Treasury is able to offer this guidance only because the Justice Department has agreed not to go after marijuana sellers in states where it has been legalized as long as those businesses don’t trigger red flags such as selling to children or diverting cash to criminal cartels. So far, less than 200 small banks and credit unions are accepting cannabis cash across the country, according to FinCEN, which has received about 1,700 reports on companies in good standing, categorized as “marijuana limited suspicious-activity.”
Yet at larger banks, Treasury’s overtures have fallen on deaf ears. Citigroup and JPMorgan Chase say they won’t provide services to businesses that engage in activity that is illegal under federal law. KeyCorp chief executive officer Beth Mooney, said that marijuana is still considered “a restrictive or prohibitive industry,” and said the bank hasn’t had any conversations with regulators about the issue.
John Stumpf, CEO of Wells Fargo, said marijuana’s federal illegality stops his bank from even thinking about accepting the business. “That’s out of my sights right now,” he said.
It’s a view shared by some of the biggest regional lenders, including U.S. Bancorp and Huntington Bancshares.
“You’d be hard-pressed to find a large bank that’s willing to take that risk right now,” said Jeff Bahl, a portfolio manager who helps oversee more than $7.9 billion at Bahl & Gaynor Inc., including bank stocks. “The rates of return just aren’t there to justify the reputation risk and the risk that five years from now banks might get in trouble for loans that regulators are now encouraging.”
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So, Treasury is setting its sights on banks that operate in states where marijuana is legal, according to the person familiar with the FinCEN bank meetings. Yet these banks are also remaining on the fence, more mindful of their regulators than the concerns of Treasury.
“The FinCEN and DOJ guidance was intended to help banks on how to avoid criminal prosecution if they offered marijuana companies banking services,” said Don Childears, head of the Colorado Bankers Association. But “ultimately, regulators could shut them down if they don’t comply with federal guidelines.”
The Office of the Comptroller of the Currency, Federal Deposit Insurance Corp. and the Federal Reserve haven’t given banks assurances that they won’t run afoul of banking regulations that prohibit such deposits under federal law.
The OCC, which supervises 1,620 banks in the U.S., hasn’t issued guidance on how to handle marijuana accounts because it doesn’t encourage or discourage any particular business, said Bryan Hubbard, an agency spokesman.
“We expect banks to assess the risks posed by individual customers on a case-by-case basis,” Hubbard said, adding that it’s the banks’ job to put in the protections they need to manage those ties. When it comes to marijuana banking, agencies including the OCC and FDIC direct banks to Treasury’s guidance. The problem for banks, though, is that the OCC, the Fed and the FDIC supervise them, not the Treasury.
“For banks, the consequences of getting it wrong are pretty serious,” says William Baude, an assistant professor at the University of Chicago Law School. “And all this is happening because there is an absence of statutory authority and guidance from the regulators.”
Spokesmen for the FDIC and Fed declined to comment on the marijuana regulatory situation.
The cannabis industry is looking to Congress for answers. Rep. Ed Perlmutter, D-Colo., introduced legislation last month with 17 co-sponsors that would remove legal risks for banks providing services to the marijuana industry. And in a first this year, senators including Kentucky Republican Rand Paul introduced pot legislation that deals with the risk of federal prosecution for medical-marijuana users in states that have decriminalized the drug. It would also relax financial regulations, allowing banks and credit unions to offer services to the burgeoning industry.
“We need a full, industrywide, sustainable fix for this crisis,” said Taylor West, deputy director of the National Cannabis Industry Association.
Until that happens, the piles of cash will keep growing. When marijuana-related accounts close in Oregon, banks are obliged to deliver cash back to customers in armored trucks because it would be difficult to find another bank to take a check, according to a person familiar with the matter.
It’s vital to let these businesses have access to banking services like simple check writing “rather than carry around shopping bags full of $20 bills,” Oregon Congressman Blumenauer said. “Forcing legal businesses to be conducted on an all-cash basis is, politely, insane,” he said.
Hamilton reported from Washington.
