New Pot Banking Guidelines Moot in CA?

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Thanks to some recent direction from the Obama administration, banks are now allowed to do business with folks who make their living in the legal marijuana trade. But, maybe not in California.

In response to a growing uneasiness with the cannabis cash conundrum, spurred at least in part by the introduction of legal recreational marijuana sales in Colorado, the U.S. Department of Justice and the Financial Crimes Enforcement Network issued new guidelines to financial institutions that it appears will allow them to knowingly accept deposits of pot proceeds.

Because marijuana is classified as a Schedule 1 drug under the Controlled Substances Act, the feds traditionally taken a hardline stance with banks, which are forbidden from knowingly doing business with drug dealers. Despite marijuana’s varying legal status in dozens of states, the Department of Justice has essentially maintained that dispensaries are drug dealers and that banks doing business with them, consequently, risked a severe federal response. This leaves folks in the marijuana business either sitting on huge amounts of cash or essentially having to launder their proceeds through personal bank accounts or other businesses.

Thanks in a large part to the legalization of recreational marijuana in Colorado, the issue has received increasing media attention, with a recent Time Magazine story recently detailing how Colorado pot shop owners are travelling with briefcases full of cash, dolling out payroll in $20 bills and financing multi-million dollar construction projects with cold hard cash. Noting that some of Colorado’s marijuana entrepreneurs have taken to storing their money in secret, high-security warehouses, the story quotes Betty Aldworth, a former deputy director of the National Cannabis Industry Association, as saying the lack of access to banking is “the single most dangerous aspect of legal marijuana.”

But the new guidelines promise to change that, allowing banking institutions and credit card companies to do business with marijuana shops and dispensaries as long as they do due diligence to make sure everything is above board.

“In assessing the risk of providing services to a marijuana-related business, a financial institution should conduct customer due diligence that includes: (i) verifying with the appropriate state authorities whether the business is duly licensed and registered; (ii) reviewing the license application (and related documentation) submitted by the business for obtaining a state license to operate its marijuana-related business…,” the guidelines read.

Those two provisions might render the whole thing moot in California, which does not have a state licensing system and, instead, relies on local ordinances to regulate medical marijuana dispensaries and collectives.

Local dispensary owners have historically been tight lipped about their banking status. That’s understandable, but it means the local impact of the new federal banking guidelines and the uncertainty of their application in California remains unclear. The Journal reached out to a number of local dispensaries on the issue, but has not heard back. We’ll update this story if we do.

While there’s uncertainty in California, most in the marijuana movement seem to agree the new guidelines represent a huge step forward. Americans for Safe Access (ASA), a medical marijuana advocacy group, issued a press release saying the new guidelines will make the industry safer for both dispensaries and their patients, who will no longer have to use cash to get their medication.

“We will certainly be working with banks, credit unions and credit card companies to ensure proper implementation of this federal guidance,” said ASA Executive Director Steph Sherer in a press release. “Removing the risks of operating as an ‘all-cash’ business cannot be overstated, but we will also continue to put pressure on the Obama Administration to wrap these types of discrete practices into a more comprehensive medical marijuana policy.”

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