Despite the proliferation of state laws that legalize the cultivation and sale of marijuana, federal law has remained an obstacle to access to the U.S. financial system for marijuana sellers and producers. With penalties still in place at the federal level, many financial institutions shy away from providing bank products and services to marijuana businesses that are conducting legal activities at the state level. Specifically, many banks fear adverse legal consequences under the federal Controlled Substances Act (the “CSA”), which currently criminalizes marijuana as a Class I controlled substance, and federal anti-money laundering laws. The result is that many marijuana businesses are unable to find a financial institution willing to provide routine banking services and, as a result, they are forced to operate on a cash basis.

It was widely assumed that this situation would change after the Department of Health and Human Services recommended in August 2023 that marijuana be moved from Class I to Class III under the CSA classification scheme. The agency based the recommendation on an evaluation of marijuana’s medical uses and the potential for abuse and chemical dependency by marijuana users. The Department of Justice followed this recommendation with the release in May 2024 of a proposed rule that would move marijuana to Class III. However, while the reclassification would provide some relief to the marijuana industry, including the ability to take advantage of business expense deductions under federal tax law, marijuana would remain a controlled substance, and the manufacture, distribution or dispensing of a Class III controlled substance would continue to be subject to criminal penalties under the CSA.

Several federal banking laws affect the operation of firms in the marijuana industry. Banks that provide services to the marijuana industry could find that the proceeds of such activity are subject to federal civil and criminal asset forfeiture laws that work in tandem with laws like the CSA. Similarly, banks providing services to marijuana business that relate to product sales, including deposit account and electronic payment services, could be subject to liability under federal anti-money laundering (“AML”) and Bank Secrecy Act (“BSA”) penalties. The Financial Institutions Enforcement Network or FINCEN, the agency charged with oversight of these laws, issued guidance in 2014 that highlighted the importance of customer due diligence when providing services to marijuana businesses and confirmed the obligation to file Suspicious Activity Reports (“SARs”) relating to the activity of such firms in specified circumstances. Finally, federal regulators have access to the full range of administrative enforcement tools if a bank engages in marijuana-related activities that create safety and soundness concerns.

A recent Congressional Research Service (“CRS”) report confirms that the reclassification of marijuana as a Schedule III substance would not materially alter the complex array of statutory and regulatory obstacles that currently limit access to banking services for marijuana industry firms. The report notes that rescheduling would not affect recreational marijuana activities that would remain unlawful under federal law and medical marijuana would remain subject to FDA approval as a Schedule III drug. Thus, the legal risks for financial institutions that want to serve the marijuana industry would not be reduced, notwithstanding the fact that much of the industry now operates within a framework of state regulation. As noted in the report, the regulatory agencies could take additional action to reduce some of the risks for banks that serve or want to serve the marijuana industry. However, existing statutory barriers relating to controlled substances will limit the extent to which relief can be provided under existing regulatory authority.

The best avenue for relief will likely be legislation that allows financial institutions to provide banking services to state-sanctioned marijuana business. Various versions of legislative relief have passed the House but stalled in the Senate. The bills generally would bar federal regulatory agencies from imposing penalties on banks that provide banking services to marijuana businesses that are in compliance with applicable state laws. The legislation would also provide that, for purposes of federal AML and BSA rules, the proceeds of state-authorized marijuana activities would not be treated as income from an unlawful source. The bills would also ease marijuana-related SAR reporting requirements. While it is doubtful that any legislation will make its way through this Congress, it is likely that legislative relief will arrive in the not-to-distant future as the marijuana industry continues to develop as an economic force.