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Cannabis Industry Banking Updates in New Jersey


July 25, 2017

As New Jersey Moves Towards Legalization, Cannabis Industry Banking and Financial Services Remain Critical Issues

With legalization proponent Phil Murphy ahead in the race to become New Jersey’s next governor, businesses are already starting to prepare for the sale of recreational cannabis in New Jersey. However, banks and other financial institutions hesitate to provide services to businesses in the cannabis industry due to the continued federal illegality of cannabis cultivation, sale, and possession. As a result, one of the biggest challenges for cannabis-related businesses is securing access to financial institutions.

Updates Regarding Cannabis Industry Banking

Photo courtesy of Stocksnap.io

Existing Cannabis Industry Banking Guidance

In response to the enactment of numerous state laws legalizing medical and recreational cannabis, Department of Justice (DOJ) Deputy Attorney General James M. Cole issued a memorandum to all U.S. Attorneys in 2013 (the “Cole Memo”). Generally, the Cole Memo states that the DOJ will defer its right to enforce federal prohibitions regarding cannabis so long as the legalization states do not contravene federal enforcement priorities and maintain robust regulatory systems pertaining to their intrastate cannabis industries.

The Treasury Department has also issued guidance advising that banks will not be prosecuted for providing services to legitimate state-licensed cannabis businesses provided they follow certain guidelines. In 2014, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) issued guidance entitled Secrecy Act (BSA) Expectations Regarding Cannabis-Related Businesses. The guidance outlines how financial institutions can provide services to cannabis businesses while satisfying their obligations under the Bank Secrecy Act (BSA). Specifically, FinCEN advised that banks must conduct adequate customer due diligence and proper suspicious activity report (SAR) reporting.

Recent Legal Developments

In the wake of FinCEN’s 2014 guidance and further state legalization, the number of depository institutions providing banking services to cannabis-related businesses has grown. According to FinCEN’s latest Cannabis Banking Update, 368 banks and credit unions were actively servicing cannabis businesses as of March 2017. While this may seem low, the figure represents an estimated 22 percent increase from the end of March 2016. 

In other positive news, state and federal lawmakers are taking steps to further improve financial access. To address the banking concerns of cannabis-related businesses, the Treasurer of the State of California launched a Cannabis Banking Working Group. The group, which is comprised of representatives of law enforcement, banking regulators, the banking industry, taxing authorities, local government, and the cannabis industry, has met several times to discuss the impact of federal regulations on the cannabis industry’s ability to effectively participate in the California and federal banking systems.

At the Cannabis Banking Working Group’s July 2017 meeting, Sundie Seefried, the CEO of Partner Colorado Credit Union, and Julie Robinson, senior vice president and compliance risk manager for River City Bank of Sacramento, discussed steps that state regulators could take to make financial institutions less wary of servicing cannabis-related businesses. As reported by The Recorder, the two bank executives identified several actions that states can take to provide crucial information that banks need to assess risk. These steps included maintaining a registry of licensees that would enable banks to verify that businesses are properly licensed, establishing an alert system to notify banks when licenses are in jeopardy of suspension, providing banks with unredacted copies of licensing applications and supporting documents, and publishing gross sales and lists of products sold so that banks can verify that their clients’ proceeds are in line with competitors as required by FinCEN.

“There is no silver bullet to banking this industry,” said Seefried. “Knowing your clients sufficiently to know that they are not involved in an illicit business, generating any criminal dollar and utilizing a financial institution to launder such money requires substantial personal attention to relationships.”

On the federal level, Congress is considering several bills pertaining to this issue. Among the proposed legislation is the Secure and Fair Enforcement Banking Act (the “SAFE Banking Act”). Pursuant to the SAFE Bank Act, which was introduced with the bi-partisan support of 47 members of the House of Representatives, a federal banking regulator may not “prohibit, penalize, or otherwise discourage a depository institution from providing financial services to a cannabis-related legitimate business or to a State or political subdivision of a State that exercises jurisdiction over cannabis-related legitimate businesses.” The bill further provides that a depository institution that provides financial services to a cannabis-related legitimate business in a state where cannabis has been legalized may not be held liable pursuant to any Federal law or regulation solely for providing such financial services pursuant to the state law or regulation or for further investing any income derived from such financial services. The SAFE Banking Act is currently pending before the House Financial Services and Judiciary Committees.

Measures such as the formation of the Cannabis Banking Working Group and the introduction of the SAFE Banking Act indicate a greater political will to provide cannabis industry members with legal access to financial service institutions. However, the area of cannabis law is highly fluid, and current and prospective members of the industry should stay apprised of developments.

This article is a part of a series pertaining to cannabis legalization in New Jersey and the United States at large. Prior articles in this series are below:

If you have any questions or if you would like to discuss the matter further, please contact me, Dan McKillop, at 201-806-3364.

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