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Removing Barriers Blog

Marijuana Legalization on the Verge in Several States – October 26, 2016
Posted October 26, 2016 by CUNA Advocacy

With most of the nation’s attention focused on the hotly contested presidential election, voters in Arizona, California, Maine, Massachusetts and Nevada will vote on referendums legalizing the use of recreational marijuana. Recreational marijuana use has already been legalized in Alaska, Colorado, Oregon, Washington and Washington, D.C. and medicinal marijuana has been legalized in 25 states.  

According to a recent New York Times article, if the initiative is approved in California, which has the largest economy of the states, pressure for federal legislation will intensify greatly. Marijuana businesses operating under state laws that have legalized medicinal or recreational marijuana have, for the most part, been denied access to the mainstream financial system because institutions that provide financial services can be prosecuted under federal law. This has led many of these businesses to operate using large amounts of cash, creating safety risks and making taxation difficult. 

As a result of pressure from marijuana businesses, states that have legalized marijuana, and financial institutions that are interested in servicing these very lucrative businesses, two important memos were issued by the Department of Justice (DOJ) in August 2013 and February 2014. The purpose of these memos was to update the federal government’s position on the prosecution of these state sanctioned marijuana businesses.  

These memos clarify that as long as the businesses are operating in states that allow marijuana-related activities and those states have strong and effective state regulatory and enforcement systems, the DOJ doesn’t believe it is an efficient use of federal resources to investigate and prosecute marijuana businesses. 

The two problems CUNA has with this guidance are: (1) it does not address the federal law violations, and (2) the memos include some due diligence requirements, which are impossible for credit unions to comply with, without further guidance.

Additionally, credit unions must comply with the Bank Secrecy Act (BSA), which requires that funds suspected to be derived from illegal activities be reported to the Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) bureau on the agency’s Suspicious Activity Report (SAR).  To assist with this compliance requirement, FinCEN issued guidelines in February 2014 entitled “BSA Expectations Regarding Marijuana-Related Businesses”.

Legislation introduced in the House and the Senate provides a safe harbor for depository institutions providing financial services to a legitimate marijuana-related business, prohibiting a federal banking regulator from:  

  • Terminating or limiting the deposit or share insurance of a depository institution solely because it provides financial services to a marijuana-related legitimate business; or  
  • Prohibiting, penalizing, or otherwise discouraging a depository institution from offering such services. Financial institutions would still be required to comply with current FinCEN guidance.

CUNA provided technical assistance to lawmakers on the legislation. CUNA and the leagues also supported a successful National Conference of State Legislators resolution urging Congress to help legal cannabis businesses access banking services and let states determine their own path forward on cannabis regulation.