Banking and Cannabis

Nearly two years ago, I wrote an article for CULTURE about the cannabis industry’s access to banking. The article focused heavily on the advisories issued by the Treasury Department’s Financial Crimes Enforcement Network (FinCen) and the Department of Justice (DOJ), which sought to make it easier for state-legalized cannabis businesses to have greater access to financial institutions. Sadly, the advisories fell short of the explicit legal authorization that banking industry officials wanted in order to feel safely shielded from potential money-laundering prosecution. The banking industry largely agreed that it would require an act of Congress authorizing their involvement with the cannabis industry. Two years later, one of the top questions I receive is, “What’s the deal with the banking ‘situation’ in the cannabis industry these days?”

The current state of affairs in cannabis and banking is definitely a “good news/bad news” scenario. In early 2015, several banks in states like Washington and Colorado were working with the cannabis industry or announced their plans to do so. However, ultimately, they ended up pulling back because compliance with FinCen requirements was too time consuming and too expensive for the small institutions. Further, a survey conducted in December of 2015, by Marijuana Business Daily painted a grim landscape. The survey found that 60 percent of all cannabis companies currently do not have a banking relationship. With the highest percentage of companies without bank accounts, about 81 percent to be exact, being those who work directly with the plant.  Astoundingly, 49 percent of ancillary cannabis businesses are without bank accounts and these businesses are not even touching the plant! For those cannabis businesses lucky enough to secure a bank account, 22 percent of those companies pay $1,000 or more each month, with no guarantee their account won’t be closed by the financial institution.

“Two years later, one of the top questions I receive is, ‘What’s the deal with the banking ‘situation’ in the cannabis industry these days?”

Another dismaying setback comes from Colorado. The state of Colorado chartered Fourth Corner Credit Union, which would allow the credit union to acquire a bank routing number and to apply directly to the Federal Reserve Bank of Kansas City for a master account. This master account is needed in order to transact business. After an eight-month delay, the Federal Reserve denied the master account.

In response, the Fourth Corner Credit Union filed a lawsuit asking the judge to grant it a master account. In January of 2016, U.S. District Judge R. Brooke Jackson made it clear that he would not be forcing the Federal Reserve Bank of Kansas City to grant the master account. When referencing the advisories issued by the Treasury Department and the DOJ, Judge Jackson stated, “These guidance documents simply suggest that prosecutors and bank regulators might ‘look the other way’ if financial institutions don’t mind violating the law.” In his nine-page opinion, Judge Jackson said that he was compelled to reject The Fourth Corner Credit Union’s suit because cannabis remains illegal under federal law.

By now you must be wondering what the good news is given the grim aforementioned information—we can also find good news right here on our own home turf. California State Board of Equalization Board Member Fiona Ma has quickly become a champion for our industry as she works hard to help legitimate cannabis businesses get access to banking. In July of 2015, Ma convened a meeting to focus on the challenges facing the cannabis industry in the banking arena. Industry experts gathered to discuss actual opportunities and recommendations for California. Ma has realized that the vast majority of cannabis businesses would be willing to pay their share of taxes but that a major roadblock in doing so is lack of access to banking services and financial institutions.

Board Member Ma wants to encourage the industry to come out of the shadows and to become legal and that “until federal law changes, California has to step up.” Ma truly believes that California can regain cannabis leadership and one way it can accomplish that is to truly explore state-run banking options and ensure that any ballot initiative legalizing recreational use of cannabis in 2016 includes provisions that allow the state of California to establish a state-chartered credit union for the cannabis industry pending federal action.