For the typical office worker, marijuana is not typically the most “HR-approved” subject of discussion. But in banking, marijuana and marijuana-related businesses (MRBs) are hot topics. There are conversations, debates and questions related to the definition of marijuana, what exactly an MRB is and, most importantly, whether banks can serve these types of businesses and what types of policies will need to be drafted to serve them.

First, there is a question of whether banking MRBs is even legal. Under federal law, the sale of marijuana is illegal. Marijuana or cannabis is defined as “all parts of the plant Cannabis sativa L., whether growing or not; the seeds thereof; the resin extracted from any part of such plant; and every compound, manufacture, salt, derivative, mixture or preparation of such plant, its seeds or resin.” Marijuana is classified as a Schedule I drug under the Controlled Substances Act, enforced by the Department of Justice (DOJ). The main concern and issue related to marijuana is the delta9‑tetrahydrocannabinol (THC) content. This ingredient is believed to give marijuana its psychoactive effects. THC content is the hinge of legality on the federal level. If THC content is .03% or higher, then the substance is illegal at the federal level. However, due to the shift in public perception and the increasing number of states legalizing marijuana, the Department of Justice has chosen not to prosecute marijuana‑related crimes. As mentioned, many states have chosen to legalize marijuana, thus creating the tension between some states’ laws and federal law. While there have been efforts to reconcile the discrepancies, there is no reprieve in place as of the publication of this article.

Contrary to the legality of marijuana, hemp products are legal in all 50 states. Hemp is defined as “the plant Cannabis sativa L. and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol concentration of not more than 0.3% on a dry weight basis.”

With the confusion surrounding the legality of marijuana, banks are stuck between a rock and a hard place. Most states have legal MRBs that need banking services, but marijuana is still illegal at the federal level. The Cole Memo was introduced in 2014 with the intent to bridge the gap between federal and state law. It established guidance to keep marijuana-related facilities off federal land, protect children from the sale of marijuana‑related products and curb drug-related crimes. The Memo afforded banks some protections and guidance, but it was rescinded in 2018 due to its inability to effectively reconcile state and federal law differences. Despite the Memo being rescinded, it remains the only guidance that banks really have to establish guidelines and principles related to banking MRBs. The Financial Crimes Enforcement Network (FinCEN) believes the principles laid out in the Memo are valid and still expects banks to follow them as much as possible. To read the full Memo, click here.

Even in states where banking MRBs is not prohibited under state law, many banks choose not to bank MRBs due to the difficulty and due diligence required to do so. Conversely, other banks are willing to take on the risk of banking these customers. Banks willing to undertake these types of customers must consider several issues. 

First, banks must identify the risk level of an MRB. Risk levels defined in guidance range from Tier 1 to Tier 3, with Tier 1 being the riskiest. Tier 1 MRBs are those that are directly related to manufacturing, growing, dispensing or distributing marijuana‑related products. These are typically dispensaries, farms or producers and generally require specific state licensures outside of the standard state licensure for a business. This is usually done through the State Department of Agriculture, but licensing requirements can vary from state to state. Tier 2 MRBs have a decreased risk because these are businesses that do not directly touch marijuana. Examples of Tier 2 businesses are marijuana paraphernalia sellers, industry associates and sellers of farm equipment for MRBs. Lastly, Tier 3 MRBs are the least risky businesses. They have loose ties to MRBs. These include consultants, commercial real estate owners who rent to MRBs and technology providers. 

Next, the bank will need to be aware of its Suspicious Activity Reporting (SAR) obligations. There are three different SARs that come into play: (1) Marijuana Priority, (2) Marijuana Limited and (3) Marijuana Termination. Each SAR has different requirements based on the type of activity noted.

Further, the bank will need to develop robust policies to bank MRBs. The policies should include detailed lists of signs that bank staff may notice as “red flags” of MRB activity, a discussion of the information needed for enhanced customer due diligence on MRB customers and a comprehensive MRB risk assessment. Lastly, banks should consult with bank counsel having robust knowledge of the marijuana-related laws in the state because knowledge of state law is critical for the bank to determine the level to which it can facilitate MRBs.

Until there is more clear guidance from the federal government, the internal and external bank debates may continue. For each bank, determining their state’s stance on the legality of marijuana, deciding whether the bank is going to serve MRBs and defining the bank’s applicable policies and practices will tremendously help to organize the chaotic conversations that surround marijuana and marijuana banking.