Marijuana Related Businesses (MRBs) & Your Community Bank

Medical marijuana became legal in Missouri in 2018. An amendment was on the ballot on November 8, 2022, for marijuana to be approved for recreational use, and it was approved by voters. As of the end of October, 37 states have approved marijuana for medical use, and 19 have approved marijuana for recreational use. 

The revenue generated by sales of marijuana is growing faster than the plants. This presents an opportunity for community banks, but there are some basic things you should know before jumping on the bandwagon. 

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What Regulators Say About Banks & MRBs

The U.S. Department of Justice (DOJ), the Financial Crimes Enforcement Network (FinCEN), and federal banking regulators have issued directions for financial institutions that want to provide banking services to MRBs. Back in 2013 and 2014, the DOJ Deputy Attorney General, James M. Cole, issued the “Cole Memos” to U.S. Attorneys. The memos provided guidance on marijuana enforcement under the  Controlled Substances Act (CSA), which makes it illegal to manufacture, distribute, or dispense marijuana. Then, in 2014, the FinCEN issued directions based on the Cole Memos that advise financial institutions on how to provide financial services to MRBs. 

Basically, the DOJ will not focus attention on MRBs that operate in compliance with state laws and are consistent with the Cole Memos. Both state and federal regulators advise financial institutions that want to serve the MRB industry to follow FinCEN Guidance and the Cole Memos, and operate in accordance with state law. The DOJ and federal banking regulators have no present plans to target financial institutions providing services in a professional, safe, and sound manner. 

The risk of enforcement is more likely to affect a financial institution if: 

  • There is a failure to implement and manage a fitting MRB compliance program. 
  • Ignoring compliance with anti-money laundering (AML) programs or red flags. 
  • Unlawful conduct regarding MRBs that goes against state law. 

How to Minimize Legal & Regulatory Risk for Lending to MRBs

In order to minimize legal and regulatory risk when providing services to MRBs, it is critical to have a  transparent relationship with the institution’s regulators and business partners. Ensure that sufficient resources are put in place to develop a tailored MRB program that takes the FinCEN Guidance, Cole Memos, and industry best practices into account. 

Monitor and report without fail and place utmost  focus on: 

  • Customer due diligence, and it is highly recommended you have staff specialized in this area.
  • File required reports and monitor for suspicious activities. 
  • Limit the number of MRB clients you take on due to the increased risk and work involved.
  • Limit MRB programs that may involve taking on too much risk with increased volume.
  • Multi-state MRBs require even more due diligence, reporting, staff, etc. 
  • Monitor the ever-changing regulations related to MRBs. 

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Get Help With Risk Audits for MRB Lending

Mitigation of risk is the primary concern for institutions wanting to get into the lucrative MRB industry. With many states now allowing medical and recreational marijuana use, there has been a lot of experience and best practices developed for operating in a trade that is contrary to federal law. 

With proper planning, resources, and staff, it can be accomplished. If your community bank wants to get into the MRB industry, call The Whitlock Co. and let our experts guide you.


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