CHALLENGES AND SOLUTIONS: ACCESS 

TO BANKING SERVICES FOR 

CANNABIS-RELATED BUSINESSES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CONSUMER PROTECTION 

AND FINANCIAL INSTITUTIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED SIXTEENTH CONGRESS 

FIRST SESSION 

FEBRUARY 13, 2019 

Printed for the use of the Committee on Financial Services 

Serial No. 116–2 

( 

CHALLENGES AND SOLUTIONS: ACCESS TO BANKING SERVICES 

FOR CANNABIS-RELATED BUSINESSES 

U.S. GOVERNMENT PUBLISHING OFFICE

35–631 PDF WASHINGTON : 2019

CHALLENGES AND SOLUTIONS: ACCESS 

TO BANKING SERVICES FOR 

CANNABIS-RELATED BUSINESSES 

HEARING 

BEFORE THE

SUBCOMMITTEE ON CONSUMER PROTECTION 

AND FINANCIAL INSTITUTIONS 

OF THE

COMMITTEE ON FINANCIAL SERVICES 

U.S. HOUSE OF REPRESENTATIVES 

ONE HUNDRED SIXTEENTH CONGRESS 

FIRST SESSION 

FEBRUARY 13, 2019 

Printed for the use of the Committee on Financial Services 

Serial No. 116–2 

( 

(II) 

HOUSE COMMITTEE ON FINANCIAL SERVICES 

MAXINE WATERS, California, Chairwoman 

CAROLYN B. MALONEY, New York 

NYDIA M. VELA ́ ZQUEZ, New York 

BRAD SHERMAN, California 

GREGORY W. MEEKS, New York 

WM. LACY CLAY, Missouri 

DAVID SCOTT, Georgia 

AL GREEN, Texas 

EMANUEL CLEAVER, Missouri 

ED PERLMUTTER, Colorado 

JIM A. HIMES, Connecticut 

BILL FOSTER, Illinois 

JOYCE BEATTY, Ohio 

DENNY HECK, Washington 

JUAN VARGAS, California 

JOSH GOTTHEIMER, New Jersey 

VICENTE GONZALEZ, Texas 

AL LAWSON, Florida 

MICHAEL SAN NICOLAS, Guam 

RASHIDA TLAIB, Michigan 

KATIE PORTER, California 

CINDY AXNE, Iowa 

SEAN CASTEN, Illinois 

AYANNA PRESSLEY, Massachusetts 

BEN MCADAMS, Utah 

ALEXANDRIA OCASIO-CORTEZ, New York 

JENNIFER WEXTON, Virginia 

STEPHEN F. LYNCH, Massachusetts 

TULSI GABBARD, Hawaii 

ALMA ADAMS, North Carolina 

MADELEINE DEAN, Pennsylvania 

JESU ́ S ‘‘CHUY’’ GARCIA, Illinois 

SYLVIA GARCIA, Texas 

DEAN PHILLIPS, Minnesota 

PATRICK MCHENRY, North Carolina, 

Ranking Member 

PETER T. KING, New York 

FRANK D. LUCAS, Oklahoma 

BILL POSEY, Florida 

BLAINE LUETKEMEYER, Missouri 

BILL HUIZENGA, Michigan 

SEAN P. DUFFY, Wisconsin 

STEVE STIVERS, Ohio 

ANN WAGNER, Missouri 

ANDY BARR, Kentucky 

SCOTT TIPTON, Colorado 

ROGER WILLIAMS, Texas 

FRENCH HILL, Arkansas 

TOM EMMER, Minnesota 

LEE M. ZELDIN, New York 

BARRY LOUDERMILK, Georgia 

ALEXANDER X. MOONEY, West Virginia 

WARREN DAVIDSON, Ohio 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

TREY HOLLINGSWORTH, Indiana 

ANTHONY GONZALEZ, Ohio 

JOHN ROSE, Tennessee 

BRYAN STEIL, Wisconsin 

LANCE GOODEN, Texas 

DENVER RIGGLEMAN, Virginia 

CHARLA OUERTATANI, Staff Director 

(III) 

SUBCOMMITTEE ON CONSUMER PROTECTION AND FINANCIAL INSTITUTIONS

GREGORY W. MEEKS, New York, Chairman 

DAVID SCOTT, Georgia 

NYDIA M. VELA ́ ZQUEZ, New York 

WM. LACY CLAY, Missouri 

DENNY HECK, Washington 

BILL FOSTER, Illinois 

AL LAWSON, Florida 

RASHIDA TLAIB, Michigan 

KATIE PORTER, California 

AYANNA PRESSLEY, Massachusetts 

BEN MCADAMS, Utah 

ALEXANDRIA OCASIO-CORTEZ, New York 

JENNIFER WEXTON, Virginia 

BLAINE LUETKEMEYER, Missouri, Ranking 

Member 

FRANK D. LUCAS, Oklahoma 

BILL POSEY, Florida 

ANDY BARR, Kentucky 

SCOTT TIPTON, Colorado, Vice Ranking 

Member 

ROGER WILLIAMS, Texas 

BARRY LOUDERMILK, Georgia 

TED BUDD, North Carolina 

DAVID KUSTOFF, Tennessee 

DENVER RIGGLEMAN, Virginia 

(V) 

C O N T E N T S 

Page 

Hearing held on: 

February 13, 2019 ............................................................................................ 1 

February 13, 2019 ............................................................................................ 59 

WITNESSES 

WEDNESDAY, FEBRUARY 13, 2019 

Barnette, Corey, Owner, District Growers, LLC & Metropolitan Wellness 

Center, Inc. ........................................................................................................... 17 

Deckard, Gregory S., President, CEO, and Chairman, State Bank Northwest, 

on behalf of the Independent Community Bankers of America (ICBA) .......... 15 

Franklin, Maj. Neill (Ret.), Baltimore City & Maryland State Departments; 

and Executive Director, Law Enforcement Action Partnership (LEAP) .......... 11 

Ma, Hon. Fiona, California State Treasurer ......................................................... 9 

Perlmutter, Hon. Ed, a Representative in Congress from the State of Colorado ....................................................................................................................... 6 

Pross, Rachel, Chief Risk Officer, Maps Credit Union, on behalf of the Credit 

Union National Association (CUNA) .................................................................. 13 

Talcott, Jonathan H., Chairman of the Board, SAM, Inc. (d/b/a Smart Approaches to Marijuana, Inc.) ............................................................................... 18 

APPENDIX 

Prepared statements: 

Barnette, Corey ................................................................................................. 60 

Deckard, Gregory S. ......................................................................................... 62 

Franklin, Neill .................................................................................................. 68 

Ma, Hon. Fiona ................................................................................................. 71 

Pross, Rachel ..................................................................................................... 77 

Talcott, Jonathan H. ........................................................................................ 87 

ADDITIONAL MATERIAL SUBMITTED FOR THE RECORD

Meeks, Hon. Gregory: 

Written statement of the American Bankers Association ............................. 97 

Written statement of Kevin Murphy, Chairman and CEO, Acreage Holdings ................................................................................................................. 102 

Written statement of Americans for Safe Access ........................................... 107 

Written statement of the American Property Casualty Insurance Association ................................................................................................................. 110 

Letter to Chairwoman Waters from the California Credit Union League 

and the Nevada Credit Union League ........................................................ 116 

Congressional Research Service report entitled, ‘‘Marijuana: Medical and 

Retail—Selected Legal Issues,’’ dated April 8, 2015 .................................. 118 

Congressional Research Service report entitled, ‘‘The Marijuana Policy 

Gap and the Path Forward,’’ dated March 10, 2017 .................................. 161 

Letter to Hon. David Scott and Hon. Blaine Luetkemeyer from Eaze 

Solutions, Inc. ................................................................................................ 209 

Written statement of the Independent Insurance Agents and Brokers 

of America ...................................................................................................... 230 

Written statement of John Kagia, Chief Knowledge Officer, New Frontier 

Data ................................................................................................................ 232 

Written statement of Lauren R. Kohr, Senior Vice President and Chief 

Risk Officer, Old Dominion National Bank ................................................ 238 

Page

VI 

Meeks, Hon. Gregory—Continued 

Written statement of Nick Kovacevich, Chairman and CEO, KushCo 

Holdings, Inc. ................................................................................................ 243 

Letter to Hon. Gregory Meeks and Hon. Blaine Luetkemeyer from the 

National Association of Federally-Insured Credit Unions ......................... 245 

Written statement of Aaron Smith, National Cannabis Industry Association ................................................................................................................. 247 

Written statement of Paul Armentano, Deputy Director, National Organization for the Reform of Marijuana Laws ................................................... 290 

Written statement of the Reinsurance Association of America .................... 294 

Written statement of Becky Dansky, Executive Director, Safe and Responsible Banking Alliance .......................................................................... 296 

Letter to Hon. Gregory Meeks from Jim King, Senior Vice President, 

Corporate Affairs, and Chief Communications Officer, ScottsMiracleGro Company ................................................................................................. 301 

