Curbing Cannabis Cash in a Post-Cole-Memo Climate

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On January 1, 2018, California’s cannabis industry celebrated the start of adult-use cannabis sales under rigorous regulations modeled largely after Deputy Attorney General James M. Cole’s August 29, 2013, “Guidance Regarding Marijuana Enforcement” memorandum and its February 14, 2014, progeny, “Guidance Regarding Marijuana Related Financial Crimes.” Three days later, on January 4, U.S. Attorney General Jeff Sessions circulated a short memorandum (the “Sessions Memo”) rescinding the Cole memos alongside other documents that encapsulate the federal government’s states’-rights-conscious policy on cannabis.

Like the Cole memos, the Sessions Memo directs federal prosecutors contemplating cannabis cases to “weigh all relevant considerations, including federal law enforcement priorities…the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of the particular crimes on the community.” Far from a nationwide “crackdown,” the Sessions Memo leaves the fate of the cannabis industry in the hands of individual U.S. Attorneys, many of whom have made it clear they will continue to treat state-legal cannabis businesses as they did under the Cole memos. Thus, when it comes to cannabis banking—one of the most important aspects of the cannabis industry—Sessions’s January 4 rescission may not be the fatal blow many fear.

Federal Cannabis Policies

The Cole memos summarize the considerations the Department of Justice has long used when prosecuting cannabis-related activities. They also reiterate state-legal cannabis sales which exclude illegal activities and keep cannabis away from minors and cartels are a very low priority for the DOJ. These enforcement priorities also influenced the United States Department of the Treasury’s Financial Crimes Enforcement Network’s February 14, 2014, memorandum titled “BSA Expectations Regarding Marijuana-Related Businesses” (the “FinCEN Guidance”).

The FinCEN Guidance is widely viewed as the foundation of cannabis banking. Despite the Cole memos’ rescission, the Treasury Department has given no indication it will rescind the FinCEN Guidance. By detailing the reporting and due diligence procedures financial institutions should undertake in onboarding and maintaining cannabis business clients, the FinCEN Guidance “clarifies how financial institutions can provide services to marijuana-related businesses consistent with their [Bank Secrecy Act] obligations.” The guidance individually lists the Cole memos’ enforcement priorities and expands upon them to guide financial institutions in collecting the information necessary to ensure they serve only compliant cannabis businesses. The FinCEN Guidance goes on to list the “red flags” a financial institution should consider when performing due diligence on its existing cannabis business clients to ensure all cannabis-related deposits entering the institution originate from lawful investments or state-legal cannabis sales. Though the FinCEN Guidance and the Cole memos were drafted to work in tandem, the FinCEN Guidance always has been a comprehensive standalone document containing recommendations that continue to prove extremely effective, as illustrated by the growing number of financial institutions successfully—and profitably—serving state-legal cannabis businesses.

What Now?

Compliant state-legal cannabis businesses and the financial institutions that serve them are a low priority for the DOJ. The DOJ has never prosecuted a financial institution for serving a state-legal cannabis business pursuant to the FinCEN Guidance.

As countless violent robberies have illustrated, unbanked cannabis cash threatens public safety. Providing cannabis businesses access to financial services increases public safety by reducing cannabis cash and the resulting violent crimes. Curbing cannabis cash also brings desperately needed transparency to the cannabis industry by allowing cannabis businesses to function normally and pay their taxes electronically, rather than in person with huge and unsafe bundles of legal tender.

Financial institutions that serve cannabis businesses also give Treasury insight into the cannabis industry through the cannabis-specific reports required by the FinCEN Guidance. According to FinCEN’s March 2017 statistics, more than 400 banks currently serve cannabis businesses, providing Treasury with vital information that will disappear if cannabis banking ceases. Prosecuting these financial institutions, whose services heavily reduce cannabis cash and greatly increase public safety in the twenty-nine states that have legalized medical or adult-use cannabis, will not shut down the cannabis industry, which flourished long before the Cole memos. Consequently, it is wholly contrary to the best interest of the DOJ and Treasury to stifle the cannabis industry’s access to financial services.

Final Thoughts

While the Cole memos’ rescission undoubtedly will have an initially chilling effect on cannabis banking by creating limited short-term uncertainty for financial institutions, it is highly unlikely cannabis banking will stop altogether. In fact, if, in an effort to preserve cannabis banking, Treasury reaffirms the FinCEN Guidance or Congress takes action to foster widespread cannabis banking, the Sessions Memo may lead to positive developments for cannabis banking.

It is now more important than ever before for cannabis businesses to focus heavily on transparency and compliance in order to obtain and maintain business bank accounts. Specifically, cannabis businesses should ensure they properly maintain all required licenses and deposit only into their business bank accounts money that can be traced back to a legitimate investment in the business or the state-legal sale of cannabis.

Sahar Ayinehsazian is a regular contributor for mg Magazine and associate at Vicente Sederberg’s California Practice Group, where she specializes in cannabis banking, licensing, and regulatory compliance. Vicente Sederberg is one of the leading cannabis law firms in the U.S., with offices in Denver, Boston, Los Angeles, Las Vegas, and Washington D.C.

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