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Trump Administration’s Shift on Marijuana Could Imperil Banking Arrangements

| January 7, 2018

medical marijuana trump administration

The cash is prop. The crackdown is not. (Eric Hunsaker)

By rolling back an Obama-era memo that shielded legal marijuana users, growers and distributors from federal prosecution, U.S. Attorney General Jeff Sessions may compel many banks and credit unions to stop working with marijuana businesses.


That’s because the memo Sessions rescinded, drafted by former Deputy Attorney General James Cole, is the foundation of Treasury Department guidance that created legal space for banks and credit unions to offer accounts to marijuana dispensaries, grow operations, distributors and manufacturers.

Without access to the banking system, the rapidly growing marijuana industry — valued at $6.7 billion in 2016 — would have to rely on cash. That would make cannabis businesses, owners and employees vulnerable to theft and complicate state efforts to collect taxes on drug sales.

Taking away the banking guidance could have a bigger impact on the state-sanctioned cannabis industry than giving federal prosecutors more leeway to bring legal action against it, said Andrew Freedman, a consultant who previously served as Colorado’s “pot czar.”

While prosecutions depend on a number of factors, from prosecutors’ desire to go after cannabis businesses to the volume of cases courts can handle, many — if not all — of the 390 banks and credit unions that currently provide accounts to marijuana businesses would drop those accounts if the Treasury bureau in charge of safeguarding the financial system, called the Financial Crimes Enforcement Network or FinCEN, changed its directives, say banking and cannabis industry insiders.   

“The FinCEN guidance was the one place they went to mitigate risk,” Freedman said of financial institutions.

By rolling back an Obama-era memo that shielded legal marijuana users, growers and distributors from federal prosecution, U.S. Attorney General Jeff Sessions may compel many banks and credit unions to stop working with marijuana businesses.

That’s because the memo Sessions rescinded, drafted by former Deputy Attorney General James Cole, is the foundation of Treasury Department guidance that created legal space for banks and credit unions to offer accounts to marijuana dispensaries, grow operations, distributors and manufacturers.

Without access to the banking system, the rapidly growing marijuana industry — valued at $6.7 billion in 2016 — would have to rely on cash. That would make cannabis businesses, owners and employees vulnerable to theft and complicate state efforts to collect taxes on drug sales.

Taking away the banking guidance could have a bigger impact on the state-sanctioned cannabis industry than giving federal prosecutors more leeway to bring legal action against it, said Andrew Freedman, a consultant who previously served as Colorado’s “pot czar.”

stateline logo analysisWhile prosecutions depend on a number of factors, from prosecutors’ desire to go after cannabis businesses to the volume of cases courts can handle, many — if not all — of the 390 banks and credit unions that currently provide accounts to marijuana businesses would drop those accounts if the Treasury bureau in charge of safeguarding the financial system, called the Financial Crimes Enforcement Network or FinCEN, changed its directives, say banking and cannabis industry insiders.   

“The FinCEN guidance was the one place they went to mitigate risk,” Freedman said of financial institutions.

Banking has always been a challenge for the cannabis industry in states that allow sale and possession of the drug. Marijuana remains illegal at the federal level, and federal law requires banks to steer clear of participating in illegal activity. Still, thanks to the Obama-era guidance, a growing number of financial institutions have started to serve the industry.

Rachel Pross, chief risk officer for Maps credit union in Oregon, where recreational marijuana sales are legal, says her institution has a plan in place to drop their marijuana-related accounts if the federal government pulls both the Justice and Treasury guidance. “If we didn’t have that guidance and framework to follow, we could in theory be prosecuted for federal money laundering,” she said.

Maps is one of the few financial institutions in Oregon that have been openly serving marijuana businesses. Without it, businesses may have no other option but to rely on cash. “In the worst-case scenario, if we faced federal prosecution for continuing to serve these businesses, we’re talking like $30 million being put back into the streets of the Willamette Valley,” Pross said.

Pross said she expected the Justice and Treasury department guidance to be changed at the same time, because the 2014 Treasury guidance tells banks and credit unions to monitor marijuana-related accounts for any activity listed as an enforcement priority in the Justice Department memo.

But Sessions’ marijuana enforcement memorandum made no mention of the Treasury guidance, and the Treasury department has yet to announce any changes to its policy.

“FinCEN works closely with law enforcement and the financial sector to combat illicit finance and provide relevant information that allows law enforcement to pursue their priorities. We will continue to work with DOJ and other stakeholders on this issue,” Steve Hudak, chief of public affairs for the Treasury bureau, said in a statement.

Lawyers who advise banks are now scrambling to clarify the rules. “The Sessions rescission technically states that it is business as normal, and hence it is possible for FinCEN not to rescind its guidance, but rather, to clarify it by deleting the references to the Cole Memorandum,” Joseph Lynyak, a banking regulation expert and partner at the law firm Dorsey & Whitney, said in an email. That would allow Treasury to maintain some version of the guidance that permits marijuana accounts.

However, now that the Justice Department has given federal officials more leeway to go after the marijuana industry, banks and credit unions that are following the Treasury guidance and filing regular reports on their marijuana-related accounts run a higher risk of prosecution, he said.   

