According to experts, spending on legal cannabis worldwide is expected to reach $57 billion by 2027. A major concern for legal cannabis businesses is their access to banking services. Financial institutions have understandably been hesitant to get involved in providing services to the cannabis industry for fear of punishment from federal authorities. Due to conflicting laws and confusing guidance, the cannabis industry is a difficult landscape to navigate. Below are questions and answers that may help your bank avoid the risks associated with the cannabis industry.

What is the current state of the law regarding cannabis?
Despite the media attention surrounding legalization of marijuana in several states, cannabis is still illegal under federal law. Under the Controlled Substances Act (21 U.S.C. § 811), cannabis is currently classified as a Schedule I drug, which means it is considered highly addictive and has no medicinal value. Despite federal law, the District of Columbia and 10 states have adopted laws legalizing marijuana for recreational use, and 23 additional states have adopted laws allowing marijuana in limited circumstances, including medical use. Most recently, Michigan legalized the recreational use, growing, and distribution of cannabis. 

What is the interplay between state and federal law?
Due to the rule of federal preemption, the federal law banning cannabis preempts all state laws. This has been a major issue, particularly in the states that have legalized recreational cannabis use. On Aug. 29, 2013, the United States Department of Justice issued the Cole Memo, which made it clear that prosecuting state legal medical marijuana cases was not a priority. However, in January of 2018, Attorney General Jeff Sessions rescinded that guidance and directed all U.S. Attorneys to enforce federal laws and follow standard principles in prosecuting cannabis-related offenses. Several other federal agencies have also attempted to address the conflict between state and federal law. However, as it stands now, the federal law prohibiting the production, sale, and use of cannabis reigns supreme, and no state law can protect against federal enforcement.

How are cannabis laws affecting financial institutions?
Federal laws and regulations prevent financial institutions from providing banking services to businesses engaged in illegal activity. For example, the Bank Secrecy Act requires financial institutions to help detect and prevent fraud and money laundering. This includes filing certain reports and reporting suspicious activity. In 2014, the Treasury Department and the Justice Department issued guidance indicating that financial institutions would not be punished for providing services to cannabis businesses operating legally under state law. The policy simply required that banks diligently monitor their cannabis-industry customers. However, the guidance did not grant immunity from prosecution or civil penalties. Bankers were quick to criticize the guidance, stating that it was not enough to protect a financial institution wishing to provide services to cannabis-related businesses. Although the guidance still stands, most financial institutions remain hesitant to provide services to cannabis businesses.

How can a financial institution protect itself?
Until the federal laws change, the only guaranteed protection is to completely avoid involvement with cannabis-related businesses. This can be achieved through robust due diligence practices, including the continued monitoring of customers for suspicious activity, particularly in or near jurisdictions where marijuana recently became legal, such as Michigan. When suspicious activity is flagged, the financial institution should promptly file a Suspicious Activity Report (SAR). There are three types of SARS that may be filed for cannabis-related activity: (1) Marijuana Limited, (2) Marijuana Priority, and (3) Marijuana Termination. 

A Marijuana Limited SAR should be used if a financial institution believes the customer's activities do not implicate one of the Cole Memo priorities or violate state law. A Marijuana Priority filing should be used if the financial institution believes that the customer's activities do implicate the Cole Memo priorities or violate state law. Finally, a Marijuana Termination filing should be used if the financial institution terminates the customer relationship in order to comply with its anti-money laundering program. Ultimately, these SAR filings demonstrate to regulators the bank's diligence and willingness to comply with federal laws. 

What else do I need to know?
The information above only scratches the surface of a myriad of issues resulting from the boom of the cannabis industry. To learn more about these issues, including potential employment issues, ways to determine the appropriate SAR filing, and ways to protect against inadvertently lending to cannabis businesses, please visit For additional questions, contact Sara McNamara at

McNamara and Sheriff are attorneys at Reinhart Boerner Van Deuren s.c., a WBA Associate Member.