm or marijuana dispensary. These areas include: the Controlled Substances Act, the Money Laundering Control Act, and civil and criminal forfeiture laws.
Controlled Substances Act
Under the Controlled Substance Act, marijuana is defined as a Schedule 1 drug. According to the Drug Enforcement Administration, examples of Schedule 1 drugs include heroin, lysergic acid diethylamide (LSD), marijuana (cannabis), methylenedioxymethamphetamine (ecstasy), methaqualone and peyote. Any person or entity by association that violates the Controlled Substances Act (21 U.S.C. § 841(a) – 21 U.S.C. § 846) is subject to some hefty penalties:
- 10 years to life for possession
- 20 years to life if death or serious bodily injury results from use
- Up to $10,000 (individual) or $50,0000 (party)
Money Laundering Control Act
There are also concerns for title insurance agents and companies under the Money Laundering Control Act. Under this law, any entity knowingly or unknowingly involved in handling or settling financial transactions for marijuana-related businesses could be considered complicit in “unlawful activity” (violating of the Controlled Substance Act), and subject to the following penalties:
- Up to $500,000, or twice the value of the property involved in the transaction (whichever is greater)
- Up to 20 years in prison, or
Title agents and companies also need to be aware of the risks of insuring and transferring real property that is associated with unlawful activity. Such property may be subject to civil and criminal forfeiture and guilty parties may be subject to the penalties.
Change on the Horizon
With all that in mind, what has been going on at a federal level to help close the gap between federal law and various state laws?
One recent approach was the introduction of the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act. The Tenth Amendment, which protects state rights, reads:
“The powers not delegated to the United States by the Constitution, nor prohibited by it to the states, are reserved to the states respectively, or to the people.”
The STATES Act was meant to allow states to adopt their own laws associated with marijuana and not run afoul of the federal laws outlined above. It died in Congress late last year, but was reintroduced in the 116th U.S. Congress on April 4, 2019.
Today, there are several other federal proposals in the wind. One proposed bill is HR 420. This proposal attempts to regulate marijuana in the same way alcohol is regulated today. You may be thinking, “Does this really have a chance of passing?” It’s hard to tell.
Some “lift” has been provided in this area with the passing of the Agriculture Improvement Act 2018 (also known as the Farm Bill), which was signed into law by the President.
Under prior law, the production of hemp (a type of cannabis) was treated the same as producing Schedule 1 drugs like heroin. Unlike other types of cannabis, hemp is distinguished by its lower concentration of tetrahydrocannabinol (THC), which under the Farm Bill, is defined as a concentration of no more than 0.3 percent THC on a dry weight basis. Under the new law, everything changed for production of hemp. These changes require:
- Land that is being used to grow hemp must be registered for a period of three years.
- The hemp, or hemp product, must be tested annually to make sure that the levels of THC are at .3% or lower.
- There must be a procedure to dispose of hemp product that violates the law.
Negligent violations of the Farm Bill are not a crime, but do come with repercussions:
- Producers will be given a date to correct the violation.
- A requirement for periodic reports on compliance for at least two years.
- Repeat negligent violations (three times) will be prohibited from producing hemp for five years.
If violations of the Farm Bill are deemed above and beyond negligence, the producer will be reported to the Attorney General and the chief law enforcement officer of the state.
In summary, each title company will need to carefully weigh all the risks before making a determination on whether to handle hemp transactions. How the industry looks at the handling of marijuana-related transactions is one that has a myriad of risks associated. The industry will carefully monitor federal legislation that may ultimately reduce the risk.