I am looking to see if there is anyone out there that is opening accounts for cannabis dispensaries. Yes, you read this correctly! We know that there is risk involved but since the FFIEC manual has not been updated to include that specific term we are looking for some guidance to see what any other financial institution may or may not be doing for these customers. So, your help would be appreciated.

Thank you!

Intriguing question, but let me add a little background.

California is one of 13 states that recognizes medical marijuana as a legal drug. There, it can be prescribed by a doctor under some pretty loose standards. There are also "local;" e.g. county ordinances that further regulate its cultivation and sale.

Nevertheless, its use and cultivation remain illegal under federal law. Federal raids of licensed facilities are still taking place even though it was announced that they were being discontinued.

My personal opinion is that you will never see anything in the BSA/AML Handbook that will bless the practice of providing banking services to someone acting in contravention of federal law. This isn't like banking an MSB.

Yet, obviously some banks (knowingly or otherwise) are banking these customers. I too would be fascinated to know how you do it...

California Banker here:

At my former bank & my current bank, we take the position that the risk outweighs the rewards, and have opted not to bank these types of businesses.

My opinion is if we do, we are knowingly allowing "illegal" activity & drug money to be funneled through the banking system. I would have to file SARs on these businesses all the time. I have no idea how other banks can justify banking them. I would love to know. Unless you took the time to go to each place & "police" that all their prescriptions are legitimate, I don't know how you can get around the SAR issue.

The closest we ever got to this at my former bank (in CA) was one of our customers who was a doctor (now deceased). He was an issuer of medical marijuana cards. After he passed away it was revealed that he was one of the highest volume issuers of these cards in the county. We never had to deal with anyone who "legally" provided the drug itself to individuals for "medicinal" use.

We very closely monitored his personal and professional account relationships with us. Fortunately his activity was consistent with expected for his profession in terms of cash volume and deposits.

Even though he didn't dispense it through his practice, we were still very uncomfortable with him in relation to an illegal drug. It was very much *not* worth the time invested to keep track of his activity in my opinion.

Bump. I'm a little fixated on the issues presented...does anyone knowingly open or maintain these accounts?

We don't. But since they are a legal business in the state of California, I'm thinking some bank somewhere is banking them.

Legal under state law. The fact that the feds often turn a blind eye doesn't mean that these businesses aren't breaking federal laws.

Agreed, John.

There have been quite a few news stories in the last year or so on this issue - some dispensaries have been raided and closed by the feds. And there are ongoing issues because some cities don't want them at all.

Exactly John. So how can a bank ... in a sense Bank them, without having to file SARs every day? (or as required).

I'm guessing it's the larger banks like BofA or Wells that take them on? Or maybe the regulators are turning a blind eye as well? Couldn't that open a can of worms on "willfull blindness"?

whoa dudes ... heavy stuff here man ...

I believe that if you read most of the lawsuits, funds are usually run through personal accounts (as banks won't touch them once they figure out what they do) and if they accept debt cards they utilize a non-bank intermediary to clear the transactions.

I'm guessing this is how it goes down then:

After the Cannabis Dispensary has been turned down by X number of banks ... they get "smart" & lie about their business.

Once the bank conducts their due diligence (hopefully) - they discover the true nature of the business & close the account.

So the Dispensary travels to the next bank & so on & so forth.

Depending on how fast or how thorough a bank conducts their EDD, depends how long the business has a bank account.

I could potentially see a bank get into a lot of trouble if it was discovered they didn't follow their procedures & a business like this stayed "undetected".



Good selling point to management why business "drive bys" are so very important.

Colorado Banker here

We have decided to NOT bank these types of businesses. Law suits have been threatened, but we're willing to take our chances.

Another CO banker -

We decided not to bank these businesses also. Unfortunately, we had a number of existing accounts we at corporate HQ didn't know about that had to be shut down.

We had one dispensary attempting to open a new account tell us they were in "agriculture"...which is not technically incorrect.

