skip to Main Content
Cannabis Banking: The Prospects for Legal Protection

The trend of states legalizing cannabis – 33 Medical Marijuana states plus the District of Columbia and 10 Adult-Use states and counting – while it remains illegal under federal law poses a dilemma for U.S. financial institutions. While some banks and credit unions have chosen to serve cannabis businesses, most refuse to do so given the ongoing legal uncertainty. With limited banking access, many cannabis businesses are forced to operate with, and store large sums of cash, which can create public safety risks. In recognition of this situation, there is a growing consensus that, regardless of one’s views about legalization itself, the problem of cannabis banking must be addressed.

On July 23, the Senate Banking Committee held an important hearing on the Secure and Fair Enforcement (SAFE) Banking Act, which would provide a level of legal protection for financial institutions serving marijuana-related businesses (MRBs). The heart of the problem is that, so long as cannabis remains illegal at the federal level, all proceeds derived from cannabis -related commerce are considered criminal proceeds for purposes of federal anti-money laundering and Bank Secrecy Act (AML/BSA) laws, even in states where cannabis has been legalized. The result is a multi-billion industry that continues to operate primarily in cash due to a scarcity of legitimate banking and payment options.

The SAFE Banking Act is not the federal government’s first attempt to expand banking access to the cannabis industry. In 2014, the Treasury Department’s Financial Crime Enforcement Network (FinCEN) issued guidance to financial institutions for how to permissibly bank MRBs consistent with their AML/BSA obligations. (The Department of Justice concurrently issued similar guidance to federal prosecutors, but that document, The Cole Memo, was rescinded by Attorney General Jeff Sessions.) The message of the FinCEN guidance is that so long as financial institutions and their MRB customers comply with the FinCEN guidance and relevant state law, they will not face regulatory or criminal sanctions solely for serving MRBs. FinCEN also established a Suspicious Activity Report (SAR) regime exclusively for financial institutions serving MRBs.
Five years after it was issued, the FinCEN guidance has to be considered a qualified success in bringing some measure of banking access to the cannabis industry. FinCEN releases quarterly results about Marijuana SAR reporting, the most recent of which revealed that more than 600 financial institutions have filed some form of a Marijuana SAR. While not all of those filing institutions are actively and openly accepting MRB customers – anecdotally, that figure is less than 50 – it does reflect a functional system offering some banking relief to the cannabis industry.

The inherent limitation of the FinCEN guidance, however, is that it is a policy prescription to a legal problem. For the vast majority of financial institutions, even a “hands off” federal policy is insufficient protection to take on MRB accounts, so long as cannabis remains federally illegal. The result is that the demand for MRB banking continues to outstrip supply, leaving much of the cannabis industry frozen out of the U.S. financial system.

The SAFE Banking Act attempts to remedy this problem in a number of ways. First and foremost, it removes the threat of regulatory or criminal sanctions against financial institutions and their officers, directors and employees “solely” for providing financial services to MRBs and ancillary businesses. It addresses the AML/BSA problem by exempting state-legal cannabis-generated proceeds from the definition of “criminal proceeds” as defined by federal money laundering laws. The bill retains the FinCEN SAR reporting regime, and requires the Federal Financial Institutions Examination Council to develop uniform guidance and examination procedures for financial institutions serving MRBs. The bill has garnered broad support among the financial industry, including from the American Bankers Association, the Credit Union National Association, and the Independent Community Bankers of America.

While the SAFE Banking Act enjoys broad support in the House, its fate will ultimately be decided in the Republican-controlled Senate. Many Republicans continue to oppose any form of cannabis legislation and may be reluctant to support a measure that would enable the industry to continue to grow. Others may attempt to expand the scope of the SAFE Banking Act to prevent improper regulatory interference against banking relationships in general, not just as they relate to the cannabis industry. The goal would be to prevent a repeat of the DOJ’s controversial Operation Choke Point, during which federal regulators targeted the bank accounts of certain politically disfavored industries.

Whatever form of legislation eventually emerges, the primary mission of the SAFE Banking Act is historic – to provide legal protection for banks to serve a federally illegal industry. Whether that ultimately proves to be a bridge too far for this Congress remains to be seen. But the fact that it is a viable possibility is testament to the ever growing support for the U.S. cannabis industry.

John Vardaman

John Vardaman

John W. Vardaman, III is Chief Compliance Officer & General Counsel of Simplifya, the leading provider of regulatory and operational compliance software for the cannabis industry. Prior to joining Simplifya, Mr. Vardaman served as Executive Vice President & General Counsel at Hypur, a compliance-based cannabis banking and payments company.

Mr. Vardaman is an attorney with fifteen years of senior federal government experience in the enforcement of federal laws and policies concerning money laundering, the Bank Secrecy Act, and other financial crimes.

From 2006 to 2016, Mr. Vardaman worked at the Department of Justice, first in the Office of Legal Policy, and then as Assistant Deputy Chief in the Asset Forfeiture and Money Laundering Section. In 2014, Mr. Vardaman drafted the DOJ policy regarding marijuana banking, known as the Cole Memorandum, which set forth enforcement parameters designed to enable banks to permissibly service marijuana-related businesses.

From 2001 to 2006, Mr. Vardaman served as Special Assistant to the General Counsel at the Department of the Treasury where he worked on a variety of money laundering and terrorist financing issues following the 9/11 terrorist attacks. From 2003-2004, Mr. Vardaman served as Associate General Counsel to the Coalition Provisional Authority in Baghdad, Iraq, where he oversaw an international campaign to locate and repatriate assets of Saddam Hussein and the Iraqi regime held around the world.

Mr. Vardaman was the recipient of the Joint Civilian Service Commendation Award from Department of Defense in 2004, and the Attorney General’s Award for Distinguished Service from the Department of Justice in 2015.

Mr. Vardaman received his undergraduate degree from Vanderbilt University in 1993, and his law degree from Georgetown University in 1997.

This Post Has 0 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

Recent Stories

CDTFA Cannabis Creditor: Myths and Truths

By Hilary Bricken, Attorney at Husch Blackwell Dealing with creditors is never a fun experience. However, some creditors are more severe than others, especially in the cannabis industry. One of…

If FL Supreme Court approves cannabis ballot language, will voters go for recreational weed or not?

The long wait on whether Floridians will get a chance to vote to legalize recreational cannabis for adults 21 and older is almost over, as the Florida Supreme Court is…

Missouri strips marijuana licenses connected to company accused of predatory behavior

Missouri’s health department on Wednesday stripped two coveted marijuana micro-licenses tied to an out-of-state company that had been accused of predatory practices and had listed the licenses for resale. The…

Dug In: Big Island Grown’s Deep Cannabis Roots

Big Island Grown (BIG) is a vertically integrated cannabis company based in Kailua-Kona, Hawaii County, on the Big Island of Hawaii, whose reach now extends to several islands in the…

More Categories

Back To Top
×Close search
Search