As the state gears up to get its first medical marijuana dispensaries, like any business these stores are going to need a place to manage and secure their money.
As federal regulations stand, marijuana is classified as a Schedule I Controlled Substance, which serves as a barrier for banks in the 20-plus states, including Maryland, that want to provide financial services to legal marijuana-related businesses.
“We believe that because these businesses will be operating in Maryland, they should have access to financial services,” said Kathleen Murphy, president & CEO of the Maryland Bankers Association.
The issue banks face with providing services to marijuana-related businesses such as operating accounts, checking accounts, bill pay and merchant service relationships is unlike anything banks have faced before. That’s because of the juxtaposition of state and federal regulations.
“It creates a challenge because our members want to be able to provide services to legal businesses,” said Murphy.
Both national and state chartered banks have federal deposit insurance and are subject to federal law. If a bank violates federal law it can lose its charter, according to the American Banking Association.
Banks are also subject to other federal laws, including the Controlled Substance Act, USA Patriot Act, Bank Secrecy Act, Racketeer Influenced and Corrupt Organizations Act, among other statutes.
Furthermore, all banks are subject to the requirements of the Bank Secrecy Act, which requires banks to report to the federal government any suspected illegal activity, including transactions related to the marijuana business. The Department of the Treasury, which enforces the secrecy act, has considered changing some of the requirements involving state-authorized businesses but has not made any formal moves, said the American Bankers Association.
So far, federal authorities have offered some guidance through a memo from the Department of Justice sent to all U.S. Attorneys from Deputy Attorney General James M. Cole in 2013. The memo has been used by some banks and credit unions in other states to offer depository services. However, it doesn’t address the drug classification that bars banks from doing business with marijuana-related enterprises.
The memo outlines eight marijuana enforcement priorities, two of which are problematic for banks, said Murphy. One is to prevent the distribution of marijuana to minors and the other is preventing diversion of marijuana from states where it is legal to other states.
The banking community argues that it would be difficult for them to monitor those two things.
In 2014, U.S. Rep. Ed Perlmutter, D-Colorado, introduced legislation to protect banks that worked with legal marijuana-related businesses. In 2015, lawmakers in Congress introduced the Marijuana Access to Banking Act of 2015, but the Maryland Bankers Association said more needs to be done to resolve the differences between federal and state laws about legalizing medical marijuana.
The difficulties Maryland banks face hold true for the nearly 25 states that have legalized marijuana in some form, which translates to about two-thirds of the U.S. population.
“It’s essential that the federal government change its policies so states can regulate the cannabis industry in a way that’s responsible and accountable,” said Maryland Del. Dan Morhaim, D-Baltimore County.
“As more states act, there will be more pressure in congress to redefine marijuana as how it relates to the controlled substances act,” said Murphy.
Right now, under Maryland law there are three levels of marijuana licenses: growers, processors and dispensaries. The law does not require marijuana businesses to have a deposit account or a relationship with a bank. However, license holders must allow their financial institutions to disclose certain information to regulators.
“The Maryland law is a superior example of a law with very clear, detailed regulations around the sale and implementation of medicinal marijuana,” said Murphy. “Nationally, Maryland’s law is viewed as a great example of a clear and strong regulation.”
But even with a strong a regulation, marijuana businesses will need to work closely with their bank; they may even need a banker embedded within the organization to minimize risk and stay in compliance with the federal government, said Murphy.