Letter from a groups of State Attorneys General .......................................... 303 

Letter to Hon. Ed Perlmutter and Hon. Dennis Heck from Surterra 

Wellness ......................................................................................................... 306 

Letter to Chairwoman Maxine Waters and Ranking Member Patrick 

McHenry from Trulieve ................................................................................ 311 

Lawson, Hon. Al: 

Letter from Florida Department of Agriculture and Consumer Services 

Commissioner Nicole ‘‘Nikki’’ Fried ............................................................. 312 

Luetkemeyer, Hon. Blaine: 

Written statement of David H. Carpenter, Legislative Attorney, Congressional Research Service, dated February 13, 2019 .................................... 313 

Letter to Senator Paul Ryan and Senator Mitch McConnell from the 

Faith & Freedom Coalition, dated December 6, 2017 ................................ 326 

Letter to Hon. Rodney Frelinghuysen, Hon. John Culberson, Hon. Nita 

Lowey, and Hon. Jose ́ Serrano from members of the law enforcement 

community, dated May 16, 2018 .................................................................. 328 

Letter to Hon. Rodney Frelinghuysen and Hon. Nita Lowey from the 

Major Cities Chiefs Association, dated June 8, 2018 ................................. 330 

Letter to Hon. Rodney Frelinghuysen and Hon. Nita Lowey from the 

National Fraternal Order of Police, dated May 17, 2018 .......................... 331 

McAdams, Hon. Ben: 

Letter from the State of Utah, Office of State Treasurer, dated February 

11, 2019 .......................................................................................................... 333 

Ocasio-Cortez, Alexandria: 

Letter from Hon. Fiona Ma providing additional information for the 

record ............................................................................................................. 335 

Perlmutter, Hon. Ed: 

Amendment language ...................................................................................... 338 

Letter from Bruce Nassau, Partner, Lit Dispensary ..................................... 339 

Written statement of A. Marc Perrone, President, United Food and Commercial Workers International Union ......................................................... 340 

Written statement of Gaynell Rogers ............................................................. 343 

Porter, Hon. Katie: 

Written statement of Lindsay Robinson, Executive Director, California 

Cannabis Industry Association .................................................................... 344 

Written statement of Henry Wykowski .......................................................... 348 

Williams, Hon. Roger: 

Responses to questions for the record from Gregory S. Deckard ................. 351 

Responses to questions for the record from Rachel Pross ............................. 352 

(1) 

Challenges and Solutions: Access 

to Banking Services for 

Cannabis-Related Businesses 

Wednesday, February 13, 2019 

U.S. HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON CONSUMER PROTECTION

AND FINANCIAL INSTITUTIONS, 

COMMITTEE ON FINANCIAL SERVICES, 

Washington, D.C. 

The subcommittee met, pursuant to notice, at 2:15 p.m., in room 

2128, Rayburn House Office Building, Hon. Gregory W. Meeks 

[chairman of the subcommittee] presiding. 

Members present: Representatives Meeks, Scott, Velazquez, 

Clay, Heck, Foster, Lawson, Tlaib, Porter, Pressley, McAdams, 

Ocasio-Cortez, Wexton; Luetkemeyer, Lucas, Posey, Barr, Tipton, 

Williams, Loudermilk, Budd, and Riggleman. 

Ex officio present: Representatives Waters and McHenry. 

Also present: Representatives San Nicolas and Davidson. 

Chairman MEEKS. The Subcommittee on Consumer Protection 

and Financial Institutions will come to order. 

Without objection, the Chair is authorized to declare a recess of 

the subcommittee at any time. 

Also, without objection, members of the full Financial Services 

Committee who are not members of this subcommittee are authorized to participate in today’s hearing. 

Today’s hearing is entitled, ‘‘Challenges and Solutions: Access to 

Banking Services for Cannabis-Related Businesses.’’ 

I now recognize myself for 5 minutes to give an opening statement. 

Let me just say to Ranking Member Luetkemeyer and members 

of this subcommittee, welcome to the first hearing of the Consumer 

Protection and Financial Institutions Subcommittee. 

Chairwoman Waters has set an ambitious agenda for the Financial Services Committee, which I look forward to working on and 

advancing. Our subcommittee has much work to do, and I look forward to working with all of you in a productive and bipartisan way 

to do the work we were sent here to do by the American people. 

Our committee is powerful not only because it touches our country’s largest companies and Wall Street financial institutions but 

because its focus is to promote the economic well-being of Main 

Street, consumers, and investors. 

This subcommittee, in particular, has jurisdiction over important 

issues that directly impact every one of our constituents—issues 

2 

that keep many parents up at night as they consider their family’s 

finances. And, as is the case with today’s hearing, these are issues 

that directly impact businesses of all sizes across the country. 

As we saw during the financial crisis, when financial institutions 

fail or fail in their responsibilities, Main Street suffers. However, 

when financial institutions are successful while being responsible 

and true stakeholders in their communities, Main Street and the 

American economy wins. 

Turning now to the subject of today’s hearing, I welcome our witnesses and thank them for taking the time to provide valuable testimony on an important issue that has received far too little attention. 

There has been a rapid and dramatic shift in the legal treatment 

of cannabis, led by voters at the local and State level. Nearly every 

American now lives in a State where cannabis has been decriminalized to some extent and legal business activity is permitted to varying degrees. 

In New York, for example, Governor Andrew Cuomo is on the 

verge of enacting legislation to legalize recreational marijuana, 

which would have many benefits for the State of New York and its 

economy and law enforcement. 

But Federal drug laws and bank regulations have not evolved to 

reflect this new reality at the State and City level. Indeed, while 

the Justice Department’s Cole Memo provided some guidance on 

the DOJ’s focus on organized-crime aspects of the cannabis trade, 

Attorney General Sessions’ reversal on this practice led to major 

disruption and uncertainty. It was encouraging to hear Attorney 

General-nominee Barr state that, if confirmed, he intended to follow the guidance of the Cole Memo. 

Similarly, the FinCEN guidance on banking activity as it relates 

to cannabis helped provide a beginning of clarity for banks. The absence of a broader, permanent regulatory framework continues to 

keep nearly all banks out of this growing industry, despite a clear 

interest. As a result, entrepreneurs operating legally within the 

bounds of State and local laws bear the burden of a punitive Tax 

Code, high compliance hurdles, the lack of basic financial services, 

and significant security risk. 

Today’s hearing will allow us to begin consideration of draft legislation to bring transparency and accountability, and to address a 

major driver of violent crime in this space. 

As we do so, I wish to recognize the work of our colleagues Mr. 

Perlmutter from Colorado, Mr. Heck from Washington, Mr. Stivers 

from Ohio, and Mr. Davidson from Ohio, who have worked on a bipartisan basis on legislation which I believe can pass and get to the 

President’s desk for signature. 

This bill, the SAFE Banking Act, is one of several opportunities 

we will have in this committee to pass meaningful legislation to 

allow financial institutions to better serve our constituents and address important matters of consumer protection. 

Before I close, I want to remind all of my colleagues as well as 

the witnesses that this hearing is specifically about banking and financial services for cannabis-related businesses. We will not litigate the Controlled Substances Act, the benefits of medicinal canVerDate Nov 24 2008 16:39 Jul 12, 2019 Jkt 095071 PO 00000 Frm 00010 Fmt 6633 Sfmt 6633 K:\DOCS\HBA044.150 TERRI
3 

nabis, or any other issues that are outside of the jurisdiction of this 

committee. 

I now recognize Ranking Member Luetkemeyer for his opening 

statement. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

Before I begin, I would like congratulate Mr. Meeks on his role 

as our chairman of this subcommittee. We have served together on 

this committee for nearly a decade, and while we may not always 

agree on everything, I am confident we will be able to find common 

ground in many instances. 

And I look forward to working with you, sir. 

Today we are discussing an issue that we can all agree must be 

addressed. As changing State laws spur the formation of thousands 

of cannabis-related businesses across the country, I have heard 

from many banks and credit unions who are facing the decision of 

whether they can or cannot get involved with these businesses. 

For the last 6 years, I have fought alongside my colleagues on 

this committee to ensure all legal businesses in the United States 

have access to financial services. Operation Choke Point, which 

sought to deprive legal businesses of the services they need to survive, has seen bipartisan opposition over the years. Today, however, we are having a very different conversation. Today we are 

discussing the merits of allowing federally illegal businesses to access banking services. 

First and foremost, we must remember we are dealing with an 

illegal industry at the Federal level. As far as I know, the House 

Financial Services Committee does not have jurisdiction over 

descheduling a drug. And, in my opinion, we are putting the cart 

before the horse by addressing this issue here in the Consumer 

Protection and Financial Institutions Subcommittee before the drug 

is descheduled. 

But I do welcome the broader conversation. 

The biggest question we face is what would happen if this proposed legislation was actually signed into law. How do we separate 

legal growers from bad actors attempting to access financial services? 

Our current anti-money-laundering regime is already woefully 

inadequate, and until we modernize the Bank Secrecy Act and antimoney-laundering regulations, it would be irresponsible to open up 

our financial institutions to another major challenge. 

