Financial institutions fear providing banking services to the cannabis industry for numerous reasons: potential criminal liability, loss of federal insurance, asset seizure, loan collateral vulnerability, civil lawsuits, the prospect of having to monitor operational legality and compliance, and more. As a result, marijuana-related businesses have faced difficulty securing accounts with financial institutions. As a solution, cannabis-related businesses began to look toward specialized credit unions. However, a ruling from United States District Court Judge R. Brooke Jackson dealt the potential solution a severe setback by dismissing a lawsuit seeking federal approval of the first credit union for marijuana in Colorado.

In Fourth Corner Credit Union v. Federal Reserve Bank of Kansas City (D. Colo., 15-cv-01633), Judge Jackson rejected the credit union’s suit, saying that marijuana remains illegal under federal law. The lawsuit was premised on the Monetary Control Act of 1980 (12 U.S.C. §248a), which requires that the Federal Reserve provide all depository institutions with equal access to the Federal Reserve payments system on a basis that is non-discriminatory. Fourth Corner did not dispute that marijuana remained illegal under federal law, but argued that the previous guidelines issued by the U.S. Department of Justice (DOJ) were tantamount to tacit approval of the cannabis industry and banking.

The DOJ guidelines to which the plaintiff referred were contained in one of several memorandums prepared by Deputy Attorney General James M. Cole. Specifically, the plaintiff relied on a memorandum dated February 14, 2014, entitled “Guidance Regarding Marijuana Related Financial Crimes.” These guidelines enumerate the priorities of the federal government in prosecuting marijuana-related offenses, and serve solely as guidance, not law, for U.S. attorneys when determining whether to pursue investigations or prosecutions related to marijuana. The 2014 memo recommends that prosecutors “apply certain priorities in making enforcement actions,” but it does not change the law.

Judge Jackson specifically addressed this argument in his nine-page decision, noting that these guidelines may give a U.S. prosecutor discretion to “look the other way”; however, “a federal court cannot look the other way.” The Court also relied on past decisions, including prior Bankruptcy Court rulings, that marijuana-business debtors cannot obtain bankruptcy relief because their company activities constitute federal crimes.

A second, similar matter brought by Fourth Corner remains pending in the U.S. District Court of Colorado. In this second action, Fourth Corner raises similar arguments against the National Credit Union Administration (NCUA), which had turned down the credit union’s application for share deposit insurance, a requirement for a master account. In rejecting the application that led to this suit, NCUA noted concerns over its ability to mitigate the risk or lack thereof. NCUA has also moved to dismiss the lawsuit.

Analysis

Even though the sale of marijuana is legal under some state law (and subject to perhaps the most extensive regulation in the world in Colorado), banks of all varieties doing business with marijuana-related businesses continue to face the prospect of federal prosecution for money laundering. These financial institutions could even face liability for any transgressions of the business they helped finance, regardless of whether they were aware of the conduct. While legislation has been introduced that would create safe harbor for banks from criminal prosecution, civil liability and asset forfeiture, it remains to be seen when or if such legislation will be passed.