Lawmakers Urge Federal Officials to Update ‘Out-of-Date Guidance’ on Providing Banking Tools to Cannabis Business Owners Convicted of Cannabis-Related Crimes

Lawmakers sent a letter to federal officials Nov. 14 requesting that they update “out-of-date” guidance on providing banking tools to cannabis business owners convicted of past cannabis-related crimes.

The letter, sent by a group of 20 Democratic members of the House and Senate to the U.S. Department of the Treasury and the Financial Crimes Enforcement Network (FinCEN), references FinCEN’s 2014 guidance that the lawmakers said “unnecessarily” red flags businesses whose owners have been convicted of cannabis crimes that are no longer criminalized at the state level.

The guidance, titled “BSA Expectations Regarding Marijuana-Related Businesses,” directs financial institutions to consider various “red flags” before providing services to cannabis-related businesses in order to help identify if a business is engaged in an activity that violates state law or implicates one of the Department of Justice’s (DOJ) cannabis-related enforcement policies, which are outlined in the DOJ’s 2013 Cole Memo. (However, in 2018, then-Attorney General Jeff Sessions issued his own memorandum that rescinded the Cole Memo, leaving the DOJ’s prosecutorial motives and powers over state-legal cannabis businesses in a gray area ever since.)

One of FinCEN’s red flags states: “Review of publicly available sources and databases about the business, its owner(s), manager(s), or other related parties, reveal negative information, such as a criminal record, involvement in the illegal purchase or sale of drugs, violence, or other potential connections to illicit activity.”

The lawmakers, led by U.S. Sens. Elizabeth Warren, D-Mass., Jeff Merkley, D-Ore., and Raphael Warnock, D-Ga., and U.S. Rep. Earl Blumenauer, D-Ore., argued in the letter that this red flag would include all past cannabis-related criminal records and involvement in the illegal purchase and sale of cannabis, regardless of whether such action is now legal under state law.

“As a result, if a business owner, manager, or other related party has a conviction for simple marijuana possession, banks could view that conviction as a reason not to provide financial services—including banking services and loans to the business—even in states where marijuana possession is no longer illegal,” the lawmakers wrote in the letter, which was addressed to Secretary of the Treasury Janet Yellen and FinCEN Director Andrea Gacki. “As noted by Cat Packer, Vice Chair of the Cannabis Regulators of Color Coalition, there is real ‘concern that past marijuana criminal records, especially those that have been expunged or are for activity that has been pardoned or is no longer prohibited under state law, will … serve as an automatic indication that a business may be engaged in illegal activity.’”

The lawmakers said that under this guidance, a cannabis business owner with a past cannabis-related conviction may be able to receive a cannabis license “on paper,” but may be unable to access a bank loan to grow the business, for example, because he or she is considered a high-risk customer.

By being forced to operate as a cash-only business, these businesses expose their workers to safety risks, the lawmakers argued.

“This disproportionately harms Black- and Brown-owned businesses, whose owners are more likely to have a marijuana-related conviction, though they are not more likely to have violated marijuana use laws,” they wrote in the letter.

Ultimately, the lawmakers argued that FinCEN’s specified red flags “bake a penalty for nonviolent marijuana activity into lending decisions” as states continue to legalize medical and adult-use cannabis within their jurisdictions. They wrote in the letter that state and local cannabis regulators across the country have cited FinCEN’s red flag policy as a “significant issue” that affects their efforts to license and regulate cannabis businesses.

As such, the lawmakers urged FinCEN to revise its policy and ensure that its guidance does not bar states from providing business opportunities to entrepreneurs with prior cannabis-related convictions.

“The updated guidance should clarify that if a marijuana-related act has been expunged, pardoned, is no longer illegal under state law, or is not disqualifying for obtaining a state marijuana license or permit (i.e., ‘state-sanctioned marijuana activity’), then financial institutions should not consider that offense a ‘red flag’ when conducting customer due diligence of marijuana businesses,” the lawmakers wrote. “This would be an important step to promote fairness in the provision of financial services to marijuana businesses that participate in state-sanctioned marijuana activity.”

