Marijuana is estimated to be a $10 billion industry and rapidly growing. Almost all of it is conducted in cash. Although legal in thirty three states plus Washington, D.C., Puerto Rico and Guam, marijuana remains illegal at the federal level. Accordingly, financial institutions that handle proceeds from a transaction involving the distribution, manufacture or sale of marijuana would be handling illegal proceeds in violation of both federal money laundering statutes and banking regulations that prohibit such institutions from participating in any transaction or engaging in any relationship involving illegal proceeds.
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No. We are not there yet. Are we making progress? Maybe.

The biggest impediment to explosive growth in the marijuana industry is lack of access to banking and robust financial services. Because banks face the risk of prosecution for money laundering and aiding and abetting in drug trafficking, most banks will not bank marijuana-related businesses (MRBs).

Why would any bank risk prosecution by banking MRBs? In 2014, following the issuance of the Cole Memorandum, the Justice Department and the Department of the Treasury Financial Crimes Enforcement Network (FinCEN) issued non-binding guidance on how financial institutions could serve MRBs. (For a more complete analysis of the laws related to banking MRBs see our blog post here.) The FinCEN guidelines called for fairly intensive, ongoing and expensive due diligence of any MRB customers, to the point where the risk/reward ratio for banks became inverted—high risk (jail, loss of banking license), low reward (low profit margins).

While most banks thought the risks far outweighed the benefits of having MRB customers, some financial institutions, mostly local banks and credit unions, saw in the FinCEN guidelines an opportunity and quietly began offering depositary services to MRBs. According to FinCEN, in 2017 there were over 300 financial institutions providing some form of banking services to MRBs. However, the vast majority of business in the industry is conducted in cash. For many businesses that touch the plant, this makes profit and loss statements questionable, taxing authorities nervous, and potential investors dubious about valuations.

Since the publication of the FinCEN statistics, much has happened to banking related to the marijuana industry—some of it good, some bad, and some ugly. Let’s take them in reverse order.
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Lack of access to the banking system remains one of the biggest problems for the cannabis industry.  Despite tremendous growth in the past few years and even more aggressive growth expected in the near future,  it is still difficult for cannabis businesses, what bankers like to call marijuana related businesses (MRB), to establish a banking relationship. As more and more states legalize the use of marijuana, has there been any progress?

First, a little history.  Banks are prohibited from banking MRBs under federal law and risk prosecution for money laundering and aiding drug trafficking.  In February 2014, following the issuance of the Cole Memorandum by the Justice Department, the Department of the Treasury Financial Crimes Enforcement Network (FinCEN) and the Department of Justice issued concurrent guidance to clarify how financial institutions could serve MRBs consistent with their obligations under the Bank Secrecy Act.  The FinCEN  guidelines state that in determining whether to serve an MRB, a financial institution should conduct due diligence including: determining whether the MRB is properly licensed, reviewing the license application, requesting from state authorities available information about the business, understanding the products and customers of the business, monitoring the business activities, remaining alert for suspicious business activities, and conducting periodic reviews of the business.  A financial institution also should consider whether an MRB implicates one of the priorities of the Cole Memorandum.  Finally, if a financial institution does decide to service an MRB, it would be required to file a Suspicious Activity Report.


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