A Safe Harbor Rejection Won’t Raise Risks for Banks Looking to Serve Cannabis Merchants

Financial institutions providing banking services to cannabis businesses in states where marijuana has been legalized are no more at risk of being punished by federal regulators than they were before Congress last week rejected legislation to provide them safe harbor.

Legislators in the House of Representatives and the Senate separately introduced a pair of amendments to appropriations bills in each chamber that would protect financial institutions’ marijuana businesses. Both amendments were voted down.

Despite the Congressional thumbs down, legal experts and proponents of legal marijuana point to the historical record at the U.S. Department of the Treasury and the Department of Justice. Both agencies have refrained from waging a campaign against financial institutions that support marijuana businesses.

“The defeat of these measures is not a political setback,” says Morgan Fox, media relations director for the National Cannabis Industry Association, a Washington, D.C.-based trade association for legal cannabis businesses. “We have not seen any crackdown on financial institutions banking cannabis businesses before or after the Cole Memo was rescinded.”

The Cole Memo is an Obama-era document that allowed businesses in states where marijuana is legal to operate without federal interference, provided they adhere to the memo’s guidelines. The memo was rescinded in January by U.S. Attorney General Jeff Sessions.

“If legislation would have passed, more financial institutions would likely have looked into banking cannabis businesses in states where it is legal,” says Carmella Houston, vice president of business services for Seattle-based Salal Credit Union, which banks about 400 marijuana merchants.

Financial institutions, however, should not view failure to pass a safe-harbor amendment as a barrier as long as they follow guidelines laid out by the Treasury Department’s Financial Crimes Enforcement Network (FinCEN).

“It is up to financial institutions in each state where cannabis is legal to determine how they will approach the business, if at all, assess their risk, and how they will meet compliance issues,” Houston says.

Some legal experts also consider it unlikely the Treasury Department will crack down on financial institutions because it had previously adhered to the Cole Memo and has quietly let it be known its position has not changed since January. In addition, Treasury Secretary Steven Mnuchin has stated he would not replace current FinCEN guidelines on banking and marijuana businesses without a viable alternative that avoids, as he put it, handling “bags of cash” when collecting taxes from marijuana establishments.

Further, legal experts point out that if the Justice Department truly wants to upend the marijuana-legalization movement, all it has to do is prosecute a few of the largest cannabis growers that supply medical and retail outlets, rather than target financial institutions.

The NCIA’s Fox agrees. “A lot of U.S. attorneys see targeting financial institutions [that are] banking cannabis businesses as a poor use of resources,” Fox says. “As it stands now, financial institutions that bank cannabis businesses are no worse off, because they can still do so under FinCEN guidelines. Besides, there is still a chance to get legislation through as part of the appropriations bill this year and in 2019.”

There were 400 financial institutions providing banking services to marijuana businesses as of September 30, 2017, up from 318 in October 2016, according to FinCEN. About 100 of those institutions were credit unions. In addition, many of the institutions banking marijuana businesses reportedly do so on a limited basis.

But even if a safe-harbor amendment is eventually passed it won’t change the fact that marijuana is illegal under federal law, which means financial institutions wading into these waters remain at risk of being punished by federal regulators.

“Until the discrepancy between federal and state laws regarding the legality of marijuana is resolved, financial institutions are going to face a dilemma when it comes to banking cannabis businesses,” says Houston.