The STATES Act a "Fix" to Cannabis Banking?

It seems every few months lately we hear about a new bill introduced to address the conflict between federal law and the laws of the now 29 states that have legalized marijuana. Nevertheless, these bills never seem to make it out of committee. Public sentiment, and even sentiment in the highest levels of government, is shifting in favor of solutions for a growing $9 Billion industry.

Cannabis reform legislation isn't likely to get serious discussion in either chamber of Congress without continued pressure, though it could become a hot-topic of the midterm elections. Regardless, it is not a matter of "if" we will see reform - it is only a matter of "when." Few other than Jeff Sessions would argue that there is a realistic chance of policy going backward rather than forward.

The latest legislative effort, one with signals of bipartisan support, is The STATES Act(“Strengthening the Tenth Amendment Through Entrusting States Act”). The bill was introduced on June 7 by Senators Gardner (R) and Warren (D). It proposes to modify the Controlled Substances Act (CSA) to exempt application of the CSA to the state-law compliant sale of marijuana in states that have legalized. To wit, the bill states that the CSA "shall not apply to any person acting in compliance with State law relating to the manufacture, production, possession, distribution, dispensation, administration, or delivery of marihuana." 

The key phrase, and the one that should give pause to individuals claiming that this bill would usher in an era of laissez-faire marijuana banking, addresses that Marijuana Related Business revenues derived "in compliance with this Act ... shall not be deemed to be the proceeds of an unlawful transaction." Such language, if passed into law, would seem to create an extremely thin margin between lawfully and unlawfully banking the industry. Even slight deviations from state law could arguably undo any and all intended legal protections against federal agency enforcement.

This 'bright line rule' may even result in a shift in enforcement priorities. With the same agencies seeking to justify their budgets and resources in an era of increased relaxation of CSA laws, it is possible agencies look for ever-smaller levels of legal infraction to enforce.

While such a change in law would most certainly be welcomed by the handful of financial institutions that are intentionally serving the cannabis industry, don't expect most banks to rush into the space. Enhanced due diligence and continuous monitoring for illegal activity and compliance with the law will remain just as important to banking the cannabis industry as it is today.

As this industry continues to be brought from the shadows and into the light, only legally compliant businesses will truly be able to thrive and grow as the industry consolidates. Financial institutions looking to capitalize on banking the marijuana industry should embrace the same philosophy and set high standards for their legal cannabis clients.