Insights: Article

The Legal Quagmire of Banking Marijuana

By Adam Montgomery

August 30, 2017

Article VI, Clause 2 of the United States Constitution establishes the Constitution, and all federal laws thereof, as “the supreme law of the land.” Also known as “the Supremacy Clause,” these few words defined our national governmental system; authorizing the states to govern local issues when the federal government is either silent or has no expressed power to act. In short, should a state law conflict with federal law, the latter would win out in the end. 

As of July of this year, 28 states will have legalized medical marijuana. Eight of those states have legalized the recreational use of marijuana. However, the federal government still classifies marijuana as a Schedule I drug under the Controlled Substances Act (CSA). Applying the legal principle of the Constitution’s “Supremacy Clause,” these 28 state laws would be deemed unconstitutional, if they were ever challenged in court. So far, there has been no such challenge.

With more than half of states legalizing the medical use of marijuana, federally-insured banks are faced with the legal question: can we bank a marijuana business?

Justice Department Priorities

During the Obama Administration, the Department of Justice authored a series of legal memoranda to provide guidance for the prosecution of drug-related offenses. In the Cole Memos, Deputy United States Attorney General James M. Cole reaffirmed the Justice Department’s commitment to the enforcement of the CSA, but also referenced the need to utilize department resources “in the most effective, consistent, and rational way.”

To affect this position, Cole outlined eight priorities the department would emphasize in enforcement actions:

  • Prevent the distribution of marijuana to minors
  • Prevent revenue from the sale of marijuana from going to criminal enterprises
  • Prevent the diversion of marijuana from states where it is legal under state law to those states where it is not
  • Prevent state-authorized marijuana activity from acting as a front for other illegal drug trafficking
  • Prevent the use of firearms and violence in the cultivation and distribution
  • Prevent drugged driving
  • Prevent growing marijuana on public lands
  • Prevent marijuana possession and use on federal property

Future Unclear

In February 2014, the Justice Department and the Financial Crimes Enforcement Network (FinCEN) each issued a memorandum, affirming the Cole Memo’s eight priorities do not supersede anti-money laundering statutes or the Bank Secrecy Act.

As marijuana businesses and banks continue to watch for signs from the Trump Administration, it is unclear how or if the Cole Memos will continue to guide the Justice Department’s prosecutorial discretion under the direction of Attorney General Jeff Sessions, a staunch opponent of marijuana.

A Risk-Based Approach

Despite this, the Compassionate Access, Research Expansion, and Respect States (CARERS) Act of 2017 was re-introduced in the U.S. Senate in June. Interestingly, the act would empower the states to continue to govern the use of marijuana, but unlike its previous version, this bill provides no protections for federally-insured financial institutions.

With little precedence to guide financial institutions, it is important to stress the decision to bank marijuana is completely risk-based. The Cole Memos and FinCEN have given some guidance, but if legally challenged, the CSA would and must reign “supreme.”

Editor’s note: Legislation and enforcement of laws regarding marijuana are a continually developing topic. Information in this article was accurate as of print time. 

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