FinCEN doesn’t need to wait for new legislation to update its 2014 guidance, the lawmakers said, as the guidance says that the list of red flags “may be updated in future guidance.” The lawmakers also noted that FinCEN doesn’t need to wait for the DOJ’s decision on whether to reschedule cannabis based on the Department of Health and Human Services’ recommendation; they claimed that rescheduling under the Controlled Substances Act “would have zero impact on prior marijuana convictions at either the federal or state level.”

“FinCEN can and should update its guidance now to ensure that the guidance does not impede state efforts to allow owners who were previously involved in the illegal purchase or sale of marijuana to participate in state-sanctioned marijuana activity,” the lawmakers wrote. “For example, the guidance could explicitly state that ‘any conviction for marijuana activity that has been expunged, pardoned, is no longer illegal under the law of the state where the business is located, or is no longer disqualifying for obtaining a state marijuana license or permit should not be considered an indication of criminal activity.’”

FinCEN should also take action to update its red flag directing financial institutions to consider whether “the business, its owner(s), manager(s), or other related parties are, or have been, subject to an enforcement action by the state or local authorities responsible for administering or enforcing marijuana-related laws or regulations,” the lawmakers wrote. The updated guidance, they argued, should clarify that these prior enforcement actions should not result in a red flag if they targeted cannabis-related activities that are now permitted under state law.

“These clarifications would help ensure that all marijuana business owners have fair access to banking services,” the lawmakers wrote. “Until FinCEN does so, these business owners will continue to face unnecessary barriers to accessing financial services, simply for acts now legal within their states.”

The lawmakers are calling on Yellen and Gacki to answer the following questions by a Dec. 4 deadline:

1. What steps, if any, is FinCEN taking to update its 2014 guidance in light of marijuana decriminalization, expungements, and/or pardons at the state level?
2. What steps, if any, is FinCEN taking to update its 2014 guidance in light of state laws allowing or prioritizing marijuana business licenses or permits for those with past marijuana-related convictions?
3. Is FinCEN planning to update the 2014 guidance to make clear that convictions for state-sanctioned marijuana activity should not be considered a “red flag?”
   1. If so, what is FinCEN’s timeline for updating the guidance?
   2. What stakeholders, if any, is FinCEN speaking with about updates to its guidance?
4. Has FinCEN studied the impact of the 2014 guidance on lending patterns, including trends in the size of marijuana businesses that receive bank loans and the race/ethnicity of business owners? If yes, what has FinCEN learned from studying the impact of the 2014 guidance?
5. Has FinCEN gathered data on the number of business owners who are adversely impacted by the red flag that directs financial institutions to consider owners’ criminal records and “connections to illicit activity?” If yes, how many businesses:
   1. Have been adversely impacted by a red flag, and what was the nature of the adverse impact for each case?
   2. Were subject to the red flag but were not adversely impacted?
6. What are FinCEN’s past efforts and future plans to monitor and promote fair access in the provision of financial services to state-sanctioned marijuana businesses and hemp businesses, especially for minority-owned, women-owned, veteran-owned, tribal community–owned, and small businesses, as well as business owners with past marijuana criminal records? For example:
   1. Has FinCEN established best practices for financial institutions to follow, including best practices to promote fairness when providing financial services, including when processing payments to state-sanctioned marijuana businesses and related service providers?
   2. If not, is FinCEN considering establishing such best practices?
      1. If so, what is FinCEN’s timeline for issuing such best practices?
   3. What specific steps has FinCEN taken to ensure compliance with President Biden’s January 2021 Executive Order on Advancing Racial Equity and Support for Underserved Communities Through the Federal Government?

Meanwhile, Senate Majority Leader Chuck Schumer has vowed to bring the Secure and Fair Enforcement Regulation (SAFER) Banking Act to the Senate floor for consideration following its approval in the Senate Banking Committee in September.

The legislation, a revised version of the Secure and Fair Enforcement (SAFE) Banking Act, which has passed the U.S. House seven times since 2019, aims to bring traditional opportunities and transparency to state-licensed cannabis businesses by offering safe harbor to financial institutions that provide services to the industry.