Demystifying Some of the Uncertainty Around Banking a Marijuana Business

Garrett T. Senney has a PhD in Economics from The Ohio State University and works for the Office of the Comptroller of the Currency (OCC) in Washington, DC.  Dr. Senney has graciously given us permission to publish his article below regarding banking a marijuana business.  The views and opinions expressed below are those of the author and do not reflect the views or opinions of the OCC or the Department of the Treasury.

Image of marijuana business

Currently 45 states plus DC have legalized marijuana to some degree (recreational to limited medical use); however, these state laws are squarely at odds with the federal statute. Under federal law (21 U.S.C § §812; 841), marijuana is still classified as a Schedule 1 controlled substance. This means that the federal government deems that it has no current accepted medical use and that it is illegal to manufacture, distribute, or dispense (Criminal Penalties: 18 U.S.C. § § 1956-57, 1960; 31 U.S.C. § § 5322). Under the doctrine of preemption, which is based on the Supremacy Clause of the Constitution, federal law preempts state law when these laws conflict. However, the federal government has not interfered with the states on this issue.

The Department of Justice issued memos (collectively called the Cole Memos after its author, Deputy AG Jim Cole) in 2013 and 2014 directed at federal prosecutors operating in states which had legalized marijuana. The memos stated that entities whose actions are in clear compliance with their state laws, and whose activities do not implicate any of the eight priority factors (red flags of criminal activity) should not be prosecuted. In 2014, the Financial Crimes Enforcement Network (FinCEN), a bureau of the Department of the Treasury, also released guidance clarifying how banks could provide services to marijuana-related businesses consistent with their Bank Secrecy Act obligations (this act requires all U.S. financial institutions to collaborate with the government in cases of suspected money laundering and fraud).

In January 2018, AG Sessions rescinded the Cole Memos and encouraged prosecutors to enforce federal law pursuit to the seriousness of the crime and its cumulative impact on the community. U.S. attorneys were empowered to pursue marijuana businesses at their own discretion. However, the FinCEN guidance still stands, and current AG Barr, while not reissuing the Cole Memos, has publicly announced support for prosecutorial discretion in the manner outlined in the Cole Memos. As such, there has not been any observed changes in how federal prosecutors have acted since the Cole Memos have been rescinded.

That being said, marijuana is still illegal federally, so banks doing business with a marijuana business must still submit Suspicious Active Reports (SARs) pursuit to their BSA obligations. However, FinCEN has created three different categories of SARs for Marijuana business: Limited (No red flags), Priority (One or more red flag), and Termination (account closure). These new SARs are designed to help FinCEN easily distinguish between serious marijuana related SARs and ones filed simply since it’s a marijuana business. Since being created, the total number of SARs issued are: Marijuana Limited (49,743), Marijuana Priority (4,974), and Marijuana Termination (15,698). As of September 2018 (the latest FinCEN update), 375 banks and 111 credit unions have at least one marijuana related client, which is a large growth from less than 200 financial institutions in early 2015.

As more banks start to book marijuana clients, industry wide best practices have started to emerge. It is suggested that all banks start with the assumption that all marijuana related businesses are criminal (which they technically are under federal law). Therefore, before accepting a marijuana related business as a client, the bank should perform enhanced due diligent to thoroughly document for its regulators that this particular client isn’t a bad actor. How connected the business is to the actual marijuana plant itself (directly growing or selling verses simply deriving a portion of its revenue from serving the marijuana industry) should dictate the level of scrutiny required. Given that these businesses tend to be cash heavy, it is strongly recommended that banks require detailed monthly cash flow statements, and if possible compare this information to peer businesses in their local area. Periodic onsite reviews and tracking all out of state or foreign fund transfers are also encourage for the bank to build its KYC information on the marijuana related business. Finally, each bank should conduct its own risk assessment and communicate with its regulators early and often. Transparency is key for the bank to be able to show its regulators that it acted in good faith when booking a marijuana business and that the bank has adequate controls in place to monitor and report suspicious activity in a timely manner.

If you have comments or questions about this article, please contact Dr. Senney at If you have any comments or questions about the status of marijuana legalization in Ohio, you may also contact Gerald McDonald or Kristina Curry of Pickrel, Schaeffer & Ebeling Co LPA at or or 937-223-1130.

AUTHOR: Jeff Senney