Pubdate: Thu, 27 Feb 2014
Source: Tucson Weekly (AZ)
Copyright: 2014 Tucson Weekly
Author: J. M. Smith


What do the new guidelines for cannabis and the financial industry mean?

The Treasury Department issued a love letter on Valentine's Day that 
could change the financial landscape of the cannabis industry-unless 
it doesn't.

The seven-page memo from the department's Financial Crimes 
Enforcement Network lays out guidelines aimed at helping banks deal 
with state-legal cannabis businesses. It basically reiterates the 
2011 "Cole memo" from Deputy Attorney General James C. Cole, which 
makes legal cannabis businesses a low federal enforcement and 
prosecution priority, and then adds guidance for banks.

The latest memo suggests banking prosecutors follow guidelines in the 
Cole memo when considering marijuana-related violations of banking 
laws. It largely allows banks to do what dispensaries are doing-help 
generate billions of dollars of economic activity without getting 
arrested. The memo could be important, if prosecutors do what it says 
and banks believe it.

Banks are forbidden from doing business with illegal enterprises. 
Because everything dispensaries do is illegal under federal law-and 
the feds require a bank to file a report when it "knows, suspects, or 
has reason to suspect" that a transaction, among other things, "lacks 
a lawful purpose"-that makes every banking transaction with a 
dispensary reportable as illegal activity. Banks are required to file 
these reports.

But with these new guidelines, Treasury created a bit of a loophole. 
Banks can now file a suspicious activity report labeled Marijuana 
Limited, indicating that the suspicious activity was simply a 
cannabis business working within state law and that no other 
suspicious activity is suspected. No financial information is 
required with this report. It lets prosecutors know that the bank's 
customer is apparently legit.

The new memo urges due diligence in dealing with cannabis businesses, 
including verifying state licenses, knowing the daily work of 
dispensaries (i.e., recreational or medical?), what they are selling 
and who they are selling to. It suggests banks check public records, 
such as police, jail and civil and criminal court records, of people 
associated with dispensaries.

It lists a bunch of red flags that hint at attempts to skirt the law, 
while acknowledging that these red flags don't prove anything.

Red flags include unreasonably high revenue, revenue wildly higher 
than competitors' revenues, cash deposits in excess of what is being 
reported for taxes, lots of big cash deposits all of a sudden and 
rapid movement of funds in and out of accounts. Banks should ask 
dispensaries to prove there is a legitimate source for any 
significant outside investments, the memo says.

Red flags extend to the dispensary owners, not just the businesses. 
So if a bank finds that a cannabis business owner has a record of 
violence or other crimes, especially marijuana crimes, it could mean 
see ya' for the account.

Ultimately, most of this is good news. I'm all for banks using due 
diligence when it comes to dealing with the cannabis businesses, and 
I'm all for checking out the folks who run them. If they find people 
ducking the law, bust them.

At least two banking analysts told major media outlets last week that 
they don't think the guidelines will change much of anything. They 
don't think banks want to deal with cannabis. Banks have bigger fish 
to fry, the analysts said. But I suspect a lot of banks will 
disagree. The memo urges them to consider their "business objectives" 
when deciding whether to work with cannabis businesses. Banks are 
trying to make money, and this is money. Certainly some banks will 
lighten up on cannabis, and millions of dollars will flow.

Yes, please.

But when thousands of dispensaries are exposed to the light of 
financial investigation, I think some of their banks will file 
Marijuana Priority reports, offering details not included in the 
Marijuana Limited ones. Then they'll watch and wait and monitor, as 
the memo urges. Later they'll file Marijuana Termination reports 
explaining exactly why they closed the accounts. Prosecutors will 
take notice, and dispensaries will probably get busted because of 
these guidelines. Unfortunately that will give ammunition to cannabis 
haters, and cannabis will get another black eye or two.

But lest we forget, the banks themselves have had a few black eyes 
lately ... and you're still giving them your money. ;)
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MAP posted-by: Jay Bergstrom