Cannabis Banking 101: Why Banks Won’t Take Your Cannabis Money

Cannabis Knowledge & Insights

Learn the background of the Cole Memorandum and why cannabis operators are subject to 280E restrictions.

The Cole Memorandum indicates that prosecutors and law enforcement should focus federal funds on those cannabis businesses and operators in conflict with state law.
Jeff Sessions made a formal declaration that the Cole Memo would no longer be used to guide law enforcement and US Attorneys nationwide.
For states with legal cannabis, law enforcement will only pursue those cannabis businesses and operators who put the safety and well-being of the community at risk.

Speak to one of our experts to learn more about the history of federal restrictions against cannabis.

Ever wonder why federally insured banks generally don’t do business with cannabis business owners? There are agencies and policies responsible for why banks won’t take your cannabis business money. The first and most obvious agency is the US Attorney with the Department of Justice. The second is the Financial Crimes Enforcement Network (FinCen) under the Treasury Department.

These two government agencies work together to prevent money laundering and other financial crimes. Since cannabis is still a Schedule I drug under the Controlled Substances Act (CSA), any profit that is made from cannabis businesses is considered illegally generated funds. That means banks, who are federally insured, and cannot vouch for how the funds will be used, will opt out of offering banking services to cannabis businesses because of the risk the funds and businesses pose.

The Cole Memorandum

When US states started to legalize medical marijuana, US Attorney General James M. Cole issued a memo directing US attorneys on how to handle the new state laws. The problem has, and continues to be, that cannabis is still illegal on the federal level. However, with US states passing laws to legalize it within their respective territories, the problem of infringement of voters and state rights comes into play.

By issuing this memo, which is popularly known and referred to as the “Cole Memo,” Attorney General Cole addressed the issues that stem from having state laws that legalize federally illegal substances. The memo indicates that prosecutors and law enforcement should focus federal funds on those cannabis businesses and operators in conflict with state law. This memo played a vital role and represented a significant shift within the federal government in reassessing how to use federal funds when enforcing the law under the Controlled Substances Act.

FinCen Guidance on Banking Regarding Cannabis Businesses

According to an electronic article on Forbes by Tom Angell that is based on a report by the Financial Crimes Enforcement Network (FinCen), by the end of March 2018, 411 banks and credit unions in the United States were “actively operating accounts for marijuana businesses.” Although the numbers show a 20% increase in financial institutions that are working with cannabis businesses, a large portion of these institutions are not federally insured. This is largely due to the fact that FinCen released banking guidelines with respect to cannabis businesses.

It may seem that FinCen’s guidelines work in tandem with the Cole Memo but in reality, the process of due diligence and suspicious activity reporting (SAR) is quite stringent and does not reduce the risk banks face when dealing with cannabis businesses. Often times federally insured banks will close accounts instead of running the reports because the risk of money laundering is much greater than what they stand to gain by offering cannabis businesses their banking services.

US Attorney Jeff Sessions and the Cole Memo

Last January, the current US Attorney Jeff Sessions made a formal declaration that the Cole Memo would no longer be used to guide law enforcement and US Attorneys nationwide. Although this may seem like a tremendous loss for US legislation and cannabis, the truth of the matter is that US Attorneys in each state are still left with the decision on how to proceed with the enforcement of the Controlled Substances Act. Several US Attorneys, congressmen and senators have openly stated that they will follow both state and federal laws in the way that best protects and serves the people. This could mean that for states with legal cannabis laws, law enforcement will only pursue those cannabis businesses and operators who put the safety and well-being of the community at risk.

What does this mean for Cannabis Businesses?

The rescinding of the Cole Memo has no immediate impact on the industry and cannabis businesses at the moment. This means that cannabis businesses can continue to use the services of institutions they are already using.

At this time, a large portion of the financial institutions that cannabis business use are privately insured credit unions. Until cannabis and its derivatives are rescheduled as Schedule III or IV drugs, or federal laws are revisited to legalize cannabis, cannabis supporters should continue to lobby for reform and develop structures, institutions, and programs that offer some financial services and security to cannabis businesses and operations.

For more tips on banking in the cannabis industry, get in touch with our experts.