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.”

Can Senator Elizabeth Warren help fix banking issues for the cannabis industry?

Can Sen. Elizabeth Warren help fix banking issues for cannabis industry?

The Associated Press/January 3, 2017/Steve Leblanc

BOSTON — As marijuana shops sprout in states that have legalized the drug, they face a critical stumbling block — lack of access to the kind of routine banking services other businesses take for granted.

U.S. Sen. Elizabeth Warren, a Massachusetts Democrat, is leading an effort to make sure vendors working with legal marijuana businesses, from chemists who test marijuana for harmful substances to firms that provide security, don’t have their banking services taken away.

It’s part of a wider effort by Warren and others to bring the burgeoning $7 billion marijuana industry in from a fiscal limbo she said forces many shops to rely solely on cash, making them tempting targets for criminals.

After voters in Warren’s home state approved a November ballot question to legalize the recreational use of pot, she joined nine other senators in sending a letter to a key federal regulator, the Financial Crimes Enforcement Network, calling on it to issue additional guidance to help banks provide services to marijuana shop vendors.

Twenty-eight states have legalized marijuana for medicinal or recreational use.

Warren, a member of the Senate Banking Committee, said there are benefits to letting marijuana-based businesses move away from a cash-only model.

“You make sure that people are really paying their taxes. You know that the money is not being diverted to some kind of criminal enterprise,” Warren said recently. “And it’s just a plain old safety issue. You don’t want people walking in with guns and masks and saying, ‘Give me all your cash.’”

A spokesman for the Financial Crimes Enforcement Network said the agency is reviewing the letter.

There has been some movement to accommodate the banking needs of marijuana businesses.

Two years ago, the U.S. Department of the Treasury gave banks permission to do business with legal marijuana entities under some conditions. Since then, the number of banks and credit unions willing to handle pot money rose from 51 in 2014 to 301 in 2016.

Warren, however, said fewer than 3 percent of the nation’s 11,954 federally regulated banks and credit unions are serving the cannabis industry.

Taylor West, deputy director of the National Cannabis Industry Association, a trade organization for 1,100 marijuana businesses nationwide, said access to banking remains a top concern.

“What the industry needs is a sustainable solution that services the entire industry instead of tinkering around the edges,” Taylor said. “You don’t have to be fully in favor of legalized marijuana to know that it helps no one to force these businesses outside the banking system.”

Sam Kamin, a professor at the University of Denver Sturm College of Law who studies marijuana regulation, said there’s only so much states can do on their own.

“The stumbling block over and over again is the federal illegality,” he said.

The federal government lumps marijuana into the same class of drugs as heroin, LSD and peyote. Democratic President Barack Obama’s administration has essentially turned a blind eye to state laws legalizing the drug, and supporters of legalizing marijuana hope Republican President-elect Donald Trump will follow suit.

Trump officials did not respond to a request for comment. During the presidential campaign, Trump said states should be allowed to legalize marijuana and has expressed support for medicinal use. But he also has sounded more skeptical about recreational use, and his pick for attorney general, Alabama U.S. Sen. Jeff Sessions, is a stern critic.

Some people in the marijuana industry say the banking challenges are merely growing pains for an industry evolving from mom-and-pop outlets.

Nicholas Vita, CEO of Columbia Care, one of the nation’s largest providers of medical marijuana products, said it’s up to marijuana businesses to make sure their financial house is in order.

“It’s not just as simple as asking the banks to open their doors,” Vita said. “The industry also needs to develop a set of standards that are acceptable to the banks.”