Continuing Problems in Legalized Marijuana Banking

December 6, 2016Articles Elevated Nation

Seven additional states chose to legalize the use of marijuana in the November election. This brings the total number of states that permit the use of marijuana for medical and/or recreational purposes to 34, including eight states that permit it for recreational use. While states continue to pass legislation legalizing the sale and use of marijuana, it remains a Schedule I drug under the Controlled Substances Act of 1970 (the CSA). Thus, even where the sale and use of marijuana is legal under state law, it remains illegal under federal law.

As a result of this disconnect between state and federal law, the industry has encountered a continuing problem unheard of in many other businesses – what to do with all that cash! As a result of marijuana’s status as a Schedule I drug under the CSA, handling the proceeds from its sale violates not only the CSA but also the Bank Secrecy Act, Patriot Act and other federal statutes.

The problem for financial services providers, particularly banks, credit unions and payment processors, is that federal law technically prohibits them from providing services to these businesses. Consequently, Visa, MasterCard and other traditional payment card processing are unavailable to the industry, as is traditional banking.

Many in and outside of the industry believe that the Memorandum for United States Attorneys From James M. Cole (the Cole Memo) issued by the U.S. Department of Justice and the guidance issued by the Financial Crimes Enforcement Network (FinCEN) titled “BSA Expectations Regarding Marijuana-Related Businesses” (the FinCEN Guidance) have effectively resolved these issues.

However, neither of these issuances constitutes permission to provide services to the legalized marijuana industry. In essence, the message of Cole Memo is “You can’t do it, but we’re probably not going to do anything about it if you do.”

The FinCEN Guidance conveys a similar message: “You can’t do it, but if you’re going to do it anyway, here’s how we’d like you to do it.” While a small number of institutions provide services to these businesses in spite of this quandary, in the absence of a clear directive allowing them to provide services, most traditional banking institutions choose not to accept business from those in the legalized marijuana industry.

The inability to obtain traditional banking services presents a serious problem for the legal marijuana industry. With no ability to transact business by credit or debit card and no access to traditional banking services, the industry transacts business primarily in cash and is generally unable to deposit the cash proceeds in a financial institution.

The large volume of cash creates public safety issues for these businesses as well as the individuals who own or work for them. With more and more businesses entering the industry as the legalization of marijuana use and sales becomes more widespread, this problem will only be exacerbated. This is particularly true in those states that have legalized it for recreational use, where the number of transactions is much higher.

Whether any of this changes with a new presidential administration remains to be seen. With the number of states that have legalized the sale and use of marijuana for medical and recreational purposes and the resulting tax revenue from those transaction (the state of Colorado had a $66 million revenue surplus last year), it seems unlikely that the new Attorney General will reverse the guidance set forth in the Cole Memo and begin enforcement action against the industry as a whole.

Reprinted with permission from Elevated Nation. (c) 2016.  Further duplication without permission is prohibited. All rights reserved. Click here to view the original article.