Opening a business account for medical marijuana operation?

Both Oregon and Washington States have statutes that legalize medical marijuana, and special interest groups and activists have plans to file initiatives and legislation to expand the legality of marijuana.

In both states, people with certain medical conditions can be prescribed medical marijuana. While this prescription allows the individual to grow, possess, or have a designated person provide limited amounts of marijuana, it does not allow an individual to purchase marijuana.

And while state law legalizes marijuana for medical purposes, it is still considered a controlled substance under federal law. The United States Department of Justice issued a guidance for their field personnel regarding medical marijuana. The important part is:

“The prosecution of significant traffickers of illegal drugs, including marijuana, and the disruption of illegal drug manufacturing and trafficking networks continues to be a core priority in the Department’s efforts against narcotics and dangerous drugs, and the Department’s investigative and prosecutorial resources should be directed towards these objectives. As a general matter, pursuit of these priorities should not focus federal resources in your States on individuals whose actions are in clear and unambiguous compliance with existing state laws providing for the medical use of marijuana. For example, prosecution of individuals with cancer or other serious illnesses who use marijuana as part of a recommended treatment regimen consistent with applicable state law, or those caregivers in clear and unambiguous compliance with existing state law who provide such individuals with marijuana, is unlikely to be an efficient use of limited federal resources. On the other hand, prosecution of commercial enterprises that unlawfully market and sell marijuana for profit continues to be an enforcement priority of the Department.”

In the Seattle area, medical marijuana dispensaries have opened up. These dispensaries are organized as non-profit enterprises. Individuals with excess marijuana over the amount permitted by state law donate their marijuana to the dispensaries. The dispensaries operate in a gray area in the law. While the non-profits are not exactly legal, there is nothing in the current law that prohibits their existence.

What should a credit union do if approached by someone wanting to open a business account for a medical marijuana dispensary or operation? There are a lot of things to keep in mind:

First, while possession of medical marijuana is legal in both states, this is a Federal crime. And neither state allows for the purchase or selling of medical marijuana.

Second, enhanced due diligence and continued account monitoring is required. Due to the high potential for money laundering, illicit gains or trafficking issues, you will need to perform very detailed due diligence and have a means for continued monitoring of the account transactions.

Third, it is illegal to sell marijuana. What kind of transactions will be coming through the account?

Fourth, expect the DOJ to provide you with regular Formal Written Requests for account information and transactions. While the Right to Financial Privacy Act does apply in cases where the Federal government asks for information about customer accounts, the Act defines a “customer” as “…any person or authorized representative of that person who utilized or is utilizing any service of a financial institution, or for who a financial institution is acting or has acted as a fiduciary, in relation to an account maintained in the person’s name;” A “person” is defined as “…an individual or a partnership of five or fewer individuals;” A non-profit organization is not a person. The Right to Financial Privacy Act does not apply to the dispensaries.

Fifth, safety and soundness must be addressed. Be sure to analyze the risk to reputation to your credit union for any involvement with an operation that is only quazi-legal in the state and illegal according to Federal code.

Medical marijuana continues to see increased use as part of a regimen for serious healthcare conditions. Credit unions must perform serious risk analysis when approached by individuals or groups hoping to open business accounts for medical marijuana operations

Posted in Compliance News, Federal.