The Department of Justice’s recent initiative to reclassify marijuana from a Schedule I to a Schedule III controlled substance raises significant questions for financial institutions regarding their ability to service cannabis-related businesses. Despite this proposed reclassification, the production, sale, and use of marijuana must still conform to the regulations of the Controlled Substances Act (CSA), signaling that marijuana operations remain federally illegal. Consequently, financial institutions must tread carefully.
Cannabis stores and products regulated by state rules operate in four-fifths of U.S. states but remain non-compliant with the CSA and Food and Drug Administration guidelines. As such, financial institutions need to develop a deep understanding of relevant regulations, including money laundering laws and the Bank Secrecy Act.
Although there has been a notable increase in the number of marijuana businesses obtaining at least depository services, significant challenges remain. Financial institutions must often determine the association of potential customers with federally illegal marijuana-related transactions and implement rigorous compliance measures, including filing suspicious activity reports when necessary.
Despite the constraints, there have been no reports of financial institutions losing their charters for banking cannabis businesses in compliance with the 2014 FinCEN guidance. However, the risk of enforcement, which could lead to civil seizure and forfeiture of assets, has continued to dissuade many banks from engaging with this sector.
The reclassification initiative implies that while financial institutions might be more inclined to bank marijuana-related businesses, they would still contend with exposure to federal anti-money laundering and racketeering statutes. A fuller resolution, as highlighted by the American Bankers Association’s statement following the DEA announcement, requires federal legislative action, specifically through the bipartisan SAFER Banking Act, which aims to provide a legal framework for banks to serve the cannabis industry in states where it is legal.
As Heidi Urness and Aaron P. Kouhoupt, experts at McGlinchey Stafford, note, rescheduling alone does not alleviate the legal grey areas financial institutions face. Enhanced risk tolerance, in-depth legal understanding, and regulatory compliance remain paramount for financial institutions considering engagement in this complex arena.
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