Banking and Marijuana-Related Businesses, by Michael L. Salad and Brittany A. Bonetti

Click here for a printable copy: Michael Salad and Brittany Bonetti article Banking and Marijuana-Related Businesses  NJ Lawyer mag Oct 2018

This article was originally published in the October 2018 issue of New Jersey Lawyer, a publication of the New Jersey State Bar Association, and is reprinted here with permission.

Since federal regulators began reinterpreting the United States’ position on marijuana in 2014, the number of state-sanctioned marijuana-related businesses (MRBs) has exploded, leaving MRBs with an abundance of cash, but not many places to deposit it. The New Jersey Department of Health approved six alternative treatment centers (ATCs), which pro-vide qualifying patients with medicinal marijuana and related paraphernalia. These ATCs are a type of MRB. On July 16 of this year, the department released a request for applications (RFA) for up to six additional ATCs. The department expects to release future RFAs this fall and in the winter of 2019.

This year’s forecast for nationwide sales of state-sanctioned marijuana is estimated to be $11 billion.1 However, the vast majority of the United States’ financial services industry has declined to enter the MRB market due to uncertainties in state and federal marijuana laws, rules, regulations, and policies. While it is undisputed that the mechanisms for harmonizing jurisdictional treatment of marijuana are incomplete, banks and credit unions may utilize certain tools to mitigate the risk of serving MRBs. Financial institutions seeking to serve MRBs must implement enhanced risk assessment and customer due diligence.

Examination of Federal Law

Marijuana remains classified as a Schedule I controlled substance by the federal Controlled Substances Act (CSA), and as such, manufacturing, distributing, or dispensing marijuana remains illegal at the federal level.2 The Bank Secrecy Act (BSA) requires all banks to file suspicious activities reports (SAR) for transactions conducted or attempted by, at, or through the bank and aggregating $5,000 or more, if the bank suspects, or has reason to suspect the transaction: 1) may involve potential money laundering or other illegal activity; 2) is designed to evade the BSA or its implementing regulations; or 3) has no business or apparent lawful pur-pose.3 The Money Laundering Control Act makes it a criminal offense to carry out certain monetary transactions with funds derived from specified unlawful activities, including funds derived from marijuana-related conduct.4 Regardless of whether a state has sanctioned MRBs, funds derived from MRBs trigger SAR filing obligations for banks depositing those funds.

From 1970 to 2013, federal regulators strictly construed the meaning of enforcement actions under the CSA and BSA. As such, the United States Department of the Treasury could find financial institutions to be in violation of the Money Laundering Control Act, jeopardizing such institutions’ eligibility with the Federal Deposit Insurance Corporation and participation with the Federal Reserve.

On Aug. 29, 2013, the Department of Justice released the now-defunct Cole memo issued by then Deputy Attorney General James M. Cole, which advised federal prosecutors to limit marijuana prosecutions to eight priorities. In response to the Cole memo, on Feb. 14, 2014, the Department of the Treasury, via the Financial Crimes Enforcement Network (FinCEN), clarified the obligations of financial institutions under the BSA, and instructed that:

  • A financial institution providing financial services to a marijuana-related business that it reasonably believes, based on its customer due diligence, does not implicate one of the Cole memo priorities or violate state law should file a “Marijuana Limited” SAR.
  • A financial institution filing a SAR on a marijuana-related business that it reasonably believes, based on its customer due diligence, implicates one of the Cole memo priorities or violates state law should file a “Marijuana Priority” SAR.
  • If a financial institution deems it necessary to terminate a relationship with a marijuana-related business in order to maintain an effective anti-money laundering compliance pro-gram, it should file a SAR and note in the narrative the basis for the termination. Financial institutions should use the term “Marijuana Termination” in the narrative section.

FinCEN’s Feb. 2014 guidance offers banks a way to comply with BSA obligations while engaging in financial trans-actions with state-sanctioned MRBs. Fin-CEN emphasized that banks with MRB accounts must implement enhanced due diligence procedures to identify conduct that implicates the eight Cole memo priorities. While the Cole memo was rescinded on Jan. 4 of this year, the Department of the Treasury confirmed that “The SAR reporting structure set forth in FinCEN’s Feb. 2014 guidance remains in place.”5 In effect, the eight Cole memo priorities still dictate the type of SAR that banks must file when accepting funds from MRBs. The Feb. 2014 FinCEN guidance does not, however, provide banks with immunity from civil or criminal penalties for serving MRBs. Instead, the guidance clarified the way in which banks may meet their BSA obligations while providing services to MRBs. Constant SAR filings and maintenance of an enhanced due diligence pro-gram can be a burden on banks that hold MRB accounts. It is the authors’ experience that some banks choose to hire out-side consultants to assist with the enhanced due diligence required for handling MRB accounts.

The Cole memo no longer provides banks with the level of comfort it once did; however, the Rohrabacher–Blumenauer Amendment remains in effect,6 meaning that no federal funds allocated to the Department of Justice may be used to prevent states from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana. Thus, the Rohrabacher–Blumenauer Amendment arguably shields banks serving state-sanctioned medical marijuana businesses from federal prosecution, provided those entities are compliant with state law.