Similar questions arise regarding FDIC insurance and the movement of money between States that have not legalized marijuana. 

In this committee, the question of when to allow States the prerogative to make decisions for themselves seems to be on a caseby-case basis. My colleagues who are morally opposed to a legal 

service, such as small-dollar loans, will fight tooth and nail to ensure the States have no leeway to make their own decision. Yet, 

here we are acquiescing to the decision of some States fighting to 

provide banking services to a federally illegal industry. 

The bottom line is that the law, not personal preferences, must 

dictate the accessibility of financial services. And as long as marijuana is illegal at the Federal level, attempts by this committee to 

legalize the banking of it will create more confusion than clarity. 

4 

There is a solution to this. The hemp industry solved this problem last fall. They descheduled the drug, and now they can grow, 

manufacture, and distribute their drug. Opioids is a grown chemical that we now allow for medicinal purposes but we do not allow 

for recreational purposes. 

The DOJ has confused this situation by being unwilling to support descheduling and yet not being willing to enforce the Federal 

law. This is like having a stoplight at a major intersection right out 

here on Pennsylvania Avenue and the light gets turned off. What 

do you have? Confusion and chaos. And that is what we have today 

in the banking industry. 

And while Mr. Perlmutter has a solution, I am concerned that it 

is going to create more confusion than it solves. The reason for the 

light, just like the reason for laws, is to put structure in our society 

so things can take place, so that businesses can operate. And yet 

here we are because enforcement is not in place to make this happen. 

Now, throughout my life, as I have gone through the educational 

system, civics classes have always said that Federal law trumps 

State law. And until that changes, until the Supreme Court says 

that the Constitution is a list of suggestions instead of the law, I 

believe that we probably can’t do much today other than realize 

that we have a problem and that we can solve it by descheduling 

the drug. Then we can, I think, go on to Mr. Perlmutter’s solution. 

With that, I do have another—if the chairman will permit me 

just 1 minute here, I would like to thank the witnesses who are 

coming later on today for taking the time to testify, and I look forward to a very robust discussion. 

Unfortunately, we are missing an important voice on the matter 

today. 

Mr. Chairman, it has been a longstanding practice of this committee to allow the Minority a second witness when the Majority 

has five or more witnesses. Today, the new Majority has decided 

to deviate from this practice, which has been in place since Barney 

Frank’s chairmanship. 

The Minority identified two well-qualified experts who were willing to testify today. It is unfortunate that this committee will miss 

the opportunity to hear testimony from and question one of our 

nonpartisan expert attorneys from the Congressional Research 

Service (CRS). 

David Carpenter has prepared testimony which addresses the 

impact of the SAFE Banking Act, and what impact it could have 

on Federal law, and Mr. Carpenter’s testimony gives an overview 

of the existing landscape as it relates to marijuana banking. It also 

highlights the regulatory and supervisory uncertainty that could 

result from passage of the SAFE Banking Act. 

Mr. Carpenter’s role with CRS is to take a middle-ground, nonpartisan stance and provide nonbiased, factual answers to any of 

the committee’s financial banking concerns. 

Without objection, I ask unanimous consent that Mr. Carpenter’s 

testimony be entered into the record. 

With that, I will yield back. 

Chairman MEEKS. Without objection, it is so ordered. 

5 

[The prepared statement of Mr. Carpenter can be found on page 

313 of the appendix.] 

Chairman MEEKS. I now acknowledge Mr. Heck for 2 minutes for 

an opening statement. 

Mr. HECK. Thank you, Chairman Meeks. 

To my colleagues, the witnesses, and guests in the audience, I 

want to thank you all for coming to this vitally important hearing. 

I want to take note, however, that you are late. We are all late. 

It has been 6 years since, under the leadership of Congressman 

Perlmutter—and I am very grateful to be joined in this effort by 

Congressmen Stivers and Davidson—that we have introduced this 

bill and pounded the table and warned about the risk to public 

safety from all-cash businesses. We asked for hearings, and we 

were met with silence. 

And in the time since, we have reintroduced the bill every year. 

We have renewed our warnings. We have sent letters. We have 

held rallies. And, yes, we have even disrupted markups. 

But today, after 6 years, we finally have a hearing. And it comes 

too late—too late to prevent dozens of armed robberies in my home 

State of Washington; too late for Travis Mason, whose picture you 

see before you, a 24-year-old Marine veteran in Aurora, Colorado, 

who reported for work as a security guard at the Green Heart Dispensary on June 18, 2016, and was shot dead that night by an 

armed robber; too late for his widow, Samantha; too late for his 

three small children—the twins, Aidyn and Daisy, and their baby 

brother, Julian. 

Travis reported to work that day, I want you to know, full of excitement, because he had recently learned he was going to be able 

to take the test for which he had been studying hard, for the Denver Police Department at the upcoming July 12th exam. 

Nearly every witness today has testimony about the dangerous 

position we put store owners and their employees in by forcing 

them to do all of their business in cash. But we, right here, today, 

this committee, can fix this. 

And so I look forward to hearing from the witnesses and taking 

their comments to refine our discussion draft and then moving 

swiftly to markup and to the House Floor. We have the power in 

this committee to prevent murders and armed robberies, and we 

must use it. We must use it now, because we are already late. 

Thank you, Mr. Chairman. I yield back. 

Chairman MEEKS. I now yield 2 minutes to the ranking member 

of the full Financial Services Committee, the gentleman from North 

Carolina, Mr. McHenry. 

Mr. MCHENRY. Thank you, Mr. Chairman. And thanks for holding this hearing today. 

I consider Representative Perlmutter to be a person of goodwill, 

a serious legislator who wants to fix problems. 

Ed, congratulations on this hearing today. I know you have 

worked hard on this. 

But regardless of where you fall in this cannabis debate, on the 

issue of marijuana, we have conflicting State and Federal law that 

we have to resolve. And that conflict between State and Federal 

laws creates enormous confusion, especially for financial institutions. 

6 

For any statute to work, we have to look at current Bank Secrecy 

Act statutes as well as anti-money-laundering rules, know-yourcustomer requirements, and suspicious activity report filing requirements. At a minimum, they have to be adapted in order for 

this proposed statute to work. There is an enormous amount of 

work that has to go into making this achieve the outcome that it 

seeks. 

If we want to engage in that process, I think you will find folks 

of goodwill on both sides of the aisle. This includes law enforcement, those people who are enforcing and going through suspicious 

activity reports and analyzing the data on money laundering. I 

think those folks have to be included in this process as well. 

But we need to have wider inputs, not a limited, one-panel conversation, in order to move to a markup that will come to a good 

result for the 33 States that have undertaken something that is expressly counter to what is current Federal law. 

And we have to understand this is a wider discussion than just 

our Financial Services discussion, that this is a larger societal discussion, in order to achieve the outcome that Congressman Perlmutter and many others want to see result from legislation. 

I yield back. 

Chairman MEEKS. We will now turn to our witnesses. For our 

first panel, I welcome the testimony of Representative Perlmutter 

of Colorado. 

Representative Perlmutter has been one of the earliest champions in Congress for addressing the issue we are considering 

today. And as a Colorado Member of the House, and longstanding 

member of the Financial Services Committee, Mr. Perlmutter has 

an excellent grasp of the issues at play and has worked diligently 

to build a bipartisan coalition, in partnership with our colleagues 

here today—Mr. Heck, Mr. Stivers, and Mr. Davidson—in drafting 

the SAFE Banking Act. He is now recognized for 5 minutes to testify. 

STATEMENT OF THE HONORABLE ED PERLMUTTER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF COLORADO 

Mr. PERLMUTTER. Thank you, Mr. Chairman, Ranking Member 

Luetkemeyer, and members of the subcommittee. 

Today’s hearing is a big deal. It is a big deal for thousands of 

employees and businesses across this country who have been put 

at risk because they have been forced to deal in piles of cash while 

Congress stuck its head in the sand for the last 20 years. 

Forty-seven States plus the District of Columbia have spoken 

and have legalized some form of recreational or medical marijuana, 

including cannabinoid oil; 318.2 million people live in these 47 

States. That is 97.7 percent of the population, including every State 

represented by every member of this Financial Services Committee. 

Colorado and Washington voters were among the first States to 

legalize medical and recreational marijuana. And I want to thank 

Representative Heck for his partnership through the years on this. 

And I also want to thank my friends, Steve Stivers and Warren 

Davidson, for their support and cosponsorship of the SAFE Banking Act. 

7 

Our Federal laws were designed to prevent illicit activity and 

help law enforcement do their jobs. The fact is the people, the voters in States and localities all across the country are legalizing 

some level of marijuana use, and we need these marijuana-related 

businesses and employees to have access to our banking system. 

It will improve transparency and accountability and help law enforcement root out illegal transactions to prevent tax evasion, 

money laundering, and other white-collar crime. Most importantly, 

though, it will help reduce the risk of violent crime in our communities. These businesses and their employees become targets for 

crime, robbery, assault, and more by dealing in all cash. 

