Banking Marijuana Businesses

FinCEN Consults The Dude For Guidance On Banking Marijuana Businesses

I love some of the headlines I read last Friday and over the weekend on the preposterous “guidance” issued by FinCEN last Friday on the process financial institutions should follow in providing financial services to marijuana-related businesses. The most common (incorrectly used) metaphor was that the guidance “opened the door” for banks to inhale deeply the second-hand smoke of reefer madness. That’s either a mighty tiny door or an infinitesimally small opening. As one of the first comments I received (from a skilled financial institutions compliance attorney) put it so well:

This is the biggest joke.  Basically, it tells FI’s that you are finally given the green light to conduct transaction activity for Marijuana Businesses but every time you do, you have to file some form of SAR that might potentially include information from a DOJ memo that you have never read and probably never heard of, all so that you can go out and do the leg work for our investigations.  They should just let FI’s do business with folks on the OFAC list and just make them file lengthy and detailed SARs on those people every single time the conduct any transaction.

Other comments received from financial institution attorneys, especially those who represent either banks or marijuana businesses that want to get together, were equal parts F-bombs and derisive laughter.

Reactions from banks and trade group representatives in Colorado, the state with the most immediate need for action at the federal level, were uniformly negative.

“We’re still not going to bank them,” said Jim Reuter, executive vice-president of FirstBank, the state’s second-largest bank in terms of market share.”We are not comfortable taking this guidance alone and on its face,” Reuter said. “There’s simply too much at stake.”


“They should proceed with maximum caution,” CBA president Don Childears said he’ll advise its members. “But, honestly, we’ll be telling them to not proceed at all.”

A FinCEN spokesman tried to put a positive spin on the non-starter.

“This reduces the burden on banks,” FinCEN’s Shasky Calvery insisted in an interview. “Marijuana under federal law requires a SAR. Now, the necessity is limited, reducing the banks’ burden a bit and more importantly clarifies where law enforcement focuses its attention.”

“reduces the burden”? Really? It still requires a SAR! In every instance the bank “banks” a marijuana business! The type of SAR may vary, but determining which type of SAR is now required adds to the burden, it doesn’t lessen it. As my correspondent above noted, the guidance adds to the already-staggering burden that federal regulators place on financial institutions to do law enforcements “leg work.”

CBA’s Childers agrees that the burden is not lessened, it’s increased.

“It’s just bizarre. The threatening language about the liability for prosecution,” he said. “Now, not only must we know our customers’ business, but our customers’ customers’ business.”

Moreover, under the guidance, the bank is required to refer to “The Cole Memo,” a memo that is internal to the US Justice Department, and that was not attached to the guidance. The bank has to worry about Mr. Cole’s “priorities” of bad-guy behavior and the evil consequences of consorting with Mary Jane in various degrees of seriousness (including harvesting foremen who rely too much on the catch-phrase “Say hello to my little friend”), and also to do all kinds of detailed due diligence, including watching out for a boatload of “red flags,” including these two gems:

  • The business receives substantially more revenue than may reasonably be expected given the relevant limitations imposed by the state in which it operates.
  • The business receives substantially more revenue than its local competitors or than might be expected given the population demographics. It also is still illegal under federal law to service a recreational marijuana business.

That is merely a tiny taste of the problematic nature of the burden imposed by the guidance. We could go on and on, but why bother? The IBC’s Barbara Walker said what many of us feel: “Better luck next time.”

“The bottom line would continue to be the need for the (banking regulators) to address in writing all of the many issues of concern to the financial services industry,” said Barbara Walker, executive director of Independent Bankers of Colorado. “The (Federal Deposit Insurance Corporation, Federal Reserve and Office of the Comptroller of the Currency) are simply asleep at the wheel on the many serious issues posed by Colorado’s laws. It’s shameful.”

“Asleep at the wheel.” That sometimes happens when you get to toking when you should not be smoking.

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