Email from FDIC contact:

"Well, according to discussions that I have had with law enforcement, it is their opinion that most of these entities do not follow all of the CA state legal requirements in order to meet the definitions of state law. Law enforcement has indicated to me that most of these co-ops do not meet all of the restrictions on obtaining the drug, supply lines for the drug, and distribution of the drug in order to comply with state law. I am not an expert on state law, but it is my understanding that there are limited sources that they can purchase from and most of them do not purchase from these sources, but use known drug dealers or known drug supply lines. It is my understanding that Wells and B of A will bank these places, and I would continue to leave this higher-risk area to them."

New medical marijana policy for feds to be announced. "...it is not a good use of federal manpower to prosecute those who are without a doubt in compliance with state law."

I'm not certain how they would know "without a doubt" that someone is in compliance with state law. "Don't inhale" made more sense.

"At the same time, the officials said, the government will still prosecute those who use medical marijuana as a cover for other illegal activity ... In particular, the memo urges prosecutors to pursue marijuana cases which involve violence, the illegal use of firearms, selling pot to minors, money laundering or involvement in other crimes."

http://www.latimes.com/news/local/la-me-medical-marijuana9-2009oct09,0,5210895.story

Los Angeles County Dist. Atty. Steve Cooley said Thursday he will prosecute medical marijuana dispensaries for over-the-counter sales, targeting a practice that has become commonplace under an initiative approved by California voters more than a decade ago.

"The vast, vast, vast majority, about 100%, of dispensaries in Los Angeles County and the city are operating illegally, they are dealing marijuana illegally, according to our theory," he said. "The time is right to deal with this problem."

So L.A. is going the other way now.

Sorry, but that's actually pretty funny.

"We are a nation of laws, not men..." What did John Adams know anyway?

FYI

http://blogs.usdoj.gov/blog/archives/192

whoa dudes ... heavy stuff here man ...


That cracked me up!!! Anyone else have the munchies??

Well, we were just approached to bank one of these. I have no idea what decision we're going to make. From all the posts here, it doesn't look like anyone's banking them. I have no idea what kind of due dilligence we'd even do on one of these companies to even know if they were doing everything legal. Yikes. Why me.

By analogy, when banks provide services to businesses whose activities may include significant legal pitfalls, they require ongoing evidence of licensure and may require a third party review. For example, with a high risk MSB or an Internet gambling operation the bank could require an annual compliance audit from a third party.

If your marketing people are hellbent on banking the cannabis dispensary, I suggest you make a periodic third party review a condition of acceptance. (Requiring licensure information is a no-brainer that doesn't merit discussion.)

Note, my analogy is weakened by the fact that in the first two examples, what is acceptable under the law is pretty clear. In this instance, state and federal agencies were initially on opposite sides of the fence. To complicate things and make Kafka proud, they have (as illustrated above) each climbed over to the opposite side to continue the crossfire.

This post from three years ago contained a paragraph speculating that a bank could become comfortable banking these folks if it banked enough of them to gain the necessary expertise. I've deleted it because I no longer think it's prudent. There has been no reconcilation in the laws in the interim; I now simply belive opening these accounts would be imprudent.

some snippets from a great article in MoneyLaundering.com

Many Banks, Payment Operators Dropping Accounts of Medical Marijuana Clinics

More than 100 medical marijuana clinics have seen their accounts closed in the last 18 months by at least three U.S. banks concerned about regulatory repercussions...

Bank of America, Wells Fargo and U.S. Bank are among the financial institutions that have dropped accounts held by the clinics in more than a dozen states...

... What’s more, law enforcement agents and regulators have explicitly told banks that holding such accounts is an invitation for additional scrutiny.

“You bet that would mean regulators would ask more questions,” to see not only if banks had properly vetted the clinics at the outset of the relationship but had also monitored the accounts for suspicious behavior, said the person, a former examiner at the U.S. Treasury Department’s Office of the Comptroller of the Currency.

Complicating the due diligence on the companies is the fact that medical marijuana laws vary widely from state to state, and even from city to city, making the job of tracking them while monitoring for suspicious activity and staying abreast of the whims of lawmakers an untenable burden.

... Compliance officers must ensure that the operation’s business patterns are commensurate with its size and that transactions with patients are tracked and audited ... Banks should look into whether those running the business have criminal backgrounds and if the operation has held bank accounts at one institution for many years, or has been jumping around to different banks.

Denver Post Article courtesy of Retread

Here's an update.

http://www.cutimes.com/News/2010/2/Pages...ansactions.aspx