There’s a lot of money to be made in cannabis these days. The global legal marijuana market – said to be growing exponentially – is forecast to exceed $50 billion by 2025, with projected sales U.S. rising to $43 billion. Almost $650 million in marijuana products have been sold in Ohio alone since the inception of its medical marijuana program in in 2016.

As of January 2021, the legal market accounted for 321,000 full time American jobs, and despite COVID-19, job growth in the cannabis industry exceeded +32%. Occupations encompass growing, harvesting, processing and testing the plant. But ancillary services like accounting, legal, security, HVAC and lawn mowing also benefit from this expanding marketplace. Without question, cannabis is America’s fastest growing industry.

All of aforementioned numbers involve monetary transactions. One would think that financial institutions would salivate over such dollars. More deals, more customers, more fees! One would be wrong.

Almost daily, yet another financial institution slams its monetary door on cannabis. Only 4% of the 5,300 U.S. banks serve this marketplace. Payment services like Paypaleschew marijuana, even freezing and seizing associated accounts. This 2019 statement about credit card companiesstill stands:  “Transactions in the U.S. involving the purchase or trade of marijuana are not permitted on the Visa network.” Think you’re immune? Think again. 

A tangled web of federal banking laws combined with decades-old anti-drug statutes underpin an unnecessarily punitive, secretive, antiquated and harmful system, snaring both the guilty and innocent without due process. Read, weep and learn more.  

Who oversees the banking system in the U.S?

Banks are corporations with a federal (“National” or “N.A.” by their name)  or state charter. The U.S. Department of the Treasury regulates banking institutions under Federal Reserve system(“Fed”).  The Fed serves as the U.S. central bank. It oversees federal- and state-chartered banks, helps maintain the stability of the financial system and supervises payment systems that insure deposits and clear checks. It also supervises the anti-money laundering programs of banking organizations. While the Ohio Department of Commerce regulates banks within the state, their deposits usually involve the federal government.

What laws govern cannabanking?

A bank’s decision to work with marijuana-related businesses imposes a heavy regulatory burden. The Bank Secrecy Act of 1970 (BSA)  requires financial institutions to assist government agencies with detecting, reporting and preventing money laundering. This law prohibits the use of criminal proceeds in financial transactions. Because of marijuana’s federally illegal status, all transactions could be coined “criminal.” Financial institutions must also adhere to the “Know Your Customer” doctrine and must assess any “illegal intentions for the business relationship.” The U.S. Patriot Act of 2001 mandated “due diligence” in developing those relationships.

Why is cannabis banking a problem?

It begins with the 1970 Controlled Substances Act (CSA) where marijuana resides inhighly restricted Schedule I. That classification prohibits cannabis’ manufacturing, possession and distribution and defines such transactions as money laundering. Because the federal government regulates banking, Schedule I restrictions apply regardless of state or local legalization. 

Thus, because of Schedule I, “cash only” characterizes much of the millions earned by cannabusinesses, which presents an enormous cost of doing business that results in high prices, excessive security, armed robberies, gun fire and even deaths.  

Who’s affected?

The tentacles of federal banking laws enwrap everyone in the cannabis industry: licensees, employees, contractors, patients, advocates, accountants and even the gal mowing the lawn. Financial institutions can take action against those who directly handle plants, as well as those who work tangentially in the industry. A product with THC or even a speech about it can place an account at risk. Though technically legal, hemp and CBD remain targets. Remember, banks follow social media. Their “due diligence” permits them to peer into private spaces, watch for violations and terminate financial relationships with neither warning nor recourse. A list beginning on page 7 of this compliance report provides some indicators on what the Feds might be looking for.

What about cash transactions?

One provision of the BSA involves cash. Under the law, banks must routinely file Currency Transaction Reports (CTRs)  for cash transactions over $10,000. This represents one reporting mechanism that disproportionately targets the cannabis industry. The absence of bank accounts begets large quantities of cash that beget CTRs. Cultivators, processors and particularly dispensaries – unable to use credit cards or secure loans – oftentimes resort to solely cash. Consequently, cash deposits in excess of $10,000 could be commonplace.

Further, in another twist, cashless ATMs in dispensaries may disappear. The credit card company Visa recently issued a warning that these machines violate its service rules, since they purposefully miscode cannabis purchases as cash withdrawals in an attempt to circumvent the BSA.

Is there any leeway?

U.S. Justice Department memos issued under the Obama administration shielded cannabusinesses from the full force of the feds. The Cole Memo in 2013, which directed U.S. Attorneys to honor state laws provided eight priorities were met, served as one stop gap. In 2014, the Treasury Department’s Financial Crimes Enforcement Division (FinCEN) released guidance on how financial institutions can work with the marijuana industry. This guidance is still in place but was refined after passage of the 2018 Farm Bill that legalized marijuana’s cousin, hemp, defined as THC content of no more than 0.3%. This bill removed hemp from the CSA, which, in theory, should have eased banking obstacles for hemp products and farmers.

