Trump Administration's Shift on Marijuana Could Imperil Banking Arrangements

Connect with state & local government leaders
 

Connecting state and local government leaders

By forcing cannabis businesses to rely on cash, the move might make businesses, owners and employees vulnerable to theft and complicate state efforts to collect taxes on drug sales.

This article was originally published at Stateline, an initiative of The Pew Charitable Trusts, and was written by Sophie Quinton.

By rolling back an Obama-era memo that shielded legal marijuana users, growers and distributors from federal prosecution, U.S. Attorney General Jeff Sessions may compel many banks and credit unions to stop working with marijuana businesses.

That’s because the memo Sessions rescinded, drafted by former Deputy Attorney General James Cole, is the foundation of Treasury Department guidance that created legal space for banks and credit unions to offer accounts to marijuana dispensaries, grow operations, distributors and manufacturers.

Without access to the banking system, the rapidly growing marijuana industry — valued at $6.7 billion in 2016 — would have to rely on cash. That would make cannabis businesses, owners and employees vulnerable to theft and complicate state efforts to collect taxes on drug sales.

Taking away the banking guidance could have a bigger impact on the state-sanctioned cannabis industry than giving federal prosecutors more leeway to bring legal action against it, said Andrew Freedman, a consultant who previously served as Colorado’s “pot czar.”

While prosecutions depend on a number of factors, from prosecutors’ desire to go after cannabis businesses to the volume of cases courts can handle, many — if not all — of the 390 banks and credit unions that currently provide accounts to marijuana businesses would drop those accounts if the Treasury bureau in charge of safeguarding the financial system, called the Financial Crimes Enforcement Network or FinCEN, changed its directives, say banking and cannabis industry insiders.   

“The FinCEN guidance was the one place they went to mitigate risk,” Freedman said of financial institutions.

Banking has always been a challenge for the cannabis industry in states that allow sale and possession of the drug. Marijuana remains illegal at the federal level, and federal law requires banks to steer clear of participating in illegal activity. Still, thanks to the Obama-era guidance, a growing number of financial institutions have started to serve the industry.

Rachel Pross, chief risk officer for Maps credit union in Oregon, where recreational marijuana sales are legal, says her institution has a plan in place to drop their marijuana-related accounts if the federal government pulls both the Justice and Treasury guidance. “If we didn’t have that guidance and framework to follow, we could in theory be prosecuted for federal money laundering,” she said.

Maps is one of the few financial institutions in Oregon that have been openly serving marijuana businesses. Without it, businesses may have no other option but to rely on cash. “In the worst-case scenario, if we faced federal prosecution for continuing to serve these businesses, we’re talking like $30 million being put back into the streets of the Willamette Valley,” Pross said.

Pross said she expected the Justice and Treasury department guidance to be changed at the same time, because the 2014 Treasury guidance tells banks and credit unions to monitor marijuana-related accounts for any activity listed as an enforcement priority in the Justice Department memo.

But Sessions’ marijuana enforcement memorandum made no mention of the Treasury guidance, and the Treasury department has yet to announce any changes to its policy.

“FinCEN works closely with law enforcement and the financial sector to combat illicit finance and provide relevant information that allows law enforcement to pursue their priorities. We will continue to work with DOJ and other stakeholders on this issue,” Steve Hudak, chief of public affairs for the Treasury bureau, said in a statement.

Lawyers who advise banks are now scrambling to clarify the rules. “The Sessions rescission technically states that it is business as normal, and hence it is possible for FinCEN not to rescind its guidance, but rather, to clarify it by deleting the references to the Cole Memorandum,” Joseph Lynyak, a banking regulation expert and partner at the law firm Dorsey & Whitney, said in an email. That would allow Treasury to maintain some version of the guidance that permits marijuana accounts.

However, now that the Justice Department has given federal officials more leeway to go after the marijuana industry, banks and credit unions that are following the Treasury guidance and filing regular reports on their marijuana-related accounts run a higher risk of prosecution, he said.   

That’s a risk some banks and credit unions may not be willing to take — regardless of the fate of the Treasury guidance.

Hilary Bricken, cannabis business attorney and head of the Los Angeles office of the firm Harris Bricken, said financial institutions currently working with marijuana businesses may keep doing so for now, but banks and credit unions that were thinking about entering that line of business may steer clear. “I am positive that it will chill participation for those who are thinking about it,” she said.

The financial institutions that serve the industry have always known that the Obama-era guidance was fragile and they might have to eject marijuana clients in a hurry. Sessions, a longtime foe of marijuana legalization, became attorney general last February and hinted in December that change was coming.  

“From day one when we started this business, we had an exit strategy. We’ve always kept an eye on the Cole memo,” said Shane Saunders, chief experience officer at Maps.

Saunders said the credit union will survive if it has to drop its marijuana accounts. He’s more worried about how the surrounding community will handle an influx of cash. “That’s really our greatest concern,” he said. 

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.