If you're in the marijuana business and live in a state with legalized marijuana, obtaining a checking account for your pot-related business is as easy as walking into a local bank branch and filling out an application.
For perhaps the first time, individuals and small businesses in the burgeoning marijuana industry can legally and easily obtain financial services from a bank. There's no need to bury cash in the backyard Tony Soprano style, or bribe corrupt bankers to turn a blind eye and risk imprisonment themselves. You don't need to hide from the IRS with a secret Swiss bank account either.
And the regulators are fine with it!
On Tuesday, Jennifer Shasky Calvery, Director of the Financial Crimes Enforcement Network (FINCEN) delivered a speech at the Mid-Atlantic Anti-Money Laundering conference in Washington, D.C., detailing the state of marijuana banking in the U.S.
According to Shasky Calvery, 105 banks or credit unions currently bank with businesses tied to the marijuana industry. These banks do so without violating any of the myriad regulations aimed at preventing drug dealers from integrating their illegal funds into the banking system.
These banks follow a very strict set of new rules laid out by FINCEN earlier this year in February. The rules allow the banks to effectively walk the line between state and federal law, and avoid compliance violations of the Bank Secrecy Act and Anti-Money Laundering Act.
Marijuana is still an illegal drug according to federal law; however, over 20 states now allow the use of the drug in one form or another -- medicinally, recreationally, or otherwise. Without FINCEN's new rules, businesses in those states would be forced to operate on a cash-only basis, much like the illegal drug dealers prior to legalization.
The risk for banks is the government changing course
For the few banks that have embraced this industry -- the 105 banks represent far less than even 1% of total banking assets in the U.S. -- the primary risk is a legal, and perhaps obvious, one.
Banks fear that while current regulators may be accepting of banking the marijuana industry, future changes could put the bank in the cross hairs of law enforcement. Required reporting called "suspicious activities reports" could create a road map leading straight to these banks. Banks are required to file these reports under certain circumstances deemed "suspicious" by regulators.
The data is used to identify trends that could indicate money laundering. Regulators have actually created new suspicious activity reports tailored specifically to businesses operating legal marijuana operations.
Shasky Calvery attempted to address these concerns in her speech. She explained to those in attendance exactly how the required reports are used and to whom they are available.
The overarching message was that FINCEN is being extremely cautious with the information, and as long as these banks follow the guidelines precisely, there will be no negative repercussions.
Don't expect to see any mega banks getting on board any time soon
For the banking industry as a whole, providing services to the marijuana industry is not critical. The marijuana industry is simply too small and too risky for any major players to embrace it; even if a megabank entered the market, the size of these small business accounts would never move the needle at an institution with billions and billions of dollars already on the books. With no appreciable upside, the risks fail to justify the rewards.
That said, some small community banks or credit unions in these specific states could find success targeting the legal marijuana market. For these smaller, neighborhood institutions, the market is both large enough and localized enough to improve results within a community banking business model.
For now, regulators are telling these banks to proceed with caution. The legal landscape is murky and still evolving. So, while the banking industry may be embracing a niche marijuana industry today, banks and the nation are still a long way from fully integrating it into the U.S. financial system.