Bill Spurs Buzz on Banking Services to Marijuana Businesses

Financial Services Law

Federal efforts to reduce the restrictions placed on cannabis businesses that operate legally under state law are picking up, with new legislation proposed and indications from the administration that it will let states take the lead with regard to enforcement.

The bipartisan legislation would amend the Controlled Substances Act (CSA) to legalize financial services to marijuana businesses that are legal under state or tribal law.

What happened

As the number of states legalizing the use of recreational and/or medicinal marijuana for adults continues to grow, the burgeoning industry presents a recurring problem for financial institutions: how to provide banking services when federal law still prohibits the drug.

Because the CSA bans the possession and sale of marijuana, the majority of cannabis businesses are run on cash. Efforts have been made to address the issue, such as the Department of Justice’s (DOJ) hands-off federal policy that deferred to state governments under the Obama administration.

The Financial Crimes Enforcement Network also weighed in, issuing guidance on how to work with marijuana-related businesses while still complying with due diligence expectations and reporting requirements consistent with Bank Secrecy Act (BSA) obligations.

However, the hands-off approach changed with the release of a one-page memorandum from Attorney General Jeff Sessions in January 2018. Reversing course, the Attorney General emphasized that marijuana remains illegal under the CSA and specifically referenced a provision of the BSA that requires financial institutions to create and maintain sufficient anti-money laundering policies and procedures.

Some states have attempted to take matters into their own hands. California launched a feasibility study to consider the financial and legal risks of a state-run bank dedicated to the marijuana industry, and the state legislature is considering a bill that would establish a limited-purpose state charter for privately financed banks to work with cannabis businesses.

In an attempt to alleviate the problem at the federal level, Sens. Elizabeth Warren (D-Mass.) and Cory Gardner (R-Colo.) introduced the Strengthening the 10th Amendment Through Entrusting States (STATES) Act.

S. 3032 would amend the CSA so that the statute “shall not apply to any person acting in compliance with State law relating to the manufacture, production, possession, distribution, dispensation, administration or delivery of marijuana.” A similar provision would exempt individuals acting in compliance with tribal law.

With state-legal cannabis businesses no longer violating the CSA, transactions with marijuana companies would not trigger BSA/AML concerns or requirements.

Forty-six states (along with Washington, D.C., Puerto Rico, Guam and a number of tribes) currently have laws permitting or decriminalizing marijuana or marijuana-based products, the sponsors said, and the STATES Act would allow each jurisdiction to determine for itself the best approach to the cannabis industry within its borders.

“States like Massachusetts have put a lot of work into implementing common sense marijuana regulations—and they have the right to enforce their own marijuana policies,” Sen. Warren said in a statement. “The federal government needs to get out of the business of outlawing marijuana.”

The legislation has drawn support from organizations as varied as Americans for Tax Reform, the American Civil Liberties Union, the Massachusetts Bankers Association and the Maine Credit Union League. A companion bill was introduced by Reps. David Joyce (R-Ohio) and Earl Blumenauer (D-Ore.) in the House of Representatives.

Sens. Warren and Gardner made a pact to work together to solve the problem of financial services for the marijuana industry in April after Sen. Gardner extracted a promise from President Donald Trump to relent on AG Session’s marijuana policy (in return for Sen. Gardner letting up on blocking the confirmation process of an estimated 20 DOJ nominees).

“Since the campaign, President Trump has consistently supported states’ rights to decide for themselves how best to approach marijuana,” Sen. Gardner said in a statement. “I received a commitment from the President that the Department of Justice’s rescission of the Cole memo will not impact Colorado’s legal marijuana industry. Because of these commitments, I have informed the Administration that I will be lifting my remaining holds on Department of Justice nominees.”

The White House confirmed the deal. “Clearly, we’ve expressed our frustration with the delay with a lot of our nominees and feel that too often, senators hijack a nominee for a policy solution,” White House legislative affairs director Marc Short told the Washington Post. “So we’re reluctant to reward that sort of behavior. But at the same time, we’re anxious to get our team at the Department of Justice.”

Short added that President Trump “does respect Colorado’s right to decide for themselves how to best approach this issue.”

To read S. 3032, click here.

Why it matters

While states like California have attempted to provide their own resolution to the problem of financial services for cannabis businesses, a federal solution like that in the STATES Act would certainly provide greater comfort and uniformity for banks, which have been extremely reluctant to rely only on state legislation to provide traditional financial services to cannabis businesses.



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