Banking for the cannabis industry has been a challenge to say the least. That said, there exists a navigable pathway for existing cannabis markets and for new state markets to follow.

In light of lingering concerns that Attorney General Jeff Sessions will crack down on marijuana, the industry continues to see increased support from banking institutions. Considering the $7.2 billion the marijuana industry reaped in 2016, it’s no surprise that banks are beginning to see the value outweigh the risk.[1] This past June, the Financial Crimes Enforcement Network (FinCEN) reported that banks providing services to MRBs increased 22% since March 2016.[2] This confidence banks are displaying could be the result of FinCEN’s June 2014 instruction to banks on how to maintain compliance with the Banking Secrecy Act (BSA) and marijuana enforcement priorities under the Controlled Substance Act (CSA).

The major implication of FinCEN’s guidance is the requirement of suspicious activity reports (SARs) being filed with every marijuana related activity conducted by the bank.[3] This of course, is aside from indication of FinCEN’s tolerance of MRB banking to begin with. Usually, SARs are only required when a bank suspects a transaction involves illegally derived funds, evades BSA regulation, or lacks a lawful purpose.

But because marijuana is still illegal under federal law, FinCEN says any MRB activity requires one.[4] The issuance of the Cole Memo (a 2013 letter from Deputy Attorney General James Cole to U.S. Attorneys setting limited marijuana enforcement priorities), however, influenced the way banks need to assess what an MRB activity is.

As part of their diligence, banks should be assessing if a MRB’s activity implicates a Cole Memo priority.[5] SARs now apply to MBRs, such that banks now must determine: if the MRB is using a license to launder criminally derived funds; cannot demonstrate the legitimacy of their business operation or investment source; conceals or disguises cannabis involvement; are or have been subject to marijuana related offenses; engage in interstate activity; or, purport to be non-profit with inconsistent business activity.[6] The Cole Memo’s influence proves reaching, as SARs attempt to align MRB banking practices with the marijuana enforcement priorities of the federal government.

While FinCEN’s guidance is promising, the resulting framework presents new obstacles for financial institutions. FinCEN’s guidelines require banks to make an assessment about the MRB’s operation that banks are not comfortable making. Robert Rowe, chief legal counsel for the American Bankers Association, said “it flips the responsibility back on the bank,” and that one banker said “the only way he could feel comfortable is if he had an employee embedded in that business 24/7.”[7] Essentially, if a bank wants to service MRBs, it also has to supervise those MRBs, which is far different from the traditional relationship banks have with customers. On the other hand, this parental approach to MRB banking is having effects on customers as well.

With nowhere to put their money, MRBs are struggling to manage all the cash they’re making. For instance, the California Growers Association recently polled its members and found that 75 percent of them did not have modern banking services.[8] There is also risk of robberies and theft with so much cash on hand. Joseph Vincent, director of legal and regulatory affairs for Seattle’s Department of Financial Institutions, spoke on the issue and said “[they] felt that it was incumbent . . . as a public-safety concern to establish some banking relationships for marijuana-related businesses and stop this from being an all-cash business.”[9] The banking industry’s hesitation to take money from MRBs is not helping local businesses achieve Cole Memo priorities either. However, one state thinks they have a solution.

Hawaii recently announced that it will be the first state to implement a cashless payment system, effective October 1, 2017.[10] CanPay, a secure debit network, operates on a “closed-banking feedback loop” system that allows MRBs and banks to work only with those operating in compliance with FinCEN and Cole Memo priorities.[11] From the banks perspective, not only does this drastically reduce the cost of ensuring an MRBs compliance, but it also reduces risk by creating a feedback system to “weed” out illegitimate retailers. For the MRBs, it is a step in the right direction, but still far from a solution. Currently, the program still requires the MRB be able to establish an account with a participating credit union, which most MRBs don’t have access to.

Soon, temporary solutions to MRB’s access to banks, like Hawaii’s CanPay, may no longer be necessary. Representative Ed Perlmutter (D-CO-7) recently introduced H.R. 2215, or “The Safe Act of 2017.” This legislation would ultimately protect banks from losing FDIC protection if they provided MRBs with banking services.[12] This comes after Perlmutter’s failed attempt to pass a similar bill (H.R. 2076) in 2015, despite popularity across the isles.[13]

The relentless push by industry supporters seems to be wearing on lawmakers. Data shows that banks are increasingly opening their doors to MRBs, guided carefully by FinCEN and the Cole Memo.

The urgent need for banking reform to accommodate this $7.2 billion dollar industry is glaring.[1] There is just simply too much money involved to ignore it.

[1] Schain, supra.

[1] Steven M. Schain, Marijuana Banking Takes Massive Leap Forward, The Legal Intelligencer (July 13, 2017), www.thelegalintelligencer.com/id=1202792970655/Marijuana-Banking-Takes-Massive-Leap-Forward

[2] U.S. Dept. of Treasury, Marijuana Banking Update: Depository Institutions Providing Banking Services to Marijuana Related Businesses, FinCEN.gov, https://www.fincen.gov/sites/default/files/shared/Marijuna_Banking_Update_Through_Q1_2017.pdf (last visited Sept. 26, 2017).

[3] U.S. Dept. of Treasury, BSA Expectations Regarding Marijuana-Related Businesses, FinCEN.gov, https://www.fincen.gov/resources/statutes-regulations/guidance/bsa-expectations-regarding-marijuana-related-businesses (last visited Sept. 26, 2017).

[4] Id.

[5] Id.

[6] Schain, supra.

[7] Lester Black, The Credit Unions and Small Banks That Solved the Cannabis Cash Crisis, theStranger (April 19, 2017), http://www.thestranger.com/green-guide-spring-2017/2017/04/19/25083313/the-credit-unions-and-small-banks-that-solved-the-cannabis-cash-crisis (last visited Sept. 28, 2017).

[8] Kristina Davis, Licensed Marijuana Businesses Operate in the Shadows Without Access to Banks, The San Diego Union-Tribune (February 18, 2017), http://www.sandiegouniontribune.com/business/sd-me-pot-banking-20170210-story.html (last visited Sept. 28, 2017).

[9] Black, supra.

[10] Hawaii Dept. of Commerce and Consumer Affairs, Medical Cannabis and Banking – Hawaii Solution, Hawaii.gov, https://cca.hawaii.gov/dfi/files/2017/09/MCD-FAQs.pdf (last visited Sept. 28, 2017).

[11] CanPay, A Legitimate and Stable Payment Option for your Cannabis Banking Program, https://www.canpaydebit.com/financial-institutions/ (last visted Sept. 28, 2017).

[12]  Art Cosgrove, Federal Cannabis Legislation Horizon, Washington Cannabis Connection (July 10, 2017), http://www.wccnewspaper.com/federal-cannabis-legislative-horizon/ (last visited Sept. 28, 2017).

[13] Id.