Marijuana Banking: Consider the Big Picture

The last dance with Mary Jane? Well, I’m no Tom Petty, but I can say that marijuana laws are stuck in what seems to be an impassable haze of gray. What does that mean for credit unions? Now is the time to take a stance – is your institution willing to pursue banking relationships with marijuana-related businesses or not?

As more marijuana-related businesses (MRBs) pop up, they are looking for banking institutions to handle their finances, especially since they tend to be cash-heavy. As a credit union, these businesses may come to you for their banking needs. Before you agree, do your research. Look at all the different laws and regulating bodies’ guidance to see how a relationship with MRBs could impact your credit union.

Laws and Guidance

Federal Law and State Laws

Under the Controlled Substances Act, marijuana is considered a Schedule 1 illegal drug. As such, there is no separation of medical versus recreational use, and the act explicitly prohibits possession, cultivation and dissemination of marijuana in the United States.

As of February 2018, 31 states have legalized medical marijuana and nine states allow recreational use of the drug, despite federal laws.

U.S. Department of Justice Memorandum

Since 2009, the U.S. Department of Justice has issued three memorandums to try and bridge the gap between federal and state laws pertaining to marijuana. The most recent memorandum, released in August of 2013, provided the following guidance:

“… the Department in recent years has focused its efforts on certain enforcement priorities that are particularly important to the federal government:

• Preventing the distribution of marijuana to minors;
• Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs and cartels;
• Preventing the diversion of marijuana from states where it is legal under state law to other states;
• Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;
• Preventing violence and the use of firearms in the cultivation and distribution of marijuana;
• Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;
• Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and
• Preventing marijuana possession or use on federal property.”

In other words, it states that prosecution related to marijuana offenses has become less of a priority unless they meet any of the criteria listed above.

Guidance From FinCEN

The Financial Crimes Enforcement Network, which provides various regulatory guidelines for credit unions, provided this statement in regard to working with marijuana-related businesses: “In general, the decision to open, close or refuse any particular account or relationship should be made by each financial institution based on a number of factors specific to that institution. These factors may include its particular business objectives, an evaluation of the risks associated with offering a particular product or service and its capacity to manage those risks effectively.”

Questions to Ask

It’s a bit confusing, isn’t it? That’s why credit unions need to consider the big picture. Management will need to ask these questions:

• How will working with marijuana-related businesses impact your credit union as a whole?
• How will it affect your relationships with your members?
• Could working with MRBs jeopardize your relationships with vendors and service providers?
• Will other financial institutions work with you and allow you to perform MRB transactions?
• Are you willing to change your loan process to monitor for facilities or equipment being used in any MRB activity?
• What levels of MRB involvement will you allow? Will you service grower, distributor, dispensary, employee of one of those businesses, or business supporting those MRBs?
• Will you have the proper resources and staffing to handle the increased monitoring obligations and reporting burden?
• Will reporting activity through a Suspicious Activity Report translate into a reporting of knowingly transmitting funds from illegal proceeds that could result in prosecution against your credit union?
• Are you willing to compromise your member due diligence to allow MRBs to bank at your credit union?
• Are you willing to accept the legal and reputational risks?
• Are you confident that the Department of Justice memorandum and FinCEN guidance will be enough to defend your institution against legal action?

In addition to these questions, you may want to look at the actions taken by other financial institutions pertaining to MRBs to determine the industry norm. Many merchants will not consent to credit or debit card processing with MRBs (hence their large cash holdings) or that banks are terminating relationships with accountholders as soon as they determine involvement with MRBs.

Pros vs. Cons

Once you’ve answered these questions, it’s time to take those answers and flesh out the pros and the cons. What will push you toward MRB banking? What will prevent you from taking that step?

Pros:

• The market for marijuana is lucrative. All the extra cash MRBs bring in could significantly boost your liquidity and assets.
• While marijuana might be a polarizing issue, there are probably some of your members who support the cause and would be willing to stand proudly behind your credit union.
• You have the ability to choose how involved you will be with MRBs. Maybe you don’t want to go so far as to provide banking services to organizations that grow marijuana, but you might be comfortable doing so for pharmaceutical dispensaries. You can be flexible in your involvement.

Cons:

• You might find your credit union alienated, as many of your members, fellow financial institutions and vendors will likely want to avoid association with any possible criminal activity. In addition, your current service providers may choose to cut ties, which could impact your operations.
• Think of the additional employees, training, policies and equipment you’ll need to implement the extra monitoring and reporting requirements. All of these cost time and money.
• Per BSA/AML guidelines, your obligatory daily reporting would essentially be an admission of guilt that could incriminate your credit union.
• MRB banking would mean putting your reputation and your ability to legally operate on the line. Is it worth the risk if it could cost your credit union its very existence?

Making Your Decision

There are so many angles to ponder in this situation, not the least of which includes laws, regulations, guidelines, government-issued memos, employee and member safety, and reputation.

In light of all this information, you have to choose your path. Do you view the prospect of banking for MRBs as an investment in small businesses with growth potential (especially in states where medical and/or recreational marijuana is legal)? Or do you view dealing with MRBs as too much of a risk, where the repercussions could include losing your charter (state or federal) or even prosecution?

So now you have to consider the big picture and make a decision – will this be your last dance with Mary Jane, or will you explore the possibility of marijuana-related banking?

Cindy Hagan is Compliance Administrator for Vizo Financial. She can be reached at marketing@vfccu.org.