While the cultivation and sale of cannabis products is federally illegal, it has been legalized to some extent 39 states and the District of Columbia.
This creates challenges for risk and compliance professionals deciding whether to serve marijuana-related businesses.
Before offering cannabis banking services, a recent CUNA Councils White Paper suggests credit unions identify the current and future risks, understand the compliance burden, assess the sophistication of the credit union’s risk and compliance department, possess adequate staffing, balance the risks and returns, and understand why some credit unions serve cannabis businesses and others opt not to.
According to FinCEN’s Suspicious Activity Report (SAR) filings, nearly 200 credit unions provided banking services to state-legal cannabis businesses through the first half of 2021.
In 2013, then-Deputy Attorney General James M. Cole wrote The Cole Memo, entitled Guidance Regarding Marijuana Enforcement, to create a narrow but viable path to legitimate financial services.
The Cole Memo was rescinded by then-Attorney General Jeff Sessions in 2018, but it remains helpful for credit unions researching the risks and compliance challenges of serving cannabis-related businesses.
Other related documents include BSA Expectations Regarding Marijuana-Related Businesses, as well as money laundering laws like US Code Title 18 1956 Laundering of monetary instruments, the Money Laundering Control Act of 1986, and the Anti-Money Laundering Act of 2020.
Bruce Pearson, senior counsel with the law firm Styskal, Wiese & Melchione, LLP, believes most credit unions also have cannabis-related business accounts, but “they may be disguised as something else.”
Therefore, a team managing cannabis risks should be experienced with other cash-intensive businesses. To ensure compliance, credit unions must account for every dollar, including validating monthly transactions, reviewing filed tax invoices, and reviewing on-site ATM servicing practices.
Many in the industry recommend credit unions roll out a small pilot program before fully committing to serving cannabis-related businesses.
When adopting any program, credit unions should make it clear to potential clients that there are expectations, including requiring the cannabis-related business to document their day-to-day business practices; open their books on demand; disclose transaction volumes, revenue, and expenditures; disclose vendors and commercial buyers; and provide all documentation necessary to cross-check deposits with sales revenues reported to state regulators.