Embracing Uncertainty: Banking Cannabis

9 Min Read By: Joseph E. Silvia


  • Banks and other financial institutions continue to work on solutions to the cannabis puzzle of conflicting state and federal laws.
  • For those financial institutions that decide to engage with cannabis-related businesses, there are operational, reputational, and compliance risks and opportunities to consider.
  • What, specifically, are the compliance risks and expectations related to engaging with cannabis-related businesses?

Cannabis is a plant, the two primary classifications of which are hemp and marijuana. Marijuana is a controlled substance under federal law. Hemp is no longer a controlled substance under federal law. Some states have legalized the use of marijuana for medical purposes. Some states have legalized marijuana for adult use.

Cannabidiol, or CBD, is a compound found in the cannabis plant. CBD can be extracted from either hemp or marijuana. Delta-9 tetrahydrocannabidiol, or THC, is another compound found in the cannabis plant. THC is the main physiologically active ingredient in the cannabis plant and the compound that provides a “high” feeling. Any part of the cannabis plant that contains a THC concentration of not more than 0.3 percent is defined as hemp. Therefore, any part of the cannabis plant that contains a THC concentration of more than 0.3 percent is considered marijuana, the legal status of which depends on the interplay of state and federal law.

Despite the rapidly growing number of jurisdictions where different forms of cannabis have become legal for medical and/or recreational use, banks and other financial institutions continue to work on solutions to the cannabis puzzle of conflicting state and federal laws.

At the federal level, some forms of cannabis have been legalized, including industrial hemp; however, marijuana remains a Schedule 1 drug under the Controlled Substances Act.[1] In contrast to the federal prohibition, more than 30 states and the District of Columbia have legalized medical marijuana. Currently, 11 states and the District of Columbia have legalized marijuana for adult use.

This patchwork of state and federal laws creates significant challenges for financial institutions determining whether they can provide financial services to cannabis-related businesses. Absent federal legislation providing clarity, many financial institutions are choosing to remain neutral. For those financial institutions that make the risk-based decision to engage with cannabis-related businesses—whether involving hemp, marijuana, or as a service provider to such businesses—there are number of risks and opportunities to consider.

Although risks include operational and reputational risk, this article focuses on the compliance risks and expectations which are challenging, but not impossible. To be sure, financial institutions should proceed with caution, but tackling the compliance challenges could create interesting opportunities for financial institutions to serve direct and indirect participants in the growing cannabis industry.

As mentioned, at the state level, the legal status of marijuana is all over the map. Some states permit both medical and adult marijuana use, some states permit only medical marijuana use, and still a few others have no allowance for medical or adult marijuana use. Moreover, the licensing regimes for medical and adult use, where permitted, is complex and inconsistent from state to state. In states where medical and/or adult use marijuana is permitted, financial institutions may seek opportunities to provide certain limited financial services to those businesses involved either directly or indirectly in the marijuana business. When doing so, financial institutions should be mindful of the guidance outlined below regarding federal law enforcement priorities and the filing of suspicious activity reports (SARs) with the Financial Crimes Enforcement Network (FinCEN).

The Cole Memorandum originally issued in 2013[2] provided guidance to federal prosecutors concerning marijuana enforcement under the Controlled Substances Act. The 2013 Cole Memorandum, as well as the Cole Memorandum issued on February 14, 2014[3] (together, the Cole Memo), directed Department of Justice (DOJ) attorneys and law enforcement officials to focus their enforcement resources on persons or organizations whose conduct interferes with any one or more of the specifically outlined priorities (Cole Memo Priorities). The Cole Memo Priorities include preventing the distribution of marijuana to minors, preventing revenue from the sale of marijuana from going to criminal enterprises, preventing the diversion of marijuana from states where it is legal under state law in some form to other states, and preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity, among others.

Attorney General Memos

In January of 2018, then-U.S. Attorney General Jeff Sessions rescinded the Cole Memo.[4] The Sessions memo indicated to U.S. states attorneys that they are to follow traditional principles governing all federal prosecutions. Relevant considerations for U.S. states attorneys include the law enforcement priorities set by the attorney general, the seriousness of the crime, the deterrent effect of criminal prosecutions, and the cumulative impact on particular crimes on the community.

Despite the former attorney general’s rescission of the Cole Memo, current Attorney General William Barr has indicated that he does not intend to upset the settled expectations outlined in the Cole Memo. For financial institutions, the Cole Memo and the Cole Memo Priorities remain important tools in understanding compliance expectations. Indeed, long-standing guidance from FinCEN refers financial institutions to the Cole Memo Priorities for certain SAR filing expectations.

FinCEN Guidance

FinCEN issued its guidance on the same day in 2014 that the second Cole Memo was issued.[5] FinCEN’s guidance, the most robust on the subject of providing financial services to marijuana-related businesses (MRBs) to date, clarifies compliance expectations under the Bank Secrecy Act (BSA). The FinCEN guidance clarifies how to keep services to MRBs consistent with existing BSA obligations, and aligns the information provided by financial institutions through BSA reporting with law enforcement priorities.