That’s a risk some banks and credit unions may not be willing to take — regardless of the fate of the Treasury guidance.

Hilary Bricken, cannabis business attorney and head of the Los Angeles office of the firm Harris Bricken, said financial institutions currently working with marijuana businesses may keep doing so for now, but banks and credit unions that were thinking about entering that line of business may steer clear. “I am positive that it will chill participation for those who are thinking about it,” she said.

The financial institutions that serve the industry have always known that the Obama-era guidance was fragile and they might have to eject marijuana clients in a hurry. Sessions, a longtime foe of marijuana legalization, became attorney general last February and hinted in December that change was coming.  

“From day one when we started this business, we had an exit strategy. We’ve always kept an eye on the Cole memo,” said Shane Saunders, chief experience officer at Maps.

Saunders said the credit union will survive if it has to drop its marijuana accounts. He’s more worried about how the surrounding community will handle an influx of cash. “That’s really our greatest concern,” he said. 

–Sophie Quinton, Stateline

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12 Responses for “Trump Administration’s Shift on Marijuana Could Imperil Banking Arrangements”

  1. John dolan says:

    Congress needs to act. These Draconian laws and it’s “war on drugs” have filled our prisons and wasted the time cops could be doing better things.

  2. John F Pollinger says:

    This is the thorn in states amending laws that supersede federal statutes. The banking regulations will be the key component unless the United States Congress reconciles with the conundrum some states have they themselves created. Otherwise, each succeeding administration will decide whether or not to impose federal law or regulation.

  3. Sherry says:

    Here is precisely what has Congress Stopped from legalizing pot. . . it has nothing to do with anything but BRIBERY MONEY from “Big Pharma”:

    https://www.theguardian.com/us-news/2017/apr/03/big-pharma-marijuana-competition-insys-arizona

    washingtonpost.com/news/wonk/wp/2017/03/24/a-pharma-company-that-spent-500000-trying-to-keep-pot-illegal-just-got-dea-approval-for-synthetic-marijuana/?utm_term=.5d8248b61e38

    http://www.esquire.com/lifestyle/health/a54160/big-pharma-against-legal-weed/

  4. Brian says:

    Take a breath (or a hit) this is no big deal.

  5. Mikey Eyes says:

    Jeff Sessions will be fired in the near future! Nothing will stop the legalization of Marijuana in the U.S. It is a run-a-way train with too much revenue at stake. And Donald Trump does support states rights in this matter. So you will see in the next month or sooner. Congress acting to change the current status of Cannabis. Follow the stock market! You will see money pouring into cannabis stocks.

  6. omg says:

    SO, who get’s sued when the studies continue to show it kills brain cells and or they get lung cancer from smoking it? The Feds or the States that approved recreational smoking. All for medical usage… That’s all.

  7. omg says:

    I am sure attorneys like Morgan and Morgan will be chomping at the bit to start suing for medical damages from smoking it.

  8. just me says:

    “John F Pollinger says:
    January 7, 2018 at 5:23 pm
    This is the thorn in states amending laws that supersede federal statutes.”

    UMMM Federal LAWS supersede STATE law. BUT yes this is a problem first and foremost from the past administration NOT enforcing LAWS picking ones they like and ones they diont. Next Congress needs to pass a law taking pot off the list of DRUGS made illegal.

  9. John F. Pollinger says:

    Replying to just me says: You are absolutely correct regarding fed v state. My post was muddled by my poor choice of wording. I was pointing out that any state ATTEMPTS to supersede or subvert federal statutes will result in exactly what the article is pointing out. The use or non use of federal banking regulations to curtail or restrict sales will be at the discretion of whatever administration is currently in charge and the mindset of the person acting alone or at the direction of POTUS.

  10. John F. Pollinger says:

    As a final thought to this article: Commercial growers in states where they have declared this to be legal are still at great risk. It is still illegal under federal law. If the current administration or Attorney General of the United States gives the go ahead, there is nothing stopping the DEA from swooping down on these giant facilities, arresting everyone involved in the operations, seizing the property and profits. This is heading toward a headache for all involved.

  11. Pogo says:

    @History repeating itself

    Twenty-first Amendment to the United States Constitution
    https://en.wikipedia.org/wiki/Twenty-first_Amendment_to_the_United_States_Constitution

    Republicans just keep digging their grave deeper and deeper. I highly approve.

  12. Anonymous says:

    Anyone with half a brain should be able to see this is not a win win situation. This is the beginnings of a mega mess. Other states are already seeing it for what it is. If it sounds to good to be true it probably is. We don’t need it, made it this long without it, and if people want it and can afford it they will go where they need to so they can have it…..put it in Mexico or Puerto Rico. This whole thing is set up to make rich people richer!! it is all about the money and the tax revenue that it will generate. You and I both know that everyone that wants it will be able to get it. It is going to be so out of hand—- kids are going to get getting it selling it, stealing it and so one. I hope Pollinger is right and that this is stopped in its tracks. We don’t need this in Flagler County!!

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