Cannabis Banking

Cannabis Banking

One of the biggest headaches for legal cannabis-related businesses is obtaining banking services, although the market for financial services may be loosening. The inability to bank funds and make payments through the banking system has largely rendered the legal marijuana trade a cash business, with the attendant problems of physical security and violence, money laundering, and even the payment of taxes.


            Despite being legal in many states, including New York, cannabis is still illegal at the federal level as a Schedule I substance under the Controlled Substances Act (”CSA”). Nationally chartered banks won’t go near the stuff – if only for fear of harm to their reputations and due to compliance issues, described below.


The CSA and other federal laws make illegal most real estate transactions, whether as owner, lessee, agent, employee, occupant, or mortgagee, for the purpose of manufacturing, distributing, or using any controlled substance, or profiting from the same, as well as financial transactions relating to illegal activities. In addition, in most states contracts that are against “public policy” are voidable. Most national banks and financial institutions will not loan to illegal businesses and are loath to risk civil and criminal penalties, asset forfeiture, and uncertainty regarding the status of lender agreements: gone are the sources of conventional finance, such as loans, lines of credit, and mortgages.


State-chartered deposit institutions are a different story. Though the number of banks engaging in cannabis-related business is small by any count,[1] some entrepreneurially-minded financial institutions are willing to run the gauntlet of extensive due diligence and reputational and legal risks, seeing the trend toward legalization as translating into increased business. As an example, there is considerable fee income that can accrue to banks willing to serve the sector, with banks willing to serve marijuana-related businesses charging high fees for opening and maintaining accounts, often amounting to thousands of dollars for initial applications and for monthly service fees.


As discussed below, financial institutions considering getting involved in this space must be prepared to design and implement a compliance regime that is both burdensome and expensive.


Federal Guidance for the Provision of Banking Services to the Marijuana Industry


Despite the federal ban on the marijuana trade, the U.S. Departments of Justice and the Treasury have mapped out a narrow path in which banking services can be provided to marijuana-related businesses that are legal under state law.


The U.S. Department of Justice, in a pair of memoranda issued in 2013 and 2014, known as the first and second Cole memoranda, offered guidance to US Attorneys to de-emphasize prosecutions of marijuana offenses and marijuana-related financial crimes that were legal and subject to regulatory regimes under state law, and did not undermine federal priorities of curtailing distribution of marijuana to minors, trafficking by criminal enterprises or cartels, gun violence, impaired driving, money laundering, and cultivation of marijuana on public lands, among others. Although the Trump administration withdrew the Cole memoranda in January 2018, the Biden administration seems, so far, to be abiding by their terms.[2]


Simultaneously with the issuance of the second Cole Memorandum in February 2014, Treasury’s Financial Crimes Enforcement Network (“FinCEN”) issued its “expectations” regarding marijuana-related banking activities. While the guidance in the FinCEN document does not amount to bright-line or safe-harbor tests, it did set forth criteria financial institutions should consider when deciding whether to enter into banking relationships with clients active in cannabis-related activities, as well as procedures to be followed.


1. Due Diligence


According to the FinCEN guidance, the decision to open, close, or refuse any particular account or relationship should be based on factors such as the institution’s particular business objectives, an evaluation of the risks associated with offering a particular product or service, and its capacity to manage those risks effectively, and emphasized that thorough due diligence is essential and should include:

  1.  verification with state authorities of whether the business is duly licensed and registered;
  2. A review of the business’ license application to the state authorities and related documentation;
  3. Requesting from state licensing authorities information about the business and related parties;
  4. Developing an understanding of the normal and expected activity of the business, including the types of products to be sold and the type of customer to be served;
  5. Ongoing monitoring of publicly available sources for adverse information about the business and related parties;
  6. Ongoing monitoring for “suspicious activity” (discussed below);
  7. Refreshing information obtained during the due diligence process, commensurate with the risk.

Also, as part of the due diligence process, the FinCEN guidance continues, the financial institution should consider whether any of the Cole memoranda priorities are implicated.


2. Suspicious Activity Reports (“SARs”)


            In addition to continuously updating their due diligence, financial institutions offering services to marijuana-related businesses will have to make ongoing regulatory filings.


