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The Lac du Flambeau Business Development Corporation


Banking a Marijuana Business

Dec 18, 2018

In 2014, we wrote an article to discuss whether to bank a marijuana-related business. As the number of states with some form of legalization continues to spread, it seems like an appropriate time to have a refresher on the points that remain the same as those made in 2014 and to look at any changes that have occurred. The biggest change that has occurred since 2014 was the decision of Attorney General Jeff Sessions to rescind the Cole Memo on
January 4, 2018. The Cole Memo gave safe harbor for financial institutions who chose to provide services to businesses in the marijuana industry. Without the Cole Memo in effect, the legal risk for financial institutions who decide to provide services to these businesses could be increased.  Even with the rescission of the Cole Memo in January, the number of financial institutions who provide financial services to marijuana-related businesses continues to grow. The Financial Crimes Enforcement Network (FinCEN) stated that as of March 31, 2018, there was a total of 411 banks and credit unions that provided services to these types of businesses. Though the Cole Memo was rescinded, the number of financial institutions banking these businesses at the end of the second quarter of 2018 was at the second highest level since the end of 2017.  FinCEN compiled the statistics based on the number of marijuana-related SARs filed.


Contradictions between federal and state laws remain. The Controlled Substances Act (CSA) was passed by Congress in 1970, making it illegal to manufacture, distribute, or dispense marijuana. Even though marijuana businesses have been banned at the federal level, some states have legalized certain types of marijuana businesses. As of November 11, 2018, the National Conference of State Legislatures reported that marijuana for medicinal use was legal in 33 states, and recreational use of marijuana was legal in 11 states. A recent development is the possibility of the legalization of hemp at the federal level as part of the 2018 Farm Bill, which could be voted on in the middle of December 2018. The acceptance of the bill would legalize hemp cultivation; at this time, hemp is on the federal government’s list of controlled substances.  Hemp is considered a cousin to marijuana but contains very low levels of THC. THC is the chemical in marijuana that provides a “high” to users. Hemp is used to make things such as apparel, food, pharmaceuticals, personal care products, car dashboards, and even building materials. CNBC reported that the hemp industry could top $20 billion by the year 2022.  Currently, the largest share of the hemp market goes to cannabidiol (CBD). CBD is a non-psychoactive compound used for a variety of medical conditions such as epilepsy, multiple sclerosis, arthritis, chronic pain, anxiety, and depression. If the bill is passed, hemp will become an agricultural commodity that would be managed by the U.S. Department of Agriculture.


In February 2014, FinCEN issued guidance on how financial institutions could provide financial services to marijuana-related businesses, while at the same time remaining in compliance with BSA obligations. Following the rescission of the Cole Memo, members of Congress advocated to keep the initial guidance in place. Thirty-one bipartisan members of the House of Representatives sent a letter to FinCEN stating, “FinCEN’s stated priorities have allowed [marijuana] businesses to conduct commerce more safely through financial institutions which reduces the use of all cash, improves public safety, and reduces fraud.” The group also warned that if FinCEN were to rescind its initial guidance, it would “inject uncertainty into the financial markets.” Currently, the original FinCEN guidance remains in effect. 


One of the requirements of the BSA is for financial institutions to collect customer due diligence (CDD) on any customer who is deemed to be high risk. As with any high-risk customer, the basis of the collection of CDD is to know your customer. CDD that should be collected on each marijuana-related business includes:


  • Verifying the business is licensed and registered with the appropriate state authorities.
  • Reviewing the license application and corresponding documentation submitted by the business to apply for a state license to operate as a marijuana-related business to obtain information about the business.
  • Requesting from state licensing and enforcement authorities any available information about the business and any related parties.
  • Developing an idea of “normal” and expected activity for the business.
  • Performing ongoing monitoring of public databases for adverse action regarding the business.
  • Performing ongoing monitoring for suspicious activity.


In addition to the collection of CDD, if a financial institution decides to provide services to a marijuana-related business, the institution is still required to file marijuana SARs to report the violation of federal law. As a reminder, the three types of SARs specific to a marijuana-related business are:


  • Marijuana Limited SAR, or a SAR filed by a financial institution if it reasonably believes based on CDD that the business does not violate a Cole Memo priority or violate state law.
  • Marijuana Priority SAR, or a SAR filed by a financial institution if it believes that the business violates one of the Cole Memo priorities or violated state law.
  • Marijuana Termination SAR, or a SAR filed when a financial institution decides to terminate a relationship with a marijuana-related business in order to maintain an effective anti-money laundering compliance program.


Something to keep in mind is that simply filing an initial Marijuana Limited SAR is not sufficient.  If the financial institution’s ongoing CDD and suspicious activity monitoring show that the same activity continues since the initial SAR and there has been no violation of state law, the financial institution needs to file a continuing activity report. The continuing activity reports should be filed as long as the business is a customer. The continuing activity report can contain the same limited content as the initial SAR and a summary of any account activity since the initial SAR. If the financial institution detects activity during its 90-day review that violates state law or even violates one of the Cole Memo priorities, a Marijuana Priority SAR must be filed.


In conclusion, though there have been some changes over the past four years, the initial guidance issued by FinCEN related to marijuana-related businesses remains the same.  Financial institutions are still required to collect CDD on their marijuana-related business customers and are still required to file Marijuana SARs on those businesses. Overall, there is no right or wrong answer on whether or not to offer financial services to a marijuana-related business. It is a risk-based decision for each financial institution to make.




Kristen J. Ferwerda, CRCM
Manager, Compliance
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