Hometown Banker - September 2019

32 | HOMETOWN BANKER | HOMETOWNBANKER.ORG A SAFE PATH FORWARD: BANKING THE MARIJUANA INDUSTRY By Amber Goodrich, CSI A s states continue to legalize medical and recreational marijuana, pressure from current federal restrictions is mounting on both marijuana-related businesses (MRBs) and financial institutions. While the marijuana industry becomes more legitimate , its partici- pants’ need for traditional banking products and services increases. Conversely, current federal laws make capitalizing on this emerging client base an extremely risky proposition for financial institutions. However, the recently introduced Secure and Fair Enforcement (SAFE) Banking Act might finally reconcile this conflict by pro- viding safe harbor to those institutions that bank MRBs, and the momentum for its passage is growing. In fact, the attorneys general of 38 U.S. states and territories pushed for it in a letter to Congres- sional leaders , in which they highlighted the benefits of regulating “grey market financial activities” like marijuana. Here is where the matter currently stands and what the status of the marijuana industry means for the banking industry. MARIJUANA TAKES ON THE VEIL OF LEGITIMACY Twenty-three years ago, California was the first state to legalize medical marijuana, and in 2012, Colorado and Washington State were the first to legalize its recreational use. Today, medical mari- juana is legal in 33 states, and recreational marijuana is legal in 10. The District of Columbia has legalized both. Despite the shift toward state legalization, marijuana is still considered a Schedule I drug by the federal government, a dichotomy the Depart- ment of Justice (DOJ) addressed in the 2013 Cole Memorandum. The memo indicated that the DOJ would focus its “limited investigative and prosecutorial resources” on eight priority areas of marijuana law enforcement, such as preventing its distribution to minors. In early 2014, the Financial Crimes Enforcement Network (FinCEN) followed suit and issued BSA Expectations Regarding Marijuana-Re- lated Businesses to provide guidance to financial institutions that bank MRBs in states where marijuana is legal. However, marijuana’s growing legitimacy hit a snag in 2018 when former U.S. Attorney General Jeff Sessions rescinded the Cole Memo. But in another conflicting twist for banks, the FinCEN guidance remains in effect, according to the ABA Banking Journal. In advocating for the SAFE Banking Act, the state attorneys general pointed out the significant value of the marijuana industry, which was estimated to be $8.3 billion in 2017 and expected to grow to $25 billion by 2025. “Yet,” they say, “those revenues are handled outside of the regulated banking system.” This creates significant tax and compliance issues and “contributes to a public safety threat as cash-intensive busi- nesses are often targets for criminal activity.” THE SAFE BANKING ACT Proposed legislation may resolve some of that conflict. Both houses of Congress are expected to vote on the SAFE Banking Act in the near