In banking, marijuana companies have a number of challenges and few opportunities
One of the most important challenges for marijuana-associated companies is acquiring entry to banking and different monetary providers. As lengthy as marijuana stays unlawful on the federal degree, many banks, credit score unions, lenders and different monetary establishments will proceed to stay cautious of the business, regardless of what number of states legalize the sale and use of marijuana.
There might, nevertheless, be hope on the horizon. As of March 2017, the Financial Crimes Enforcement Network (FinCEN) studies that 368 banks and credit score unions are offering providers to marijuana-associated companies, undoubtedly a constructive, if nonetheless nascent, improvement for dispensaries and different licensed marijuana companies. For this progress to proceed, monetary establishments and the marijuana business have to work collectively to make sure that monetary providers are offered to, and utilized by, companies in a accountable, protected and sound method.
The Regulatory Framework
The federal Controlled Substances Act makes it unlawful beneath federal regulation to fabricate, distribute or dispense marijuana. Nevertheless, 29 states and the District of Columbia have approved the use and sale of medical marijuana, and eight states and the District of Columbia have legalized its leisure use.
As extra states legalized marijuana, the federal authorities issued steerage permitting banks to offer providers to marijuana-associated companies beneath sure circumstances. In August 2013, Department of Justice Deputy Attorney General James M. Cole issued a memorandum advising U.S. attorneys on marijuana enforcement beneath the Controlled Substances Act, and then issued a second memorandum in February 2014, addressing software of federal regulation to monetary establishments that cope with marijuana-associated companies (collectively, referred to as the “Cole Memos”). The Cole Memos direct Department of Justice attorneys and regulation enforcement to focus their assets on individuals or organizations whose conduct interferes with any a number of of eight enforcement priorities, akin to stopping the distribution of marijuana to minors.
On the identical day the Department of Justice issued the second Cole Memo, FinCEN issued steerage clarifying how monetary establishments can present providers to marijuana-associated banks according to their anti-cash-laundering obligations underneath the Bank Secrecy Act. The Bank Secrecy Act, as amended, requires banks to determine anti-cash-laundering packages, file reviews on suspicious exercise and giant money transactions, and maintain sure data of transactions. The FinCEN steerage establishes distinctive suspicious exercise reporting (SAR) procedures for marijuana-associated accounts, together with the submitting of restricted, precedence and termination SARs, relying on particular circumstances.
Together, the Cole Memos and FinCEN steerage present the framework for banking the marijuana business. The steerage, nevertheless, is excessive degree, and leaves most day-to-day compliance points unaddressed. This hole in steerage can depart banks uncovered to regulatory danger. In March 2016, for instance, a financial institution in Illinois entered right into a consent order with the Federal Deposit Insurance Corporation and the Illinois Division of Banking referring to its allegedly unsafe and unsound Bank Secrecy Act program. Although marijuana shouldn’t be talked about within the consent order, it has been reported that the motion stemmed from the financial institution’s marijuana-associated enterprise program. If that have been the case, then the consent order serves as a warning that whereas federal and state regulators have allowed banks to serve marijuana enterprise clients, such providers have to be offered rigorously and pursuant to the regulators’ expectations for servicing a excessive-danger business.
Improving Marijuana Banking
Given the regulatory challenges in banking marijuana-associated companies, it’s crucial for banks and their clients to develop a standard understanding of the challenges and greatest practices for banking such excessive-danger retailers. In August 2014, FinCEN issued steerage clarifying how monetary establishments can present providers to marijuana-associated companies according to their anti-cash-laundering obligations underneath the Bank Secrecy Act. This steerage was issued towards the backdrop of the Department of Justice’s “Cole Memos,” which tackle software of federal regulation to monetary establishments that cope with marijuana-associated companies.
From a financial institution’s perspective, the start line is making certain that it has a Bank Secrecy Act program that satisfies all regulatory fundamentals. From there, the financial institution might want to improve and tailor its program for coping with marijuana companies. The FinCEN steerage explains that the choice to open, shut or refuse any specific account must be made by every financial institution based mostly on its enterprise aims and an analysis of the dangers related to providing a specific services or products. To assess these dangers, FinCEN has directed banks to carry out complete due diligence on candidates, and then to watch marijuana companies intently as soon as accounts are opened. Given these expectations, a financial institution ought to implement formal marijuana -specific insurance policies and procedures inside its anti-cash laundering program. In addition, a financial institution could also be higher off committing to offering providers to the business than accepting marijuana-associated clients on an advert hoc foundation.
At a minimal, a financial institution’s marijuana compliance program ought to tackle the next:
– Due diligence and evaluations of marijuana-associated strains of enterprise, company construction, operations and licensing;
– Advertising, advertising, gross sales practices and enterprise relationships;
– Understanding prior — and different present — banking relationships;
– Monitoring transactions for suspicious exercise, together with transactions between company and private accounts;
– Currency transaction reporting;
– Suspicious exercise reporting, together with restricted, precedence and termination SARs; and
– Site visits and affirmation of data offered by marijuana companies in response to periodic account evaluations.
Understanding Banking for Marijuana Businesses
For marijuana-associated companies, understanding this framework and the pressures banks face when serving the marijuana business is important to acquiring and sustaining a profitable banking relationship. With this in thoughts, marijuana companies ought to take sure steps earlier than looking for to open a checking account. Of course, acquiring all vital state licenses is a given. In addition, the corporate ought to appoint a compliance officer and implement insurance policies and procedures for compliance with relevant legal guidelines and necessities, together with areas impacted by the Cole Memos.
When making use of for a checking account, marijuana-associated companies should present correct and truthful info in all supplies submitted to a financial institution. Providing false info to a financial institution is a possible federal offense. The financial institution is more likely to require marijuana-associated companies and their house owners and officers to take care of separate enterprise and private accounts to keep away from any commingling of funds.
Once an account is opened, it’s incumbent on the marijuana enterprise to make use of the account responsibly and in compliance with relevant legal guidelines and laws. The firm ought to work intently with its financial institution to know the expectations for utilizing the account. Some banks, for instance, will need data maintained for periodic evaluate as a part of the financial institution’s ongoing monitoring and due diligence. Similarly, marijuana companies must be ready to offer any documentation or info a financial institution requests as a part of its preliminary or ongoing due diligence.
While banks are more likely to proceed taking a cautious strategy for the foreseeable future, marijuana-associated companies and banks would each profit from working collectively to make sure that banking providers are offered in a protected, sound and accountable method. Doing so might help shield the banking system, whereas additionally making certain that accountable marijuana corporations are capable of acquire banking providers.
Andrew Bigart is a counsel within the Washington, D.C. workplace of Venable LLP. He focuses on serving to shoppers within the funds and banking industries navigate the complicated federal and state regulatory surroundings. For extra info, go to www.venable.com.