In the current low-interest-rate environment, banks are actively exploring new sources of revenue to augment deposit and non-interest revenue. One potential source of new revenue for Florida banks is medical marijuana, which was legalized last November by an overwhelming majority.
While marijuana-related businesses (MRBs) pose unique challenges for banks, they also represent access to a lucrative industry with tremendous growth opportunities. The first thing to understand about banking MRBs is that, as of the date of this article, it is permissible under federal policy to do so. This policy is reflected in a pair of memos issued by the Department of Justice (DOJ) and FinCEN on February 14, 2014 that collectively set forth the parameters by which banks can service MRBs consistent with their AML and BSA obligations.
The memos identify eight priority factors that guide federal enforcement of AML and BSA laws with respect to the banking of MRBs in states where marijuana has been legalized. So long as financial institutions and their MRB customers avoid implicating any of the eight priority factors, they are effectively immune from federal enforcement action.
While initially met with skepticism, it has become clear over the last three years that financial institutions can rely upon the DOJ and FinCEN memos to service MRBs. As marijuana legalization has expanded to over half the states, banks and credit unions across the country have been responsibly and profitably servicing MRBs with no interference from the DOJ or FinCEN. In fact, I am not aware of any DOJ or FinCEN enforcement actions against a bank or credit union in compliance with the respective memos.
How Will the New Administration Affect Marijuana Banking Regulations?
In the wake of the 2016 presidential election there has been considerable speculation about what Attorney General nominee Jeff Sessions, a prominent marijuana critic, will do about state-legalized marijuana. As Attorney General, Sessions could unilaterally rescind the DOJ policy memo – which would effectively gut the FinCEN memo as well – and announce the end of federal deference to state-legalized marijuana. But given that legalized marijuana has become a multi-billion dollar industry operating across the country, employing thousands of people, and generating significant tax revenue, this decision is unlikely to be made exclusively by Sessions.
President-elect Trump has indicated support for leaving the issue of marijuana to the states, and may decide that ending the state legalization experiment would be an unnecessary political fight on an issue that enjoys widespread support throughout the country.
Despite the intense speculation about what Sessions may do as Attorney General, the Executive Branch is not the only player when it comes to state-legalized marijuana. For the past few years, Congress has included an amendment to the annual appropriations bill that prohibits the DOJ from spending federal funds to interfere with the implementation of state medical marijuana laws.
The courts have also weighed in, with the Ninth Circuit Court of Appeals recently upholding the DOJ funding restriction in challenges to federal prosecutions in states where medical marijuana has been legalized. Thus, even if Sessions rescinds the Obama marijuana policy memos, the DOJ may still be prohibited from enforcing federal marijuana laws in states such as Florida that have legalized medical marijuana.
At his recent confirmation hearing before the Senate Judiciary Committee, Sessions was asked whether he agrees with the policy memos that effectively leave marijuana legalization up to the states. Sessions acknowledged that the memos are truly valuable in evaluating cases but have been legitimately criticized because they have not been followed. Sessions also noted that the federal government faces resource limitations with respect to the enforcement of marijuana laws, which is the same rationale underlying the Obama policy memos.
While it would be premature to make any predictions, Sessions’ comments suggest that the Trump Administration may be amenable to allowing state marijuana legalization to continue, so long as federal guidelines are being followed.
Originally published in Florida Bankers Association’s newsletter.