            Financial institutions already have an obligation to file a “SAR,” or Suspicious Activity Report, if the institution knows, suspects, or has reason to believe that a transaction conducted or attempted by, at, or through a financial institution (i) involves funds derived from illegal activity or is an attempt to disguise funds derived from illegal activity; (ii) is designed to evade regulations promulgated under the Bank Secrecy Act (“BSA”), or (iii) lacks a business or apparent lawful purpose. As the distribution and sale of marijuana is illegal under federal law, financial transactions involving a marijuana-related business generally involve funds derived from illegal activity and therefore a financial institution is required to file a SAR regarding a marijuana-related business, even if it is licensed under state law.


The FinCEN guidance sets forth three special categories of SARs applicable to marijuana businesses:


“Marijuana Limited” SAR Filings


    A financial institution providing financial services to a marijuana-related business that it reasonably believes, based on its customer due diligence, does not implicate one of the Cole memoranda priorities or violate state law, is to file a “Marijuana Limited” SAR, limited to the identification and addresses of the business and related parties, the fact that the banking institution is filing the SAR solely because the subject is engaged in a marijuana-related business; and that no additional “suspicious activity” has been identified. Continuing activity reports may also be required, especially if there are changes in activities that implicate the Cole priorities or violate state law.


“Marijuana Priority” SAR Filings


A financial institution filing a SAR on a marijuana-related business that it reasonably believes, based on its customer due diligence, implicates one of the Cole Memo priorities or violates state law should file a “Marijuana Priority” SAR which, in addition to identifying information of the parties involved, should include details regarding the enforcement priorities the financial institution believes have been implicated; and dates, amounts, and other relevant details of financial transactions involved in the “suspicious activity.”


“Marijuana Termination” SAR Filings


A “Marijuana Termination” SAR is to be filed if a financial institution deems it necessary to terminate a relationship with a marijuana-related business in order to maintain an effective anti-money laundering compliance program. If the financial institution becomes aware that the marijuana-related business seeks to move to a second financial institution, FinCEN urges the first institution to use voluntary information sharing (if it qualifies) pursuant to Section 314(b) of the USA PATRIOT Act to alert the second financial institution of potential illegal activity.


“Suspicious Activities”


For purposes of due diligence and the filing of SARs, FinCEN gave a list of red flags indicating that a marijuana-related business may be engaged in activity that implicates one of the Cole memoranda priorities or violates state law. FinCEN says these activities are to viewed in the context of other indicators and facts, such the results of its customer due diligence, and may necessitate additional due diligence. The list includes the following, among other things:


     1. A customer appears to be using a state-licensed marijuana-related business as a front to launder money derived from illegal marijuana-related activity or other criminal activity:


  • The business receives more revenue than may reasonably be expected given the regulatory regime in the state in which it operates, or than its local competitors.
  • The business is depositing more cash than the amount of marijuana-related revenue it is reporting on its tax returns or that is inconsistent with its financial statements.
  • The business can’t demonstrate that its revenue is derived exclusively from the legal sale of marijuana.
  • The business makes excessive cash deposits or withdrawals over a short period of time, or deposits are apparently structured to avoid Currency Transaction Report (“CTR”) requirements (e.g., just under the $10,000 reporting threshold), or deposits by third parties with no apparent connection to the accountholder.
  • Commingling of funds with the personal account of the business’s owners or managers, or with accounts of seemingly unrelated businesses.
  • Individuals purportedly acting for the business appear to be acting on behalf of undisclosed parties.
  • A surge in activity by third parties offering goods or services to marijuana-related businesses, such as equipment suppliers or shipping servicers.

     2. The business is unable to demonstrate the legitimate source of outside investments.

     3. The owners or managers reside outside the state in which the business is located.

     4. Publicly available sources and databases about the business, its owners, managers, or other related parties, reveal negative information.

     5. The business, its owners, managers, or other related parties are, or have been, subject to an enforcement action by the state or local authorities.

     6. A marijuana-related business engages in international or interstate activity.


3. Currency Transaction Reports


In addition to SARs, financial institutions accepting large cash deposits need to file Currency Transaction Reports (“CTRs”) on the receipt or withdrawal by any person of more than $10,000 in cash per day. Similarly, any person or entity engaged in a non-financial trade or business would need to report transactions in which they receive more than $10,000 in cash and other monetary instruments for the purchase of goods or services on FinCEN Form 8300 (Report of Cash Payments Over $10,000 Received in a Trade or Business).


Legislative Solutions:


While several bills are pending in Congress that would remove strictures against cannabis-related banking at the federal level, given the current state of affairs in Congress the prospects for passage of any of them as of this writing are anything but bright.


