Cannabis Banking: The Cole Memo + FinCEN Reporting

We’re talking about cannabis banking and what the options might be.

It’s a common misconception among, well, among nearly everyone really, that banks “can’t” open accounts for cannabis and marijuana companies – we see that repeated all over the place.

Bottom line, that’s not quite true.

We’re going to walk through the Cole Memo to discuss the history of how we got to where we are now,

Part 2 we’ll focus on the FinCEN guidelines and what we think they mean for the industry.

We’re going to break down the language in a number of “official” government documents, and discuss what the actual meaning is, versus the construed (possibly incorrectly construed) idea that people have about banking for cannabis businesses.

There’s a huge misconception in the US about what’s allowed and what is not with banking – both deposit and transaction processing, along with loans, and other transactions that involve financial institutions getting involved.

This misconception repeats itself day after day, in articles, in the news, it’s really kind of frustrating.

We’re not saying that there is a law, or an exemption to a law, that tells bankers they should be running to sign up dope shops and give them banking and card processing – that’s not it at all.

What we are saying is that there are plenty of banks who are openly dealing with cannabis, marijuana companies, and they are filing the correct reports with the Financial Crimes Enforcement division of the Treasury department (FinCEN), and have been doing this, openly and without hiding anything, for multiple years now.

Recently, US banks sent letters to Uruguay, telling them to stop selling adult use recreational cannabis, which is legal across their entire country, which is a crazy concept as US banks do not tell Dutch banks to kill the accounts of the cannabis cafes, and they certainly aren’t telling Germany that state insurance can’t pay for cannabis that’s dispensed legally in their country, not entirely sure the argument  why the US banks are picking on Uruguay, other than because it’s a tiny little country, without a lot of people, without a lot of leverage, and does not have the ability to fight back against the US banks.

And that’s really where the problem lies – We try to tell people this all day long, but the argument that somehow the FDIC will refuse to insure banks that are dealing with cannabis funding is incorrect, makes no sense, and is more of a red herring than anything else.

When they add the “credit unions don’t follow federal laws” or “credit union funds aren’t insured”, it just makes me want to shake my head.

An exchange with someone in the comments on Leafly the other day, and he absolutely could not understand, even when Kim pointed out the Fourth Corner Credit Union case (and we’ll touch on that more later), where the Kansas City Fed refused to certify the institution – even after they had been granted a charter by the state of Colorado – which left them without routing numbers – that insurance is the least important part of the equation.

It’s going to be interesting to see what, if anything, the US banks do to threaten Canada next year, when the rec use implementation goes into effect in June, if it does happen.

So many companies are struggling to open and maintain a deposit account – somewhere to park their money legitimately – and if a business owner doesn’t have a bank account, we can’t help them with transaction processing, since there’s nowhere to deposit their funding.

Which leads us to where we are now. Helping state licensed companies qualify for regular bank accounts, and trying to find ways to keep it from being cost prohibitive to do so.

To work our way back to the topic for this episode – an overview of Cole, and the impact on the business.

First thing to do here is disclaimer: We’re not attorneys, we don’t own (or work at) banks, and any of this information could be out of date entirely by the time you read this blog.  It is totally possible that the US DOJ, the Treasury, DEA, FDA, or other organization could step in, change the rules, and upend the entire system.

We don’t make the laws and they are subject to change any time.

Let’s go back to 2009, when the Ogden memo came about – it’s one that most people haven’t heard of, so therefore they don’t know about it, or the history.

Ogden came into being in October of 2009, and it was aimed at medical marijuana use – one sentence, in particular, is a good summation of the spirit of the memo – “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.”

All the way back to ’09, there was already pushback from parts of the federal government about prosecuting so called “state legal” medical providers of marijuana for medical reasons.

Ogden continued to say that if someone was illegally distributing marijuana under state laws, then they were open to prosecution at the federal level. Which is very much what the Cole memo clarified a few years later.

Cole actually published 3 different memos, and the first one was bad for the industry. In 2011, there was a wave of crackdowns and prosecutions, even with state legal operations, and the low priority status that Ogden implied was sort of discarded.


[LISTEN NOW to Episode 51: Cannabis Banking – Part One – The Cole Memo]



In 2013, he came back with a second memo, after Washington state had legalized recreational cannabis use for adults. The memo discussed the fact that this was a break with the normal state and federal cooperation on issues like drug use and distribution, and implied that the fed would be a little less aggressive towards state legal operations, provided they weren’t selling to minors, facilitating other illegal activities or supporting criminal enterprises.

The 2013 memo was a warning to the states that were legalizing to make sure their ducks were in a row, with regulating and policing those regulations.

Then 2014’s memo came out, and Cole was trying to coalesce the framework into something that was useful as a whole.