Mr. Heck mentioned Travis Mason, a young security guard and 

former Marine who was killed in a robbery in Aurora, Colorado. 

Another recent robbery in Denver saw the assailant put a gun into 

the employee’s mouth and walk out with over $20,000 in cash. We 

have received dozens of other stories from marijuana businesses all 

across the country who have faced similar crimes and have had 

their bank accounts closed and have had to deal in cash only. 

These stories are why we have drafted the SAFE Banking Act. 

This bill would create a safe harbor for financial institutions and 

their employees who choose to do business with a marijuana company. 

It would protect ancillary businesses, like real estate owners, accountants, vendors, and contractors, by clarifying that the proceeds 

from legitimate cannabis businesses are not unlawful under 

money-laundering laws or any other banking law. And it maintains 

the flexibility of the Financial Crimes Enforcement Network 

(FinCEN) by requiring continued filing of suspicious activity reports. 

Our bill helps put these transactions into the system, which 

helps law enforcement do their job to catch the real bad guys. 

In summary, Mr. Chairman, if someone wants to oppose the legalization of marijuana, that is their business. But the American 

voters have spoken and continue to speak, and the fact is you can’t 

put the genie back in the bottle. Prohibition is over. 

Our bill is focused solely on taking cash off the streets and making our communities safer. And only Congress can take these steps 

to provide this certainty for businesses and financial institutions 

across the country. 

And, with that, I yield back. 

Chairman MEEKS. Thank you, Mr. Perlmutter. 

I now will empanel panel number two. 

But first, I yield to the chairwoman of the full Financial Services 

Committee, the gentlewoman from California, Ms. Waters, for 1 

minute. 

Chairwoman WATERS. Thank you very much. 

Mr. Chairman and members, I am prepared to raise a few questions. But, actually, I want Mr. Perlmutter to know that the real 

reason that I came to this hearing today is I just wanted to witness 

his moment in the sun on this issue based on all of the time and 

effort that he has put into dealing with the cannabis issue and the 

way that he has educated all of us and everything that he has done 

in Colorado that gives him the experience to be able to lead on this 

issue. 

8 

So to Mr. Perlmutter in particular, and Mr. Heck, and others, 

thank you so very much. 

I want to address a question to the Honorable Fiona Ma, California State Treasurer. 

Ms. Ma, thank you for coming today. 

And I want to know if it is okay at this point in time or do you 

want to wait until after they actually make their statements and— 

Chairman MEEKS. Yes, let them testify, and— 

Chairwoman WATERS. Thank you very much. 

Chairman MEEKS. —then we will open for questions. 

Let me introduce and welcome the witnesses today. And I will introduce them all now, and then we will go one by one. 

Our first panelist is the Honorable Fiona Ma, who is the Treasurer of the State of California. 

Ms. Ma has a distinguished career in politics and in public service. Among her many achievements, she has served as majority 

whip and speaker pro tem in the California State Assembly. And 

as State Treasurer, she is responsible for the stewardship of the 

State of California’s finances. 

As State Treasurer and a member of the State Board of Equalization, Ms. Ma has had a unique vantage point to understand firsthand the challenges to State governments and to businesses of addressing the lack of banking services for cannabis-related businesses and the difficulty in addressing this issue at the local and 

State level without Federal action. 

Next, is Major Neill Franklin, who is the executive director of the 

Law Enforcement Action Partnership (LEAP). 

Mr. Franklin retired as a 34-veteran of both the Maryland State 

Police and the Baltimore Police Department, where he oversaw 17 

separate drug task forces. He has served as an official representative for the Law Enforcement Action Partnership since 2007 and as 

executive director since 2010. 

Mr. Franklin’s testimony is especially important as we consider 

the serious safety and security risks that emerge from the absence 

of banking services to cannabis businesses, effectively making them 

an all-cash business. 

And I will yield to Mr. Heck to introduce our next witness. 

Mr. HECK. It is my pleasure, Mr. Chairman—thank you—to introduce Greg Deckard, who is the president, CEO, and chairman 

of State Bank Northwest in Spokane, Washington. He is also the 

past chair of the Independent Community Bankers of America’s 

(ICBA’s) Policy Development Committee and currently chairs the 

Legislative Issues Committee. He is, in addition to all of that, the 

past chairman of the Community Bankers of Washington State. 

I want you to know three quick things about him. Number one, 

he braved incredible weather to get here. We are calling it the 

‘‘Northwest Snowmageddon.’’ Number two, he has the phenomenally good taste to share my particular support and obsession with 

Gonzaga basketball. And, number three, he is not just a friend of 

mine, he is a good friend. 

We are honored to have him here. He is everything you would 

hope and think a community banker would be. 

Thank you, Mr. Chairman. 

9 

Chairman MEEKS. I would also like to introduce Ms. Rachel 

Pross, who is the chief risk officer for Maps Credit Union of Oregon 

and is speaking today on behalf of the Credit Union National Association (CUNA). 

Ms. Pross has an accomplished career in credit unions and was 

a Credit Union Times Woman to Watch honoree in 2014 and was 

awarded the NWCUA’s Young Credit Union Professional of the 

Year in 2015. 

Ms. Pross brings a unique perspective to this hearing, representing one of the very few banks willing to provide financial 

services to cannabis businesses, and, therefore, speaking firsthand 

of the challenges of navigating and complying with the existing 

regulatory and oversight framework. 

Then, we have Mr. Corey Barnette, the owner of District Growers Cultivation Center and Metropolitan Wellness Center. 

Mr. Barnette is, as I said, the owner of the District Growers Cultivation Center and Metropolitan Wellness Center. And, by his own 

description, Mr. Barnette is an engineer-turned-investment-bankerturned-venture-capitalist. 

In 2008, he participated in the acquisition of the San Diego Medical Collective, a dispensary in San Diego, California, which they 

grew to become one of the largest in San Diego, serving over 16,000 

patients and producing a third of the medicine provided. 

Mr. Barnette sold the California business and founded District 

Growers in Washington, D.C., and also acquired the Metropolitan 

Wellness Center, becoming the largest dispensary operator in 

Washington, D.C. 

And as a small-business owner and one of the few minority business owners of cannabis businesses, Mr. Barnette brings a unique 

perspective as an operator dealing with the realities of lack of access to financial services. 

And, finally, we have Mr. Jonathan H. Talcott, who is a partner 

at Nelson Mullins, where he is the chair of the Securities Practice 

Group. He previously chaired the Corporate and Transactional 

Group and served as managing partner of the Washington, D.C., office. 

He has worked on a variety of public and private security offerings, including initial public offerings, secondary offerings of common stock, senior subordinated and high-yield debt offerings, and 

trust preferred securities offerings, and has worked on more than 

100 offerings, raising in excess of $10 billion during the course of 

his career. 

Mr. Talcott is also chairman of the NGO Smart Approaches to 

Marijuana, which advocates against the use of marijuana. 

Each of you will be recognized for 5 minutes. And, without objection, your written statements will be made a part of the record. 

Now, I welcome the testimony of Ms. Ma. 

STATEMENT OF THE HONORABLE FIONA MA, CALIFORNIA 

STATE TREASURER 

Ms. MA. Thank you very much, Chairman Meeks, Chairwoman 

Waters, and members of this subcommittee. Thank you for offering 

me this opportunity to appear here before you today. 

10 

My name is Fiona Ma. I am a licensed CPA who is proud to serve 

as California’s 34th State Treasurer. As the State’s banker, $2.3 

trillion goes through my office. I oversee $85 billion in bonds and 

$92 billion in short-term investments for the State as well as local 

governments. 

In addition, I chair 16 boards, commissions, and authorities that 

provide financing for our schools, roads, housing, levies, public facilities, and other crucial infrastructure projects that help better 

the lives of Californians. 

I began serving in government in 1995 as a staff member to the 

former California State Senator John Burton, who also served in 

the U.S. Congress. In 2002, I got elected to the San Francisco 

Board of Supervisors and moved on to serve as majority whip and 

speaker pro tem in the California State Assembly, passing 60 

pieces of legislation under 2 Governors, and 3 speakers, during the 

Great Recession from 2006 to 2012. 

In 2014, I was elected to the State Board of Equalization, one of 

the two principal tax collection agencies in our State where cannabis dispensaries are supposed to collect and remit sales taxes. 

Duffel bags and sometimes suitcases of cash would arrive quarterly 

at some of our designated offices, and some folks had to drive 350 

miles just to pay their taxes. I asked how much we collected from 

the cannabis industry, and my agency really didn’t know since tax 

revenues are commingled and deposited with other cash tax payments. 

I participated in educational tours in Humboldt, Mendocino, and 

Trinity Counties in California, also known as the Emerald Triangle, where legal outdoor harvest can generate up to $474 million 

annually in revenue. To better educate myself and my staff about 

barriers and challenges, we held public stakeholder meetings about 

transportation, track and trace, and banking. Many business owners didn’t know the local and State filing requirements, and many 

didn’t even file their tax returns. We were concerned with the public safety surrounding all-cash businesses and we heard many offthe-record stories. 

