Cannabis Banking Issues: All Cash and No Flash

Marijuana related businesses face staggering safety, security and operational issues.

Ever accidentally find $7.2 billion of cash in your back pocket?

The cannabis industry did in 2017, after virtually no bank would accept legalized marijuana sales deposits. Due to difficulty in obtaining financial services and because marijuana is a “cash only” business, marijuana related businesses (MRBs) face staggering safety, security and operational issues.


As a result, licensed and regulatory compliant MRBs are sitting on mountains of cash, while, in light of unclear legal exposure, immeasurable risk management, and nearly impossible regulatory compliance, hungry banks view accepting cannabis cash as insufficiently lucrative to pursue.

Marijuana Banking Law


The Comprehensive Drug Abuse Prevention and Control Act of 1970, 21 U.S.C. §§801, et seq. (1970) (CSA) lists marijuana next to heroin as a Schedule I controlled substance having “a high potential for abuse” and for which there’s “no currently accepted medical use in treatment” and “a lack of accepted safety for use” “under medical supervision.” 21 U.S.C. §812(b)(1). The CSA prohibits marijuana’s manufacture, distribution, dispensation and possession and, pursuant to the U.S. Constitution’s Supremacy Clause, state laws conflicting with federal law are generally preempted and void. U.S. Const., Art. VI, cl. 2; Wickard v. Filburn, 317 U.S. 111, 124 (1942)(”[N]o form of state activity can constitutionally thwart the regulatory power granted by the commerce clause to Congress”).

This federal prohibition creates exposure for both MRBs and those providing them with financial services. Depending on the amount of cannabis possessed, cultivated or sold, the CSA imposes penalties ranging from incarceration of 15 days to life, and fines of $1,000 to $1 million. Any transfer or deposit of monies yielded from cannabis sale may deemed “money laundering” in violation of 18 U.S.C. §1956 for the “seller” and a Financial Recordkeeping and Reporting of Currency and Foreign Transactions Act of 1970 (“Bank Secrecy Act”) violation for the bank accepting the deposit and “failing to identify or report financial transaction involving proceeds of ‘the CSA’ violation.” 31 U.S.C. §531(g).

Presently, 30 states, the District of Columbia, and the Commonwealths of Guam and Puerto Rico have legalized marijuana programs protected from federal interference by the Rohrabacher-Blumenauer Amendment which, in turn, incorporates the Justice Department’s “Cole Memorandum” Policy.


Originally passed as an attachment to the Commerce, Justice, and Science Appropriations bill for fiscal year 2014, repeatedly renewed, and commonly known as the known as Rohrabacher-Blumenauer Amendment, the law prohibits the Justice Department from using federal funds to prevent certain states “from implementing their own State laws that authorize the use, distribution, possession or cultivation of medical marijuana.”

The Rohrabacher-Blumenauer Amendment incorporates the findings of Justice Department “policy clarifying” memoranda restraining U.S. Attorneys’ CSA enforcement in legalized marijuana states (hereinafter, collectively referred to as “Cole Memorandum”). Specifically, the Cole Memorandum encompasses the Ogden Memo of 2009, the Cole Memorandum of June 29, 2011, the Cole Memorandum of August 29, 2013, and several supplemental memoranda published by Cole, including a 2014 memorandum addressing marijuana and financial crimes, and a 2014 memorandum addressing “marijuana in Indian Country.”

While reiterating marijuana’s CSA illegality, the Cole Memorandum instructs focusing federal resources on “most significant threats in the most effective, consistent, and rational way” listing “8 enforcement priorities” of preventing: distribution of marijuana to minors; marijuana sale revenue going to criminal enterprises, gangs and cartels; diversion of marijuana from states where it is legal under state law in some form to other states; state-authorized marijuana activity from being used as a cover or pretext for trafficking of other illegal drugs or other illegal activity; violence and use of firearms in marijuana’s cultivation and distribution; drugged driving and exacerbation of other adverse public health consequences associated with marijuana use; growing of marijuana on public lands and attendant public safety and environmental dangers posed by marijuana production on public lands; and marijuana possession or use on federal property.

In its Feb. 14, 2014, “Guidance,” the Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) clarified that through adhering to institution specific factors (e.g., particular business objectives, evaluation of risks associated with offering particular product or service, and capacity to effectively manage risks), banks may provide financial services to MRBs consistent with Bank Secrecy Act obligations by:

  • obtaining and reviewing “marijuana related business and parties” information from licensing and enforcement authorities including application, license and registration documentation;
  • developing an understanding of the business’ normal and expected activity including types of to-be-sold product and to-be-served customers (e.g., medical versus adult use);
  • monitoring publicly available sources for adverse information about business and related parties;
  • monitoring for suspicious activity, including the Guidance’s specified red flags; and
  • routinely updating customer due diligence information commensurate with risk.

