A memo issued today by U.S. Attorney General Eric Holder aims to provide assurances to banks that doing business with the legal cannabis industry is OK, so long as it is done only in states where marijuana is legal, and only with businesses that are fully compliant with state law. But the memo fell short of giving financial institutions full-access to the multi-billion dollar legal cannabis industry.
The memo, which was directed to federal prosecutors, said that prosecution may not be an appropriate course of action for banks dealing with medical and recreational marijuana dispensaries that are in full compliance with state marijuana laws, and do not raise any “red flags” that indicate a violation of the Cole Memo.
Red flags that would implicate banks in illegal activity (should they ignore them), according to the new memo, include:
- Signs that a customer is using a state-licensed marijuana-related business as a front to launder money derived from criminal activity.
- The business does not produce documentation or evidence to demonstrate that it is licensed within state law.
- A business seeks to conceal involvement in cannabis-related business activity.
- Discovery of a customer’s criminal record or evidence of illicit activity.
- The business has previously been raided by state or local authorities for violations of law.
- A cannabis-related business that engages in interstate trade.
- Out-of-state owner.
- The business is located on federal property.
- Financial activities that occur outside of the “norm” for non-profit organizations (for businesses with non-profit status).
Despite Restrictions, Some Banks Doing Business
Although there has never been a prosecution involving a financial institution doing business with the legal cannabis industry, most banks are still hesitant to take a chance, no matter how much President Obama appears to soften his stance by dancing around the main issues. “While we appreciate the efforts by the Department of Justice and FinCEN, guidance or regulation doesn’t alter the underlying challenge for banks,” Frank Keating, president of the American Bankers Association said. “As it stands, possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions.”
Still, some banks do take on marijuana dispensary business, though it can sometimes be a challenge to find them. Most banking relationships in the legal cannabis industry have traditionally been done on a “don’t ask, don’t tell” basis. While that sort of arrangement will still be worthy of prosecution according to the Cole Memo, many dispensary owners hope this will be the wedge that props the door open, at least until someone has the guts fix the whole mess.
Read the 3-page memo, titled “BSA Expectations Regarding Marjuana-Related Businesses”, below: