Cash and Pot: Can’t take it to the bank, yet

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.

Criminal Law Must be Considered

As my right honorable colleague Matt Kumin reminded me, Criminal Law must be considered when advising a marijuna-preneur(sm). It is with that thought that I leave today’s comment.  In a recent Criminal case, the Court asked the jury three key questions on which the prosecution hinged:

(1) “Possession of marijuana with the intent to collectively or cooperatively cultivate marijuana for medical purposes is authorized under the Compassionate Use Act so long as the marijuana is not cultivated for profit.”

(2) “Possession of marijuana is lawful if authorized by the Compassionate Use Act. The Compassionate Use Act allows a person to possess marijuana for personal medical purposes when a physician has recommended or approved such use. The amount of marijuana possessed must be reasonably related to the patient’s current medical needs. The People have the burden of proving beyond a reasonable doubt that the defendant was not authorized to possess marijuana for medical purposes. If the People have not met this burden, you must find a defendant not guilty of this crime.”

(3) “Possession of concentrated cannabis is lawful if authorized by the Compassionate Use Act. In order for the Compassionate Use Act to apply, a defendant must produce evidence tending to show that his possession or cultivation of concentrated cannabis was for personal medical purposes with a physician’s recommendation or approval. The amount of concentrated cannabis possessed must be reasonably related to the patient’s current medical needs. If you have a reasonable doubt about whether the defendant’s possession or cultivation of concentrated cannabis was unlawful under the Compassionate Use Act, you must find the defendant not guilty.”

The Jury convicted in People v. RAYGOSA, Cal: Court of Appeal, 2nd Appellate Dist., 4th Div. 2014.

Afterall, they had four pounds in their car, cash, four cell phones and a scale.

“Here, the People presented substantial evidence from which the jury reasonably could have concluded that defendant intended to sell the large quantity of marijuana he possessed. Jackson testified that in his experience, people package marijuana like defendant did when they plan to sell it to a dispensary. He further testified that most people consume only one-half gram to one gram of marijuana per dose and that it would be unreasonable for one person to carry around so much marijuana for his personal use. Jackson opined that the knotted bags would not keep the marijuana fresh for very long, and that other evidence recovered during the arrest — the scales and cash — further indicated that defendant (and Hernandez) planned to sell the marijuana. A jury could conclude from this evidence that defendant possessed more cannabis than was reasonably necessary for his personal medical use and intended to sell it.”