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BPC’s Justin Schardin and Kristofer Readling: On Weed Day, banks caught between pot and the law


Wednesday, April 20, 2016

National Weed Day (4/20) comes as the marijuana legalization movement gains momentum. On April 17, Pennsylvania became the 24th state in the nation to legalize medical marijuana. Recreational use is now legal in four states and some 20 states may vote on different forms of legalization in November.

But it’s becoming clearer that banking, anti-money laundering, and marijuana laws and regulations have not kept up with the changing views on weed and are holding back entrepreneurs trying to navigate the minefield of conflicting federal and state laws. Congress and bank regulators at a minimum should update rules and regulations to deal with reality and take banks out of the marijuana debate.

The problem is that, under federal law, marijuana is still illegal, so banks are prohibited from serving them. And while federal agencies have generally turned a blind eye to financial institutions that do provide services, banks must monitor transactions for possible illegal activities and report any they find using suspicious activity reports (SARs), an expensive and cumbersome process. Since selling marijuana is illegal under federal law, commercial marijuana transactions are inherently “suspicious” even if they are legal under state law.

It’s become so twisted that, if a state collects taxes from marijuana transactions and those taxes are deposited in the state’s bank account, that bank may have to report suspicious activity by the state itself. Similarly, transactions by a hospital that acts as a medical marijuana dispensary would likely trigger a suspicious activity report.

To avoid such counterintuitive scenarios, financial regulators could issue guidance similar to that offered by the U.S. Department of Justice which says that due to limited resources, the agency would not prioritize enforcement actions against marijuana businesses that are legal under state law.