Eventually, it became starkly clear that the big elephant in the 

room was lack of banking access. 

Additionally, we traveled to Colorado, Washington, and Canada 

and met with executives of their respective tax collection departments to discuss their experience with this emerging industry 

around banking. 

According to the Colorado Department of Revenue, overall cannabis revenue has increased dramatically, from approximately $68 

million in 2014 to over $266 million in 2018. 

Additionally, Washington State has also seen a significant tax 

collection increase of $130 million from 2016 to 2017, when the 

State collected $319 million in excise taxes. Sales of legal cannabis 

in Washington have skyrocketed, from $259 million in Fiscal Year 

2015 to $1.3 billion in Fiscal Year 2017. To put that in perspective, 

that is a 500-percent growth in 2 years. 

Now, we get to California. With nearly 40 million residents and 

more than a million medical cannabis patients, California’s market 

represents about a third of the North American cannabis market. 

11 

In the first three quarters after legalizing adult-use cannabis in November 2016, we collected approximately $228 million in tax 

revenue. The cannabis market in California alone is expected to exceed $5.1 billion in overall revenue in 2020, according to an Archive 

Market Research and BDS Analytics report. 

This same report highlighted that the legal cannabis market could triple over the next 4 years, being worth as much as $32 billion globally. The U.S. will fuel a majority of this revenue, and it 

is critical that we accommodate the magnitude of this economic uptake with access to banking for this new State-regulated industry. 

And since I only have 5 minutes, I was going to talk about the 

medicinal industry starting in San Francisco, but I see that my 

time is short, so I would like to just say that we are here in support of some sort of safe harbor for banks engaged in this industry, 

which we strongly support. 

And as one of the Members mentioned, the Cole Memo was suspended, and it is and has been creating a lot of confusion. 

So, again, we supported the SAFE Banking Act, which was originally introduced in 2017 by Congressman Perlmutter. The SAFE 

Banking Act would provide a safe harbor for those federally regulated or federally insured banks and credit unions wishing to accommodate cannabis businesses in my State and 32 others which 

have approved the use of cannabis in some form or another. This 

is a necessary step, represents a positive evolution of public policy, 

and exhibits a commonsense approach to the problems I have described. 

So I would be happy to answer any questions. And we have submitted my testimony for the record. Thank you very much. 

[The prepared statement of Ms. Ma can be found on page 71 of 

the appendix.] 

Chairman MEEKS. I now recognize Major Franklin for 5 minutes. 

STATEMENT OF MAJOR NEILL FRANKLIN (RET.), BALTIMORE 

CITY AND MARYLAND STATE POLICE DEPARTMENTS; AND 

EXECUTIVE DIRECTOR, LAW ENFORCEMENT ACTION PARTNERSHIP(LEAP) 

Major FRANKLIN. Chairman Meeks, Chairwoman Waters, distinguished members of the committee, thank you very much for the 

opportunity to present the views of the Law Enforcement Action 

Partnership (LEAP) in support of this legislation. 

LEAP’s mission is to unite and mobilize the voice of law enforcement in support of drug policy and criminal justice reforms that 

will make our communities safer. ‘‘LEAP envisions a world in 

which criminal justice and drug policies keep our communities 

safer.’’ This is a quote directly from our website, and that quote is 

exactly what this hearing is about. It is about enacting policy that 

will dramatically enhance public safety within our communities. 

Representative Perlmutter addressed the wishes of the people, so 

I will move beyond that. I think we know what that is. 

This is not a niche business market. It is a significant part of our 

economy. Licensed marijuana businesses are legitimate contributors to our economy. It follows that regulated banking, vendor relations, payroll, and tax payments should be permitted as part of 

that legitimacy—a condition that will further serve to dismantle 

12 

the illicit market’s influence in this growing industry and help local 

economies. 

Current conditions, which require all-cash transactions, for the 

most part, in every aspect of the business encourage tax fraud, 

money laundering, and, most importantly, leave legitimate businesses vulnerable to theft, robbery, and the violence that accompanies those crimes. The SAFE Banking Act presents us with an 

opportunity to greatly assist in stabilizing the industry and enhancing public safety. 

As more legitimate businesses are established, opportunities for 

cash robberies will increase. As more dispensaries come online, securing cash onsite, transporting cash to secure locations and managing cash payrolls are necessities for this business. 

And criminal entities are quite adept at conducting high-level reconnaissance of businesses and their security protocols when they 

know that businesses will have tens of thousands and, in some 

cases, hundreds of thousands of dollars on hand. 

Although extremely important for business owners and the people they employ, my greatest fear is not the loss of profit due to 

theft. It is the potential for serious assaults and death to the people 

attempting to protect that cash who are merely responsible for it. 

I fear dispensary employees being at great risk. 

I fear for the safety of those transporting the cash, and I fear for 

the well-being of employees on payday. Two weeks of pay for one 

employee can easily exceed a couple or a few thousand dollars. 

That one employee trying to get home safely from work is an attractive soft-target score for any criminal, and it is a very easy target for those who know what to look for. 

Beyond any concern for protecting profit, we have a duty to protect the lives of community members working to earn a living. In 

2012, Melinda Haag, the U.S. Attorney for northern California, 

said this, ‘‘Marijuana dispensaries are full of cash and they’re full 

of marijuana and everybody knows that. They are at risk of being 

robbed, and many of them are—’’ 

Here’s an example. In October 2012, three people kidnapped the 

owner of a lucrative dispensary in Orange County, California. According to court documents, the assailants zip-tied the victim, tortured him, and drove him to a patch of desert where they believed 

that he buried large sums of money. When the kidnappers couldn’t 

find it, they burned him with a blowtorch, cut off his penis, and 

doused him with bleach before dumping him along the roadside. 

And, yes, there is Travis Mason, as well, from Colorado. 

Casing the next target is about finding the softest target. And I 

know this. Four of my years in policing I spent interviewing hundreds of career criminals in our Division of Corrections in the State 

of Maryland, and I know what they look for. They look for that soft 

target, and the current conditions of this industry have created 

many soft targets. 

We, the police, teach target hardening when we conduct security 

assessments for businesses. Our advice to them is not to have large 

amounts of cash on hand, to make use of credit and debit card 

services, avoid routine trips to the bank, and to make use of armored car services. This valuable crime prevention 101 advice is 

13 

literally useless to many marijuana business owners, making them 

attractive soft targets. 

What I testify to here today is rooted in experience and research. 

Any police officer who has worked the street or investigated enough 

robberies will testify to the same regarding any businesses forced 

to handle large amounts of cash. 

As I conclude, members of the committee, it is up to you and 

other Members of Congress to act upon this legislation establishing 

access to banking for legitimate marijuana businesses. The safety 

of thousands of employees, business owners, security personnel and 

police officers, and community members is in your hands. 

On behalf of myself and the Law Enforcement Action Partnership, I thank you for this opportunity. And, obviously, we support 

the SAFE Banking Act. 

Thank you. 

[The prepared statement of Major Franklin can be found on page 

68 of the appendix.] 

Chairman MEEKS. Thank you for your testimony. 

Ms. Pross? 

STATEMENT OF RACHEL PROSS, CHIEF RISK OFFICER, MAPS 

CREDIT UNION, ON BEHALF OF THE CREDIT UNION NATIONAL ASSOCIATION (CUNA) 

Ms. PROSS. Chairman Meeks, Ranking Member Luetkemeyer, 

members of the subcommittee, thank you for this opportunity to 

testify. 

My name is Rachel Pross, and I am the chief risk officer of Maps 

Credit Union. Maps is a midsized financial cooperative in Salem, 

Oregon. I am testifying on behalf of CUNA, the Credit Union National Association. CUNA represents both State and Federal credit 

unions and their 115 million members in America. 

Maps has approximately $750 million in assets and serves over 

65,000 member owners in the Willamette Valley of Oregon. As a 

community-focused organization, we have experienced firsthand the 

many challenges facing both financial institutions and State-sanctioned cannabis businesses seeking to operate within the financial 

mainstream. 

Though Maps has no position on cannabis legalization, we acknowledge that the Oregon voters have already spoken on that 

issue. 

Accordingly, after extensive research and risk analysis in 2014, 

our member-elected volunteer board of directors voted to serve cannabis businesses for two primary reasons: first, to serve the underserved, which speaks to the credit union mission and philosophy as 

a not-for-profit financial cooperative; and, second, to enhance the 

safety of our community by removing large amounts of cash from 

the streets. 

To our knowledge, Maps is the only financial institution in Oregon that has continuously served the cannabis industry since 

2014. Today, we bank approximately 500 State-sanctioned cannabis 

businesses. That makes our program one of the largest in the 

United States. 

14 

In terms of safety, statistics show that cash-only business only 

increases the risk of crime. This is especially true in the cannabis 

sector given the lack of access to just basic financial services. 

