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Apr 26th, 2023

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EB-5 and cannabis: despite ‘illegal’ federal classification, it can work

Strict federal laws seem to suggest that an EB-5 investment in a cannabis-related business has a slim chance with USCIS. But a new cannabis company, the Florida-based Bright Green Corporation, aims to raise half a billion dollars through the EB-5 program. However, this doesn’t mean a green light for EB-5 investments in any cannabis business; the answer requires a careful understanding of state and federal laws as well as potential exemptions.

While EB-5 has been used to raise money for myriad business types, a big question remains: Can the immigration by investment program be used in the growing cannabis industry? EB5 Investors Magazine spoke with different lawyers to get a legal perspective on the issue. Charles Foster, chairman of Foster LLP, says that the answer to the question starts with state law.

Work with EB-5 professionals who know the regulations.

Start with state laws regarding cannabis

Right now, in the U.S., 22 states, three U.S. territories, and the District of Columbia allow for the recreational use of cannabis. And 38 states, four U.S. territories, and D.C. allow for medical use of cannabis. Each state has individual laws for the recreational and medicinal use of the drug.

Federal laws are the big issue

However, even if state law allows for cannabis use, federal laws, Foster states, are the main challenge as cannabis use is illegal on the federal level and classified as a Schedule 1 substance under the Controlled Substances Act (CSA).

Another attorney, Jack Scrantom of the international firm Harris Bricken, cites the Immigration and Nationality Act to explain that any person who knowingly assists in the illicit trafficking of any controlled substance under the CSA is inadmissible to the U.S.

“The question really boils down to this,” says Scrantom. “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.”

The USCIS position on EB-5 and cannabis

The ultimate issue for EB-5 investors considering an investment in cannabis is how the Immigration Service would adjudicate such a filing, especially with regards to the restrictive federal laws.

A third lawyer consulted by EB5 Investors Magazine, William Gay of Wilson Elser Moskowitz Edelman & Dicker LLP, states the following: “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.”

Gay advises clients against investment in cannabis companies based only on a consideration of state laws.

If lawyers see USCIS as not being open to cannabis investments, doesn’t the question regarding EB-5 appear to be answered in the negative? Not necessarily.

Is a no-touch investment a potential answer?

Gay shares that some investors ask if they can make a CSA-compliant investment in a cannabis-related business that is non-plant touching — such as in commercial real estate or packaging. Gay seems to acknowledge that this may be a workaround but he admits that “there is a slight risk that their investments could be subject to seizure under Section 881 of the CSA.”

So the R-word — “risk” — is still an element here. And, thus, the “no-touch” answer appears to be an answer that would not sit well with most EB-5 investors or lawyers.

The $500 million green light: a research exemption

With clear federal laws against cannabis use that USCIS will most certainly take into account, how can Bright Green be confident about raising $500 million through EB-5, a program that is notorious for restrictive policies?

Bright Green declared in a recent press release that it is "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 import and export."

Gay says that Bright Green appears to be operating legally under an exemption in the Agricultural Act of 2014 that allows for approved governmental and educational institutions to grow cannabis for research. As such, the company expects federal approval of a license to be a cannabis exporter from the U.S. Drug Enforcement Administration (DEA).

Scrantom offers further hope for EB-5 investors and says that as long as the company has DEA approval, "an EB-5 investment in Bright Green's offering would not constitute 'illicit trafficking of a controlled substance'."

Another cannabis exemption: non-psychoactive hemp

Another way to make a CSA-compliant investment in cannabis, Gay offers, is to invest in a non-psychoactive hemp business. This type of cannabis product was removed from CSA coverage by the Agricultural Improvement Act of 2018, otherwise known as the Farm Bill.

Hemp is used in the manufacturing of various products like paper, rope, clothing, textiles, bioplastics, biofuel, and insulation. However, before pursuing a hemp investment, Gay says one must determine the origin of the cannabidiol (CBD), a natural compound found in cannabis, as synthetic CBD is regarded as a controlled substance.

A blazing industry: does the future of cannabis include EB-5?

Gay thinks that Bright Green, even though they are currently working in a restricted cannabis market, could be thinking long-term when it comes to cannabis and EB-5. The company could be making "a savvy strategic move… to establish itself in the EB-5 community in anticipation of full federal legalization in the future,” he speculates.

However, Scrantom seems to take a more conservative view of the issue and does not anticipate many more cannabis-related offerings in EB-5 until there is federal reform of the substance's classification in the CSA. For him, risk still looms large, and that's not a factor EB-5 investors want to manage as immigration approval is their primary concern — not financial reward in a growing industry that still faces significant legal challenges.

But for Bright Green, confidence burns bright. We shall see if cannabis blazes a trail in the immigration program.

See the EB5 Investors Magazine article “Cannabis industry: Buzz or no buzz for EB-5?”

See the Bright Green Press release “Bright Green Announces Fourth Quarter 2022 Financial Update”

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