Now that California will have significant regulation of both its medical and adult use cannabis industries under the Medical Cannabis Regulation and Safety Act and Proposition 64 (the Adult Use of Marijuana Act), respectively, questions are turning to what will happen with California cannabis banking. As the largest state, it’s hugely important California cannabis businesses be able to secure bank accounts (at a minimum). But will they be able to given the federal illegality of cannabis? Despite what we don’t know regarding how California will regulate cannabis businesses, if the FinCEN guidelines from 2014 hold up and if there are some enterprising financial institutions willing to experiment, we think the answer will be yes.
Because cannabis is federally illegal most banks and financial institutions want nothing to do with it. Not only is there potential criminal liability for banks under the federal Controlled Substances Act for aiding, abetting, and conspiracy for taking cannabis money, there may also be liability under the Bank Secrecy Act for money laundering. Until 2014, there was no real banking solution for the cannabis industry because of these federal criminal law issues; if you didn’t lie to get a bank account, it was likely only a matter of time before the bank would shut down your account after discovering that you were engaged in state-sanctioned cannabis cultivation, manufacturing or distribution.
Once Colorado and Washington legalized adult use cannabis in 2012 and the Department of Justice issued the Cole Memo in 2013, the DOJ and FinCEN finally provided some relief for cannabis businesses by developing guidelines for financial institutions wanting to bank the cannabis industry. Those guidelines essentially give a green-light to banks opening accounts for cannabis businesses in state-legal and highly regulated marijuana states so long as they conduct necessary due diligence and monitoring of their cannabis clients and file a Suspicious Activity Report whenever opening such an account.
Since California will have a ton of cannabis regulations under both the MCRSA and Proposition 64, we are confident some California financial institutions will take advantage of the 2014 FinCEN guidelines and open accounts for cannabis businesses. This means that if you receive a California cannabis license under either the MCRSA or Proposition 64 (or both), you will likely be a good candidate for getting a bank account in California.
The main obstacle right now is that bank regulators like FinCEN, the FDIC, and the NCUA will likely withdraw even silent acceptance of cannabis banking if potential U.S. Attorney General Jeff Sessions or President-elect Donald Trump orders the nullification of the Cole Memo. Without support from FinCEN and other federal regulators, state-legislated resolutions on cannabis banking will likely fail. Colorado already tried this with a state-mandated banking cooperative and failed and we do not expect the courts to help on this issue either because of the federal law conflict. And “solutions” like Bitcoin still face a ton of hurdles.
On December 2, California’s State Treasurer, John Chiang, wrote to President-elect Trump, seeking guidance on California cannabis and banking:
Conflict between federal and state rules creates a number of difficulties for states that have legalized cannabis use, including collecting taxes, increased risk of serious crime and the inability of a legal industry under state law to engage in banking and commerce . . . We have a year to develop a system that works in California and which addresses the many issues that exist as a result of the federal-state legal conflict . . . Uncertainty about the position of your administration creates even more of a challenge.
Chiang also wrote in his letter that California may “exacerbate” the banking problem because California’s cannabis economy is going to be so large.
The Department of Treasury has done a commendable job of preserving and defending its marijuana banking guidelines; Treasury Secretary Jack Lew has defended the guidelines to Congress based on public safety and transparency. But Lew isn’t going to be around much longer and last month Trump announced Steven Mnunchin as his nominee for Treasury secretary. I couldn’t find any quotes from Mnunchin on marijuana banking or the FinCEN guidelines, so it’s hard to know whether Mnunchin will support the cannabis banking status quo or not.
Like everything when it comes to Trump’s administration and cannabis, California will just have to stay tuned on the banking front.