Because marijuana remains illegal under federal law, most banks avoid serving cannabis businesses given the threat of federal enforcement and penalties. In the eyes of federal prosecutors, the funds from marijuana operations are illegal and processing them may be considered money laundering. As a result, banks are too often reluctant to take on the risk of doing any business that could cause them to be accused of any crime.
While banks generally do not take a position on legalization of marijuana, they respect the decisions made by voters in the states where it has been legalized. Those voters had weighed the societal and cultural issues that come with legalization, and they made their decision. Instead, the industry is focused on the impact of the gap between state and federal laws on banks and their ability to serve those in their communities.
The hearing underscored the risk to public safety, financial accountability, and the efficient collection of taxes. It is time for Congress to reconcile that divide so financial institutions have the certainty they need to serve businesses that are legal in their states. It is a position banks do not take lightly, and it reflects feedback received from banks across the country. An industry survey found that 99 percent of respondents want Congress to bridge the divide between state and federal laws, regardless of whether they operate in a state that has legalized cannabis or whether they intend to serve the industry. Banks simply want the cannabis conundrum to end so they can serve their customers and communities as they always have.
It is not just banks asking for lawmakers to take action. A bipartisan group of 19 state attorneys general last year asked Congress to reconcile the gap between state and federal laws. In a letter to lawmakers, they argued that bringing cannabis businesses into the banking system would improve accountability and increase public safety. Without relief from Congress, even banks that have decided not to serve cannabis businesses will find themselves caught in the financial web created by this booming industry. The money from cannabis businesses often goes to vendors, landlords, and employees, while the federal criminal association follows that cash.
Recently, a bank in Ohio was forced to turn down a loan to a fencing company hired to build a fence around a marijuana growing facility. A bank in Washington had to close an account when a law firm took on a marijuana business as a client. If either of these banks looked the other way, they risked violating federal law and facing criminal prosecution. These examples are not isolated. The survey found that 75 percent of banks have had to close an account, terminate a client relationship, or turn away a customer because there was some connection to cannabis.
Reconciling the legal divide between state and federal laws would bring benefits to the communities banks serve. The estimated $24 billion in cannabis sales by 2025 in states where marijuana has been legalized could be deposited safely with federally regulated financial institutions, enhancing transparency, public safety, and tax revenue. New bipartisan legislation introduced in the House marks an important first step toward bringing cannabis businesses into the mainstream financial sector. The bill and the hearing this month are encouraging, and Congress can craft a law that can achieve the legal certainty that states and businesses need.
This issue provides Congress an opportunity to demonstrate that divided government can still solve serious problems when our lawmakers of good faith work together. Ending the cannabis conundrum will not be easy, and banks respect differing views on legalization, including within the financial industry. Still, a majority in this new Congress should be able to agree on the need to clarify the rules of the road for financial institutions. Banks across the country pledge to do what they can to help solve this issue.
Rob Nichols serves as the president of the American Bankers Association
Running a Compliant Cannabis Banking Division
It seems increasingly clear that big banks are poised to jump into the cannabis industry if and when Congress decides to act. For financial institutions looking to bank cannabis, there is a way to do it legally. Gleam Law Attorney Alan Hanson knows first-hand how to create a cannabis banking program that is used by state and federal auditors as a sterling example of how it should be done. And this program can be recreated in your financial institution too.
If you’re a financial institution interested in banking cannabis, download our free Cannabis Banking white paper.