The Great Unknown

Trump’s Impact on Cannabis Banking

A massive crowd marching through downtown Seattle in protest against President Trump’s inauguration.

New administration’s anti-marijuana cabinet could play a major role in restricting — or recriminalizing — state-legal businesses

In just a few short years, legal cannabis has become a nearly $7 billion industry. Nearly 60% of the states have legalized the use of cannabis for either recreational or medicinal purposes, but because the sale of cannabis is still illegal under federal law, it has been extremely difficult for those operating within the industry to acquire and maintain legitimate banking relationships.

Things have gotten better for the cannabis industry in the past few years, particularly in the area of banking. President Obama and his administration took a hands-off approach to cannabis and paved the way to, in essence, decriminalize growing, possession, use and distribution of cannabis at the federal level, provided cannabis businesses complied with applicable state laws. (Despite the fact that President Obama’s White House website page on the Office of National Drug Control Policy stated “The Administration steadfastly opposes legalization of cannabis,” President Obama’s administration took significant steps to foster a productive business environment for cannabis companies.)

In 2013, Deputy Attorney General James M. Cole wrote a memorandum that updated the Department of Justice’s previous guidelines to federal prosecutors concerning cannabis enforcement. It re-emphasized the DOJ’s priorities regarding cannabis and stated that in instances where individual states had enacted regulations consistent with federal guidelines and priorities, federal prosecutors should use their limited resources on other endeavors. In other words, the Cole Memo implicitly authorized federal prosecutors to tolerate state-regulated cannabis industries.

President-elect Trump has previously called marijuana a states’ rights issue, but questions remain about whether he intend to keep his word now that he’s elected.

Shortly thereafter, in 2014, the Financial Crimes Enforcement Network (FinCEN), a division of the U.S. Treasury, issued some guidance of its own. FinCEN set forth specific suggestions as to how financial institutions could provide services to cannabis companies, leaving the decisions about whether to “open, close, or refuse any particular account or relationship” to each individual financial institution based upon their own internal process. However, if a financial institution decided to service a cannabis company, FinCEN required increased due diligence on the part of the financial institution, including the verification of its customers’ compliance with state licensing procedures, monitoring its customers for any suspicious activities and filing suspicious activity reports (SARs) on each of its cannabis companies.

Despite the guidance set forth in the Cole Memo and the 2014 FinCEN guidelines, many of the nation’s largest banks, such as Bank of America and Wells Fargo, refuse to do business with cannabis companies. For them, because cannabis is still an illegal federal drug, any money derived therefrom is tainted.

Accordingly, the void has been filled mostly by small state banks and credit unions, such as Salal Credit Union in Seattle and Numerica Credit Union in Spokane, Washington, which openly court and advertise their services to cannabis companies, and Maps Credit Union in Salem, Oregon, which quietly offers similar services. The financial institutions that have been willing to jump through the regulatory and oversight hoops now provide cannabis companies with the most basic of banking services, such as checking accounts and payroll services. The credit market for cannabis companies is still limited mostly to private equity funds and individual investors. Naturally, the substantial costs related to the heightened due diligence and regulatory compliance are passed along to the cannabis companies, with some banks charging as much as $1,000 per month in account fees.

While it has gotten easier for cannabis companies to find legitimate banking solutions, there may be dark clouds on the horizon. In 1990, at the Miami Herald Company of the Year Awards Luncheon, Donald Trump said, “We’re losing the War on Drugs badly. You have to legalize drugs to win that war.” But on the campaign trail, according to a February 2015 article in the Washington Post, when asked about Colorado’s cannabis legalization Trump responded, “I say it’s bad. Medical cannabis is another thing, but I think it’s bad, and I feel strongly about it.” Later, Trump stated that perhaps the question of legalization was actually a states’ rights issue.

Again, according to the Washington Post, during a rally in Nevada, Trump said, “Marijuana is such a big thing … I think medical should happen — right? Don’t we agree? I think so. And then I really believe we should leave it up to the states … And of course you have Colorado, and I love Colorado and the people are great, but there’s a question as to how it’s all working out there, you know? That’s not going exactly trouble-free. So I really think that we should study Colorado, see what’s happening.”

Trump has pledged to be a “law-and-order” president, and two of the politicians in in his inner circle seem to fit that mold. Vice President Mike Pence is a staunch anti-cannabis politician. As the governor of Indiana, he presided over some of the most oppressive cannabis laws in the nation. When the Indiana Legislature attempted to reduce penalties related to possession of cannabis, Pence refused to sign the bill until stiffer penalties were put back into the legislation. But Pence is only the vice president, and history has shown us that vice presidents wield differing amounts of influence over an administration.

Photo by Gage Skidmore.

Perhaps more problematic for cannabis companies and their access — albeit limited — to the banking system is Senator Jeff Sessions, Trump’s pick for attorney general. Sessions would be America’s top law enforcement official and he has been very vocal about his opposition to legalized cannabis in every form. He believes that cannabis use leads to more drug use and that there already have been plenty of problems in states that have legalized cannabis. (For a more in-depth review of Sessions’ sentiments on drugs, see his Senate floor speech on the opioid epidemic from March 7, 2016.) With the simple retraction of the Cole Memo, federal prosecutors may choose —  or may be told — to aggressively pursue state-sanctioned cannabis producers, distributers and users. Alternatively — or perhaps in addition — Sessions could roll back the 2014 FinCEN guidelines which made it more palatable for banks to provide banking service to cannabis companies. It would only take a few high-profile enforcement actions to spook the entire industry and cause the few banks that provide banking services to cannabis companies to decide that the risk of losing their FDIC insurance — or worse — is no longer worth the rewards associated with banking cannabis companies.

What happens next in the legitimate cannabis banking industry is completely unknown. Trump has shown himself to be extremely unpredictable during his short political career. On one hand, the cannabis industry could be a boon to the economy by creating new jobs, ancillary industries and providing tax revenue. On the other hand, Pence and Sessions, two people very close to Trump, view cannabis and other illegal drugs as a scourge on our society and if permitted, would take all necessary steps to eradicate them from the United States. It may all depend on the Trump Administration’s priorities. Trump, like most presidents before him, made a lot of promises to a lot of people and cracking down on cannabis companies and the financial institutions that serve them may take a back seat to running the country and “making America great again.”

Everyone in the cannabis industry should stay vigilant and keep informed, because 2017 might be a little bumpy.


Maurice Drayton is of counsel in the Seattle office of Williams Kastner. His practice emphasizes transactional and corporate law. He represents banks, financial institutions and hard money lenders in complex financial transactions. He also acts as general counsel to small businesses, drafting organizational documents and advising management with respect to corporate governance and general corporate matters. Williams Kastner publications should not be construed as legal advice. The communication does not create an attorney-client relationship with Williams Kastner or any of the firm’s attorneys.



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