SBA Guidance on Businesses that are Involved with Cannabis


The Small Business Administration (SBA) released a Policy Notice that included guidance regarding businesses that are involved with cannabis and their eligibility for SBA financial assistance.

Under the SBA rules (13 CFR 120.110(h)) businesses that are engaged in any activity that is illegal under federal, state, or local law are ineligible from SBA business loans. The SBA issued the guidance to specifically address businesses that derive revenue from marijuana-related activities or that support the end-use of marijuana.

The new guidance has implications for businesses that indirectly support marijuana-related services, such as landlords, farm supply, security system providers, and others that may provide services for a marijuana-related business. Both FinCEN and the Washington DFI had issued informal guidance which stipulates that if a business that provides services indirectly in support of a marijuana related business the business providing the services is not necessarily classified as a marijuana related business and there would be no SAR requirement outside the existing filing requirements.

The SBA guidance regarding eligibility for SBA assistance loan states:

Marijuana-related Businesses:

  1. Because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity. Therefore, businesses that derive revenue from marijuana-related activities or that support the end-use of marijuana may be ineligible for SBA financial assistance.
  2. Whether a business is eligible is determined by the nature of the business’s specific operations. The following businesses are ineligible:
    1. “Direct Marijuana Business” — a business that grows, produces, processes, distributes, or sells marijuana or marijuana products, edibles, or derivatives, regardless of the amount of such activity. This applies to personal use and medical use even if the business is legal under local or state law where the applicant business is or will be located.
    2. “Indirect Marijuana Business” — a business that derived any of its gross revenue for the previous year (or, if a start-up, projects to derive any of its gross revenue for the next year) from sales to Direct Marijuana Businesses of products or services that could reasonably be determined to support the use, growth, enhancement or other development of marijuana. Examples include businesses that provide testing services, or sell grow lights or hydroponic equipment, to one or more Direct Marijuana Businesses. In addition, businesses that sell smoking devices, pipes, bongs, inhalants, or other products that may be used in connection with marijuana are ineligible if the products are primarily intended or designed for such use or if the business markets the products for such use.
    3. Hemp-Related Business” — a business that grows, produces, processes, distributes or sells products purportedly made from “hemp” is ineligible unless the business can demonstrate that its business activities and products are legal under federal and state law. Examples of legal hemp products include paper, clothing and rope.

Question of the Week

Are we required to have our members write “for mobile deposit only” on the backs of checks deposited through mobile deposit?

No. The amendments to Reg CC do not require that institutions enforce this restrictive endorsement. However, this amendment was put in place to help clear up the ambiguity that some institutions face when a check deposited via mobile deposit capture is also deposited in person at another financial institution.

The final rules add a new indemnity for remote deposit capture that would indemnify a depositary bank that received a deposit of an original paper check that was returned unpaid because the check was previously deposited using a remote deposit capture service and paid. However, the final rule includes an exception to the indemnity that would prevent an indemnified bank from making an indemnity claim if it accepted an original check containing a restrictive indorsement that is inconsistent with the means of deposit, such as “for mobile deposit only.”

So, while the restrictive endorsement is not required, credit unions should think of requiring their members depositing checks via mobile deposit to add such language to the back of the check prior to deposit. Additionally, team members that accept checks for deposit at the branches will want to ensure that this language is not present on the back of any check accepted for deposit.


Legal Briefs

National Credit Union Administration (NCUA)

The NCUA announced that the Community Development Revolving Loan Fund grant round has opened. Applicants may be submitted July 1 through August 18, 2018. The grant categories include digital services and security, leadership development, and underserved outreach.

The NCUA announced that it will host two share insurance webinars on July 18th and August 15, 2018.

Consumer Financial Protection Bureau (CFPB)

The CFPB announced a settlement with Citibank for the bank’s violation of the Truth in Lending Act. The consent order states that Citibank failed to reduce the APR for millions of consumer credit accounts consistent with regulatory requirements.

The CFPB announced that new research regarding student loan payoff, borrowing patterns of those paying off student loans, and how new debt is handled is available.

The CFPB issued a statement on the implementation of the HMDA amendments contained in S 2155.

Federal Deposit Insurance Corporation (FDIC)

The FDIC announced that it will hold a joint webinar with the OCC, FRB, FASB, SEC, and CSBS on the new CECL methodology. The webinar will be help on July 30, 2018 at 1:00 p.m. EST. Advance registration is not required.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of July 5, 2018. The last update prior to this was June 29, 2018.

Questions? Contact the Compliance Hotline: 1.800.546.4465,

Posted in Compliance News, Compliance News, Fraud Alert.