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A problem that continues to plague marijuana merchants is access to financial institutions. Even though banks and credit unions want to work with these businesses, federal regulations have scared many of them away. House lawmakers have once again passed legislation that would protect these entities from prosecution, but its ultimate fate in the Senate has yet to be decided.

Last month the U.S. House of Representatives passed the Secure and Fair Enforcement (SAFE) Banking Act in a 321-101 vote. This is the fourth time language from the bill has been introduced in Congress. Each time, it’s moved without much opposition through the House, only to lose steam in the Senate.

Advocates say it might have an easier time this year with a Democrat majority in the Senate, but Senate Majority Leader Chuck Schumer (D-N.Y.) indicated that he’d rather see it rolled up into his legalization bill (to be introduced “soon,” according to him).

Authored by U.S. Rep. Ed Perlmutter (D-CO), the bill would allow marijuana businesses in states with legalized medical or recreational cannabis to gain access the banking system and would provide legal protection for financial institutions that wish to work with them.

Why It’s Necessary

Federal law currently bars financial institutions from knowingly working with criminal enterprises, and this includes legitimate businesses that produce and sell marijuana in states where it’s legal. That’s because federal law hasn’t changed, and anyone who sells cannabis is a “drug dealer” according to the Department of Justice.

This puts banks in an awkward position. Most of them are itching to get into partnerships with cannabis businesses for one reason: It’s big money. The problem is that they can’t get a stake without legal protection, and that lack of protection leads most to just avoid the industry altogether.

Cole Memo

Last month we interviewed Southwest Capital Bank President and Chief Operating Officer Lonnie Talbert about the current steps cannabis businesses have to take to set up a bank account. Talbert said that some institutions are still willing to take the risk and work with cannabis companies thanks to two memorandums written during the Obama administration.

The first came from the Cole Memo, written by then-Deputy Attorney General James Cole. This extremely important document instructed federal prosecutors to refrain from prosecuting marijuana crimes in states that have legalized. “The guidance set forth herein,” Cole wrote, “applies to all federal enforcement activity, including civil enforcement and criminal investigations and prosecutions, concerning marijuana in all states.”

The Cole Memo falls short of explicitly protecting financial institutions that are in business with cannabis companies, though, so the U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) took the opportunity to clear things up and issue guidance that instructs banks and credit unions to do due diligence when considering a relationship with these businesses, and make certain that they aren’t engaging in any activity that the Cole Memo does not protect (providing cannabis to minors, transporting cannabis across state lines, using funds to support criminal enterprises, etc.). FinCEN also requires financial institutions to file a “marijuana limited suspicious activity report (SAR)” on the company it’s working with. It’s also required to immediately report any illegal activity of which it becomes aware.

“The challenge is those memos have not been updated since they were written,” said Talbert. In fact the Cole Memo was rescinded in 2018 by former President Donald Trump’s Attorney General Jeff Sessions. It has not been reinstated yet, but Attorney General Merrick Garland made comments during his confirmation hearing in February that appeared to signal he would be willing to follow the memo’s advice whether it was reinstated or not.

When Sen. Cory Booker (D-N.J.) asked Garland if he planned to bring the memo back, he answered, “This is a question of the prioritization of our resources and prosecutorial discretion. It does not seem to me a useful use of limited resources that we have, to be pursuing prosecutions in states that have legalized and that are regulating the use of marijuana, either medically or otherwise. I don’t think that’s a useful use.”

Dangerous Game

For cannabis businesses, access to legal banking is more than an issue of convenience—it can mean life or death. If a company is unable to find a banking institution willing to work with it, it will be unable to accept credit cards or issue checks. These cash-only businesses run a number of risks and have to invest in services like security and specialty couriers that other businesses can almost completely ignore. The overhead penalties alone would be enough to drive a business owner crazy.

But more importantly, there’s an issue with safety and security. Cannabis companies are considered “high-risk” by financial institutions in part because they are targeted by thieves more often than other businesses. Valuable cannabis products and large amounts of cash on-hand make them too juicy for criminals to pass up.

The SAFE Act promises to solve the problem and give marijuana companies and employees the same security enjoyed by those in other sectors.

Hemp Issues

But while the SAFE Act’s progress is mostly promising, one issue with the bill could affect hemp farmers negatively. While hemp is legal, many hemp companies are growing the crop to make CBD-infused products. Since CBD occupies a gray legal area due to Food and Drug Administration regulations, even hemp companies are having trouble finding financial institutions that are willing to take the risk of working with them.

The SAFE Act should fix this problem, but language in the bill specifically protects hemp and CBD businesses working “in conformity with the Agricultural Improvement Act of 2018.” That means that any states operating under the 2014 Farm Bill could be left out. Thankfully New Mexico’s hemp program was approved by the U.S. Department of Agriculture last October.

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