Illinois Cannabis Banking Act
Illinois Cannabis Banking Law Update & Analysis.
Big news! Illinois has introduced two new bills to make lending to cannabis businesses “safe and sound” banking practices.
For those of you that don’t know, I’m a bank lawyer that has been expanding into the cannabis space in Illinois for the past few years. All my clients, or most, did not want to touch cannabis businesses – which are only medical marijuana businesses in Iliinois because to do so was not safe.
safe and sound banking principles and cannabis
The banks wanted more than my assurances that the federal government was defunded from interference on state-law compliant medical marijuana businesses because of the Robacher Farrer Amendment in the budget that has estentially stopped the federal government from stopping medical marijuana.
The new Illinois Bills (HB2980 & SB2023) have a lot of the same language – which hints that the same adult use cannabis bills will follow this pattern because one is by Senator Steans, while the house bill is by Representative Cassidy. These two women are the same members of the Illinois legislature spearheading the adult use bills.
Both Bills have the same synopsis:
Amends the Illinois Banking Act and the Illinois Credit Union Act. Provides that the Secretary of Financial and Professional Regulation shall not: issue an order against a financial institution for unsafe or unsound banking practices solely because the entity provides financial services to a cannabis-related legitimate business; prohibit, penalize, or otherwise discourage a financial institution from providing financial services to a cannabis-related legitimate business solely because the entity provides financial services to a cannabis-related legitimate business; recommend, incentivize, or encourage a financial institution not to offer financial services to an account holder or to downgrade or cancel the financial services offered to an account holder solely because the account holder is a manufacturer or producer or is the owner, operator, or employee of a cannabis-related legitimate business, the account holder later becomes an owner or operator of a cannabis-related legitimate business, or the financial institution was not aware that the account holder is the owner or operator of a cannabis-related legitimate business; and take any adverse or corrective supervisory action on a loan made to an owner or operator of a cannabis-related legitimate business solely because the owner or operator owns or operates a cannabis-related legitimate business or an owner or operator of real estate or equipment that is leased to a cannabis-related legitimate business solely because the owner or operator of the real estate or equipment leased the equipment or real estate to a cannabis-related legitimate business. Authorizes the Secretary to furnish confidential supervisory information relating to a financial institution providing financial services to cannabis-related businesses, limited to the name, contact information, and such other information as the Secretary determines is prudent, to the Illinois State Treasurer. Effective immediately.
While it is dense – that’s just how laws are. So let’s unpack it:
- Amends both banking & credit union laws
- legitimate cannabis business is not “unsafe or unsound” to bank
- Allowed to supervise ligitimate cannabis business
- report information to Illinois State Treasurer
- Effective immediately
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What's the New Cannabis Banking Bill Mean for Illinois?
Here’s the main take aways of the Illinois Cannabis Banking Bill.
Amends Banking & Credit Union Acts
The bills change the current langauge of banking law in Illinois. Currently, Illinois Bank law allows the state to issue orders against banks for engaging in unsafe and unsound practices if the bank or credit union provides services to marijuana businesses – even if they are state law compliant medical marijuana businesses.
The proposed law goes further and prohibits the state from recommending financial services not be offered to an customer because:
- account holder is a manufacturer or producer, or owner, operator or employee of a cannabis- related lgitimate busienss;
- the account holder becomes one of the things in point one above, or
- the bank was not aware the account holder had anything to do with cannabis-related legitimate business
Cannabis-related Legitimate Business Not Unsafe or Unsound
After a full review of the law (using the find feature on its searchable PDF document), I cannot find the term “cannabis-related legitimate business” defined, which may cause some headaches.
The main point is that a legitimate cannabis-related business is no longer an “unsafe or unsound” banking practice.
Unsafe or unsound banking practices are red flags, big no-nos in the industry. Basically, banks cannot engage in actions that can cause the risk of loss. Any risk of loss is considered an unsafe and unsound banking practice.
The State of Illinois is trying to help its banks and credit unions offer financial services to legitimate cannabbis-related businesses.
Not sure how the banks will take it because the FDIC and Department of Treasury (FinCEN) have not come out to expand the current defunding of enforcement of the medical cannabis laws – which is done by Department of Justice.
Supervise Legitimate Cannnabis Business & Report to Treasurer
This portion of the new law is pretty straight forward, so I will just provide it in full. It amends the Disclosure of reports of examinations and confidential supervisory information as follows:
(9.5) The Secretary may furnish confidential supervisory information relating to a bank or other financial institution providing financial services to cannabis-related businesses, limited to the name, contact information, and such other information as the Secretary determines is prudent, to the Illinois State Treasurer.
As the saying goes in law, it means what it says. The Illinois State Treasurer wants to be sure that if a cannabis business has a bank account, it is finding those precious tax dollars for the revenue the Illinois so badly needs.
The new Illinois Cannabis Banking laws proposed in the legisature accomplish just that goal.
This is pretty neat. Many bills have effective dates. Often January 1, or July 1 of any given year is a common effective date for new laws. But this one will become effective immediately upon being passed in both chambers of the Illinois legislature and signed by the new Democractic Governor of Illinois, J.B. Pritzker.
We highly doubt the adult use bill in Illinois will be effective immediately. This law is just a few tweaks of existing law, with existing regulatory bodies and oversight. That is totally different than starting a brand new industry in the state like adult use cannabis.
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