Academic journal article Case Western Reserve Law Review

Banks, Marijuana, and Federalism

Academic journal article Case Western Reserve Law Review

Banks, Marijuana, and Federalism

Article excerpt

CONTENTS  INTRODUCTION I. DUAL BANKING AND MARIJUANA   A. Federal Controlled Substances Act   B. Federal Anti-Money Laundering Statuses   C. Federal Deposit and Share Insurance   D. Federal Reserve Regulation of Member Banks   E. Federal Bank Holding Company Regulation   F. Federal Payment Systems Administration II. ATTEMPTS TO BANK THE MARIJUANA INDUSTRY   A. Federal Guidance   B. State-Chartered Financial Cooperatives III. THE PATH TO BANKING SERVICE   A. Congressional Action   B. Reasonable Federal Banking Regulation CONCLUSION 


Although marijuana is illegal under federal law, twenty-three states have legalized some marijuana use. The state-legal marijuana industry is flourishing, but marijuana-related businesses report difficulty accessing banking services. Because financial institutions will not allow marijuana-related businesses to open accounts, the marijuana industry largely operates on a cash-only basis--a situation that attracts thieves and tax cheats.

This Article explores the root of the marijuana banking problem as well as possible solutions. It explains that although the United States' dual banking system comprises both federal-and state-chartered institutions, when it comes to marijuana banking, federal regulation is pervasive and controlling. Marijuana banking access cannot be solved by the states acting alone for two reasons. First, marijuana is illegal under federal law. Second, federal law enforcement and federal financial regulators have significant power to punish institutions that do not comply with federal law. Unless Congress acts to remove one or both of these barriers, most financial institutions will not provide services to the marijuana industry. But marijuana banking requires more than just congressional action. It requires that federal financial regulators set clear and achievable due diligence requirements for institutions with marijuana-business customers. As long as financial institutions risk federal punishment for any marijuana business customer's misstep, institutions will not provide marijuana banking.


Marijuana is illegal under federal criminal law. (1) Notwithstanding the federal ban, twenty-three states and the District of Columbia have legalized medical marijuana use. (2) Some states have moved beyond medical marijuana to recreational marijuana. Colorado and Washington first allowed recreational marijuana use. (3) Alaska, Oregon, and the District of Columbia now also allow recreational marijuana. (4) Whether for medicinal or recreational use, state legalization of marijuana conflicts with the federal ban. This tension has been called "one of the most important federalism disputes in a generation." (5)

Yet many are willing to declare that, at least for practical purposes, the marijuana federalism battle has been won by the states. They conclude that "[t]he reality on the ground today is that the federal ban on marijuana is largely toothless." (6) Because the federal government lacks (or refuses to deploy) law enforcement resources, people are largely free to grow, sell, and use marijuana so long as they act consistently with state law. (7) But this narrative largely overlooks the federal government's substantial power to conscript private parties into its law enforcement efforts. Perhaps nowhere is the federal government's indirect law enforcement power greater than in the area of banking. (8)

It is well documented that marijuana-related entities in states where marijuana is legal have difficulty obtaining banking services. (9) The banking drought extends beyond businesses that directly handle marijuana. For example, Wells Fargo Bank closed the account of Marijuana Ventures, a magazine aimed at cannabis growers and retailers. (10) When the marijuana industry asks federal and state financial institutions why they will not provide banking services, the institutions point to federal law. (11)

Lack of banking services stands as a formidable barrier to growth of the state-legal marijuana industry. …

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