Buds and Banking

Cannabis banking rules were recently clarified by a Department of the Treasury memo but folks on both sides of the debate remain wary.

With more and more states legalizing medical and recreational Cannabis, a serious problem has arisen regarding the financial aspects of such businesses. Even in states where Cannabis has been legalized, owners of dispensaries and recreational Cannabis outlets have been hindered in their professional practices from doing legitimate business with banks and other financial institutions. This dissonance between state and federal law takes the form of limited or outright refusal of bank accounts, the inability to obtain a business loan, difficulties in transporting the day's deposits and many more issues. As Cannabis remains a Schedule I drug in the United States, the Controlled Substances Act prohibits those with the money from legally conducting business with those with the weed.

A recent attempt has been made to clarify this situation and iron out the legal discrepancies between state and federal laws. The Financial Crimes Enforcement Network ('FinCEN'), a division of the Department of the Treasury, recently outlined the manner in which financial institutions may conduct business with pot shops through memo FIN-2014-G001. BSA ('Bank Secrecy Act') Expectations Regarding Marijuana-Related Businesses was distributed on February 14, 2014 and offers guidelines on how banks can avoid federal prohibition of accepting 'drug money' and successfully participate in financial transactions with such groups. Since Cannabis remains on the Schedule I list, the memo serves as a follow-up to the Cole Memo, released by the DOJ to clarify the rules by which dispensaries must abide. The BSA memo effectively offers guidance on how to circumvent federal law, a business practice with which many lenders are not comfortable.

Among the guidelines are details involving the self-policing filing of suspicious activity reports, or SARs, which are often "highly useful in criminal investigations and proceedings." Even if a company conducts legal business relating to Cannabis, the banks must flag such proceedings, in addition to compiling information on suspect pot shops or those attempting to hide their operations under non-Cannabis auspices. The BSA memo dictates that:

"Because federal law prohibits the distribution and sale of marijuana, financial transactions involving a marijuana-related business would generally involve funds derived from illegal activity. Therefore, a financial institution is required to file a SAR on activity involving a marijuana-related business (including those duly licensed under state law), in accordance with this guidance and FinCEN's suspicious activity reporting requirements and related thresholds."

In spite of the memo, most banks have refused to associate with these cash-laden businesses, leaving them to fend for themselves and protect the money on their own. A silver lining in this back-and-forth between pot retailers and banks is that jobs have been created. Many dispensaries and pot shops have been forced to hire private security, including armed transport for plants and profits, plus staff to check identification and generally keep the peace in an industry plagued by theft.

Current American laws liken any business transaction taking place between banks or lenders and Canna-businesses as akin to organized crime. The Schedule I classification implies that Cannabis is still a product of the dark, seedy underworld; therefore, anyone handling related currency is taking part in illegal activities, such as money laundering, aiding and abetting, etc. The bricks-and-mortar implication is that those wishing to obtain a legitimate license for operating a dispensary or related enterprise are often treated like criminals and forced to conduct business in an underhanded manner - furthering the idea that pot is illegal and so is any conduct relating to its production, distribution or profitability.

Prohibition - especially in states with pro-pot laws - comes at a price. Street dealers or private sellers flourish in areas where Cannabis remains outlawed, forcing seekers to purchase from unknown, unregulated sources. Tax revenue disappears. Even in legal states, the start-up and licensing phases of opening a dispensary typically force out lower-income entrepreneurs. Shop owners are often refused loans to open or improve their businesses; bank accounts are forbidden or rescinded once the lender becomes aware of the profit source; mortgages on properties are unobtainable or sometimes revoked - all such actions propagate a level of secrecy and underhandedness that only furthers prohibition and makes Cannabis appear more dangerous than it is.

This negative aura is counterproductive, since the entire ethos behind legalization revolves around legitimization: customers and patients are meant to be offered a lawful, above-board origin for their pot that adheres to good business practices and presents a safe source for purchase. What is the point of legalizing nearly all - but not everything - that relates to consenting adults purchasing Cannabis from a legitimate provider who adheres to industry standards?

Not only is it bad for the economy to make financial transactions difficult for Canna-businesses, but it is counterproductive and hypocritical: voters (or certain states' legislators) have introduced pro-Cannabis laws, but commercial enterprise owners are not allowed to legally conduct business relating to implementing such laws. The driving force behind the confusion is the fact that Cannabis profits are still considered drug money and anyone interacting with such profits may be accused of money laundering, aiding and abetting, or worse. While most dispensary owners are refused bank accounts due to the source of their income and profits, many circumvent such prohibition by opening accounts under false pretenses or renaming their companies to reflect innocent-sounding, non-Cannabis-related businesses. Thus, the non-transparency intended to be dispelled by legalization is actually encouraged due to necessity.