These FinCEN Guidance “red flags” indicating state law or Cole Memorandum priority violations include MRBs:

  • appearing to use license as a pretext to launder “criminal activity derived funds”;
  • inability to demonstrate a licensed business operating consistently under state law or legitimate source of significant outside investments;
  • concealing or disguising cannabis involvement;
  • being, or having been, subject to a marijuana-related law or regulation enforcement action (including owners and/or operators);
  • engaging in international or interstate activity including making/receiving out-of-state cash deposits or interstate transfers; or
  • purporting to be a “non-profit” while engaged in commercial activity inconsistent with classification.

Financial Institutions’ Perspective: “Bang Ain’t Worth the Buck”

Because FinCEN’s Marijuana Banking Update reports that 400 financial institutions made marijuana-related filings for the period ending Sept. 31, 2017, less than .03 percent of our nation’s 11,954 regulated banks and credit unions provided MRBs with financial services.

Beyond being viewed as “insufficiently legal,” because providing financial services to MRBs presents unquantifiable compliance risk and costs, most banks refuse regardless of the return.

Banks are willing to take “reasonable risks” offering a reasonable return involving a definable cost of managing compliance fulfillment, i.e., satisfying numerous overseeing bodies’ regulations. Because managing compliance liability for traditional business lines like deposits, checking accounts and mortgage lending requires adhering to an estimated 16,000 pages of rules, considerable additional compliance duties are only cost effective if accompanied by a significant increased profit margin.

Due to the enormous Bank Secrecy Act and FinCEN Guidance compliance costs, most banks are incapable of profitably providing financial services to MRBs.

The FinCEN Guidance compounds compliance costs by requiring that a bank providing financial services to a marijuana-related business file suspicious activity reports (SARs) following aforementioned “red flags” or if it knows, suspects or has reason to suspect that a conducted or attempted transaction: (i) involves—or is an attempt to disguise—funds derived from illegal activity; (ii) is designed to evade Bank Secrecy Act regulations; or (iii) lacks a business or apparent lawful purpose. Because, regardless of state law, federal law bars all growing and selling, all MRBs’ financial transactions involve funds derived from illegal activity requiring banks to file a “Limited,” “Priority” or “Termination” SAR with every deposit, withdrawal or transfer.

First, if providing financial services to a business not violating state law or any Cole Memo priority, a bank must file a “Marijuana Limited SAR.” Second, if reasonably believing that a MRB violates state law or Cole Memo priority, the financial institution must file a “Marijuana Priority SAR.” Third, if “facilitating effective anti-money laundering compliance” requires terminating the relationship with a MRB, a bank must file a “Marijuana Termination SAR.”

Dangers/Obstacles Imposed by Lack of Financial Services

Leading industry trade publication, Marijuana Business Daily, reports that 70 percent of “plant touching businesses” and 49 percent of marijuana industry support service providers lack bank accounts. Further, with enormous consolidation of community banks and state charted credit unions, many MRB owners’ existing accounts are suddenly closed after a successor bank “discovers” the nature of their enterprise.

MRBs must then conduct all transactions in cash including paying employees, rent, taxes and vendors. Rudimentary business functions like book keeping, accounting, storing and accessing funds, and tracking sales suddenly take on epic proportions.

First and foremost, MRBs and their employees, patients and vendors face physical criminal risk of robbery and assault. Although all MRBs have sophisticated on-site safes, cash has to come on and off the property placing targets on the backs of growers, processors or dispensers and their respective customers and vendors. For example, while attempting to stop a June 18, 2016, robbery, Colorado dispensary security guard Travis Mason was shot to death.

Additionally, employee theft concerns spike, and commercial landlords’ and insurers’ discomfort with piles of cash may result in being dropped, evicted or having rent and premiums increased.

Second, the lack of access to financial services both imposes additional disbursement and accounting and record keeping requirements on MRBs and causes a massive productivity loss.  Third, because they lack financial services and receive all monies in cash, MRBs are forced to pay employees, landlord, taxes, utilities (electricity, water) and vendors in cash, thereby passing on the criminal vulnerability, administrative burden and productivity loss.

Fourth, because insurance typically only covers up to $20,000 in “cash loss” and MRBs often have between $200,000 and $500,000 in cash on hand, theft can be a fatal blow to an enterprise.  Fifth, even if it has a bank account, after writing a check to another MRB, an MRB’s account may be flagged and shut down creating huge business interruption issues. Further, following account closure, MRB owners and employees often have their personal accounts closed and endure difficulty in obtaining home loans or credit cards.

Reprinted with permission from the Feb. 5, 2018, issue of the New Jersey Law Journal.

©2018 ALM Media Properties, LLC. Further duplication without permission is prohibited.

All rights reserved.

 Schain practices marijuana law with global cannabis law firm Hoban Law Group in Cherry Hill. He represents entities, governments and individuals in choosing a structure, preparing and submitting license application, regulation, compliance and litigation, and drafting legislation.  

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