Currently, more than two-thirds of US states have legalized marijuana (cannabis containing concentration at more than .3 percent THC) for medical use, and over a third have legalized marijuana for adult recreational use. Research from Bank of America Securities estimates that cannabis sales in 2021 amounted to $25 billion, a 40 percent increase from the previous year.

Yet marijuana remains a controlled substance under federal law and engaging in financial transactions involving funds generated from the sale of marijuana is a violation of federal anti-money laundering laws. This means that the cannabis industry continues to have difficulty accessing essential financial services, such as those offered by depository and lending institutions, capital markets, and credit card services.

The result is a cash-heavy industry characterized by stagnant growth and significant operational risks – the latter evidenced by recent deadly robberies in Washington State.

A proposed solution – create an explicit safe harbor

One solution to the marijuana banking quandary would be to decriminalize the manufacture, distribution, or possession of marijuana by removing it from Schedule I of the Controlled Substances Act. In April, the United States House of Representatives passed a bill to do exactly that: the Marijuana Opportunity Reinvestment and Expungement Act (the MORE Act).

The Senate received the MORE Act and referred it to the Finance Committee on April 4, 2022, but the MORE Act has not been released from the committee or voted on by the Senate. On July 21, 2022, the Senate introduced its own bill, the Cannabis Administration and Opportunity Act, that would also decriminalize marijuana; however, it is unclear if there is the support necessary for such a decriminalization bill to pass.

A second, and narrower, solution is to provide a safe harbor to financial institutions and entities that work with marijuana-related businesses. Industry advocates, bipartisan groups in both the House and Senate, and state attorneys general and governors have advocated for this approach which would allow marijuana-related businesses to obtain better and safer access to financial services.

The Secure and Fair Enforcement Banking Act (the SAFE Banking Act) aims to provide an explicit safe harbor for financial institutions that provide services to certain participants in the marijuana industry. See Text - HR1996 - 117th Congress (2021-2022): SAFE Banking Act of 2021 | Congress.gov | Library of Congress. On July 14, 2022, the House passed the SAFE Banking Act for a seventh time, this time as part of the national defense budget for 2023. Id. However, despite some level of bipartisan support, the Senate has yet to vote on the SAFE Banking Act.

The Capital Lending and Investment for Marijuana Businesses Act (the “CLIMB Act”), HR 8200, introduced in the House on June 23, 2022, seeks to do the same thing as the SAFE Banking Act: it would “amend ... federal law to permit ... any ... public or private financial capital sources for investment in and financing of cannabis-related legitimate businesses.” H.R______, Capital Lending and Investment Marijuana Banking Act of 2022, 117th Congress (2022). Specifically, the CLIMB Act would prohibit any federal agency from initiating or otherwise supporting civil, criminal, regulatory, or administrative actions against businesses or persons that (1) provide financial services to a state-legal marijuana business; or (2) that otherwise receive cash or compensation from legitimate marijuana businesses for providing such services. Id. The CLIMB Act would also amend the Securities Exchange Act of 1934 to create a safe harbor for national securities exchanges that permit state-legal marijuana-related businesses to be listed. Id.

Providing services to marijuana-related businesses in the absence of a safe harbor

A safe harbor for businesses and persons that provide financial services to marijuana-related businesses would affirmatively protect these entities from the risk of civil or criminal charges for a violation of federal anti-money laundering and/or conspiracy laws, provided the businesses or persons act within the scope of the safe harbor.

Notwithstanding the absence of a safe harbor, over the last decade, the United States Department of Justice (DOJ), the agency primarily responsible for enforcing federal law, has generally exercised enforcement discretion and refrained from actions against parties conducting permitted state-legal marijuana-related businesses. In 2013, then-deputy Attorney General James M. Cole issued guidance to federal prosecutors to refrain from filing charges against state-legal marijuana-related businesses (the “Cole Memo”). See US Dep’t of Justice Memorandum, “Guidance Regarding Marijuana Enforcement” (Aug. 29, 2013). The next year, the DOJ updated the Cole Memo to further instruct prosecutors to not pursue charges against financial services institutions that provide services to state-legal marijuana-related businesses. See US Dep’t of Justice “Guidance Regarding Marijuana Related Financial Crimes” (February 14, 2021).

The Cole Memo was rescinded in 2018 by then-attorney general Jeff Sessions, creating further uncertainty. However, despite the rescission of the memorandum, the DOJ appears to still operate under its spirit.

Notably, current Attorney General Merrick Garland has indicated that he would continue to reduce resources for enforcement of federal marijuana laws, stating: “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.” See AG Nominee: Prosecutions in States with Legal Marijuana Not a Good Use of Justice Department Resources - NORML.

Further, in 2014, the Financial Crimes Enforcement Network (“FinCEN”), the federal agency responsible for implementing, administering, and enforcing compliance with anti-money laundering laws, issued guidance establishing the necessary framework to provide financial services to marijuana-related businesses under existing federal law. See FinCEN, “BSA Expectations Regarding Marijuana-Related Businesses” (February 14, 2014) (the “Marijuana BSA Guidance”). The Marijuana BSA Guidance notes that, “[b]ecause federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity.” The Guidance then goes on to provide explicit instructions for financial services institutions that nonetheless elect to serve the legal marijuana industry, directing them to (1) carry out due diligence for marijuana-related customers; (2) file suspicious activity reports or “SARs” for transactions with such customers; and (3) file currency transaction reports. Id.

Even though the Marijuana BSA Guidance is based on the now-rescinded Cole Memo, in June 2020 FinCEN confirmed its position that the Marijuana BSA Guidance remains in effect. See FinCEN “Guidance Regarding Due Diligence Requirements under the Bank Secrecy Act for Hemp-Related Business Customers” (June 29, 2020). In the 2020 Guidance, FinCEN continued to advise financial institutions to use the Marijuana Enforcement Priorities set forth in the Cole Memo to identify marijuana-related activity that financial institutions should report to law enforcement as part of their money-laundering compliance obligations. Id.

Of course, only Congress – not the DOJ nor FinCEN – can create a statutory safe harbor. The absence of a statutory safe harbor leaves a risk that still prevents many financial institutions from providing services to marijuana-related businesses. If passed, decriminalization, the SAFE Act, or CLIMB Act would eliminate that risk.

Conclusion

Providing financial services to customers involved in the cannabis industry carries risk and requires (1) ongoing diligence of marijuana-related customers to ensure that these businesses comply with state law; and (2) recognition that these businesses are violating federal law. The former will continue to be the case even if a statutory safe harbor is enacted. Financial institutions interested in providing marijuana-related customers with services should consult legal counsel when making this decision.