Written by Pamela Yu, Special Counsel for Compliance and Research
The complex legal and political landscape with respect to marijuana banking continues to shift. At last count, 29 states and the District of Columbia (DC) have legalized medical marijuana. Nine states and DC have also sanctioned adult-use recreational marijuana, with California becoming the latest and largest state to begin legal sales of recreational marijuana in January. Massachusetts and Maine will soon follow suit later this year. However, since marijuana remains federally illegal under the Controlled Substances Act, federal criminal statutes continue to be implicated for credit unions handling marijuana-related funds.
Here's what's new with marijuana banking—
Effect of policy shift remains unclear
On January 4, the attorney general issued a memorandum to direct federal prosecutors to return to "previously established prosecutorial principles," in marijuana enforcement, thus eliminating the Obama-era directives (See, 2013 and 2014 Cole Memos) that provided some degree of guidance for credit unions in navigating the conflict between federal illegality and state legality of marijuana.
While it was immediately clear that the policy shift would further complicate matters with respect to marijuana banking, it was—and continues to be—unclear whether the roll-back of marijuana guidance will mean a federal crackdown on marijuana enforcement by federal prosecutors. Some states have quickly signaled that they will not adjust their enforcement priorities: Colorado's Attorney General encouraged people "not to freak out," and the state's top prosecutor said his office will not be changing its approach to marijuana enforcement as a result of the policy withdrawal. On the other hand, other states—like Massachusetts—appeared to signal that legal marijuana sellers in the state may not be "immune from federal prosecution" in light of the shift in federal policy.
BSA guidance stays intact (for now)
Meanwhile, the Financial Crimes Enforcement Network's (FinCEN) 2014 BSA guidance, which clarifies "how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations," is still in place—at least for the time being. See, FIN-2014-G001. Despite the fact that FinCEN's guidance relied on the enforcement posture of the now-rescinded Cole Memos, the Treasury Department has signaled that it may support banking for marijuana-related businesses.
In recent testimony before the House Financial Services Committee, Treasury Secretary Mnuchin acknowledged lawmakers' public safety concerns relative to unbanked pot businesses, saying, "I assure you that we don't want bags of cash," and adding that "We want to make sure that we can collect our necessary taxes and other things" from marijuana businesses.
Earlier, in response to a letter from a bipartisan group of 31 House members that asked FinCEN to retain the marijuana banking guidance, a Treasury official indicated that the department was "reviewing the [marijuana banking] guidance in light of the Attorney General's announcement and [was] consulting with law enforcement" about the BSA guidelines. And last month, Treasury's deputy secretary testified at a Senate hearing that the FinCEN guidance remains in effect while the administration weighs whether to revoke it.
Fourth Corner continues legal bid to become first cannabis credit union
After a federal appellate court last year ruled in favor of The Fourth Corner Credit Union (Fourth Corner) in its lawsuit against the Federal Reserve Bank of Kansas City (Fed Bank), the beleaguered credit union has finally obtained its master account. Fourth Corner, a state-chartered credit union formed to serve Colorado's legalized marijuana industry and its supporters, was chartered under a quirky legal provision in 2014 and has been fighting to open for business ever since.
On February 7, the Fed Bank granted Fourth Corner conditional approval of its master account application, but the credit union cannot serve marijuana-related businesses directly until serving those businesses is federally legal. Instead, the credit union will focus on individuals and ancillary groups that support legalized marijuana, including those who partner with vendors, such as accountants and landlords, as well as security, packaging, technology and consulting companies that service marijuana businesses. The conditional approval is consistent with the 10th Circuit opinion, which found that the Fed Bank was required to indiscriminately make Federal Reserve services available to "all depository institutions," but also concluded that "servicing marijuana-related businesses is illegal."
While this is good news for the credit union, remember that the conundrum has always been the ability to serve marijuana businesses that are legal under state law but illegal under federal law. Fourth Corner may finally get the chance to open its doors, but it will not be serving marijuana dispensaries and other pot businesses. Thus, marijuana-related business in Colorado will remain unbanked, despite the credit union's legal victories.
Meanwhile, Fourth Corner's lawsuit against NCUA over share insurance is still pending. Now that the credit union has been granted Fed system access, the only thing it needs to get up and running is share insurance. Fourth Corner sued NCUA in 2015 after the agency denied its share insurance application but in light of the Fed Bank's approval, Fourth Corner has asked a federal court to help deliver a faster resolution in the dispute. According to the credit union's February 15 motion to compel, NCUA asked Fourth Corner to voluntarily dismiss the case and reapply for insurance but did not give the credit union any assurances that the agency will timely act on a new application (or approve it) if they reapply. Thus, instead of dropping the suit, Fourth Corner is seeking resolution through mediation. Fourth Corner has asked that the court order mediation to take place within 30 days. The court would stay the proceedings during the dispute resolution process.
Alternative dispute resolution could be a positive step toward resolving the credit union's legal tussle with the agency and, perhaps, obtaining federal share insurance. However, this morning, NCUA filed a Motion for Judgment on the Pleadings, arguing that the court should dismiss the case "as the controversy that gave rise to [the] lawsuit is now moot." In other words, because Fourth Corner has now made a "massive change" to its business plan and field of membership and resolved its dispute with the Fed Bank, the circumstances and key facts underlying the credit union's complaint have materially changed. Thus, the agency asserts there is no longer a "live controversy" before the court. In short, NCUA wants the case thrown out and Fourth Corner to file a new insurance application.
It is now up to the court to decide whether to grant Fourth Corner's request to compel mediation or to dismiss the case based on NCUA's new motion. The outcome of Fourth Corner's legal dispute with NCUA will determine if we are likely to see our first cannabis-friendly credit union operating soon.
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