Banks accepting MRB accounts must understand that the FinCEN guidance does not change the law and that the practical effect of FinCEN guidance can be limited when MRB issues arise in federal court. Federal judges have expressed reluctance to use their equitable powers to facilitate marijuana-related conduct that remains illegal under federal law.7

Examination of New Jersey Law 

New Jersey approved the issuance of the original six ATC permits through the New Jersey Compassionate Use Medical Marijuana Act in Jan. 2010.8 The act required these first six ATCs to be non-profit entities.9 The New Jersey Department of Health reports that 10,000 patients have joined the state’s medicinal marijuana program since Phil Murphy took office as governor in January of this year.10 As a result, the New Jersey Department of Health found that an additional six ATCs were necessary to meet the needs of the state’s growing patient population. Unlike the original six ATCs, the second set of ATCs may be either for-profit or nonprofit entities.11 In an effort to create more options for patients, the commissioner of the New Jersey Department of Health is encouraging physicians to view medicinal marijuana as a safe, effective method of treatment.

Even with the act and the Murphy administration’s support for New Jersey’s medicinal marijuana program, the manufacturing, distribution, and dispensing of medicinal marijuana remains illegal at the federal level. Accordingly, banks that accept ATC depository accounts, must comply with FinCEN’s SAR guidelines. While some banks in New Jersey have taken on MRB depository accounts, these same banks may be reluctant to provide MRBs with loans. As such, MRBs have heavily relied upon private financing. Some of the original six ATCs reportedly experienced financing challenges due to their nonprofit status.12 In April of this year, as a further obstacle to MRB financing, the U.S. Small Business Administration updated its standard operating procedures, which now explicitly prohibit SBA loans to businesses that directly derive revenue from marijuana-related activities (e.g., marijuana growers and marijuana dispensaries) or support the end-use of marijuana (e.g., marijuana testing services; entities providing lights, hydroponic equipment, or smoking devices; and leasing space to marijuana businesses).13 The second set of ATCs have the option of being for-profit, and, as such, will likely have better luck attracting private financing.

With regard to criminal implications at the state level, New Jersey law grants immunity from state prosecution through the act.14

Qualifying patient, primary caregiver, alternative treatment center, physician, or any other person acting in accordance with the provisions of this Act, shall not be subject to civil or administrative penalty, or denied any right or privilege, including, but not limited to, civil penalty or disciplinary action by a professional licensing board, related to the medical use of marijuana as authorized under the Act.15

Although the act does not define ‘per-son,’ New Jersey law states that the default definition of a ‘person’ includes “corporations, companies, associations, societies, firms, partnerships and joint stock companies” in the absence of a contrary definition.16  As such, the act arguably protects New Jersey financial institutions from state prosecution arising from financial transactions with ATCs.


Federal guidance and state laws have given New Jersey financial institutions a path for offering depository services to New Jersey ATCs with reduced risk. Though the current guidance may expand or contract in time, banks and credit unions, which comply with SAR filing requirements delineated by Fin-CEN and implement enhanced customer due diligence, may provide services to a highly underserved market. The need for banking will be magnified by New Jersey’s ongoing expansion of its medicinal marijuana program and the need will be further magnified if recreational marijuana use is legalized in the state.


  1. Aaron Smith, The U.S. Legal Marijuana Industry is Booming, CNN Money (Jan. 31, 2018) available at
  2. 21 U.S.C.A. § 812.
  3. 31 C.F.R. § 1020.320(a)(2).
  4. 18 U.S.C.A. § 1956.
  5. Letter from Drew Maloney, assistant secretary for legislative affairs, Department of the Treasury, to the Hon. Denny Heck, congressman for Washington’s 10th Congressional District (Jan. 31, 2018).
  6. The federal Rohrabacher-Blumenauer Amendment provides that no federal funds, made available to the Department of Justice, may be used to prevent states from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana. This federal prohibition was initially passed in 2014 and has been intermittently renewed since then. The amendment was most recently renewed on March 23, in the Consolidated Appropriations Act, 2018 (Pub. L. 115–141), which remains in effect through Sept. 30, and will be up for renewal at that time.
  7. Fourth Corner Credit Union v. FRB, 861 F.3d 1052 (10th Cir. 2017).
  8. N.J. Stat. 24:61-1 et seq.
  9. New Jersey Compassionate Use Medical Marijuana Act provides that the Department of Health “shall seek to ensure the availability of a sufficient number of alternative treatment centers throughout the State, pursuant to need, includ-ng at least two each in the north-ern, central, and southern regions of the State. The first two centers issued a permit in each region shall be nonprofit entities, and centers subsequently issued permits may be nonprofit or for-profit entities.” N.J. Stat. § 24:6I-7(a).
  10. ew Jersey Department of Health, Medicinal Marijuana Program Grows by 10,000 Patients Since Start of Murphy Administration (July 2, 2018) available at
  11. New Jersey Department of Health, Division of Medicinal Marijuana, Request for Applications (July 16, 2018) available at
  12. Susan K. Livio, N.J. Issues Permit to Second Medical Marijuana Dispensary, NJ.Com (Sept. 11, 2013, at 10:40 p.m.) _permit_to_second_med.html.
  13. SBA Policy Notice, “Revised Guidance on Credit Elsewhere and Other Provisions in SOP 50 10 5(J),” No. 5000-17057 (April 3, 2018).
  14. N.J. Stat. § 24:6I-6.
  15. Id.
  16. N.J. Stat. § 1:1-2.

MICHAEL L. SALAD is a partner with Cooper Levenson, P.A. and a member of the firm’s business and tax, cannabis law, and cyber risk management practice groups.

BRITTANY A. BONETTI is an associate with Cooper Levenson, P.A. and a member of the firm’s healthcare and cannabis law practice groups.


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