By John Vardaman
In the current low-interest-rate
environment, banks are actively exploring new sources of revenue to augment
deposit and non-interest revenue. One potential source of new revenue for
Florida banks is medical marijuana, which was legalized last November by an
overwhelming majority. While marijuana-related businesses (MRBs) pose unique
challenges for banks, they also represent access to a lucrative industry with
tremendous growth opportunities.
The first thing to understand about
banking MRBs is that, as of the date of this article, it is permissible under
federal policy to do so. This policy is reflected in a pair of memos issued by
the Department of Justice (DOJ) and FinCEN on February 14, 2014 that collectively
set forth the parameters by which banks can service MRBs consistent with their
AML and BSA obligations. The memos identify eight priority factors that guide
federal enforcement of AML and BSA laws with respect to the banking of MRBs in
states where marijuana has been legalized. So long as financial institutions
and their MRB customers avoid implicating any of the eight priority factors,
they are effectively immune from federal enforcement action.
While initially met with
skepticism, it has become clear over the last three years that financial
institutions can rely upon the DOJ and FinCEN memos to service MRBs. As
marijuana legalization has expanded to over half the states, banks and credit
unions across the country have been responsibly and profitably servicing MRBs
with no interference from the DOJ or FinCEN. In fact, I am not aware of any DOJ
or FinCEN enforcement actions against a bank or credit union in compliance with
the respective memos.
In the wake of
the 2016 presidential election there has been considerable speculation about
what Attorney General nominee Jeff Sessions, a prominent marijuana critic, will
do about state-legalized marijuana. As Attorney General, Sessions could unilaterally
rescind the DOJ policy memo – which would effectively gut the FinCEN memo as
well – and announce the end of federal deference to state-legalized marijuana. But
given that legalized marijuana has become a multi-billion dollar industry
operating across the country, employing thousands of people, and generating
significant tax revenue, this decision is unlikely to be made exclusively by Sessions.
President-elect Trump has indicated support for leaving the issue of marijuana
to the states, and may decide that ending the state legalization experiment would
be an unnecessary political fight on an issue that enjoys widespread support
throughout the country.
Despite the
intense speculation about what Sessions may do as Attorney General, the
Executive Branch is not the only player when it comes to state-legalized
marijuana. For the past few years, Congress has included an amendment to the
annual appropriations bill that prohibits the DOJ from spending federal funds
to interfere with the implementation of state medical marijuana laws. The
courts have also weighed in, with the Ninth Circuit Court of Appeals recently
upholding the DOJ funding restriction in challenges to federal prosecutions in
states where medical marijuana has been legalized. Thus, even if Sessions
rescinds the Obama marijuana policy memos, the DOJ may still be prohibited from
enforcing federal marijuana laws in states such as Florida that have legalized
medical marijuana.
At his recent
confirmation hearing before the Senate Judiciary Committee, Sessions was asked
whether he agrees with the policy memos that effectively leave marijuana
legalization up to the states. Sessions acknowledged that the memos are truly valuable in evaluating cases” but
have been legitimately criticized because they have not been followed. Sessions
also noted that the federal government faces resource limitations with respect
to the enforcement of marijuana laws, which is the same rationale underlying
the Obama policy memos. While it would be premature to make any predictions,
Sessions’ comments suggest that the Trump Administration may be amenable to
allowing state marijuana legalization to continue, so long as federal
guidelines are being followed.
John Vardaman is EVP and General Counsel for Hypur. Email him at jvardaman@hypur.com.