Marijuana is estimated to be a $10 billion industry and rapidly growing. Almost all of it is conducted in cash. Although legal in thirty three states plus Washington, D.C., Puerto Rico and Guam, marijuana remains illegal at the federal level. Accordingly, financial institutions that handle proceeds from a transaction involving the distribution, manufacture or sale of marijuana would be handling illegal proceeds in violation of both federal money laundering statutes and banking regulations that prohibit such institutions from participating in any transaction or engaging in any relationship involving illegal proceeds.
Despite these federal laws, in 2014, Department of Treasury's FinCEN issued a series of non-binding guidelines for financial institutions interested in providing banking services to marijuana related businesses (MRBs). In issuing those guidelines, FinCEN did not opine on or condone such transactions as legal. FinCEN also required banks providing such services to file suspicious activity reports (SARs) for transactions, including deposit transactions, involving MRBs. Based on FinCEN statistics, in 2018 over 500 financial institutions filed SARs related to marijuana transactions. These financial institutions were mostly community banks and credit unions. National, regional, state and large more local banks have stayed away from MRBs and any transactions involving marijuana. These institutions are not willing to risk loss of deposit insurance, accusations of money laundering or even loss of banking licenses and it is clear that the situation will not change without a change in federal law.
Six years ago, when only a handful of states had legalized marijuana, Congressman Ed Perlmutter (D-CO) first introduced legislation to provide a safe harbor for financial institutions wanting to service the industry. Until this session of Congress, such legislation was dead on arrival.
This year, with a Democratic controlled House, the Secure and Fair Enforcement Banking Act of 2019, known as the "SAFE Act," is very much alive. In late March of this year, the House...