February 18, 2014

Legal marijuana businesses might have to start posting “Help Wanted” signs for someone willing to provide financial services to them. Regulators issued new guidance for banks to give them some framework for providing services to marijuana businesses in states that have legalized the substance. But the guidance gave banks little confidence that they can offer financial services to marijuana-related businesses.

The guidance said that banks will have to make up their own minds about providing services to marijuana businesses after performing their customer due diligence. Banks will have to file suspicious activity reports (SAR’s) for any marijuana business that they offer services to since the substance still falls under the federal Controlled Substances Act. But banks can file a new type of SAR -- called a “marijuana limited” SAR -- for a marijuana business that is operating with a license under state law and does not violate federal drug enforcement priorities outlined in the Cole Memo released by the Department of Justice.

[For More of Our Coverage On Compliance and Marijuana, Check Out:How Legal Pot Makes Compliance More Complex for Banks]

Those federal priorities outlined in the memo are: preventing distribution to minors, preventing revenue from marijuana going to criminal organizations, preventing trafficking to states that haven’t legalized marijuana, preventing legal marijuana businesses from acting as a front for illegal activities, preventing any violence resulting from marijuana distribution, preventing drugged driving, preventing marijuana cultivation on public lands, and preventing the use of marijuana on federal property.

When filing a “marijuana limited” SAR a for legal business that doesn't violate any of these priorities and operates within state law, the bank will simply note that it is filing the SAR because the business is engaged legally in the marijuana trade.

If a bank thinks a marijuana business is violating state law or one of the Cole Memo priorities, than it must file a “marijuana priority” SAR stating why the bank thinks the business is in violation and what transactions have been involved in the violating activity.

The response of the banking industry to the new guidance has been anything but enthusiastic. “Congress must change federal law which bans the sale and distribution of marijuana. Then all federal regulators must provide clear and precise guidance. Until then, the nation’s 7,000 banks will be highly reluctant to participate in this new type of ‘commerce,’” Richard Hunt, the president and CEO of the Consumer Bankers Association, said in a statement reacting to the report.

Without legislation from Congress, then the new regulatory policy can be changed at any moment by the Obama administration, or the next President, Jacob Sullum, a writer for Reason magazine, rightly pointed out in a recent column.

With that kind of uncertainty, there is really no incentive for banks to offer accounts and services to legal marijuana businesses.

Congressional representatives have introduced a bill to allow banks to provide services for legal marijuana businesses. But thanks to Washington gridlock, it’s unlikely that Congress will do anything about this issue (or any other for that matter), even though government has an interest in making sure legal businesses have bank accounts. As long as these marijuana businesses don’t have bank accounts, they will be doing all of their business in cash, and that will make them more difficult to tax. It’s government shooting itself in the foot. It’s in their own self-interest for banks to stay out of the line of fire.

ABOUT THE AUTHOR
Jonathan Camhi is a graduate of the City University of New York's Graduate School of Journalism, where he focused on international reporting and interned at the Hindustan Times in Delhi, ...