Marijuana reform bills pending in Congress include the STATES Act,[3] the MORE Act,[4] and the comprehensive Cannabis Administration & Opportunity Act (the “CAOA”),[5] with the last being championed by Senate Majority Leader Charles Schumer. The topic of banking is directly addressed in the Secure and Fair Enforcement Banking Act of 2021 (the “SAFE Banking Act”), which has been attached to the pending National Defense Authorization Act.


The SAFE Banking Act would free up banks and other financial institutions to provide depository and lending services to cannabis-related businesses, and would update the requirement to submit SARs accordingly. Proceeds from a marijuana banking transaction would not be considered proceeds from an unlawful activity.


            There is concern that Senator Schumer’s focus on the CAOA to the exclusion of the other bills will cause all to fail, especially in Congress’ current hyper-polarized climate. A better approach might be to decouple the various issues from one another, deschedule cannabis, and pass the SAFE Banking Act and provisions of the other bills separately in the hope that different coalitions will support different pieces. Your tactics may vary!



Catania, Mahon & Rider, PLLC, stands ready to help financial institutions design and administer compliant due diligence regimes, and to help clients of such institutions in making application for banking services and meeting due diligence requirements. CMR offers comprehensive services to individuals and entities in the New York marijuana industry, from licensing to mergers and acquisitions. Contact us for more information.



The foregoing is not intended as legal advice. See a lawyer for information for your particular situation.

Jonathan S. Berck



[1] In 2017 the U.S. Treasury’s Financial Crimes Enforcement Network (“FinCEN”) reported that over 700 banks had filed marijuana-related suspicious activity reports (“SARs”), required under the Bank Secrecy Act (“BSA”) when dealing with businesses that don’t align with the agency’s regulation; Fincann, a marijuana banking industry network, analyzed the data and found that nearly half of those SARs were notices of termination of accounts for marijuana businesses. Fincann estimates that the actual number of banks serving the sector to be 212 as of June 2021 – or under 4% of the country’s more than 5,300 local and national banks.

[2] Attorney General Merrick Garland stated in his confirmation hearings in February 2021 that enforcement of federal marijuana laws “does not seem to me a useful use of limited resources,” and that the prior enforcement of those laws was a prime example of racial bias in that communities of color are disproportionately affected by arrests for marijuana possession.

[3] The Strengthening the Tenth Amendment Through Entrusting States Act (the “STATES Act”) would forbid enforcement of the terms of Schedule 1 of the CSA to those acting in accordance with state or tribal law permitting the sale and use of marijuana.

[4] The Marijuana Opportunity, Reinvestment and Expungement Act (the “MORE Act”) would remove marijuana from the list of controlled substances, eliminate related criminal penalties, and provide for the expungement of non-violent marijuana convictions. The measure would also impose a tax on the retail sales of cannabis to go to the Opportunity Trust Fund, and create the Office of Cannabis Justice to oversee the social equity provisions in the law. The bill would ensure the federal government could not discriminate against people because of cannabis use, including earned benefits or immigrants at risk of deportation.

[5] The CAOA would, among other things: remove marijuana from Schedule I of the CSA; shift primary agency jurisdiction over cannabis from the Drug Enforcement Agency (“DEA”) to the Food and Drug Administration (“FDA”), the Alcohol and Tobacco Tax and Trade Bureau (“TTB”), and the Bureau of Alcohol, Tobacco, Firearms and Explosives (“ATF”), following similar agency responsibilities for alcohol and tobacco; recognize state law as controlling the possession, production, and distribution of cannabis, although federal penalties would exist for unlawful possession, production, distribution or purchase of 10 pounds or more of cannabis in violation of state or federal law, or unauthorized possession of 10 pounds or more of untaxed cannabis; establish 21 as the minimum age for the purchase of marijuana; set a limit of 10 ounces of cannabis (or the equivalent of any cannabis derivative) in any retail sale; order the compilation of reports on the societal and medical impacts of state legalization of marijuana, as well as statistics on cannabis-impaired driving; direct the CDC to study public health prevention strategies and develop public education materials; expunge federal non-violent cannabis convictions and provide for re-sentencing; bar adverse effects on immigration and discrimination in the provision of federal public benefits; create new grant programs to fund nonprofits that provide services to those adversely affected by the War on Drugs; impose excise taxes on cannabis based on the weight of cannabis flower or, for extracts, on the amount of THC, with tax credits for small cannabis producers and a requirement that cannabis producers post a bond to guarantee payment of excise taxes; and provide for registration and permitting by the US Department of the Treasury and the FDA, as well as an inspection regime.