Banking challenges and opportunities

In banking, marijuana businesses have multiple challenges and few opportunities

One of the biggest challenges for marijuana-related businesses is obtaining access to banking and other financial services. As long as marijuana remains illegal at the federal level, many banks, credit unions, lenders and other financial institutions will continue to remain wary of the industry, no matter how many states legalize the sale and use of marijuana.

There may, however, be hope on the horizon. As of March 2017, the Financial Crimes Enforcement Network (FinCEN) reports that 368 banks and credit unions are providing services to marijuana-related businesses, undoubtedly a positive, if still nascent, development for dispensaries and other licensed marijuana businesses. For this growth to continue, financial institutions and the marijuana industry need to work together to ensure that financial services are provided to, and used by, businesses in a responsible, safe and sound manner.

The Regulatory Framework

The federal Controlled Substances Act makes it illegal under federal law to manufacture, distribute or dispense marijuana. Nevertheless, 29 states and the District of Columbia have authorized the use and sale of medical marijuana, and eight states and the District of Columbia have legalized its recreational use.

As more states legalized marijuana, the federal government issued guidance allowing banks to provide services to marijuana-related businesses under certain circumstances. In August 2013, Department of Justice Deputy Attorney General James M. Cole issued a memorandum advising U.S. attorneys on marijuana enforcement under the Controlled Substances Act, and then issued a second memorandum in February 2014, addressing application of federal law to financial institutions that deal with marijuana-related businesses (collectively, known as the “Cole Memos”). The Cole Memos direct Department of Justice attorneys and law enforcement to focus their resources on persons or organizations whose conduct interferes with any one or more of eight enforcement priorities, such as preventing the distribution of marijuana to minors.

On the same day the Department of Justice issued the second Cole Memo, FinCEN issued guidance clarifying how financial institutions can provide services to marijuana-related banks consistent with their anti-money-laundering obligations under the Bank Secrecy Act. The Bank Secrecy Act, as amended, requires banks to establish anti-money-laundering programs, file reports on suspicious activity and large cash transactions, and keep certain records of transactions. The FinCEN guidance establishes unique suspicious activity reporting (SAR) procedures for marijuana-related accounts, including the filing of limited, priority and termination SARs, depending on specific circumstances.

Together, the Cole Memos and FinCEN guidance provide the framework for banking the marijuana industry. The guidance, however, is high level, and leaves most day-to-day compliance issues unaddressed. This gap in guidance can leave banks exposed to regulatory risk. In March 2016, for example, a bank in Illinois entered into a consent order with the Federal Deposit Insurance Corporation and the Illinois Division of Banking relating to its allegedly unsafe and unsound Bank Secrecy Act program. Although marijuana is not mentioned in the consent order, it has been reported that the action stemmed from the bank’s marijuana-related business program. If that were the case, then the consent order serves as a warning that while federal and state regulators have allowed banks to serve marijuana business customers, such services must be provided carefully and pursuant to the regulators’ expectations for servicing a high-risk industry.

Improving Marijuana Banking

Given the regulatory challenges in banking marijuana-related businesses, it is critical for banks and their customers to develop a common understanding of the challenges and best practices for banking such high-risk merchants. In August 2014, FinCEN issued guidance clarifying how financial institutions can provide services to marijuana-related businesses consistent with their anti-money-laundering obligations under the Bank Secrecy Act. This guidance was issued against the backdrop of the Department of Justice’s “Cole Memos,” which address application of federal law to financial institutions that deal with marijuana-related businesses.

From a bank’s perspective, the starting point is ensuring that it has a Bank Secrecy Act program that satisfies all regulatory basics. From there, the bank will need to enhance and tailor its program for dealing with marijuana businesses. The FinCEN guidance explains that the decision to open, close or refuse any particular account should be made by each bank based on its business objectives and an evaluation of the risks associated with offering a particular product or service. To assess these risks, FinCEN has directed banks to perform comprehensive due diligence on applicants, and then to monitor marijuana businesses closely once accounts are opened. Given these expectations, a bank should implement formal marijuana -specific policies and procedures within its anti-money laundering program. In addition, a bank may be better off committing to providing services to the industry than accepting marijuana-related customers on an ad hoc basis.

At a minimum, a bank’s marijuana compliance program should address the following:

– Due diligence and reviews of marijuana-related lines of business, corporate structure, operations and licensing;

– Advertising, marketing, sales practices and business relationships;

– Understanding prior — and other current — banking relationships;

– Monitoring transactions for suspicious activity, including transactions between corporate and personal accounts;

– Currency transaction reporting;

– Suspicious activity reporting, including limited, priority and termination SARs; and

– Site visits and confirmation of information provided by marijuana businesses in response to periodic account reviews.

Understanding Banking for Marijuana Businesses

For marijuana-related businesses, understanding this framework and the pressures banks face when serving the marijuana industry is critical to obtaining and maintaining a successful banking relationship. With this in mind, marijuana businesses should take certain steps before seeking to open a bank account. Of course, obtaining all necessary state licenses is a given. In addition, the company should appoint a compliance officer and implement policies and procedures for compliance with applicable laws and requirements, including areas impacted by the Cole Memos.

When applying for a bank account, marijuana-related businesses must provide accurate and truthful information in all materials submitted to a bank. Providing false information to a bank is a potential federal offense. The bank is likely to require marijuana-related businesses and their owners and officers to maintain separate business and personal accounts to avoid any commingling of funds.

Once an account is opened, it’s incumbent on the marijuana business to use the account responsibly and in compliance with applicable laws and regulations. The company should work closely with its bank to understand the expectations for using the account. Some banks, for example, will want records maintained for periodic review as part of the bank’s ongoing monitoring and due diligence. Similarly, marijuana businesses should be prepared to provide any documentation or information a bank requests as part of its initial or ongoing due diligence.

While banks are likely to continue taking a cautious approach for the foreseeable future, marijuana-related businesses and banks would both benefit from working together to ensure that banking services are provided in a safe, sound and responsible manner. Doing so can help protect the banking system, while also ensuring that responsible marijuana companies are able to obtain banking services.


Andrew Bigart is a counsel in the Washington, D.C. office of Venable LLP. He specializes in helping clients in the payments and banking industries navigate the complex federal and state regulatory environment. For more information, visit




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