Letter from the Editor

Clearing Up the Legal Haze

When I first wrote about marijuana banking in 2015 for the launch of Bank Director digital magazine, there were few banks willing to service the growing industry of legalized marijuana. It was a huge problem then. Little has changed.

Although there is evidence that some banks are providing deposit services, and in rare cases, loans, to marijuana-related businesses in states that have legalized the drug, the fact that marijuana remains illegal at the federal level puts those financial institutions in a terrible position.

Marijuana is a Schedule 1 drug, according to the federal Drug Enforcement Agency, right up there with heroin and LSD, meaning that the federal government believes it has a high potential for abuse with no currently accepted medical use. That’s a long way of saying: This stuff is both bad and useless. I’m not of the opinion that marijuana is both bad and useless. Personally, I’d prefer a traditional glass of Rose to a cannabis-infused Sauvignon Blanc from California, but each to his own.

The real problem is for the businesses trying to produce and sell the drug, and the financial industry trying to serve them. By some estimates, more than $7 billion or $8 billion worth of marijuana products were sold last year in states that legalized the drug. As a growing number of states legalize pot, what some proponents prefer to call “herb,” banks inevitably have more and more of their customers moving cannabis money through the banking system. Banks are responsible for monitoring their customers for potentially illegal activity and alerting the federal government. The Financial Crimes Enforcement Network reports that a growing number of banks are filing what’s known as Suspicious Activity Reports. Banks also are responsible for operating elaborate compliance programs under the Bank Secrecy Act, and the growing pot-based businesses are just adding to the complexity of their compliance problems.

The new attorney general Jeff Sessions’ decision earlier this year to rescind the Justice Department’s 2013 and 2014 Cole memos, which, under the Obama administration, had helped ease legal concerns, has made matters worse. Banks worry less about federal prosecutors busting into their branches then they do federal banking regulators, but the fact that federal banking regulators haven’t come down hard on banks doesn’t mean they won’t.

The only clear way out of this mess is for Congress to change the federal law, and for now, there seems to be no impetus for that. The Republican White House and bank-friendly Congress could clean up this mess. Now would be as good a time as ever.