A 2015 study found that, in the absence of being banked, one in 

every two cannabis dispensaries were robbed or burglarized. Compare that to Maps Credit Union. In the past 2 years, we have received over $500 million in cash deposits from cannabis businesses. 

And that is $500 million removed from Oregon’s sidewalks that 

used to be carried around in backpacks and shoeboxes by legitimate, legal business owners in our State. 

Cannabis banking can be done safely and effectively. Maps Credit Union is the perfect example. As part of our initial evaluation 

and ongoing monitoring of cannabis-related accounts, we collect extensive corporate and financial records and conduct criminal background checks on all account signers. That information is scrutinized to ensure the activity on the account is completed in accordance with State laws and the FinCEN guidance. 

Maps has established a rigorous screening and compliance protocol and has invested considerably in the robust infrastructure required to appropriately monitor and maintain these high-risk accounts. Our team of dedicated professionals averages 1 employee 

for every 40 cannabis business accounts. 

Our Bank Secrecy Act and anti-money-laundering compliance 

program has been repeatedly reviewed by financial regulators. And 

we also obtain an independent external compliance audit of our 

program annually. 

Most importantly, Maps files quarterly suspicious activity reports, or SARs, on every cannabis-related business account. Today, 

over 90 percent of our SAR filings are related to cannabis businesses. We prioritize those SARs to identify any accounts we suspect could be engaged in illegal activities. 

Even financial institutions who choose not to bank the cannabis 

industry still risk unknowingly serving those businesses in States 

where cannabis is legal. Indirect connections are often difficult to 

identify and avoid because growers and retailers don’t operate in 

a vacuum. Like every other industry, they work hand-in-hand with 

vendors and suppliers. These are Main Street businesses, like the 

printing company that makes a business card, the landlord that 

rents office space, and even the utility company that provides 

water or electricity. 

Under the existing status quo, a credit union that does business 

with any one of these indirectly affiliated entities could unknowingly risk violating Federal law. 

The SAFE Banking Act would protect financial institutions and 

the community. In the absence of a Federal law providing explicit 

legal clearance for financial institutions to provide banking services 

to the cannabis industry, it is highly likely that many of these businesses will be forced to operate in the underground economy. That 

increases the potential of lost tax revenue and crime. It also deprives law enforcement of important information about cannabisrelated financial activity. 

In conclusion, we strongly believe that financial institutions 

should be permitted to lawfully serve businesses that engage in acVerDate Nov 24 2008 16:39 Jul 12, 2019 Jkt 095071 PO 00000 Frm 00022 Fmt 6633 Sfmt 6633 K:\DOCS\HBA044.150 TERRI
15 

tivities that are authorized under their State laws, even when such 

activity may be inconsistent with Federal law. 

We need Congress to provide financial institutions who choose to 

serve State-sanctioned cannabis businesses with a safe harbor. For 

that reason, credit unions support the SAFE Banking Act. 

Thank you for the opportunity to testify today. 

[The prepared statement of Ms. Pross can be found on page 77 

of the appendix.] 

Chairman MEEKS. Thank you. 

Mr. Deckard? 

STATEMENT OF GREGORY S. DECKARD, PRESIDENT, CEO, AND 

CHAIRMAN, STATE BANK NORTHWEST, ON BEHALF OF THE 

INDEPENDENT COMMUNITY BANKERS OF AMERICA (ICBA) 

Mr. DECKARD. Thank you, Congressman Heck, for the very kind 

introduction. It is very good to see you, Denny. 

Chairman Meeks, Ranking Member Luetkemeyer, and members 

of the subcommittee, I am Greg Deckard, president, CEO, and 

chairman of State Bank Northwest, a local community bank in 

Spokane, Washington, with $145 million in assets. 

I am testifying today on behalf of the Independent Community 

Bankers of America. I am pleased to provide the perspective of 

thousands of community banks, such as mine, that operate in the 

majority of States that have legalized some form of cannabis use. 

The current conflict between State and Federal law has created 

a cloud of legal uncertainty for community banks, inhibited access 

to the banking system for cannabis-related businesses, or CRBs, 

and created a serious public safety hazard. 

As you know, Washington and Colorado were the first States to 

legalize cannabis for recreational use in 2011. Today, Washington 

State has issued licenses for well over 500 cannabis retailers and 

over 1,000 growers. 

Every one of these businesses remains illegal under the Federal 

Controlled Substances Act, which puts cannabis in the same category as heroin or LSD. 

At this time, my bank has chosen not to serve CRBs. While this 

issue is complex, we have determined that the legal, compliance, 

and regulatory risks are simply too great for my bank. We owe it 

to our community to ensure that our bank remains solid and stable 

and that we remain in good standing with our Federal regulators. 

With regard to a bank providing cannabis-related financial services, FinCEN guidance does provide some assurances for banks 

that follow the agency’s heightened suspicious activity reports, or 

SAR, guidelines. These SARs effectively charge banks with the ongoing monitors of the CRBs for law enforcement. Banking the cannabis industry is complex and goes well beyond the compliance associated with any other type of banking relationships. 

ICBA supports the SAFE Banking Act, a bipartisan bill sponsored by Representatives Perlmutter, Heck, Stivers, and Davidson, 

which would provide that, in States where cannabis is legal, Federal banking regulators may not threaten or limit a bank’s deposit 

insurance, downgrade a loan, prohibit or discourage the provision 

of banking services, or take any other prejudicial action solely beVerDate Nov 24 2008 16:39 Jul 12, 2019 Jkt 095071 PO 00000 Frm 00023 Fmt 6633 Sfmt 6633 K:\DOCS\HBA044.150 TERRI
16 

cause a bank customer is a CRB, direct or indirect, as we have 

seen with Operation Choke Point. 

Without a statutory safe harbor for banks that serve legal CRBs, 

bankers feel the politics could shift against cannabis. The Justice 

Department’s recision of the Cole Memo in 2018, for example, signaled abrupt disfavor of the legal cannabis industry and the banks 

that serve it. 

It is telling that banks that choose to serve CRBs are required 

to have an exit plan to unwind those relationships, a requirement 

that does not exist for any other category or service or industry. 

For community bankers, the risk extends beyond direct cannabis 

businesses to the licensed growers, processors, and retailers. Any 

vendor of a direct CRB is effectively an indirect CRB, which also 

presents a risk to banks. This could even include plumbers, landlords, or bookkeepers who offer their services to the broader public 

and whose customer base, knowingly or unknowingly, includes 

CRBs. 

For example, my bank cannot, without incurring additional risk 

and heightened compliance burden, serve our regional utility provider because it provides power to the CRBs, which raises a question: How many degrees of separation from cannabis do I as a 

banker have to investigate and monitor to ensure compliance with 

Federal law? Many bankers may not know that they are even involved with cannabis. 

I hope that I have given you a sense of the full scope of the legal 

and regulatory compliance quagmire faced by communities banks 

in States that have legalized cannabis. While a small number of institutions have chosen to assume the risk of serving CRBs, the cannabis industry remains cash-intensive and creates a potentially 

grave public service hazard. 

We recognize this is a complex issue for all stakeholders. However, an effective statutory safe harbor for banks that offer services 

to CRBs that comply with State law would offer the needed clarity 

for those banks that choose to bank CRBs, as well as for their examiners, and will serve the goal of enhancing public safety. 

ICBA urges this committee to consider the SAFE Banking Act, 

which would create such a safe harbor. ICBA supported this legislation in the last Congress and plans to support it again upon reintroduction. 

I would like to clarify, however, that our support for the SAFE 

Banking Act should not be viewed as support for legalization. 

ICBA, including myself, makes no moral or scientific judgments regarding cannabis use. 

Thank you again for the opportunity to testify today. We look forward to working with the committee to advance the SAFE Banking 

Act. I am happy to answer any questions you may have. 

[The prepared statement of Mr. Deckard can be found on page 

62 of the appendix.] 

Chairman MEEKS. Thank you. 

Mr. Barnette? 

17 

STATEMENT OF COREY BARNETTE, OWNER, DISTRICT 

GROWERS, LLC & METROPOLITAN WELLNESS CENTER, INC. 

Mr. BARNETTE. Chairman Meeks and members of the committee, 

thank you for inviting me today to discuss banking services to the 

cannabis industry. 

My name is Corey Barnette. I have lived here in Washington, 

D.C., since 1999 and I currently own District Growers Cultivation 

Center and the Metropolitan Wellness Dispensary, both of which 

are licensed and located here in Washington, D.C. 

The medical cannabis industry in Washington, D.C., is incredibly, incredibly well-regulated. There are mandatory licensing, 

background checks, financial disclosures, video surveillance, alarm 

systems, seed-to-sale tracking, RFID tags, child-resistant packaging, labeling and testing regulations, and routine and random inspections. The same is the case throughout many States that have 

these laws. 

In essence, our businesses are safe. Our owners are well-vetted 

and should be a welcome addition to efforts to dismantle cannabis 

prohibition. 

However, we are crippled by Federal regulations on banking that 

serve to stifle sanctioned operators while simultaneously buttressing the illicit markets that regulators are actually targeting. 

