By Virginia Thomas / Spokane Journal of Business
Washington financial institutions and regulators say they’re closely watching several pieces of federal legislation regarding cannabis that could impact how banks and credit unions handle banking for the cannabis industry.
Some, however, aren’t optimistic that such legislation will
make it through the legislative process.
Washington state legalized cannabis for medical use in 1998
and for recreational use in 2012, but the substance remains illegal at the
federal level. As a result, businesses and individuals associated with the
cannabis industry – including growers, processors, retail stores, employees and
investors — often struggle to find financial institutions willing to serve
Spokane Valley-based Numerica Credit Union is one of a handful
of Washington state-chartered financial institutions that have chosen to serve
the cannabis industry.
Lynn Ciani, chief risk officer at Numerica, said that by
serving cannabis businesses and individuals associated with the cannabis
industry, Numerica is committing a federal crime even as it remains compliant
with state laws and industry regulatory guidance.
“By taking in these funds, we’re technically money
laundering under the federal law,” Ciani said.
However, she said, it’s worth any risk that might be
associated with it.
“When I-502 passed, it was estimated to be a billion-dollar,
cash-only business within a few years,” Ciani said. “When you look at crime in
other states where cannabis was legalized without the ability to use
traditional banking, you would see a lot of home invasions and violent crimes.
We didn’t want that crime in our community. Our board of directors felt part of
fulfilling our mission to build communities is protecting our communities to
the extent we can by taking the cash off the street.”
Overall, Ciani said cannabis business
accounts make up a small proportion of Numerica’s customers. Just 300 of its
145,000 members are cannabis businesses or employees, she said. Six full-time
employees are dedicated to serving these accounts, ensuring Numerica complies
with state and industry regulatory agencies, and keeping an eye on legislative
and judicial actions that could affect financial institutions serving cannabis
That includes watching proposed cannabis legislation introduced
in Congress this year.
At least three bills and a budget
addendum that have been proposed in the House and Senate would either protect
financial institutions that serve the cannabis industry or decriminalize
cannabis-related business activities, including banking.
The Secure and Fair Enforcement
Banking Act would protect banks and credit unions that serve legal cannabis
businesses by barring federal banking regulators from limiting or terminating
deposit insurance for financial institutions serving the marijuana industry
where it’s allowed under state laws. The so-called SAFE banking act also would
prohibit regulators from discouraging banks or credit unions to allow such
The SAFE act passed the House Financial Services Committee
in late March; a Senate version was announced April 11. Neither full chamber of
Congress has addressed the bill.
In April, the director of the Washington Department of
Financial Institutions joined a coalition of financial regulators from 24
states and Puerto Rico to ask Congress to consider legislation that would
create a safe harbor for financial institutions to serve businesses operating
legally under state law, or that would entrust states with the full oversight
and jurisdiction of marijuana-related activity.
Roberta Hollinshead, director of banks for the Washington
State Department of Financial Institutions, said the SAFE act would provide the
kind of safe harbor the coalition requested, but the department isn’t
optimistic about the fate of the bill.
“We’re expecting that the House will support that
legislation, but it has a pretty uphill battle on the Senate side,” Hollinshead
The proposed Strengthening the Tenth Amendment Through
Entrusting States Act seeks to amend the Controlled Substances Act, which lists
cannabis as a Schedule 1 substance. Under the STATES act, states, territories
and tribes would be allowed to govern themselves regarding cannabis.
“What the STATES act would do is
basically decriminalize everything,” Ciani said. “Not just the banking of
marijuana, but also the use, production and sale of marijuana in the states
where it is legal.”
The bill originally was introduced about a year ago in both
the House and the Senate, and later died in committee. In early April, the
STATES act was reintroduced in both chambers of Congress.
House Bill 420, the Regulate Marijuana Like Alcohol Act, would
federally decriminalize cannabis and allow the U.S. Secretary of the Treasury
to issue cannabis business permits. The bill was introduced in the House in
early January; it has been in the Committee on Conservation and Forestry since
A draft congressional spending bill under consideration in
the House would prohibit financial regulators from spending money to pursue
banks and credit unions that serve legal cannabis businesses. It would offer
narrower protections than the SAFE act and would be in effect only for the next
The spending provision also leaves banks and credit unions
open to possible enforcement by the U.S. Department of Justice, which has a
separate spending bill.
While Congress considers these options, Ciani said Numerica continues to follow guidance of the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury, released in 2013. Hollinshead said the FinCEN guidance was based on a document referred to as the Cole memo, issued by then-Attorney General James Cole.
The memo indicated that prosecutors and law enforcement
should focus on eight priorities as they relate to state-authorized cannabis
industries. Those priorities include preventing the distribution of cannabis to
minors, preventing revenue from cannabis sales from going to criminal
enterprises, gangs or cartels, and preventing cannabis from being diverted to
states that haven’t legalized it from states that have.
The memo was rescinded by former U.S. Attorney General Jeff
Sessions in January 2018, but Ciani said financial institutions serving the
cannabis industry continue to follow FinCEN guidance. For example, she said,
banks and credit unions are required by FinCEN to file a suspicious activity
report when a cannabis customer opens an account and every 90 days thereafter.
“We go through and look at each one of the criteria that
(FinCEN is) concerned about, and we figure out how to mitigate it with our own
processes and procedures,” Ciani said. “We also rely on the processes and
procedures of the Liquor and Cannabis Board. We are able to look at the
violations reports that come out, and we can see if our members are complying
Stephanie Davidsmeyer, communications consultant with the
Washington State Liquor and Cannabis Board, said the state agency has a
thorough vetting process for each person and business entity associated with
the cannabis industry.
“One of the things that has gotten us a lot of praise has
been how strict our criminal background check process is, how we take into
account financial history for these businesses. We vet every investor,”
Davidsmeyer said. “In a landscape where it’s federally illegal to have this
kind of business, banks appreciate that.”
However, even with FinCEN guidance and help from the state
Liquor and Cannabis Board, many banks are wary of serving customers in the
“Even though the FinCEN guidance has established a framework
by which the banks can monitor and report on this activity, most of our banks
and credit unions have chosen not to go into this business because there is
still ambiguity,” Hollinshead said.
Even banks and credit unions that do choose to serve the
cannabis industry could refuse to offer certain services to those customers.
“Because of the federal illegality, cannabis businesses and their employees are at risk of seizure,” Ciani said. “That’s what makes lending so difficult to both ‘cannabusinesses’ and their employees. In conversations with the DFI and the concern of the risk of seizure, we’ve made the determination not to make any loans directly to ‘cannabusinesses.’ ”
Ciani said that if something like the SAFE act were to be
enacted into law, providing loans to cannabis businesses and their employees
would be far easier and less risky.
Legislation to protect financial institutions serving the
cannabis industry also would reduce risks for cannabis businesses, Hollinshead
said. She said that even if a cannabis business succeeds in establishing an
account with a financial institution, financial service companies such as Visa
and Mastercard do not allow cannabis transactions over their wires.
“That’s why it’s a largely cash-intensive business,”
Hollinshead said. “From a regulatory perspective, if Visa and Mastercard and
other financial institutions that provide electronic payments and services have
some sort of safe harbor, and they’re able to move forward into this line of
business, then it will increase the accountability and the traceability of
Protective legislation also would be a boon to smaller
cannabis businesses, Davidsmeyer said.
“A lot of these businesses are smaller. They are in desperate need
of capital, and with the limited banking that we have currently, they just
can’t get it very easily,” Davidsmeyer said. “If banks weren’t being punished
federally for this, I imagine getting capital would be a whole lot easier for
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