While many rejoice that the Grateful Dead will play a tribute concert in July and that up to 20 states have provided some legalization for marijuana, running a marijuana business – even legally (under state law) has major problems. Having a banking relationship is impossible. See e.g. http://www.pewtrusts.org/en/research-and-analysis/blogs/stateline/2015/1/5/states-find-you-cant-take-legal-marijuana-money-to-the-bank and http://www.huffingtonpost.com/2015/01/05/marijuana-money_n_6416678.html and http://www.denverpost.com/marijuana/ci_27360883/oregon-bank-opens-doors-colorado-marijuana-businesses (Not any more though: they have since closed their doors). Despite state-laws that permit certain marijuana sales, Marijuana remains a Class 1 drug under the Controlled Substances Act, and illegal under Federal law. Federal banking laws prevent MOST bank from taking cash from any business that violates Federal law. This post is a bit of a simple primer on the various pieces that one must understand to avoid banking violations: The players: 1) The Department of Treasury governs Federal banks. In February 2014, the DOT issued guidelines (“FinCen”) that state that while the priority for marijuana related transactions should be lowered – because the Department of Justice lowered it’s priority – even the smell of marijuana on cash (or any activity that is suspected of violating Federal law) will trigger the filing of a SAR – suspicious activity report. 2) DOJ’s Cole Report asks law enforcement to prioritize their enforcement with goals of:
- Preventing the distribution of marijuana to minors;
- Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels;
- Preventing the diversion of marijuana from states where it is legal under state law in some form to other states;
- Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
- Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
- Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
- Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
- Preventing marijuana possession or use on federal property.
3) Banks are asked by FinCen “[a]s part of its customer due diligence, a financial institution should consider whether a marijuana-related business implicates one of the Cole Memo priorities or violates state law.” 4) Banks are to file SAR’s and a Currency Transaction Report (“CTR”), for any deposit or withdrawal in excess of $5k via the BSA. Specifically: “The obligation to file a SAR is unaffected by any state law that legalizes marijuana-related activity. A financial institution is required to file a SAR if, consistent with FinCEN regulations, the financial institution knows, suspects, or has reason to suspect that a transaction conducted or attempted by, at, or through the financial institution: (i) involves funds derived from illegal activity or is an attempt to disguise funds derived from illegal activity; (ii) is designed to evade regulations promulgated under the BSA, or (iii) lacks a business or apparent lawful purpose.” And because marijuana is illegal under Federal law, all marijuana related transactions trigger a SAR. 5) Marijuana Limited SARs: That said, banks are given permission to file limited SARs. “SAR should be limited to the following information: (i) identifying information of the subject and related parties; (ii) addresses of the subject and related parties; (iii) the fact that the filing institution is filing the SAR solely because the subject is engaged in a marijuana-related business; and (iv) the fact that no additional suspicious activity has been identified. Financial institutions should use the term “MARIJUANA LIMITED” in the narrative section.” 6) But FinCen also helps banks identify red-flags which would cause a bank to terminate its banking relationship or file a Marijuana Termination SAR. In sum, the banking world is scared shitless of Medical Marijuana businesses. Until the Federal government changes its classification, banking will continue to be difficult.