Colorado’s newly lucrative recreational marijuana industry is almost entirely cash-only at the moment — a particular security risk and burden for marijuana dispensaries, whose employees have been known to carry briefcases of cash home each night. The Departments of Treasury and Justice issued long-awaited guidance to banks Friday intended to deal with what many consider the most urgent problem for the burgeoning marijuana industry — inaccess to financial services. But while some marijuana groups are viewing the new guidance as a victory, major banking associations say it won’t change their behavior, raising questions about whether marijuana businesses will actually have more access to financial institutions.
Both a new memo from the Department of Justice and a press release from Treasury Department’s Financial Crimes Enforcement Network (FinCEN) suggest that the federal government is aiming to bring marijuana financial operations out of the shadows and allow banks to “provide services to marijuana-related businesses.” But the memos impose many monitoring and reporting requirements on banks, including filing a suspicious activity report on every single marijuana business, and leave it up to banks to police whether dispensaries are meeting eight marijuana enforcement goals set out by the Justice Department in August.
Major banking associations did not receive the announcement with optimism. Richard Hunt, president and CEO of the Consumer Bankers Association, said the guidance will likely not change banks’ behavior:
First, 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 this new type of “commerce.”
The American Bankers’ Association had similar things to say. “While we greatly appreciate the efforts by the Department of Justice and FinCEN, guidance or regulation doesn’t alter the underlying challenge for banks,” said Senior Vice President and Senior Counselor Robert Rowe. “As it stands, possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution.”
Even some marijuana groups are skeptical. John Davis, executive director of a the Coalition For Cannabis Standards & Ethics in Washington, worried that this guidance would do little to change the position of banks, pointing out that the Justice Department’s memo lays out all the ways in which banks could be breaking the law. “This was a very important Valentine from the Justice Department form the marijuana industry,” he said. “Will it affect the banks? I’m not so sure.”
But several major marijuana groups welcomed the announcement. “This is a huge victory for our members, our communities, and the banks that take this opportunity to serve a thriving new market,” said National Cannabis Association executive director Aaron Smith.
Asked whether he believed dispensaries would have access to banks in light of resistance from banking associations, he projected that smaller state and community banks would be more open to the new guidance, and will relish the opportunity for “long-term loyalty” from what he called one of the fastest-growing industries. He interpreted the guidance as suggesting that those banks who follow FinCEN’s suggestions would escape prosecution.
Americans for Safe Access, a medical marijuana advocacy organization that has been dealing with the issue of access to financial institutions since long before Colorado’s recreational marijuana law went into effect, also “welcomed” the announcement, although it would prefer a change in the law.
“We have been pushing the federal government for years to make these commonsense concessions and we’re pleased that the Obama Administration is finally doing so,” said Executive Director Steph Sherer. “At the same time, a piecemeal approach to medical marijuana policy is shortsighted and is an issue that deserves a comprehensive public health solution.”
Under current federal law, doing business with marijuana purveyors is considered illegal money laundering, leaving marijuana entities with scant access to credit cards, loans, and bank accounts. In fact, some banks even deny financial services to individuals who have invested in a marijuana business, potentially thwarting sources of financing for marijuana entrepreneurs.
The newest guidance is akin to the prosecutorial discretion memo issued by the Justice Department in August. It suggests that enforcement entities may make some allowances for those who are doing business with state-compliant dispensaries. But the extent of those allowances remains unclear. In addition to mandating a suspicious activity report on all marijuana businesses, the new FinCEN advises financial institutions to engage in “ongoing monitoring” for “suspicious activity” and “ongoing monitoring” of publicly available news sources.
Banks may also be wary to comply with guidance that is only fleeting in nature. Law enforcement could change their approach to prosecutorial discretion at any point, particularly when President Obama leaves office. Nonetheless, in announcing that this sort of guidance would be forthcoming last month, U.S. Attorney General Eric Holder made clear that he considers cash-only marijuana businesses a public safety concern.
“Huge amounts of cash – substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited – is something that would worry me just from a law enforcement perspective,” he said during an address at the University of Virginia.
The problem with access to financial services derives from the continued blanket federal prohibition on marijuana that renders state dispensaries technically illegal under the Controlled Substances Act. This prohibition chills marijuana use, growth, and distribution in a number of other ways. For marijuana businesses, it means not just inaccess to financial institutions, but no tax deductions of business expenses and even obstacles to filing taxes at all. For marijuana users, it may mean mean loss of employment, or denial of a gun permit. And for everybody, it means critical research on marijuana is suppressed.
Only a formal change in the law will eliminate these risks, which is why bills in Congress have been introduced to address the banking issue, allow marijuana businesses to deduct their expenses. and roll back federal marijuana prohibition.