The cannabis industry continues to expand at record rates without a viable banking system to support capital investment or payment transmission. Current federal regulations prohibit banks from serving clients that are engaged in illegal activity, including the sale of marijuana.
Penalties include significant fines and criminal prosecution. The risk of criminal prosecution increased when, on January 4, 2018, Jeff Sessions rescinded a 2014 DOJ memo written by UnitedStates Deputy Attorney General James M. Cole (Cole Memo) that provided states with prosecutorial relief so long as the states met certain conditions. Although the US Treasury (FinCen)issued guidance that permitted banks to provide cannabis clients with services following the Cole Memo, the practical matter is that banks cannot rely on the guidance in such an uncertain regulatory environment. The lack of an interstate banking system increases systemic risk in the nascent industry including the viability of businesses and increases the safety risk to business owners and employees hoarding large amounts of cash.
The exit of Jeff Sessions and Rep. Pete Sessions, and the Democratic control over the House provides the cannabis industry with a window to push banking reform forward. The federal government has a responsibility to its citizens, investors and the business community to legalize marijuana and provide cannabis clients with access to banking services. Initial steps that can help include 1) Congressional action to legalize interstate cannabis related services, 2) the issuance of DOJ and FinCenguidance that allows banks to service cannabis clients, and 3) an agreement between the federal and state governments on the industry risks and enforcement priorities.
Federal Legalization: Congress must set aside partisan politics and eventually legalize the possession and sale of cannabis. The risk to the business community, investors in cannabis businesses, consumers, employees, and state and local governments grows daily as stakeholders invest capital, cannabis businesses create jobs, generate revenues and pay taxes, and state and local governments become reliant on these taxes. Congress, not the states, will bear the responsibility of market failures caused by inadequate banking services and capital markets oversight. Congress should demand that the DOJ and FinCen provide adequate relief to the banking industry and provide timelines for resolution.
DOJ and FinCen Authorization: The DOJ and FinCen should mitigate the outstanding risks caused by the revocation of the Cole Memo, and issue guidance on how banks can provide services to the cannabis industry. Failure to provide such guidance is irresponsible since the industry is becoming further entrenched every day, and both agencies can assess enforcement priorities through suspicious activity reports and monitoring account activity.
State and Federal Regulatory Collaboration: The federal government can learn about the true risks associated with the cannabis industry from the state regulators that have forged the path forward. Historically, the states have been the laboratory of reform, and the federal government often adopts state frameworks. The federal government must work with the states to define the industry's risks and solutions so as not to disrupt the industry's innovation or growth.
The cannabis industry has established itself in the United States. The federal government must stop kicking the can down the road and address issues that, if left unaddressed, will hurt investors, consumers, employees, states and local governments. In three easy steps, the federal government can fulfill its obligations to the citizens of the United States and prevent further harm.