What makes banks leery of working with cannabusinesses?

For one, the onerous and voluminous collection of transaction details that generates a report for every single check, deposit, credit or debit, even in locales where marijuana in some form is legal. Neither government agencies, candidates, professionals, advocacy groups, nor even individual citizens are immune.

Despite little evidence of criminal prosecution or loss of federally insured status, some financial institutions may still fear the litigation that could come from dealing with a highly controlled substance.

What kinds of information do banks collect?

Under federal law, banks must assist government agencies in detecting and preventing money laundering. To comply, these institutions obtain and review a myriad of information about “at risk” organizations, including “suspicious activity” and “red flags” (violations). Each flag must be reported to FinCen as a separate “Suspicious Activity Report” (SAR). For cannacustomers – whether businesses or individuals – this means a mountain of paperwork. In 2020, FinCen received a total of 170,975 marijuana related SARs, 36,932 of which were marked “terminated.” That averages 14,000+ SARs per month and almost one million retained over five years.

While specifics are shrouded in secrecy, this SAR Quality Guidance document provides insight into the “who? what? when? where? and why?” of what banks collect.

What kinds “red flags” show up in SARs and for how long?

There are three kinds of SARs: Marijuana Limited Filing: due diligence finds no red flags/violations; Marijuana Priority Filing: due diligence finds one or more red flags, but financial services continue; and Marijuana Termination Filing: due diligence finds one or more red flags, and consequently, financial services are terminated. The cause can be banking violations, breaches of user agreements, or a corporate decision to ban all cannabusinesses. SARs must be retained for five years from the filing date. 

Who files SARs?

Usually employees of banks, credit unions, brokerages, insurance companies, precious metal dealers and casinos where applicable under the BSA. According to Sygna, “any U.S. citizen, whether from the private or public sector or in a personal capacity, has the right to file a Suspicious Activity Report (SAR) if they feel the need to.”

Are these reports confidential?

Sadly, SARs aren’t just confidential; they’re veiled in secrecy and hidden behind impenetrable walls. “No bank, and no director, officer, employee, or agent of a bank that reports a suspicious transaction may notify any person involved in the transaction that the transaction has been reported,” so says FinCEN’s training manual. Incredibly, SARs cannot be subpoenaed; there are no means to make corrections or challenge falsehoods. In truth, every day, banks dig deep into their client’s private finances, red flag unsuspected transactions, close accounts on mere suspicion, harm financial stability those affected, and share this information among themselves, law enforcement and no one else.

I received an account force closure warning notice. What should I do?

1. Don’t freak out – remain calm. While you may feel anxious, shocked and hurt, cannabis-related account closures are unfortunately commonplace. You’re not alone. It’s best to stay cool headed and tactical. You may have time-sensitive steps to take, so it pays to be both proactive and prepared.
2. Call the financial institution’s customer service number and find out what’s going on. Remember, while needlessly hostile toward marijuana businesses, banks do enforce basic rules concerning overdrafts, cash deposits and fees. If your account is imperfect, resolve those issues first. If your account is perfect, don’t automatically assume you’re at fault. Even the accounts of “indirect marijuana businesses” (accountants, attorneys, HVAC installers and lawn mowers) can be closed.
3. Take copious notes. Document what happened with names, dates, titles, times and places, whether online or over the phone. Take screenshots of your account’s webpages. Make PDFs of all correspondence so that it can be shared online, if necessary. 
4. Ask for an explanation. You probably won’t get a satisfactory one, but ask anyway and document the institution’s response. If nothing else, you may be able to embarrass them in the future.
5. Don’t expect a warning. Bank, credit card and payment processor account closures often come without forewarning. As a preventive measure, maintain two separate bank accounts and two debit cards in case one goes down.
6. Force the bank to close your account. Withdraw all but a small amount. Providing there’s no negative balance, a check for residual funds should be mailed you. This may give you standing in court, if it comes to that.
7. Be careful. No doubt you want to purchase cannabis related items, whether in a dispensary, store or online. The mere presence of the words ‘cannabis,’ ‘CBD’ or ‘marijuana’ in a transaction could trigger action by a payment processor. If you think you could be a target, find a new, more sympathetic processor. For businesses, make sure your corporate documents are readily available and up-to-date. You’ll need them to quickly open a new account.
8. Look for alternatives. Nonprofit credit unions, which pay dividends on deposits, have spoken favorably toward cannabis. A handful of banks have been actively seeking cannabis customers. CanPay bills itself as “First Debit Payment App for Cannabis Retailers.” Other apps include Square - which supports CBD sales - along with PayQwick, Hypurand Dama Financial. Payment processors for CBD merchants are listed here. Verifone, Kindta pand Google Pay may substitute for Paypal. Cryptocurrencies like Potcoin, and POSaBIT that entirely circumvent the banking system are being developed. 
9. Go Public. Yes, it’s painful to have banking doors slammed in your face. Certainly, such negativity can beget depression and anxiety. Sometimes turning to advocacy for others can help. Write your federal Senator or Congressperson. Post your protest on a blog. Join forces with other cannabis advocates and press for changes in cannabis legal laws that would allow the plant to be treated like what it is … a plant.

