Cannabis Banking

On July 9, 2015, Senator Jeff Merkley (D-OR) introduced a bill to the US Senate that would allow legitimate marijuana businesses to obtain banking services from federally regulated banking institutions. The Senate legislative proposal tracks the language of a bill introduced to the US House of Representatives by Member Ed Perlmutter (D-CO) on April 28, 2015.

Currently, since marijuana remains illegal on a federal level, banks that serve the marijuana industry risk severe federal penalties, including sanctions, fines related to money laundering, revocation of FDIC insurance, and forfeiture of assets. As a result, many legitimate cannabis businesses that are organized under and adhere to state law must run their businesses on a cash basis, which both invites crime and increases the difficulty and expense of running a legitimate business.

Under the proposal, federal banking regulators would be required to allow federally regulated banks to provide banking services to the cannabis industry, provided that the businesses being served are in compliance with state law. Federal regulators would be prohibited from revoking FDIC insurance from banks for providing financial services to the marijuana industry, discouraging or prohibiting banks from dealing with individuals or businesses in the industry, or offering incentives to avoid providing financial services to the industry. Banks would be able to lend to participants in the marijuana industry without interference from federal banking regulators, and banks’ legal interests in collateral would not be subject to forfeiture even if directly used in the marijuana industry. Depository institutions themselves, as well as their officers, directors, and employees would also be shielded from liability for solely providing banking services to those that operate in the industry.

The House Bill currently has 27 co-sponsors, 26 of which are Democratic, and can be viewed at https://www.congress.gov/bill/114th-congress/house-bill/2076. The Senate Bill currently has 6 co-sponsors, consisting of four democrats and two republicans, and can be viewed at https://www.congress.gov/bill/114th-congress/senate-bill/1726.

The Senate proposal comes almost exactly one year after the House of Representatives passed the Heck Amendment, which would have prohibited the Securities Exchange Commission and the Treasury Department from spending money to penalize banks for working with the cannabis industry. The Heck Amendment, however, was never considered by the Senate.

Christopher Davis works in Finance, Banking and Securities Law. He is a member of the California and New York Bars.