Banking Law, Marijuana

Marijuana Banking: Big Problems With Stashing The Cash

Another significant hurdle to running a marijuana business -- even if it's legal in your state.

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Because marijuana is a Schedule I controlled substance, it is still a federal crime to use, possess, or distribute it. In turn, handling proceeds from cannabis sales triggers anti-money laundering laws for banks. The Bank Secrecy Act, enforced by the Financial Crimes Enforcement Network (FinCEN), mandates that banks monitor customer accounts for suspicious activity associated with crime or terrorism. That Act requires banks to investigate their customers and to neither negligently nor knowingly do business with bad actors. FinCEN mandates that financial institutions file Suspicious Activity Reports (SARs) with the federal government when they know or suspect an account holder engages in illegal activity. These laws have caused nearly all banks to deny bank accounts to marijuana businesses and to immediately shut down those bank accounts once discovered.

Early last year, The Department of Treasury issued guidance for financial institutions that want to do business with the marijuana industry. These guidelines clarify that banks can provide services to marijuana businesses without running afoul of federal regulations, so long as they do the following:

  • Verify with state authorities that a business is duly licensed and registered.
  • Review the cannabis license application and related documentation to ensure that the business is state-licensed to operate its marijuana-related business.
  • Secure available information about the business and related parties from state authorities.
  • Understanding the normal and expected activity for the marijuana business, including the products sold and types of customers served.
  • Monitor publicly available sources for adverse information about the cannabis business account holder and related parties.

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  • Periodically refresh information obtained as part of customer due diligence, using methods and timetables commensurate with the risk.

Most of these guidelines are common sense and apply at least to some extent to all bank accounts, but they do create significant costs for the banks that want to participate. The labor-intensive and constant monitoring of cannabis business bank accounts can be quite expensive and banks are passing on these costs to their cannabis business customers. This makes just maintaining a bank account expensive for those in the cannabis industry lucky enough to have one at all.

So far, a smattering of smaller banks and credit unions, mostly in Washington and Colorado, have been willing to take on cannabis business accounts, and the State of Colorado is working to create its own marijuana cooperative banking system. The big banks have stayed away so far and nobody expects that to change anytime soon. Because of this banking epidemic, many legal marijuana businesses have had to operate on an all-cash basis. In addition to the myriad difficulties this causes in terms of paying rent, taxes, and employees, this also makes marijuana businesses a prime target for thieves and other criminal actors.

Unless and until Congress legalizes marijuana, or fully legalizes the banking of marijuana businesses, the inability to access banks will be just another example of where state-legal marijuana businesses face significant hurdles different from other businesses.

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Hilary Bricken is an attorney at Harris Moure, PLLC in Seattle and she chairs the firm’s Canna Law Group. Her practice consists of representing marijuana businesses of all sizes in multiple states on matters relating to licensing, corporate formation and contracts, commercial litigation, and intellectual property. Named one of the 100 most influential people in the cannabis industry in 2014, Hilary is also lead editor of the Canna Law Blog. You can reach her by email at hilary@harrismoure.com.

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