According to the FinCEN guidance, given that federal law prohibits the distribution and sale of marijuana, any financial transaction involving an MRB would technically involve funds derived from illegal activity. As such, the financial institutions should be filing a SAR related to the activity involving the MRB. This filing is required even in cases where the financial transactions involve an MRB that is otherwise operating in accordance with state laws and is duly licensed under state law.

With respect to financial transactions that involve MRBs, FinCEN has outlined three specific kinds of SAR filings expected from financial institutions based on the transactions and activity involved: Marijuana Limited SARs, Marijuana Priority SARs, and Marijuana Termination SARs.

A Marijuana Limited SAR should be filed by a financial institution when the financial institution provides financial services to an MRB that the financial institution “reasonably believes, based on its customer due diligence, does not implicate one of the Cole Memo priorities or violate state law.” The Marijuana Limited SAR should include certain basic identifying information about the subject of the SAR, the parties involved, and the fact that the filing institution is filing the SAR solely because the subject is engaged in an MRB and the fact that there is no additional suspicious activity related to the transaction. In addition, the narrative section of the SAR should include the phrase “Marijuana Limited.”

A Marijuana Priority SAR should be filed by a financial institution when the financial institution provides financial services to an MRB that the financial institution “reasonably believes, based on its customer due diligence, implicates one of the Cole Memo priorities or violates state law.” The Marijuana Priority SAR should include more detailed information about the subject of the SAR and the parties involved. The SAR should also include details regarding the enforcement priorities the financial institution believes have been implicated and specific details about the financial transactions. Again here, the narrative section of the SAR should specifically include the phrase “Marijuana Priority.”

Finally, where a financial institution decides to terminate a relationship with an MRB in order to maintain an effective anti-money laundering compliance program, FinCEN expects the financial institution to file a Marijuana Termination SAR and note in the narrative the basis for the termination of the relationship. Financial institutions should also use the term “Marijuana Termination” in the narrative section of the SAR. Furthermore, if the financial institution becomes aware that the MRB is trying to move to a second financial institution, the first institution should consider using the section 314(b) voluntary information sharing permissions to alert the second financial institution of potential illegal activity.

FinCEN also provides a nonexhaustive list of red flags that indicate that an MRB may be engaged in activities that implicate one of the Cole Memo priorities or may otherwise violate state law. The red flags should be used as a starting point for financial institutions to determine the specific type of SAR that is needed. Some red flags will be obvious based on a financial institution’s ongoing monitoring and customer due diligence, but others will warrant additional examination by internal teams to assess risks and the evolving reality of the legal marijuana industry.

Services to Hemp Businesses

Given that hemp is no longer a controlled substance under federal law, financial institutions can more freely provide services, including deposit accounts and loans, to hemp-related businesses. Financial institutions are also not required to file SARs on hemp customers solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations. Regardless of a financial institution’s decision to provide services to a hemp-related business, the financial institution must review its BSA/AML compliance program and ensure that it is ultimately commensurate with the complexity and level of risk involved.[6]

In addition, financial institutions must understand the dynamics of the state and federal requirements for domestic hemp programs and businesses. Many states have plans for hemp programs and its participants—who would be the prospective customers of the financial institution—but the U.S. Department of Agriculture first must approve the plans adopted by the state in accordance with the rules released in October 2019.[7]


The decision to provide financial services to a cannabis-related business, whether directly or indirectly involved in hemp, marijuana, CBD, or some other derivative of cannabis, is ultimately a decision for each specific financial institution to consider based on several institution-specific factors. Policies and procedures should be updated to provide clear and consistent internal guidance and expectations. Staff should develop a comprehensive understanding of the applicable state laws and licensing regimes, and institutions should consider the existing regulatory guidance on high-risk businesses and engaging in offering new or expanded products and services.[8]

[1] See 21 U.S.C. § 801 et seq.

[2] See James M. Cole, Memorandum for all United States Attorneys, Guidance Regarding Marijuana Enforcement (Aug. 29, 2013).

[3] See Memorandum for all United States Attorneys, Guidance Regarding Marijuana Related Financial Crimes (Feb. 14, 2014).

[4] See Jefferson B. Sessions, Memorandum for all United States Attorneys, Marijuana Enforcement (Jan. 4, 2018).

[5] See BSA Expectations Regarding Marijuana-Related Businesses, FIN-2014-G001 (Feb. 14, 2014).

[6] See also Providing Financial Services to Customers Engaged in Hemp-Related Businesses, SR Letter 19-14 (Dec. 3, 2019).

[7] See USDA Interim Final Rule, Establishment of a Domestic Hemp Production Program, 84 Fed. Reg. 58522 (Oct. 31, 2019).

[8] See New, Modified, or Expanded Bank Products and Services: Risk Management Principles, OCC Bulletin 2017-43 (Oct. 20, 2017); see also Teresa Curran, Considerations When Introducing a New Product or Service at a Community Bank, Community Banking Connections (First Quarter 2013).


Chicago, IL

Joseph E. Silvia

  Joe is an attorney in the Chicago Office of Howard & Howard Attorneys PLLC where he concentrates his practice in the financial institutions industry on mergers, acquisitions, strategic transactions,…


Login or Registration Required

You need to be logged in to complete that action.