What fixes the cannabanking crisis? The Controlled Substances Act, the Patriot Act and the Bank Secrecy Act weave together to create this crisis in banking that only the U.S. Congress can fix. Removal of cannabis from the CSA is key, for once gone, no basis will exist for money laundering, SARs or account closures. Five pieces of federal legislation are under consideration.

• Secure and Fair Enforcement Banking Act of 2021 or the SAFE Banking Act of 2021. Introduced by Rep.Ed Perlmutter (D-CO-7), HB 1996/SB 910 would prohibit “afederal banking regulator from penalizing a depository institution for providing banking services to a legitimate cannabis-related business.” Also, “proceeds from a transaction involving activities of a legitimate cannabis-related business are not considered proceeds from unlawful activity.” The bill has passed the House five times, most recently on 4/19/21, but stalled in the Senate, prompting its addition as Amendment 97 to a national defense appropriations bill. That legislation passed but excluded the banking language. The future of the Safe Banking Act is unclear.
• Marijuana Opportunity Reinvestment and Expungement Act of 2021 or the MORE Act of 2021.  This adult use bill (H.R. 3617), introduced by Rep. Jerrold Nadler (D-NY-10), passed out of the House Judiciary Committee on 9/30/21, with no action since. Importantly for banking, the Act “removes marijuana from the list of scheduled substances under the Controlled Substances Act and eliminates criminal penalties for an individual who manufactures, distributes, or possesses marijuana.” Recall, the crux of marijuana’s banking problem lies in its Schedule I status. Removing the plant from the CSA mitigates that conflict, opening banking doors, including loans and insurance. 
• Cannabis Administration and Opportunity Act (CAOA).  On 7/14/21, Senators Chuck Schumer (D-NY), Ron Wyden (D-OR) and Cory Booker (D-NJ) released a Discussion Draftof a U.S. Senate bill to “Remove marijuana and THC from the Controlled Substances Act” and to “Permit the movement of cannabis products through the channels of interstate commerce.” Welcome news for banking. Hereis the full language of the bill. Here is a summary of key points of interest. Although there has been no recent movement on this proposal, Senator Schumer continues to tweet favorably about it.
• States Reform Act (H.R. 5977). Introduced by Rep. Nancy Mace (R-SC) on 11/15/21,will “amend the Controlled Substances Act regarding marihuana” by specifically striking “marihuana” and “Tetrahydrocannabinols, except for tetrahydrocannabinols in hemp.” Grandfathers in state cannabis licensees. Hereis the text of the bill.
• Amendment to America COMPETES Act(H.R. 4521). On 1/28/22, U.S. Rep. Ed Perlmutter filed this amendmentto this unrelated bill that would in President Biden’s words, “reinvigorate the innovation engine of our economy to outcompete China.” Rep. Perlmutter is not seeking reelection.

Contact your federal representatives, elected officials and/or sponsors of these bills. Tell them you support banking reform and removal of cannabis from federal scheduling . If you have been affected by cannabis’ arcane banking laws, tell them your story. 

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If high prices make you mad, if you’re wary of the wealthy or concerned about social justice, you’ll find that your angst emanates in part from the feds and the laws that govern the financial system. These regulations were born in past decades from a flurry of anti-drug bills. Every SAR, every red flag and every force closure, adds a layer of cost to cannabis and to the lives made better by it. 

The treatment of cannabis clients by the banking system may be unfair. It may sound cruel. It may seem wasteful. It can be deadly, and it is surely unamerican. Sadly, in 2022, that’s the state of banking in America’s fastest growing legal industry.

This article is an update from the articles “The State of Cannabanking” and “Huntington Bank does NOT welcome Cannabis Cash” published by the Columbus Free Press in January of 2019. Read them here.

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Mary Jane Borden is a best-selling author, talented artist, and award winning cannabis activist from Westerville, Ohio. During her 40-year career in drug policy, she co-founded seven cannabis-oriented groups, co-authored four proposed constitutional amendments, lobbied for six medical marijuana bills, penned 85+ Columbus Free Press articles and has given hundreds of media interviews. Her artwork can be viewed at CannabinArt.com and she can be reached at maryjaneborden@ gmail.com.