Louisiana’s top banking regulator and 12 other states seek ‘safe harbor’ for banking marijuana industry

The Advocate/September 2, 2018/Sam Karlin

Louisiana’s top banking regulator and 12 others are asking Congress to clear the way for banks to do business with the marijuana industry, which for years has struggled to find financial institutions willing to handle their cash and already has seen one participant back out in Louisiana.

John Ducrest, commissioner of the Louisiana Office of Financial Institutions, was one of 13 state financial regulators signing on to a letter to congressional leaders in late August seeking “safe harbor” legislation for banks. The coalition was led by Pennsylvania’s top financial official. The group urged lawmakers to remove “unnecessary risk” for banks doing business with the marijuana industry, which is now legal in some form in 31 states, Washington D.C., and the territories of Guam and Puerto Rico.

Despite state actions, the drug remains illegal under federal law and is classified as a Schedule I narcotic. That fact has deterred most banks from doing business with the industry.

“I’m not taking a position on or for marijuana, but the banking system is where you want things to flow through,” Ducrest said. “Very few (banks) are willing to do it because of the fear on the federal level.”

Dispensaries, growers and other marijuana business owners have resorted in many cases in other states to “cash and carry,” which presents safety issues and hurts the ability to track and regulate companies’ activities. America’s largest banks have largely sidestepped the industry altogether to avoid costly compliance and regulatory headaches.

With eight state-approved pharmacies gearing up to dispense medical marijuana over the next few months, Louisiana’s nascent industry has found a limited number of willing banking partners locally, with one already bailing out.

GB Sciences, which LSU selected as its exclusive grower of medical marijuana, making it one of two state-sanctioned producers, got preliminary approval from Red River Bank based in Alexandria last summer, according to public records. But bank spokeswoman Amanda Barnett said although the bank investigated the possibility of banking the industry, it ultimately decided against it.

“We found that there were complex legal and regulatory issues involved,” she said. “We then chose not to bank such entities and have not done so.”

GB Sciences even hired a company, Fincann, whose sole purpose is to find banks for marijuana companies.

Earlier this year, Cottonport Bank, a small Avoyelles Parish institution, and ASI Federal Credit Union, out of New Orleans, quietly offered up their services to marijuana companies, according to pharmacy applications and sources in the industry. Cottonport declined to comment for this story and ASI did not return messages.

Farmers Merchants Bank and Trust, a small, Breaux Bridge-based institution run by state Sen. Fred Mills, also offered to do business with the state’s medical marijuana pharmacies. Mills was the author of the legislation that enacted the state’s medical marijuana program and has been a vocal advocate of the treatment. Mills later said none of the pharmacies he initially offered services to were awarded licenses.

The letter from the 13 state banking regulators was sent to House Speaker Paul Ryan, House Minority Leader Nancy Pelosi, Senate Majority Leader Mitch McConnell and Senate Minority Leader Chuck Schumer.

In it, the financial regulators said a “lack of clarity” by the federal government for how banks should serve the industry results in many transactions occurring in cash, outside the banking system.

“This raises concerns with respect to public safety, increases difficulty tracking the flow of funds, and contributes to a loss of economic activity, workforce development and community development opportunities,” the letter said.

The few banks that serve the marijuana industry had previously relied on the so-called “Cole memo,” a Department of Justice report that protected legalized marijuana by giving other types of drug crimes a higher priority. The Financial Crimes Enforcement Network also had guidelines for banking the industry, involving suspicious activity reports.

Lawmakers also in recent years have tacked on to spending bills the “Rohrabacher amendment,” which essentially protects medical marijuana programs from prosecution by federal authorities.

Under U.S. Attorney General Jeff Sessions, a staunch marijuana opponent, the Justice Department rescinded the Cole memo, throwing many legal marijuana programs into uncertainty. Louisiana’s federal law enforcement officials have indicated the state’s medical marijuana program is not a priority.

Still, Ducrest said, banks face risk if they decide to do business with the industry, and the Rohrabacher amendment is a short-term fix.

“A majority of states now have medical marijuana programs and it has become increasingly necessary to craft policy to respond to emerging challenges in this rapidly growing industry,” the letter from financial regulators said. “We must work together to look for solutions rather than avoiding this challenge and ignoring the new policy landscape.”

New Federal Bill would Allow Banking for Marijuana Businesses

Bill co-sponsored by U.S. Representatives in Colorado, Washington and Alaska would allow banks to serve cannabis businesses without fear of federal penalties

The Cannabist/Apr 27, 2017/Alicia Wallace

Marijuana businesses can’t openly bank and congressman Ed Perlmutter, D-Colo., is hoping to change that.

Perlmutter on Thursday introduced the Secure and Fair Enforcement Banking Act (SAFE Banking Act), legislation that would allow banks to serve marijuana-related businesses without fear of penalties from the federal government.

The bill is a reintroduction of the Marijuana Businesses Access to Banking Act, which was first introduced in 2013 — and again in 2015 — and subsequently languished.

Whether the third time’s the charm remains to be seen, but a lot has changed in four years — and even two years — for the marijuana legalization landscape, Perlmutter and co-sponsors Denny Heck, D-Washington, and Don Young, R-Alaska, said in a statement.

Twenty-nine states and a couple of U.S. territories have legalized the medical use of marijuana. Among those, eight states and Washington, D.C., also allow recreational use by adults over 21 years of age.

“There’s just too much danger in the buildup of cash,” Perlmutter said in an interview with The Cannabist.

Perlmutter positioned the legislation as a means to boost public safety, referencing threats that arise as a result of businesses operating primarily in cash. He noted the death of Travis Mason, a security guard who was killed during an attempted robbery of a marijuana dispensary in Aurora, Colorado.

U.S. Rep. Ed Perlmutter, D-Colorado. (John Leyba, Denver Post file)

Perlmutter said he’s optimistic that the bill would find acceptance among members of Congress.

It would need to make it out of House Financial Services Committee first.

Perlmutter said that the most significant hurdles facing the SAFE Banking Act are committee leaders who haven’t been favorable to marijuana legislation. Perlmutter said he’s spoken with House Majority Leader Kevin McCarthy, R-Calif., about helping to ease some of those committee blockades.

“We’ve got to get the federal laws and the state laws to align and not be in conflict with one another,” Perlmutter said.

In the absence of specific banking laws to address the cannabis industry, banks, marijuana businesses and regulators are operating under a series of guidelines held over from the Obama administration.

Akin to the Cole Memo, which is the Justice Department’s guidance on marijuana law enforcement policy priorities, the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) in 2014 issued a directive for how banks could conduct business with marijuana firms in states with legal cannabis.

State financial regulators and members of the cannabis industry have argued that the guidance wasn’t clear enough and didn’t go far enough to spur greater participation from banking institutions.

The FinCEN guidance remains in place, but for how long, Perlmutter said he’s been given no assurances.

“So far, they’re following those guidelines and allowing for these banking transactions to proceed,” he said. “But I’ve heard from others — other banks, other credit unions — who want the law to be specific; so they aren’t just relying on this guidance out of the Treasury Department