By Sarah Snell Cooke, Principal, Cooke Consulting Solutions

Marijuana banking has been a controversial issue among credit unions, regulators and legislators, as well as consumers. Given the current conservative, anti-marijuana Attorney General Jeff Sessions, credit unions have been curious whether this is a business from which they want to toke. Federal law makes marijuana use and therefore its dispensaries illegal, however, a handful of states have legalized it and related businesses are seeing green.

Joseph Barton of the law firm Sheppard Mullin in Los Angeles—California is one of the states marijuana is legal—has said there are some strong indicators that this area of enforcement is becoming laxer. “I think he’s going to take action, not how people think,” Barton said of AG Sessions. “He’s not going to come after you because of marijuana.” He postulated that Sessions will likely ramp up auditing efforts through the IRS.

While the public attitude has mellowed regarding ganja, Barton pointed out, “Nobody likes a tax cheat.” Sessions can use that as a backdoor into the Mary Jane’s businesses. He said word is the IRS is bogarting auditors, but so long as credit unions’ paperwork is all in order regarding the pot businesses it serves, there shouldn’t be a problem.

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Here are the indicators Barton said show the business might be becoming less risky for credit unions: 

1. FinCEN has gone against AG Jeff Sessions and said that the Cole Memo Priorities/SAR structure are still the standard.
2. Tenth Circuit Federal Court of Appeals’ recent decision said that the Kansas City Federal Reserve Bank had to grant master account to a credit union that worked with ancillary businesses that service dispensaries, grows, and the like.  See Fourth Corner Credit Union vs. Federal Reserve Bank of Kansas City (Case No. 16-1016, June 27, 2017).
3. Several credit unions are successfully working with all types of marijuana-related businesses, including dispensaries and grows, e.g., Partners and Technicolor.
4. California State Bar says that it is okay for attorneys to represent any type of MRB, so why not the same rule for other businesses. They may advise client about compliance with California’s marijuana laws but cannot advise or assist the client to violate federal law in manner that enables client to evade detection by authorities. Attorneys in California must advise client about the violation of federal law and potential penalties.
5. Federal marijuana prosecutions have been limited to those that do not comply with state marijuana laws or engage in other illegal conduct; full-scale prosecutions are likely impracticable because they would necessarily include states and cities where marijuana is legal (and employees thereof).

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The best way to begin servicing marijuana-related businesses is to start slowly and build compliance as you go, Barton advised. Get to know your member through comprehensive due diligence. Include detailed covenants re: compliance with state laws. Mandate detailed supporting document for every transaction—this is critical for your Suspicious Activity Reports and Currency Transaction Reports, and lastly, comply with all federal reporting requirements. Alternatively, credit unions might consider working with parent entities of MRB subsidiaries and affiliates but not their marijuana-related enterprises.

There’s always a small chance, Barton said, that you could be charged with aiding and abetting if your policies are not strong or not followed, but the fact a credit union has knowledge of a marijuana business makes for a very slim case. Pot-serving credit unions may also attract extra attention from FinCEN, so be prepared. For example, simply setting up initial policies might cost $20,000-$30,000, and internal human resources for expertise might require another $100,000 each. No excuses or lesser compliance just because a credit union is small either, because herb is illegal under federal law. Compliance costs are huge, but the reward can be, too. Based on his research, Barton said revenue for these businesses could be around $10 million to $15 million per month, which means a lot of demand for financial services. And they’ll pay for it.