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Last month, the Department of Justice and the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued guidance on how the banking industry can provide services to the legal marijuana industry. The guidance laid out procedures for accepting money from businesses that legally sell cannabis — to put it in crude terms, it allows banks to flag deposits as good drug money, questionable drug money and bad drug money. Before this guidance, there was just bad drug money.

That clarification seemed like decent progress to the legal cannabis industry, which has struggled with establishing a solid financial system because of gray areas between state and federal drug laws. To the banks? Not so much.

Breaking Down the Guidance

“The most interesting thing about this is the stated intent of the memo was to allow banking with marijuana-related businesses,” said Aaron Houston, an expert on marijuana law and policy adviser for Ghost Group, a venture capital firm that develops legal marijuana businesses. “The government put this right there in black and white. The confusion comes up from the reaction of the American Bankers Association. … This is not enough for them.”

The “black and white” guidance Houston referenced is the introduction of a three-tier Suspicious Activity Report (SAR) system. Previously, if banks accepted money that smelled like pot, they would file a SAR that would essentially guarantee termination of that client’s account, in accordance with federal anti-money laundering laws.

For banks that have been working with legal dispensaries, that requirement complicated things. Houston said that before the guidance, banks had internal rules for dealing with dispensary customers, but they weren’t always used consistently — there are lots of stories out there about dispensaries having their accounts terminated and not being able to get their money.

The FinCEN guidance describes three SARs banks could use to alleviate that issue: Marijuana Limited SAR filings, Marijuana Priority SARs and Marijuana Termination SARs. Filing the SARs requires a lot of verification on the banks’ end, but the tiered structure allows the separation among situations where money is coming in from legal sources, potentially suspicious circumstances and instances that require account termination.

In a document made available to members of the American Bankers Association following the Feb. 14 guidance from FinCEN and the DOJ, the association makes its stance clear: “Because marijuana is illegal under federal statute, guidance alone isn’t enough. In order for banks to be comfortable banking marijuana businesses, the federal statute must be changed by Congress.”

Stunted Progress

So where does this leave things? It’s only been a month since FinCEN and the DOJ issued the memos, but banks are working behind the scenes to implement compliance systems that meet the due diligence required by the guidance, Houston said. Meanwhile, pot sales continue to grow, so progress is likely to quietly continue, with banking services slowly opening up to dispensaries that aren’t currently banked, Houston said.

“I’m pleased as an advocate that major banks are calling for the same thing that we’ve been calling for for the last 10 years, which is a change in the underlying law,” Houston said. However: “There is a very clear path forward here for banks that would like to accept marijuana-related customers.”

Meanwhile, consumers who purchase legal cannabis are unlikely to see much change as a result of all this. You’re still more likely than not going to have to pay for pot with cash. Merchants need to be banked in order to accept card payments, so while this guidance could help dispensaries get bank accounts and, as a result, take credit cards, Houston said that remains to be seen.

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