So long as marijuana remains illegal at the federal level, many financial institutions (FIs) will remain wary of the industry, no matter how many states legalize marijuana. However, there may be changes on the horizon for dispensaries and other marijuana-related businesses (MRBs) seeking access to banking services. According to a recent report from the Financial Crimes Enforcement Network (FinCEN), 368 banks and credit unions are providing services to MRBs. For MRBs, this is undoubtedly a positive, if still nascent, development. For this growth to continue, FIs and MRBs must work together to ensure that financial services are provided to, and used by, the marijuana industry in a responsible, safe, and sound manner.
The Regulatory Framework for Banking MRBs
Although marijuana remains illegal under the federal Controlled Substances Act (CSA), 29 states and the District of Columbia have authorized the use and sale of medical marijuana, and eight states and the District of Columbia have legalized its recreational use. In response to these developments, the Department of Justice’s Deputy Attorney General James M. Cole issued a memorandum in August 2013 advising U.S. attorneys on marijuana enforcement under the CSA, and then issued a second memorandum in February 2014 addressing application of federal law to FIs that deal with MRBs (collectively, the Cole Memos).
The Cole Memos direct DOJ attorneys and law enforcement to focus their resources on persons or organizations whose conduct interferes with any one or more of eight enforcement priorities, such as preventing the distribution of marijuana to minors. On the regulatory side, FinCEN has issued guidance (FinCEN Guidance) clarifying how FIs can provide services to MRBs consistent with their anti-money-laundering (AML) obligations under the Bank Secrecy Act (BSA). The FinCEN Guidance establishes unique suspicious-activity reporting (SAR) procedures for MRB-related accounts, including the filing of limited, priority, and termination SARs, depending on specific circumstances.
How Banks and Merchants Can Work Together to Improve MRB Banking
Together, the Cole Memos and FinCEN Guidance provide the framework for banking the marijuana industry. This framework is high level, however, and leaves most day-to-day compliance issues unaddressed. Given the regulatory challenges in banking MRBs, it is critical for banks and their MRB customers to develop a common understanding of these challenges and best practices for banking high-risk merchants.
From a bank’s perspective, the starting point for banking MRBs is ensuring that the bank has a BSA program that satisfies all of the regulatory basics. From there, the bank must enhance and tailor its program for dealing with MRB customers. FinCEN has directed banks to perform comprehensive due diligence on applicants, and then to monitor MRB customers closely once accounts are opened. Given these expectations, a bank may be better served by committing to providing services to the industry (and developing formal MRB-specific components within its AML program) than by accepting MRB customers on an ad hoc basis.
For MRBs, understanding the framework for banking marijuana and the pressures banks face when serving the marijuana industry is critical to developing and maintaining a successful banking relationship. There are a number of steps that can help put an MRB in the best possible position to work with a bank. Although obtaining all necessary state licenses to operate an MRB is a given, an MRB should also appoint a compliance officer and implement policies and procedures for compliance with applicable laws and requirements, including areas impacted by the Cole Memos.
When applying for a bank account, an MRB must provide accurate and truthful information in all applications and other materials submitted to a bank—providing false information to a bank is a potential federal offense. Once an account is opened, the MRB must use the account responsibly and in compliance with applicable laws and regulations. Similarly, MRBs should be prepared to provide any documentation or information the bank requests as part of its initial or ongoing due diligence.
Although banks are likely to continue to take a cautious approach to MRBs for the foreseeable future, MRBs and banks would both benefit from working together to ensure that banking services are provided in a safe, sound, and responsible manner. Doing so can help protect the banking system and ensure that responsible MRBs are able to obtain banking services.
