Banking Issues in the Cannabis Industry: Managing Risk Under State and Federal Law

Description

While medical use of cannabis is legal in 40 states and recreational use is legal in 19 states and Washington, D.C, cannabis remains illegal at the federal level under the Controlled Substances Act (CSA). Many financial institutions won't provide banking services to CRBs due to this conflict between state and federal laws. Bank counsel must be able to navigate the regulatory complexities created by this conflict in advising banks doing business with CRBs.

Banks face inconsistent regulatory approaches taken by different administrations and different federal agencies. FinCEN issued FIN-2014-G001 in 2017 to clarify how financial institutions can provide services to CRBs and set forth reporting requirements, including suspicious activity reports (SARs). The Attorney General rescinded the Cole Memo in 2018, which correlated to FIN-2014-G001, but the Treasury Department subsequently indicated that FIN-2014-G001 remains in place.

Before taking deposits or transacting business with CRBs, financial institution counsel must understand the relevant Bank Secrecy Act and anti-money laundering (AML) issues and fully comply with federal Know Your Customer (KYC) requirements. Lending to a CRB is risk-inherent because cannabis is a Schedule I drug under the CSA. Enforcement rights for lenders may be curtailed by limiting loan enforcement remedies only to state law and in state court.

The SAFE Banking Act, bipartisan legislation which has passed in the House but has not been considered by the Senate, would allow banks to provide access to checking accounts, loans, electronic banking, and other financial products to cannabis businesses that are operating in compliance with state law. It would not, however, change the status of cannabis as a Schedule I controlled substance.

Listen as our authoritative panel discusses these and other issues confronting banks that propose to take deposits or provide financing to CRBs. The panel will also discuss steps for banks and other financial institutions to avoid regulatory pitfalls and workarounds to resolve enforcement risks.