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Marijuana Money Isn’t Welcome at This Bank

By John Maxfield - Feb 23, 2014 at 2:00PM

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The federal government is trying to make it easier for marijuana growers and retailers to access banks. But despite these efforts, at least one major lender is deferring until the law is better settled.

Even though the federal government has eased the way for banks to do business with the marijuana industry, at least one major lender is refusing to take the bait.

"Our policy of not banking marijuana-related businesses and not lending on commercial properties leased by marijuana-related businesses is based on applicable federal laws," a spokeswoman for Wells Fargo (WFC 1.52%) recently told David Migoya of The Denver Post.

This was notably after the Departments of Treasury and Justice publicly instructed federal prosecutors to only use their "investigative and prosecutorial resources" against banks that run afoul of eight "enforcement priorities."

Among others, the list includes preventing distribution of marijuana to minors, preventing proceeds from going to criminal enterprises, and preventing the interstate transportation of marijuana.

The Justice Department's objective in issuing the guidance was to reduce the safety threat associated with an industry that, until now, has largely been forced to operate with cash.

"You don't want just huge amounts of cash in these places. They want to be able to use the banking system," Attorney General Eric Holder said at the end of January.

"There's a public safety component to this. Huge amounts of cash, substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited, is something that would worry me, just from a law enforcement perspective."

Despite these assurances, the nation's largest banks are treading carefully. The concern stems from the still-illegal classification of marijuana under the federal Controlled Substances Act. As a result, an official banking relationship with marijuana growers and sellers is technically money laundering, which is a violation of the Bank Secrecy Act.

This is why financial trade associations have widely rejected the latest overtures.

"This guidance doesn't alter the underlying challenge for banks," said Frank Keating, president and chief executive of the American Bankers Association. "Possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions."

And according to the Colorado Bankers Association, "The guidance issued [...] by the Department of Justice and the U.S. Treasury only reinforces and reiterates that banks can be prosecuted for providing accounts to marijuana related businesses."

The one exception to this reluctance appears to be the major banks' willingness to manage tax revenues from states like Colorado and Washington, which, in turn, derive a portion of the proceeds from excise and sales taxes on marijuana growers and retail establishments.

At the end of September, for instance, Bank of America (BAC 1.09%) indicated it would allow Washington's liquor control board to deposit anticipated cannabis-related revenues in their vaults. "Bank of America is fine with it," said the state's treasurer.

Is this the first step toward fully supporting the industry? Perhaps. But for major publicly traded corporations like Bank of America and Wells Fargo, it's easy to appreciate their reluctance to venture into such uncharted legal territory.

This is particularly true when you consider the still-nascent state of the marijuana industry. The risks simply outweigh the reward. For the time being, the numbers simply don't add up.

John Maxfield owns shares of Bank of America. The Motley Fool recommends Bank of America and Wells Fargo. The Motley Fool owns shares of Bank of America and Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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