For the cannabis industry, access to banking services has been scarce. Even though cannabis is medically or recreationally legal in most states, banks avoid taking on cannabis dispensaries as customers. This is largely due to the federal prohibition of cannabis. The Federal Crimes Enforcement Network (FinCEN) attempted to fix this problem, but there has been no improvement on access to banking.

FinCEN is a bureau of the U.S. Department of Treasury, tasked with collecting and analyzing information from banks to combat illegal activity. In 2014, FinCEN issued guidance hoping to enhance the availability of banking for cannabis dispensaries. The agency created a separate category of Suspicious Activity Reports (SARs) just for banks serving cannabis dispensaries. The process, however, was so cumbersome few banks employed it. This problem remains a product of federal cannabis law conflicting with state cannabis laws.

The Cole Memo

The current, and confusing, status of cannabis regulation can be attributed in part to a document by James M. Cole (the Cole Memo). In 2013, United States Deputy Attorney General James M. Cole issued this memo as a guidance document on enforcement of cannabis regulation. Though all cannabis production and sales are prohibited by the Controlled Substances Act, the Cole Memo determined a limited number of priorities for federal cannabis enforcement.

There were eight priorities, including sale to minors, funding criminal enterprises, and possession on federal property. Outside these eight priorities, the Department of Justice (DOJ) would leave enforcement to the states. Shortly after the Cole Memo was released, more states began passing legislation allowing cannabis dispensaries to open.

FinCEN’s Guidance

To compliment the Cole Memo, FinCEN’s 2014 guidance explained how banks may serve cannabis dispensaries without triggering Bank Secrecy Act (BSA) enforcement by the agency. Along with requiring banks comply with the Cole Memo’s priorities, it explained CDD best practices, SAR procedures, and how to identify red flags for cannabis dispensary customers.

The CDD guidance included:

  • License and registration verification
  • License documentation review
  • Requesting information on a cannabis business from state authorities
  • Understanding the products, customers, and normal activity of cannabis businesses
  • Ongoing monitoring for suspicious activity
  • Refreshing CDD information on a periodic business

FinCEN’s guidance also requires banks to look out for “red flags,” and banks will not open an account for a business with too many red flags. These include:

  • Anonymous out-of-state or international investors
  • An inability to trace money flow to investors, owners, and/or vendors
  • Failure to secure a state and/or local license to operate
  • Owners and/or financiers who have significant criminal histories
  • The business’s failure to report income and/or pay taxes to the state or the federal government
  • The business’s violation of state operational laws and rules
  • The failure to timely renew state and/or local operational licenses

In 2019 FinCEN issued further guidance pertaining specifically to hemp. The legal definition of “hemp” under federal law is simply cannabis products with less than .3% THC, the psychoactive chemical in the cannabis plant. The 2019 guidance essentially explained credit unions are no longer required to file SARs solely on the basis of hemp growth and cultivation, while SARs are still required for suspicious activities of hemp businesses. FinCEN issued supplemental guidance on CDD in 2019, confirming that banks must perform CDD on hemp-related businesses.

Banking Protocols

*Author’s Note: though FinCEN guidance uses the term “marijuana,” this article uses the term “cannabis” based on the binomial nomenclature of the plant “Cannabis sativa L.

According to FinCEN’s September 2020 “Marijuana Banking Update,” roughly 700 banks and credit unions provide financial services to cannabis dispensaries. This amount is inadequate to fully meet the needs of the cannabis industry. The two most cited reasons banks are reluctant to serve cannabis dispensaries are 1) the protocols for serving such businesses are too strenuous, and 2) even with FinCEN guidance there is still a risk of legal penalization.

Higher Protocols

To comply with BSA regulations, banks must file a SAR whenever they have reason to suspect a transaction involves funds from an illegal activity, the transaction avoids BSA regulation, or if the funds lack a business or legal purpose.

FinCEN’s guidance requires an even higher standard for banks serving cannabis dispensaries. For instance, SARs for cannabis dispensaries have three categories:

  1. “Marijuana Limited” for transactions in accordance with the eight the Cole Memo priorities mentioned above.
  2. “Marijuana Priority” for transactions that implicate any priorities. 
  3. “Marijuana Termination” when a bank decides to terminate its relationship with a cannabis dispensary to avoid liability under anti-money laundering laws.

A SAR is required when a cannabis dispensary opens an account, then at least every 90 days. These protocols increase cost and deplete resources for banks serving cannabis dispensaries. Even when the extra costs pass to the customer, many banks will still be reluctant to serve cannabis dispensaries until federal regulation of cannabis changes.

Legal penalties

If a bank incorrectly files a SAR, fails to adequately monitor its customers, or otherwise violates federal regulations and guidelines, the banks will be penalized. Fines for incorrectly filed SARs can be large, and since serving cannabis dispensaries requires more SARs, the bank is then open to more risk of penalties.

Additionally, mere compliance with FinCEN does not guarantee a bank is immune to penalties from other agencies, such as the Department of Justice (DOJ). The Cole Memo was rescinded in 2018 by former Attorney General Jeff Sessions. While the FinCEN guidance from 2014 remains in place, it is currently unclear whether the DOJ will federally prosecute banks who serve cannabis dispensaries.

Updates and outlooks

As stated above, banking options for cannabis dispensaries will likely remain scarce until federal regulations change. Two bills have been passed by the House and could have fixed this problem, but neither passed the Senate.

First is the Marijuana Opportunity Reinvestment and Expungement (MORE) Act. This bill, among other things, federally decriminalizes cannabis, changes legal language from “marijuana” to “cannabis,” and allows cannabis dispensaries to receive Small Business Administration loans. The MORE Act passed the House in December of 2020 but stayed in the Senate until the end of the session.

Second is more specific to banking, which is the Secure and Fair Enforcement (SAFE) Banking Act. It has been introduced to Congress before. The House passed the bill in 2019, but it did not survive a Senate vote. In March of 2021, the bill was reintroduced in the House with broad support and subsequently introduced to the Senate. This bill would allow cannabis businesses to receive banking services by creating a safe harbor for banks who serve them. The new Senate is suggested to be in favor of cannabis policy reform, and the SAFE Banking Act could become law.

Providing adequate banking to the cannabis industry has become a public concern, because even though the industry generates billions of dollars of revenue, it has yet to see its full potential. This public concern is making its way through Congress and resolution of the banking problem seems inevitable.


DISCLAIMER: this article is for informational purposes only and is not legal advice. Nor should it be relied on as legal advice. Readers seeking to act upon this information are urged to seek their own legal advice.