The issue of access to banking is acutely concerning to business 

owners like me. A large majority of the country has access to legal 

medical cannabis, and 10 States, including Washington, D.C., have 

legalized cannabis for adult use. However, there is still no federally 

approved system for businesses to perform typical duties like pay 

salaries, service customers using credit cards, access working capital loans, pay bills, or, effectively, pay taxes. 

The current system serves to create a public safety disaster. It 

advantages the illicit markets. It hassles employees and service 

providers seeking to do business with the industry. It makes tax 

collection overburdensome and serves highly to stifle the growth of 

the industry altogether. 

In terms of safety, business owners are often forced to operate 

completely in cash, making the businesses and their customers incredibly vulnerable to robberies and threats. Many dispensaries 

have hired on-site armed security guards, maintain excessive onsite security infrastructure, and utilize armored cars and armored 

trucks in order to transport cash. However, the problem of large 

cash reserves anywhere creates an enormous headache and a significant threat to the public safety. 

For the Federal Government, the system is a disaster too. Like 

my firm in the past, many cannabis businesses bounce from bank 

to bank, opening accounts, only to have them randomly closed 

within weeks. As a result, law enforcement and regulators struggle 

to preserve and insure a system that is transparent. Payment of 

Federal and State taxes is made difficult. Ancillary service providers are unable to work with the industry because they don’t 

want to take excessive amounts of cash. And many employees have 

had their bank accounts closed and are often denied basic services 

that we all enjoy, like getting a mortgage, using credit cards, or 

having personal banking services, just simply for working in the industry. 

18 

It should be noted that the absence of the participation of banks 

is also particularly hard on small and minority-owned businesses. 

Mom-and-pop businesses and minority-owned businesses traditionally look first to bank loans as a method of financing the start and 

the growth of their businesses. Without bank participation, the 

hurdle to entry is substantially higher for this segment of owners. 

Restrictions on banking serve to create a barrier that only the 

wealthy can overcome. 

In short, nobody benefits from the system, with the exception of 

private security firms and the super-wealthy operators that exist 

out there. 

Fixing the banking issue is a crucial part of fixing the broken 

system of cannabis prohibition, but it is far from the only issue we 

need to resolve. In recent years, I have been involved in numerous 

campaigns, and have spoken on many panels, including here in 

Congress, about the need to increase diversity in the cannabis industry. Despite cannabis arrests falling largely on the backs of people of color, this vibrant industry has often closed its doors to those 

very same communities. 

Congress should tackle the banking issue. I applaud the efforts 

around the SAFE Banking Act. But it should also do so in a way 

that includes other reforms, like the need for expungement of 

criminal records, investments in communities impacted most by the 

war on drugs. 

Banking is an important piece of the puzzle, but it is only a 

small step on the road to dismantling cannabis prohibition. We 

have to be bold if we are to solve problems for the communities 

that we serve. 

Thank you. 

[The prepared statement of Mr. Barnette can be found on page 

60 of the appendix.] 

Chairman MEEKS. Thank you for your testimony. 

And last but not least, Mr. Talcott, you are recognized for 5 minutes. 

STATEMENT OF JONATHAN H. TALCOTT, CHAIRMAN OF THE 

BOARD, SAM, INC. (d/b/a SMART APPROACHES TO MARIJUANA, INC.) 

Mr. TALCOTT. Chairman Meeks and Ranking Member Luetkemeyer, thank you very much. I am honored to give testimony about 

the SAFE Banking Act of 2019. 

I wanted to say that I thoroughly agree with everything that 

Ranking Member Luetkemeyer said. I also wanted to say that I am 

very how—do I put it? I am the only one here who is opposed to 

the SAFE Banking Act, and I feel a little lonely having to address 

some of the issues. So I am going to try to get through them quickly. 

Chairman Meeks was kind enough to introduce me. Unfortunately, he focused on my law firm. Actually, I am not speaking on 

behalf of my law firm. I am speaking on behalf of Smart Approaches to Marijuana. We are a 501(c)(3) that is dedicated to educating people about the dangers associated with marijuana and its 

legalization. 

19 

I have also served the community banking community for a long, 

long time, as a lawyer both at Nelson Mullins and at Alston & 

Bird. I also work with investment banks, many of whom would like 

to get into this business. 

Finally, I also worked at a bank. I worked at JP Morgan for a 

period of time and worked as a regulator during the savings-andloan crisis at the Office of Thrift Supervision. 

I have heard a lot of conversations up here about the dangers associated with cannabis and having it sold when there is money that 

is going to change hands in the form of cash. I wanted to say I also 

speak on behalf of people who have been the victims of cannabis, 

who have been the victims of marijuana. 

I am here, actually, because I got involved in this issue because 

my little sister, Mary, started smoking pot after my father died. 

She developed schizophrenia, and she died young at the age of 42. 

I am also here on behalf of my cousin, who picked up a pot-smoking habit in high school that led her to opioids, and she died of a 

heart attack at the age of 20. 

As anybody knows who has read Alex Berenson’s recent book, 

there are a lot of dangers associated with cannabis. As a matter 

of fact, it is very well-established that smoking marijuana can, in 

a small subset of people who do so, develop psychosis, and psychosis often leads to violence and violent crime. 

I would like to take one moment to say what I think of the drafting of this particular legislation. I was told that that is one place 

I should focus my attention. 

As you can see from my submitted testimony, I think you really 

need to address the Controlled Substances Act and its prohibition 

on marijuana, its scheduling of it as a Schedule I drug, before any 

of the proposed changes and safe harbors would be effective. 

Suffice it to say, there is probably universal agreement on the 

fact that the Controlled Substances Act as a Federal law, as Representative Luetkemeyer said, preempts all the State laws. So, 

technically, everybody who is involved in the cannabis industry nationally now is committing a Federal felony. 

Until that is changed, any changes to the Bank Secrecy Act 

(BSA) or, related, the anti-money-laundering statutes (AMLs), 

won’t get us very far. I think that that is kind of—I don’t want to 

give you a roadmap to how to make this work, but if everybody in 

this room wants legalization to go forward, the place to start is 

with the Controlled Substances Act. 

I also want to point out that, if this legislation were to pass, it 

would do nothing more than reinforce a trend that has already occurred in those States that have legalized. 

We have a serious problem with the black market in every State 

that has announced that it is legalizing pot for recreational use. 

There is a shadow economy going on that is using the front of legitimacy to make money illegally. This is why tax revenues in certain 

States are less than they should be. After all, if you didn’t pay 

taxes when you were selling pot illegally before, why should you 

pay taxes now? 

So we see, in Oregon, they estimate that 70 percent of the transactions were to have occurred on the black market. Even Governor 

Hickenlooper in Colorado talked about the problems with the black 

20 

market. You even have problems in California, where Mexican drug 

cartels are propping up black-market marijuana farms all across 

northern California. 

I think that it is worth mentioning these things because we need 

to be very careful about how we proceed in this area. If we want 

to discourage the black market, which I think we all want to do, 

then we need to be much more straightforward about how we approach this issue. We need to change the scheduling of marijuana, 

if that is what people want to do, and then go about putting in 

place the appropriate banking regulations. 

I think that it is important, as a last point, to say that I don’t 

think everybody in the country wants marijuana to be legalized for 

recreational use. As a matter of fact, most surveys that include the 

option of decriminalization show that it is a minority of people who 

would like recreational marijuana. I think what it really comes 

down to is this is a public health issue, not a banking law issue. 

Thank you have very much. 

[The prepared statement of Mr. Talcott can be found on page 87 

of the appendix.] 

Chairman MEEKS. Thank you. 

I ask now, without objection, to enter into the record 22 statements from various associations, credit unions, banking associations, State attorneys general, and banking alliances. 

Without objection, it is so ordered. 

And I now recognize myself for 5 minutes for the purpose of asking questions. 

Let me start out with Ms. Pross and Mr. Deckard. 

What do you see as the most immediate impact for your respective organizations if and when passage of the SAFE Act or its 

equivalent is passed? 

Ms. PROSS. Thank you, Mr. Chairman. 

I think the most immediate impact that we would see is a significantly reduced legal risk. That is something that we deal with 

every day, knowing that we have this tremendous legal risk of 

serving the industry. 

I also think it would have a significant impact on the credit 

unions that we are instructing on how to do cannabis banking in 

compliance with the FinCEN guidance. The risk of criminal prosecution is a huge barrier for them, and they have the same goal 

of wanting to increase safety in their communities. And I think we 

could have a really powerful impact if there were legal protections 

in place. 

Chairman MEEKS. Mr. Deckard? 

Mr. DECKARD. In Washington State, there are three banks and 

three credit unions that provide banking services to the cannabis 

industry. I am aware of several other banks in the State that, if 

there was some clarity provided and a safe harbor created for institutions, there would be more entrance into the cannabis banking 

market. 

