In the latest state-level communication directed toward the federal government, more than a dozen state banking supervisors encouraged congressional leadership to enact a safe harbor for financial institutions working with marijuana-related businesses or grant the states jurisdiction over marijuana-related activities within their borders.
The regulators emphasized the lack of clarity for banks, as well as public safety concerns for the “cash and carry” marijuana businesses.
What happened
A total of 31 states, the District of Columbia and two territories have legalized medical and/or recreational marijuana, but marijuana-related businesses continue to struggle to obtain banking services, the banking supervisors explained in the letter to the leaders of both houses of Congress.
While banks would love to tap into the growing market, concerns exist because the possession and sale of marijuana remain illegal under the federal Controlled Substances Act. Previously, banks took comfort in their ability to provide banking services to this industry as long as they relied on the Cole Memo from the Department of Justice (DOJ) and guidance from the Financial Crimes Enforcement Network related to Bank Secrecy Act and anti-money laundering requirements.
But the conflict between federal and state law was resurrected after the DOJ rescinded the Cole Memo earlier this year, prompting the bank supervisors from Alaska, Connecticut, Hawaii, Louisiana, Michigan, Montana, Nevada, New York, Oklahoma, Oregon, Pennsylvania, Utah and Washington to write.
“It is incumbent on Congress to resolve the conflict between state cannabis programs and federal statutes that effectively create unnecessary risk for banks seeking to operate in this space without the looming threat of civil actions, forfeiture of assets, reputational risk and criminal penalties,” according to the letter. “We urge Congress to consider legislation that creates a safe harbor for financial institutions to serve a state-compliant business, or entrusts sovereign states with the full oversight and jurisdiction of marijuana-related activity.”
Bank supervisors are not the first to call for action, they noted, and their request is consistent with those made by governors, state attorneys general, community banks and a coalition of state banking associations, all seeking to resolve the conflict between federal and state laws that banks face, enable marijuana-related businesses to obtain needed banking services, and bring these transactions into the regulatory reporting framework.
“A majority of states now have medical marijuana programs and it has become increasingly necessary to craft policy to respond to emerging challenges in this rapidly growing industry,” the supervisors wrote. “We must work together to look for solutions rather than avoiding this challenge and ignoring the new policy landscape.”
To read the letter, click here.
Why it matters
The letter is only the latest attempt by states that have legalized marijuana to enable financial institutions to lawfully provide banking services to marijuana-related businesses. Other efforts include recent guidance issued by the New York Department of Financial Services (a signatory to the letter), encouraging financial institutions to offer banking services to cannabis businesses in the state. We anticipate further efforts across many states to find a solution to the conundrum of banking for marijuana-related businesses in a safe and sound manner as private enterprise continues to drive these lucrative businesses forward.