After months of speculation, the Department of Justice and the Financial Crimes Enforcement Network (FinCEN) two weeks ago released new guidelines to banks and financial institutions on their relationship with state-legal cannabis businesses. As we discussed in our post, Feds Green Light Marijuana Banking, these new guidelines seem to give banks the green [pun intended] light to conduct banking business with marijuana business customers, subject to fairly stringent requirements that the bank monitor and report on those activities.
We and others declared that FinCEN’s announcement would usher in a new era of financial legitimacy for the cannabis industry, but banks and banking industry groups have since rained on our parade a bit. Colorado Bankers’ Association Senior Vice President Jennifer Waller reportedly told CNBC this week she was not aware of a single Colorado bank that had changed its position on marijuana customers as a result of the DOJ’s new position.
Commentators have pointed out that the new cannabis banking guidelines, just like the August 2013 Cole memo (which outlined eight enforcement priorities, but was read as permitting state-legal canna business), are just that — non-binding guidelines subject to change at any time. Moreover, the requirement that banks keep close tabs on their marijuana business customers is a very real cost. Karen Thomas, a senior official with the Independent Community Bankers of America, told NBC that the due diligence is “risky and prohibitive” and creates a significant obstacle for small banks to get into the game, even though they may desperately want the revenue. Of course the mega-banks are skittish as well.
But are things really as bad as it seems from the above? We think not and though we obviously cannot reveal any names, we can tell you that our cannabis lawyers have been working with a number of banks and credit unions on the cannabis banking issue and it is not quite as gloomy as the media paints it. First off, the banks can deal with the due diligence costs by passing them on to their cannabis clients. Second, at some point we believe that some bank or credit union somewhere will publicly start courting marijuana businesses as clients. There is just too much money and profit involved for this no-banking stalemate to last forever, even under the current cloudy situation.
The current model — all-cash canna businesses — is not sustainable, and no one should be comfortable with the externalities of this system (i.e., crime and possible tax fraud). Until Congress acts to either re-schedule marijuana under the CSA or revise banks’ obligations under the Bank Secrecy Act, we will be waiting for a few brave banker souls to dip their toes in the potential cash pool.