A reporting deadline is drawing closer for many of the cannabis industry’s most enduring companies, and this one has nothing to do with the product or finances.
All privately held businesses, domestic and foreign, that were registered to conduct business in the United States prior to January 1, 2024, must file a beneficial owner information (BOI) report with the Financial Crimes Enforcement Network (FinCEN) by January 1, 2025. Failure to file the report could result in a fine of up to $10,000 and two years in prison.
The BOI report is mandated by the Corporate Transparency Act (CTA), a landmark piece of legislation enacted by Congress in 2021 as part of the National Defense Authorization Act. Designed to combat illicit financial activity including money laundering, terrorism financing, corruption, and tax fraud, the act’s mandate applies to corporations, limited liability companies, and any other entities created by documents filed with a secretary of state or other similar office in the U.S.
The CTA requires businesses to disclose information about who owns or controls the business. Reporting companies must identify all individuals with at least a 25-percent ownership interest. They also must report anyone with “substantial control” over the business. This second and likely larger bucket includes chief executives, general counsels, important decision-makers, and anyone else with the authority to remove certain officers or directors. Information required includes the individual’s legal name, address, date of birth, and social security number.
With the exception of twenty-three types of entities including publicly traded companies meeting specified requirements, many nonprofits, and certain large operating companies, most cannabis businesses likely will find themselves in the need-to-file camp this year.
Key reporting deadlines
- Companies created or registered before 2024 have until January 1, 2025, to file their initial report.
- Companies created or registered in 2024 have 90 days from the time the company received actual notice that its creation or registration was effective.
- Companies created or registered in 2025 will have 30 days from actual or public notice that the company’s creation or registration is effective to file their initial report.
Businesses may report their company’s beneficial ownership information to FinCEN through a secure electronic filing system at BOIefiling.fincen.gov. There is no charge to file.
Unconstitutional for some but not all
In November 2022, the non-profit National Small Business Association (NSBA) and one of its members, Isaac Winkles, filed a lawsuit challenging the constitutionality of the CTA. The suit, National Small Business United v. Yellen, named U.S. Treasury Secretary Janet Yellen and FinCEN Acting Director Himamauli Das as defendants.
On March 1, 2024, the U.S. District Court for the Northern District of Alabama ruled the CTA exceeded constitutional limits on congressional power and blocked the Department of the Treasury and FinCEN from enforcing the act against the plaintiffs. However, the ruling’s narrow scope applies only to Winkles, the NSBA, and those who were members of the organization on the date of the ruling. The Department of Justice is appealing.
The CTA faces a second challenge in Michigan, where, on March 26, a separate complaint was filed by the Small Business Association of Michigan, the Chaldean American Chamber of Commerce, and others. In Small Business Association of Michigan et al. v. Janet Yellen et al., plaintiffs argue, among other issues, the CTA improperly targets small businesses while ignoring the “large, publicly traded companies, who have the resources and sophistication to interpret and comply with complicated federal reporting regimes.” As a result, according to the plaintiffs, an estimated $21.7 billion in compliance costs will fall on small businesses that can least afford the financial burden.
Jumping through regulatory hoops is nothing new for cannabis business owners, although the federal nature of this hoop adds an uncommon wrinkle. The greater challenge may be remembering to file a new BOI report within thirty days of every ownership change or upper-level personnel shift (and some cannabis companies change C-suite executives frequently). A bigger challenge still, especially for legacy operations born in the shadows during the war on drugs, may be disclosing so much personal information about the actual owners to federal authorities who still view the industry as illegitimate and its product as illegal.
