Cannabis industry: Buzz or no buzz for EB-5?
By Anayat Durrani
The EB-5 investor program has intertwined with a number of industries, such as residential, retail, commercial, health, infrastructure, education and more. But one that’s been taboo is the growing cannabis industry. Whether you call it weed, MJ, dope, pot, hashish or grass, this industry is high on success, with the cannabis market booming in the U.S. But could this be an industry for an EB-5 investor?
“First, it will depend upon state law as to whether it’s legal,” says Charles Foster, chairman of Foster LLP. “But the big issue is federal law. It is a controlled substance under federal law and USCIS would be reluctant to approve any I-526 petition based in an investment in the cannabis industry.”
Cannabis is illegal at the federal level but medical marijuana is legal in 37 states, three territories, and Washington, D.C. Adult-use cannabis programs are legal in nearly two dozen states, two territories and Washington, D.C. Every state has its separate laws dictating the medicinal and recreational use of cannabis.
“The USCIS appears to be maintaining a strict policy regarding investment in cannabis, or any other controlled substance, if the activities of the business run afoul of federal law, chiefly the Controlled Substances Act of 1970 (CSA),” says William Gay, attorney at law, Wilson Elser Moskowitz Edelman & Dicker LLP.
He says they advise clients against investment in cannabis companies that solely rely on state law compliance.
“Some investors, both domestic and foreign, wonder if they can comply with the CSA by investing only in “non-plant-touching” aspects of the cannabis industry, such as real estate, packaging, etc. There is a slight risk that their investments could be subject to seizure under Section 881 of the CSA,” says Gay.
Jack Scrantom, an attorney at Harris Bricken, an international law firm focused on business transactions and foreign direct investment, with boutique immigration, health care and cannabis practices, says in his experience, EB-5 has played no role in the cannabis marketplace.
He notes that under the Immigration and Nationality Act “any person who is or has been a knowing aider, abettor, etc. in the illicit trafficking of any controlled substance under the CSA is inadmissible to the U.S.” He says though dozens of states enacted legislation allowing recreational or medicinal production, sale, and use of cannabis, it is still a Schedule I substance under the Controlled Substances Act.
“The question really boils down to this: would an EB-5 investment in a cannabis business make the investor an aider, abettor, etc., of trafficking in an illegal substance under the INA? My sense is that whether right or wrong, the USCIS would almost certainly take the position that it does,” says Scrantom.
Is cannabis a growing market for EB-5?
The U.S. cannabis market is buzzing and is projected to reach $72 billion annually by 2030, according to industry research group New Frontier Data.
While EB-5 and cannabis can be a tricky duo, one company pioneering the concept, at least publicly, is Florida-based Bright Green Corporation. The company is raising $500 million under the EB-5 program to construct production and drug manufacturing facilities in Grant, New Mexico. The company will use the funds for research and development and federal clinical trials for drug development.
Bright Green claims to be “one of the very few companies selected by the U.S. government to grow, manufacture, and sell, legally under federal and state laws, cannabis and cannabis-related products for research, pharmaceutical applications and affiliated export,” the company said in a press release.
Seamus McAuley, CEO of Bright Green, called the receipt of their first funds from the EB-5 program a major milestone for the company. After the approval by the DEA and registration, he said the company will be able to move to Phase 2 of their growth plan.
“We intend to be the revenue leader in cannabis and cannabis-related products for research, development and pharmaceutical applications, fully compliant with both state and federal regulations,” he said in a statement.
The cannabis company’s use of the EB-5 program has gotten experts talking about the potential trends in that industry going forward.
Scrantom says Bright Green’s proposal is different than an ordinary state-licensed cannabis business. He says the company’s mission is to be the “premier federally-authorized provider of cannabis” and the company claims it will be legally authorized by the federal government to sell cannabis to DEA-registered companies.
“Without getting into the weeds on the veracity of those claims, if Bright Green achieves its goals, then its operation would be legal under the CSA. Therefore, an EB-5 investment in Bright Green’s offering would not constitute “illicit trafficking of a controlled substance”—at least for as long as the company continues to be federally approved by the DEA,” says Scrantom.
Gay says Bright Green appears to be benefitting from a narrow exemption from the CSA granted under the Agricultural Act of 2014 that allows designated governmental and educational institutions to cultivate cannabis for research.
“If so, that would be a limited market at present, but could be a savvy strategic move by the company to establish itself in the EB-5 community, in anticipation of full federal legalization in the future,” says Gay.
Other emerging EB-5 investment options
At the same time, Gay does note another EB-5 option on the table and that is investment in non-psychoactive hemp, which he says is permitted since that was removed from CSA coverage by the Agricultural Improvement Act of 2018, also known as the Farm Bill. Hemp is used to make commercial and industrial products, like paper, rope, shoes and clothing, textiles, bioplastics, biofuel and insulation. Even so, Gay emphasizes the importance of identifying the source of the CBD, since synthetic CBD is still listed on Schedule V as a controlled substance.
Scrantom says in his experience helping companies structure EB-5 compliant investment projects and representing EB-5 investors, he has not seen any other cannabis-related or “plant touching” EB-5 projects. But he says, it doesn’t mean it hasn’t been done.
Bright Green is a publicly traded company on the Nasdaq exchange and is subject to SEC rules and guidelines that require certain disclosures.
“Issuing a press release as Bright Green did is a common way to comply with those rules and that’s why we know cannabis is involved in its EB-5 raise. So, it’s at least possible that others have raised EB-5 capital in the cannabis space, we just never see those deals,” says Scrantom.
He says he does not think more cannabis related deals are on the horizon until federal reform of cannabis’s treatment under the CSA is passed.
“The vast majority of EB-5 investors want lawful permanent residence, not to participate in a dubiously approvable, novel investment project—no matter the potential return,” says Scrantom. “In our experience, the risk of not being approved far outweighs any considerations about return on investment because that’s not the point.”