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Monthly Archives: September 2019

A SAFE Path Forward: Banking the Marijuana Industry

by Amber Goodrich

As states continue to legalize medical and recreational marijuana, pressure is mounting on both marijuana-related businesses (MRBs) and financial institutions due to current federal restrictions.

While the marijuana industry becomes more legitimate—and more lucrative—its participants’ need for traditional banking products and services increases. Conversely, current federal laws make capitalizing on this emerging client base an extremely risky proposition for financial institutions.

However, the recently introduced Secure and Fair Enforcement (SAFE) Banking Act might finally reconcile this conflict by providing safe harbor to those institutions that bank MRBs, and the momentum for its passage is growing. In fact, the attorneys general of 38 U.S. states and territories pushed for it in a letter to Congressional leaders, in which they highlighted the benefits of regulating “grey market financial activities” like marijuana.

Here is where the matter currently stands and what it means for our industry.

Marijuana Takes on the Veil of Legitimacy

Twenty-three years ago, California was the first state to legalize medical marijuana, and in 2012, Colorado and Washington State were the first to legalize its recreational use. Today, medical marijuana is legal in 33 states, and recreational marijuana is legal in 10. The District of Columbia has legalized both.

Despite the shift toward state legalization, marijuana is still considered a Schedule I drug by the federal government, a dichotomy the Department of Justice (DOJ) addressed in the 2013 Cole Memorandum. The memo indicated that the DOJ would focus its “limited investigative and prosecutorial resources” on eight priority areas of marijuana law enforcement, such as preventing its distribution to minors.

In early 2014, the Financial Crimes Enforcement Network (FinCEN) followed suit and issued BSA Expectations Regarding Marijuana-Related Businesses to provide guidance to financial institutions that bank MRBs in states where marijuana is legal. However, marijuana’s growing legitimacy hit a snag in 2018 when former U.S. Attorney General Jeff Sessions rescinded the Cole Memo. But in another conflicting twist for banks, the FinCEN guidance remains in effect, according to the ABA Banking Journal.

In advocating for the SAFE Banking Act, the state attorneys general pointed out the significant value of the marijuana industry, which was estimated to be $8.3 billion in 2017 and expected to grow to $25 billion by 2025. “Yet,” they say, “those revenues are handled outside of the regulated banking system.” This creates significant tax and compliance issues and “contributes to a public safety threat as cash-intensive businesses are often targets for criminal activity.”

The SAFE Banking Act

Proposed legislation may resolve some of that conflict. Both houses of Congress are expected to vote on the SAFE Banking Act in the near future. It would create a safe harbor for depository institutions in order to “increase public safety by expanding financial services to cannabis-related legitimate businesses and service providers and reducing the amount of cash at such businesses.” Further, Treasury Secretary Steven Mnuchin supports the pending legislation.

The bill’s five key tenets—which apply to financial institutions that bank legitimate MRBs and their ancillary partners and vendors—prohibit federal banking regulators from imposing the following penalties on these institutions:

  1. Terminating or limiting their deposit insurance just because they bank MRBs.
  2. Prohibiting, penalizing or discouraging them from banking MRBs in states where it is legal.
  3. Recommending, incentivizing or encouraging them not to bank MRBs, their owners or employees.
  4. Taking adverse or corrective action on a loan to an MRB, its owner or employees.
  5. Prohibiting or penalizing institutions or their third-party service providers for conducting routine banking functions for MRBs.

There is one other piece of legislation proposed that tackles the marijuana banking conundrum from a different angle, which current U.S. Attorney General William Barr is said to prefer. As described by Fortune, the Strengthening the Tenth Amendment Through Entrusting States (STATES) Act would amend the Controlled Substances Act (CSA) “to restrict federal enforcement of the CSA against individuals and companies in states where cannabis is legal.”

Legal or Not, MRBs Pose Risk

Passage of the SAFE Banking Act and/or the STATES Act would certainly make the choice easier for banks. Both laws would alleviate a major risk currently associated with banking MRBs: the fact that at present it is done in contradiction to federal law and federal banking regulations.  By its very nature, the marijuana industry will likely always be at a heightened risk for money laundering. If you’re currently banking this industry or considering doing so in the future, follow the advice of the ABA Banking Journal and “take careful steps to address each and every one of” the risks associated with it.

Learn more about these marijuana-related regulations, as well as the steps your institution should take to minimize the risk of banking MBRs, by reading our Playing It SAFE: The Future of Cannabis Banking white paper.


Amber Goodrich compliance strategist for CSI Regulatory Compliance, has more than 10 years of financial industry experience. She is a Certified Regulatory Compliance Manager (CRCM) and Certified Bank Secrecy Act (BSA) Professional (CBAP).









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