What is Next for Marijuana?

  • Nancy E. Lake CAMS-Audit, CAMS-FCI
  • Director of Compliance Anchor

Marijuana has been a hotly debated topic in many public forums. However, financial institutions considering offering services to Marijuana Related Businesses (“MRBs”) have been very private about their intentions. Why?  Marijuana is still illegal on the federal level, and financial institutions are treading very carefully.

Those institutions that are banking or considering banking MRBs have taken into consideration what everyone calls the “Cole Memo”. This was a United States Department of Justice memorandum drafted on August 29, 2013 by United States Deputy Attorney General James M. Cole during Barack Obama’s administration. Simply put, the memo said that if a state that legalizes cannabis implements a strong regulatory framework and a seed-to-sale tracking system to monitor the growth, distribution, and sale of cannabis, the federal government will leave it alone.  It also listed areas that prosecutors and law enforcement should focus on to avoid federal interference.

Then, on February 14, 2014, FinCEN issued “BSA Expectations Regarding Marijuana-Related Businesses”.  It cited the Cole Memo and gave direction to financial institutions to follow the Cole Memo priorities and to conduct appropriate customer due diligence. It included the three types of Suspicious Activity Reports (“SARs”) that institutions needed to file when conducting MRB transactions. 

After the last election, many states legalized medicinal marijuana and several legalized recreational or, as dispensaries prefer to call it, “adult” marijuana. Financial institutions had to determine if they wanted to step into the muddy water of banking MRBs. However, those waters got even muddier on January 4, 2018 when Attorney General Jeff Sessions rescinded the Cole Memo. It put a damper on many businesses’ and financial institutions’ plans to get involved with MRBs.

What exactly does rescinding of the Cole Memo mean? Jeff Sessions was simply directing his lawyers to use the existing US Attorneys’ Manual (“Manual”) to decide when prosecution is appropriate in connection with marijuana as it would in any other situation. In section 9-27.220 of the Manual, “Grounds for Commencing or Declining Prosecution”, it states “The attorney for the government should commence or recommend federal prosecution if he/she believes that the person's conduct constitutes a federal offense, that the admissible evidence will probably be sufficient to obtain and sustain a conviction, and that a substantial federal interest would be served by the prosecution, unless, in his/her judgment, prosecution should be declined because:

    1. The person is subject to effective prosecution in another jurisdiction; or
    2. There exists an adequate non-criminal alternative to prosecution.

The Manual then goes on to state factors that should be considered when determining whether a prosecution would serve a substantial federal interest. It also acknowledges the DOJ’s need to prioritize its use of federal resources and recommends consideration of the nature and seriousness of the offense.[1] 

According to Steve Schain, a marijuana attorney, the marijuana industry is a $7.2 billion industry spanning 30 states. Marijuana generates millions in taxes and provides tens of thousands of jobs, and the rescinding of the Cole Memo has changed little if anything. Medical marijuana is “bullet-proof” thanks to the Rohrabacher-Blumenauer Amendment, which prohibits the Justice Department from using federal funds to prevent states from implementing their own state laws dealing with medical marijuana. Adult or recreational marijuana prosecutions still have to be governed by the Manual.[2]

Financial institutions are still in the same precarious position they were previously. Knowing that marijuana is illegal on the federal level, financial institutions still need to determine how deeply they should step into the muddy waters. Be assured, all financial institutions will touch the waters in some way, total avoidance is impossible in states that have legalized medical and/or recreational marijuana.

[1] Jeremy Unruh, After Cole: The DOJ’s “New: Cannabis Guidelines, 1/5/18, https://www.linkedin.com/pulse/after-cole-dojs-new-cannabis-guidelines-jeremy-unruh/

[2] Steve Schain, Cannabusiness 101 – Sessions Takes Aim at Legalized Marijuana Industry, 1/19/18, https://www.law.com/thelegalintelligencer/sites/thelegalintelligencer/2018/01/19/cannabusiness-101-sessions-takes-aim-at-legalized-marijuana-industry/