Banking as a Cannabis Business: How to Stash Your Cash
In world of operational and legal hurdles, many cannabis businesses, or “cannabiz,” are left asking where they can, or should, put their profits. Operating in large amounts of cash is obviously risky and unsafe, not to mention a logistical headache when it comes to simple, necessary business activities like paying payroll and taxes. Thankfully, finding a financial institution to work with a cannabiz is no longer impossible, but it requires strict adherence to regulations and careful planning hand-in-hand with your chosen bank or credit union.
In January 2018, U.S. Attorney General Jeff Sessions issued a memorandum regarding marijuana enforcement. He directed the Department of Justice to return to the 1980’s era procedures for prosecuting marijuana related activities, rescinding the Obama-era guidance, known as the Cole Memo, that protected certain state marijuana laws and focused enforcement efforts toward the most significant threats in marijuana trafficking.
Marijuana is still recognized as a Schedule I controlled substance under federal law, establishing serious federal penalties for any business (or financial institution) involved in marijuana related activities. Even so, this hasn’t stopped the growth of profitable cannabis industries in the majority of states, where the drug is now legal for medical and/or recreational use. In a new industry dominated by small businesses that face safety concerns by carrying large quantities of cash, banks are forced to weigh the risks of taking on what are considered to be high-risk customers, versus the opportunity provided by these new Marijuana Related Businesses, or “MRBs.” Additionally, while public support is at an all-time high, due to a handful of states rejecting new cannabis legislation over the past year, the view of federal legalization or decriminalization in the near future remains grim.
Handling the proceeds of a cannabis transaction can be considered to be money laundering under federal law, but it hasn’t deterred all financial institutions. According to a March 2018 report from FinCEN, banks are increasingly deciding (albeit at a lower rate than in 2017) that the reward is worth the risk. Since October 2016, the number of banks and credit unions serving MRBs has increased by 93, to a total of 411.
These MRBs face another layer of exposure once they’ve opened their accounts. This layer of risk remains politically obfuscated due to FinCEN’s continued use of its 2014 guidance based upon the Cole Memo. Financial institutions must file suspicious activity reports, or “SARs” to help federal investigators identify illicit activities. For these reports, FinCEN defines three due diligence categories to distinguish a financial institution’s relationship with each specific MRB: Marijuana Limited filings don’t raise any red flags under the Cole Memo and are compliant with state regulations; Marijuana Priority filings may raise red flags or may not be fully compliant with state regulations but the financial institution is continuing to provide services while an investigation is conducted; and Marijuana Termination filings indicate that the financial institution terminated the relationship either for its own business reasons or the MRB’s noncompliance.
Ensuring compliance with state regulations as well as the existing FinCEN reporting structure is currently the best way for MRBs to continue working safely with financial institutions. However, federal guidance on banking policy, in light of the DOJ’s recent prosecutorial guidance, is subject to change. Staying on top of updates in both federal and state legislation by working with an up to date cannabiz attorney is a smart strategy to protect any MRB.
Cannabiz can finally find banking opportunities if they are willing to work closely with their chosen financial institution to account for every dollar moving in and out of the business. Doing the legwork to find a nearby institution and opening an account should still be a top-priority safety protocol upon beginning operations. This reduces exposure to risk and shows its community that the MRB is a serious business that takes time to abide by regulations, protects its assets, and isn’t worth the trouble of a frivolous lawsuit or attempted theft.