In an interview with MJBiz magazine, he is quoted as stating:

The conclusions that we came to were, number one, that we cannot preempt the decriminalization, because the CSA itself says the federal government is not preempting the field here. The states are free to have their own laws. So the conclusion was we could not force the states to abandon their legalization. Now, in essence, people are going to smoke marijuana in those states.

We also heard in our legal analysis that if you wanted to, you probably could stop the regulatory scheme because it probably could stop conduct that’s illegal under federal law. And so we said, “But what’s the point of that?” Because all we’re going to do is cut off our nose to spite our face and help the drug cartels make lots of money.”

He was also pretty frustrated with Congress, for refusing to clarify the situation – he had Congresspeople calling saying – “don’t prosecute at all”, and others saying “put a stop to this now” but there was no clear directive from the legislature at the federal level about exactly which way to proceed.

The 2014 Cole memo, the one we currently operate under, said that state legal medical should be exempt from federal dollars being spent to prosecute people in the industry who were compliant with state laws. That the money could be better spent targeting the real culprits – those running drugs across state lines, selling drugs to minors, aiding and abetting criminal drug rings and cartels.

And it sort of told the banks that they could participate if they chose to, and if they were working with state legal companies, the chances of being prosecuted federally were slim. There is also the Rorhabacher-Farr amendment, that was introduced into Congress back in 2003 (although it took until 2014 to get it passed) that said federal funding couldn’t be used to prosecute state legal medical operations.

The original amendment was introduced by Hinchey from NY, and Rorhabacher and Farr from California. Hinchey and Farr were Democrats, and Rorhabacher is a Republican who is still in office at the moment, although he’s not running again in 2018 reportedly. It took 9 years to get the bill passed, it’s part of appropriations and budget, and it’s critical to keeping the DOJ in check with guys like Sessions in charge.


[Part 3: Cannabis business banking options can be tricky in the current climate, Here’s 10 Things To Get You Started]


It was renewed in 2015, with some help from Rand Paul and Cory Booker, and in 2017, Earl Blumenauer, the Democrat from Oregon, signed on a the lead co-sponsor. It was included again in the summer spending extension, and even though AG Sessions sent a letter to every member of Congress, asking them not to renew it again, it was passed through committee with a voice vote in June of this year, and Patrick Leahy, Democrat from Vermont, is an additional sponsor and led the voting successfully.

A quick recap of what we have so far, and then we can pick up where we’re leaving off in the next edition:

  1.  2003 was the first year that Congress looked at the issue, with the Hinchey-Rorhabacher bill. It took 9 years to get it voted into law
  2. The bill has had tripartisan support, although mostly from Democrats, and influential Congress members like Rand Paul have also been involved in the continued passage of the bill.
  3. First memo from the DOJ was Ogden in ’09.
  4. Cole actually wrote 3 memos, and his first one, in ’11, was devastating to the industry.
  5. In ’13, he loosened up the enforcement and in ’14 he wrote the memo we currently use.
  6. Attorney General Sessions is dead set against marijuana use of any kind, and he’s working diligently to put a stop to it.

Also mention there that Sessions has indicated he’ll restart the civil asset forfeiture program that former AG Holder put to bed back in 2015. Why does this matter? In my opinion, if Sessions can’t get permission from Congress to attack the industry, he’s looking to back door the process via the use of civil asset forfeiture.

The old policies and procedures were pretty nasty, and many states have moved to prevent them from being used again, or limit their scope if they are used, but the bottom line is that if you can tie up someone’s capital, inventory, and cash flow, you can successfully put them out of business in short order.

Whatever Sessions is, he’s not stupid, and if he were, there would still be people in his office that aren’t.

However, Ken Calvert, a Republican from California, has introduced, just this past week, a bill – HR 3354 – that would defund the directive issued by Attorney General Jeff Sessions to ramp up the use of civil asset forfeiture.

This is almost like breaking news, and we have no idea at the moment how it’s going to be handled in Congress. This particular bill has no co-sponsors, but other members, including Mike Lee – the super conservative Republican from Utah, has criticized Session’s plan openly. also notes – Reps. Justin Amash (R-Mich.) and Warren Davidson (R-Ohio) have submitted separate amendments that would prohibit the Department of Justice from using funds for adoptive seizures. Two bipartisan amendments, one submitted by Reps. Jamie Raskin (D-Md.) and Jim Sensenbrenner.

So we’ve got a lot of action going on surrounding the asset forfeiture and it’s sure to be a component of what the DOJ can and cannot do going forward, especially in regards to the state legal cannabis industry.

Next edition is Part 2 – we’ll be talking a lot more about where things stand legally with cannabis banking and how it can be implemented with a minimum of risk.