CPA Now
Oct 28, 2016

Banking for Marijuana: Is It Worth the Risk?

Nick Zagacki, CPABy Nick Zagacki, CPA | KPMG


On April 17, 2016, Pennsylvania Gov. Tom Wolf signed the Medical Marijuana Act, which legalized medical marijuana in the state. Pennsylvania emerged as the 24th state to legalize medical marijuana. Private businesses will handle cultivation, processing, dispensing, and other services related to the marijuana industry. As with any business, the industry will rely on banks to provide checking and savings accounts, business loans, mortgages, credit card processing, and other financial services. While medical marijuana is legal in Pennsylvania, the U.S. Congress maintains that marijuana, a controlled substance classified as a Schedule 1 drug, is a dangerous drug and that the illegal distribution and sale of marijuana is a serious crime. This creates hesitation from banks when considering accepting customers whose businesses relate to marijuana.

If a financial institution accepts deposits, offers loans, or provides other financial services to a marijuana business, it would be violating federal law. The Controlled Substance Act (CAS) and the Bank Secrecy Act (BSA) are federal laws that place restrictions on banks serving clients in the marijuana industry. The CSA prohibits manufacturing, distributing, or dispensing controlled substances, but federal law also criminalizes conduct beyond directly handling controlled substances, such as providing financial services. The BSA requires financial institutions to support the U.S. government in detecting and preventing money laundering. The Office of the Comptroller of the Currency, a division of the U.S. Department of the Treasury (Treasury), conducts regular examinations of financial institutions supporting the marijuana industry to determine compliance with the regulations outlined in the BSA. Financial institutions are required to maintain appropriate records and file certain reports detailing involvement with currency transactions. If a bank does not abide by the rules set forth in the CSA or BSA, there may be severe consequences.

To further complicate the situation, in February 2014 Treasury’s Financial Crimes Enforcement Network released guidance (FIN-2014-G001) that provides clarification on how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations. It’s confusing to some that Treasury would release this guidance considering the fact that federal law criminalizes businesses dealing with the marijuana industry. It’s important to note that these guidelines do not provide immunity from prosecution or penalties. The guidance states that before accepting, and while providing services for, a marijuana business the bank should perform the following due diligence:

  • Ensure the business is registered and holds a license with the state
  • Request available information from the state licensing and enforcement authorities
  • Develop an understanding of the business activities
  • Perform ongoing monitoring of the business and related parties for publicly available adverse information
  • Perform ongoing monitoring for red flags, as described in the guidance

If a financial institution knows or suspects a marijuana business violated the law, it is required to file a Suspicious Activity Report (SAR) in accordance with the BSA. Treasury will then determine what actions, if any, are necessary.

According to Politico, several major banks will not serve customers in the marijuana industry. The overall concern is the legality of serving a marijuana business in the United States and the potential to face harsh fines and penalties. Although major banks will not serve the industry, Marijuana Business Daily posted a directory of more than 100 banks that provide various financial services to the industry. Even if a business is able to get a bank account, it doesn’t mean it will last long. Many marijuana businesses are abandoned by their bank after months of service. This leaves them with two options: find a new bank or operate as a cash-only business. The risks associated with conducting a cash-only business, especially one with high revenue streams, are immense. And since it is widely known that most of the industry operates this way, the businesses are subject to armed robberies.

With more politicians favoring the legalization of marijuana, it seems the industry will be here to stay. It’s possible that one day marijuana will be declassified as a schedule 1 drug, which will eliminate the issues mentioned above. In the meantime, many banks believe that the rewards may outweigh the risks.


Nick Zagacki, CPA, is a senior associate in the advisory practice at KPMG in Philadelphia.


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