Banks, Regulated by Federal Government, Obliged to Say No To Marijuana Businesses - States Urge Congress to Act

Marijuana and money.  Often intertwined as an increasing number of states, including Connecticut, broaden the legal availability of the long-banned substance, there remains a substantial roadblock to smooth transitions from prohibition to legalization.  Federal law continues to prohibit marijuana, which generally prevents businesses in the burgeoning industry from access to financial institutions.

Now, Connecticut Attorney General William Tong and a bipartisan coalition of colleagues representing 38 states and territories are urging Congress to pass the federal Secure and Fair Enforcement (SAFE) Banking Act (H.R. 1595) or similar measures that would give legal marijuana-related businesses access to the federal banking system.

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As the American Banking Association (ABA) points out, states and territories covering 68% of the nation’s population - have all legalized the use of marijuana to some degree. Yet the possession, distribution or sale of marijuana remains illegal under federal law, which means any contact with money that can be traced back to state marijuana operations could be considered money laundering and expose a bank to significant legal, operational and regulatory risk.

Thus, banks are largely saying no to businesses associated with marijuana – even if their doing so is perfectly legal under state law where they conduct business.  Connecticut, for example, permits medicinal marijuana and the state legislature is currently considering legalization of recreational marijuana. Neighboring Massachusetts did so last year.

Under existing law, federal regulators prohibit financial institutions from providing services to marijuana businesses in states where medical or retail marijuana sales are legal. Forcing legal businesses to operate as cash-only operations poses serious safety threats, creating targets for violent and white-collar crime. The SAFE Banking Act would permit marijuana-related businesses in states and territories with existing regulatory structures to access the federal banking system.

“Current federal law prevents banks from banking cannabis businesses, as well as the ancillary businesses that provide them with goods and services,” the ABA has explained. “Without greater clarity, that entire portion of economic activity—estimated by some to be in the tens of billions of dollars—in legal cannabis states will continue to be marginalized from the banking system.”


"Denying licensed medical marijuana-related businesses access to the federal banking system creates unnecessary vulnerability and safety risks. Businesses that are forced to operate as cash-only makes them targets for criminal activity, and makes it more difficult to track revenues for tax and compliance purposes. I join state attorneys general across the country in urging Congress to pass the SAFE Banking Act to give these businesses – legal under state law –  access to the same regulated banking system as other businesses," said Attorney General Tong.

In addition to growers and retailers, there are vendors and suppliers, landlords and employees that are indirectly tied to the cannabis industry, thus posing legal risk for banks serving such entities and individuals, as indirect connections to marijuana revenues are hard, if not impossible, for banks to identify and avoid, the ABA has said.

Connecticut’s legislature has had three committees approve various aspects of legalization of marijuana in the state, which would go beyond the current medicinal use, approved a few years ago.  Legislators are currently discussing how best to combine the three bills into one that would be voted on in the House and Senate.  The 2019 legislative session is mandated to end on June 5.

Connecticut’s existing medical marijuana program has licensed nine dispensaries, in Hartford, Milford, Branford, Waterbury, Bethel, Mansfield, South Windsor, Uncasville, Bristol, and Meriden.  Four producers have also been licensed. There are 1,103 physicians participating in the program, with a total of 33,434 patients as of this week, according to data provided by the Department of Consumer Protection.

The SAFE Banking Act has widespread, bipartisan support with 172 cosponsors in the U.S. House. The House Financial Services Committee approved the bill in March and now it awaits a vote by the full House. With the backing of 38 of the nation’s Attorneys General, the National Association of Attorneys General (NAAG) has chosen to endorse the legislation as one of its official policy positions. Historically, NAAG endorses less than a dozen policies a year.


The rift between federal and state law has left banks trapped between their mission to serve the financial needs of their local communities and the threat of federal enforcement action.  In an op-ed earlier this year by Rob Nichols, president of the American Bankers Association, it was noted that “industry survey found that 99 percent of respondents want Congress to bridge the divide between state and federal laws, regardless of whether they operate in a state that has legalized cannabis or whether they intend to serve the industry. Banks simply want the cannabis conundrum to end so they can serve their customers and communities as they always have.”

He noted that “Reconciling the legal divide between state and federal laws would bring benefits to the communities banks serve. The estimated $24 billion in cannabis sales by 2025 in states where marijuana has been legalized could be deposited safely with federally regulated financial institutions, enhancing transparency, public safety, and tax revenue.”

The coalition of states and territories includes Alaska, Arizona, Arkansas, California, Connecticut, Colorado, Delaware, the District of Columbia, Guam, Hawaii, Illinois, Iowa, Kentucky, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Nevada, New Jersey, New Mexico, New York, North Dakota, the Northern Mariana Islands, Ohio, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, the U.S. Virgin Islands, Utah, Vermont, Virginia, Washington, West Virginia, and Wisconsin.

 While ABA has taken no position on the “moral issues raised by legalizing marijuana, the growing number of states that allow its sale and use raises practical issues that must be addressed. ABA believes the time has come for Congress and the regulatory agencies to provide greater legal clarity to banks operating in states where marijuana has been legalized for medical or adult use. Those banks, including institutions that have no interest in directly banking marijuana-related businesses, face rising legal and regulatory risks as the marijuana industry grows.”