Search for Cannabis Banking Options Heats Up After AG Pushes ‘Return to Law and Order’

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Attorney General Jeff Sessions, the highest-ranking law enforcement officer in the United States, has killed a vital cannabis enforcement policy memorandum with the stroke of a pen. The murder was committed on federal land – with public safety and rule of law as motives – Jan. 4, 2018.

Unfortunately, Sessions did not limit his bureaucratic slaughter to the well-known Cole memo; rather, the “inkshed” continued when he rescinded all previously penned Department of Justice memos specific to cannabis policy – effective immediately. Up until its death, this patchwork of policy memoranda acted as a shield for the American cannabis industry, helping to ease federal and state tension with respect to cannabis legalization.


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Sessions’ crime against humanity gives U.S. attorneys the authority to decide how they will enforce federal law with respect to cannabis activity in their jurisdictions. For the last five years, the federal policy toward state cannabis programs was largely deferential; that is, the federal government would not intervene with a state’s cannabis regulatory schemes or prosecute its market participants that strictly adhere to such state regulations.

Industry watchers overwhelmingly predict that Sessions’ call for a “return to law and order” will actually galvanize popular support, which may push the next Congress closer to federal legalization or, at the very least, toward a more sensible cannabis policy.

Of course, the short-term effects of Sessions’ edict are unclear, but a tangible and immediate consequence will be the effect on cannabis banking options.


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The Effects of FinCEN

Federal criminalization of cannabis means that a bank willing to serve a state legal cannabis client may be actively running afoul of federal anti-money laundering and banking secrecy statutes, which impose stringent “Know Your Client” requirements on financial institutions. In 2014, the Financial Crimes Enforcement Network (FinCEN), a division of the Department of the Treasury, published a set of guidelines intended to clarify how financial institutions could provide services to legal cannabis businesses.

The FinCEN guidelines, however, did little to allay concerns about serving cannabis clients; as a result, a limited number of financial institutions openly serve the industry. The reluctance of financial institutions to serve cannabis clients has forced the industry to deal almost exclusively in cash, which is problematic for myriad reasons, particularly for a $7 billion- a-year industry in the United States alone.

The FinCEN guidelines are not subject to Sessions’ policy maneuvers at DOJ; however, Sessions’ decision still will effectively halt whatever progress was made and, more likely than not, prompt the financial institutions that entered the cannabis fray to make a hasty exit.

As cryptocurrencies, like Bitcoin, begin to gain more traction among traditional retail industries, the cannabis industry is taking note.


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Cryptocurrency and Cannabis

Can cryptocurrency be a panacea for the industry’s banking woes? Maybe. There are some cryptocurrencies, such as PotCoin and Paragon, which were developed exclusively for the cannabis industry. But none of these currencies has gained widespread acceptance by the industry.

The slow integration of cryptocurrencies into the legal cannabis economy is based primarily on the fact that many dispensaries do not accept pot-centric cryptocurrencies. And who wants to buy a currency that they cannot use?

The reticence of the industry to embrace cryptocurrency also may be based on the fear that widespread use of cryptocurrency actually might increase federal intervention. The FinCEN guidelines are safe, for now, but if Sessions’ move demonstrates the trajectory of federal policy, the industry should continue to explore and invest in alternative payment systems. John McGowan and Meredith Kinner

Meredith Kinner

John McGowan and Meredith Kinner have been practicing law in Maryland and D.C. for five years. In 2015, they started KINNER & McGOWAN, PLLC, a boutique law firm that focuses on cannabis law and civil litigation. Since then, the firm has worked with cannabis consultants, cannabis-focused law firms on the West Coast, entrepreneurs, investors, and doctors in jurisdictions with legal medical and adult-use cannabis. As more jurisdictions enact medical or adult-use cannabis laws, the firm aims to extend their practice to these jurisdictions.

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