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Cannabis Banking –

by on Compliance. Published November 3rd, 2022

Attorney Nathan McDonald Gives Presentation on Cannabis Banking at Southwest Association of Bank Counsel’s 2022 Annual Conference

With more and more states legalizing cannabis in some form each year, access to banking services for marijuana-related businesses (“MRBs”) has become increasingly critical. Despite this, federal law remains an obstacle to industry participants due to congressional inaction on reform measures that are now largely supported by the body politic. These obstacles include, primarily, the Bank Secrecy Act of 1970. Which makes it a crime for a bank to knowingly engage in monetary transactions involving the proceeds of certain unlawful activities, including the sale of marijuana––and the Controlled Substances Act, under which marijuana remains classified as a Schedule I drug.

Cannabis Banking Presentation

Nathan McDonald, attorney at Johnson Clem Gifford, PLLC, recently presented to banking attorneys across the Southwest on legal and regulatory issues related to cannabis banking. Mr. McDonald’s presentation included an overview of federal law, a discussion of associated legal and regulatory compliance risks, a discussion of recent enforcement actions and legislative developments, as well as a review of applicable case law. For more details, Mr. McDonald’s presentation is available here.

Cannabis Legalization and Banking Uncertainty

Historically, cannabis legalization has been a highly charged political issue, as exemplified by the divergent policies of the last three administrations. This has led to uncertainty for both the cannabis industry and those that do business with it, including the banking and financial services industries. However, despite the conflict in policy at the federal level, the seminal guidance issued by former Deputy Attorney General James Cole during the Obama Administration––colloquially known as the “Cole Memo” ––remains valid.

The Cole Memo

The Cole Memo essentially created a safe harbor from federal prosecution for state-authorized marijuana-related activities that do not implicate certain prosecutorial priorities. Specifically, these include:

  • preventing the distribution of marijuana to minors;
  • preventing criminals, gangs, and cartels from profiting from marijuana;
  • preventing state-authorized activities from being used as a pretext for other illegal activity;
  • eliminating guns and violence from the marijuana cultivation and distribution system;
  • preventing the diversion of marijuana from states where it is legal to other states;
  • preventing drugged driving and other negative public health outcomes associated with marijuana;
  • preventing marijuana use, cultivation, and possession on public property; and
  • preventing marijuana possession and use on federal property.

FinCeN Cannabis Banking Guidelines

Supplementing the Cole Memo, FinCEN issued its own guidance in 2014, outlining the conditions under which financial institutions may conduct business with state legal MRBs. The guidance also set forth regulatory risk management expectations regarding initial and ongoing due diligence and transaction monitoring, including various “red flags” that may indicate implication of Cole Memo priorities or enhanced money laundering risk. FinCEN’s guidance also introduced three new suspicious activity reports (“SARs”) that were specifically designed for use with MRB customers.

Cannabis Banking and Bankruptcy Courts

Although much attention has been placed on the Cole Memo and FinCEN’s guidance in the recent past, the implications of federal case law involving state legal MRBs should also be considered by financial institutions and their risk management teams in consultation with regulatory compliance counsel. Given the likelihood of a recession in the near future, this is especially true with respect to bankruptcy court case law which, thus far, has effectively precluded access to the bankruptcy court system––a fact that has been defensively used by MRB debtors successfully in some cases.

Federal Level Legalization of Marijuana

While legalization efforts at the federal level have been stymied thus far, congressional inaction on the issue is becoming increasingly untenable given the rate of legalization at the state level and the dramatic shift in public attitudes toward legalization over the last decade. For those reasons, among others, it is likely only a matter of time before legalization at the federal level occurs.

Contact Johnston Clem Gifford

For more information on Cannabis Banking, contact us online or by calling (214) 974-8000. Our lawyers routinely advise clients on regulatory compliance and other supervisory and governmental matters.

 

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