The future of financial services for marijuana businesses may be brighter if current nominee for attorney general William Barr is confirmed by the U.S. Senate for the position.
During his confirmation hearings, although indicating that true clarity on the issue requires action by Congress, Barr signaled that he would likely return to the hands-off enforcement perspective espoused by the Obama administration.
What happened
As the number of states that have legalized marijuana continues to rise (at last count, 10 states have legalized recreational use while 33 have authorized medical use), the financial services industry has struggled with how to address the banking needs of the growing—and lucrative—industry.
Marijuana remains illegal under the federal Controlled Substances Act (CSA), and banks are prohibited from knowingly providing services to illegal enterprises. However, under the Obama administration, the Department of Justice (DOJ) adopted a hands-off federal policy that deferred to state governments, as set forth in the “Cole Memo,” a memorandum issued by then-Deputy Attorney General James M. Cole to all U.S. attorneys on the issue of enforcement of federal anti-marijuana laws in light of growing state acceptance.
However, the change in administration yielded changes in enforcement. Last January, Attorney General Jeff Sessions reversed course for the DOJ. In a one-page memorandum, he emphasized that marijuana remains illegal under federal drug laws and specifically referenced a provision of the Bank Secrecy Act (BSA) that requires financial institutions to create and maintain sufficient anti-money laundering (AML) policies and procedures.
Now, the tide could be changing again. At his recent confirmation hearings for the attorney general position, William Barr signaled that he would be open to the position taken in the Cole Memo with respect to investments that have been made in marijuana-related businesses.
“My approach to this would be to not upset settled expectations on the reliance interests that have arisen as a result of the Cole memorandum,” Barr said in answer to a line of questioning from Sen. Cory Booker (D-N.J.). “Investments have been made and there has been reliance on it, so I don’t think it’s appropriate to upset those interests.”
However, Barr indicated he was not a fan of legalized marijuana as a general rule, stating that “it’s a mistake to back off on marijuana,” adding that he would support a federal law prohibiting it entirely. Characterizing the current uncertainty as “untenable,” Barr told lawmakers that for the sake of clarity, legislators must act. “It’s incumbent on Congress to make a decision,” he testified.
Why it matters
Whether Barr’s affirmation of the Cole Memo will result in an open path for mainstream banking for marijuana businesses remains an open question, but his comments at the confirmation hearing suggest at the very least a less antagonistic perspective than his predecessor’s. Such an approach could be beneficial for the marijuana industry and its hopes for a relationship with more traditional financial services institutions. Before traditional banks will feel comfortable banking the marijuana industry, however, federal regulatory agencies will also have to be clear and transparent about what the parameters and expectations are for their constituents.