As Ms. Pross had indicated, the clarification of the legal risks 

and regulatory risks and compliance risks also factor into a bank’s 

decision of whether to engage in that line of work or not. And 

something that each bank has to consider in their own risk model, 

what their tolerance is. But I do believe that the immediate impact 

21 

would be that you would have more institutions being willing to 

serve as a result of the safe harbor. 

Chairman MEEKS. Thank you. 

And, Mr. Barnette, as a minority business owner, what has been 

your experience with respect to the industry’s diversity and inclusion and access to startup and working capital and the ease of 

doing business, especially small businesses? 

Mr. BARNETTE. Sure. 

In the way of access to capital, it is difficult for small businesses, 

particularly those that come from disadvantaged communities and 

communities that have been impacted significantly by the war on 

drugs. 

For the most part, when these owners are granted licensing, the 

hurdles to get over the regulatory requirements just to open your 

doors can oftentimes be several hundred thousand dollars, never 

mind the cost of build-out and things of that nature. 

In the past, most of these business owners would have, perhaps, 

gotten a second mortgage on their house or would have taken out 

a loan using whatever assets they have available to them via their, 

perhaps, family trust or savings or anything of that nature. 

However, the absence of banking prevents that altogether. And 

so it is very difficult for communities that don’t have access to sort 

of, let’s say, hedge fund money or wealthy benefactors to actually 

get the investment capital needed to actually start their businesses 

in the space without the help of banks, at least to fill in whatever 

gaps they have. 

The first part of your question, do you mind repeating it? 

Chairman MEEKS. Well, I just wanted to know your experience 

with respect to diversity in the industry. 

Mr. BARNETTE. So, in my company, I can tell you that we have 

a very diverse labor force. We have made that a policy. We believe 

that our labor force should be reflective of the communities that we 

serve, both patients on the medical side as well as should we find 

ourselves in a recreational market, that we should actually make 

it a point to bring people in the business who actually live and 

work around our companies. 

To that end, what we have done is, within a 1-mile radius is 

where we typically recruit first. And we try to hire most of our 

labor force within a 5-mile radius of our businesses. 

My business here in Washington, D.C., I am proud to say, is 

staffed with 100 percent D.C. residents: 80 percent of our people 

are people of color; and about 60 percent of our employee base are 

women. And we have a portion of our employee base who is also 

homosexual. So we have a very diverse labor force that is reflective 

of the D.C. community. 

Chairman MEEKS. Thank you. 

Let me ask Ms. Ma quickly, can you summarize in a few words 

why you believe that only Federal action will resolve the issues? 

Ms. MA. Yes. 

In California, we have been trying to pass many pieces of legislation to either work around, go around, patch this issue of banking 

access. And we have come to the conclusion that we really need 

Congress to act. And having a safe harbor for banks is probably the 

most expeditious way of getting more folks out of the black and 

22 

gray markets and into the legitimate markets. By not having banking access, it also affects many other critical impacts. For example, 

if you don’t report any income, you may not be liable for any child 

support or any alimony payments. If you are being paid by cash, 

you are clearly not going to be putting in all of your taxes for Social 

Security, so may not be eligible later on. 

And then also the impact of folks not reporting, for example, domestic violence incidences because they are scared that the police 

are going to come into their homes or their businesses. So there is 

a lot of social impacts that are also affecting the communities by 

not having access to banking. 

Chairman MEEKS. Thank you very much. 

I now recognize the distinguished ranking member for 5 minutes 

for questions. 

Mr. LUETKEMEYER. Thank you, Mr. Chairman. 

I request unanimous consent to submit letters from the National 

Fraternal Order of Police, the Faith and Freedom Coalition, and 

the Major Cities Chiefs Association in opposition to marijuana 

banking into the record. 

Chairman MEEKS. Without objection, it is so ordered. 

Mr. LUETKEMEYER. Thank you. 

I am kind of curious. I go back to my opening statement when 

I think this whole situation revolves around the fact that we have 

Federal law trumping State law. And we have a situation where 

we are going to muddy the water a little bit more here with the 

bill in front of us. 

And for those individuals in front of us today representing your 

different entities, it would seem to me that the hemp industry 

showed us—and the gentleman from Kentucky can talk about that 

here in a minute—last fall how to solve this problem by 

descheduling that substance. 

So I ask the question of each of you. Ms. Ma, have the States 

asked the Department of Justice, the Attorney General, who is in 

charge of overseeing the Controlled Substances Act, as Mr. Talcott 

indicated—have you talked to them about asking us, Congress, to 

do something about this and, in particular, the Judiciary Committee? 

Ms. MA. I believe so. I am just starting my fifth week in this position. Prior to that, I was the tax collector in California, so I do 

believe we have been— 

Mr. LUETKEMEYER. The States have done this? 

Ms. MA. I know State treasurers, my former predecessor, Treasurer John Chiang, did sign a letter with other State Treasurers in 

other States. 

Mr. LUETKEMEYER. To the Attorney General? 

Ms. MA. Yes, asking the Attorney General— 

Mr. LUETKEMEYER. Have you contacted a member of the Judiciary Committee, the committee that has jurisdiction over the Controlled Substances Act? 

Ms. MA. I personally have not. But I know past administrators 

have. We do have a new Governor. And I will follow up and send— 

Mr. LUETKEMEYER. So it would seem to me that is where we 

need to start. 

Mr. Franklin, you are talking about law enforcement officers. 

23 

Have law enforcement officers contacted the Department of Justice, the Attorney General, and asked him to contact and support 

a change in this law, and gone to the Judiciary Committee to do 

so? 

Major FRANKLIN. We have. Our organization has. 

Mr. LUETKEMEYER. You have talked to the Attorney General? 

Major FRANKLIN. We have sent letters, yes. 

Mr. LUETKEMEYER. Have you sent letters to the Judiciary Committee to ask them to reconsider this, to look at it? 

Major FRANKLIN. To my knowledge, no. 

Mr. LUETKEMEYER. Ms. Pross, credit unions, have you contacted 

the Attorney General and asked him to support descheduling a 

drug, and contacted the Judiciary Committee to make a change? 

Ms. PROSS. No, we haven’t. 

And I just want to clarify that I am not a cannabis expert or a 

Controlled Substances Act expert. I am a regulatory compliance expert for the financial industry. 

Mr. LUETKEMEYER. Okay. Well, if you are regulatory and compliance, you know how this works. You have to have a law; you have 

to enforce the law, or you else you can change the law, one or the 

other. 

Mr. Deckard, ICBA, have they contacted the Department of Justice and asked them to support changing this law, and asked the 

Judiciary Committee to make the changes? 

Mr. DECKARD. I am not aware that we have. 

But, again, it is important for me reiterate that ICBA takes no 

position on the legalization of cannabis on either the moral or scientific thing, so I am not sure if they have contacted— 

Mr. LUETKEMEYER. That solves your problem, though. Right now, 

you are put in the crosshairs, and so we need to solve the problem 

one way or the other, in my judgment. 

Mr. Barnette? 

Mr. BARNETTE. Yes. 

Mr. LUETKEMEYER. Have the Growers contacted the Department 

of Justice and asked them to support— 

Mr. BARNETTE. The Growers have not. I personally, actually, am 

a member and my company is a member of several organizations 

in the cannabis industry, like the National Cannabis Industry Association and several others, that have gone to the extent of actually not only asking the Department of Justice and several other 

branches of the government that actually have policies that are restrictive to our industry to find methods of actually easing them. 

And so, yes, that is a very active, ongoing request. And what is 

more, we have been supportive and have actually paid for lobbyists 

to come up and speak to you here in Washington, D.C., as you 

probably already know. It is actually Congress that is stopping the 

District from actually legalizing and putting together a recreational 

market right now. 

Mr. LUETKEMEYER. Congress is in charge of—and this is the 

problem we have is that the States have jumped the gun here. 

They should be contacting their Members of Congress as they are 

contacting Mr. Perlmutter, and we should be initiating this change 

if it is wanted, if it is desired. People in my State have not conVerDate Nov 24 2008 16:39 Jul 12, 2019 Jkt 095071 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 K:\DOCS\HBA044.150 TERRI
24 

tacted me about doing this yet, so I am waiting for somebody to say 

so. 

But I guess it goes back to—we have many problems here. And 

I guess, Mr. Talcott, one quick question. 

What about FDIC deposit insurance—or Mr. Deckard—FDIC deposit insurance. Is that going to insure the deposits of these kind 

of illegal transactions, illegals funds in your bank? 

Mr. DECKARD. FDIC insurance supplies to the deposits in my 

bank up to the limits, and— 

Mr. LUETKEMEYER. Does it apply for funds that have been obtained illegally? 

Mr. BARNETTE. To my knowledge, it is legal in the State of 

Washington under Initiative 502, and— 

Mr. LUETKEMEYER. Under the Federal law, it is still an illegal 

drug, so you are involved in illegal drug transactions. So my question is, does the FDIC insure deposits that have been obtained illegally? 

Chairman MEEKS. The gentleman’s time has expired. 

Mr. BARNETTE. The deposits in the banks that are banking the 

cannabis industry are FDIC-insured up to the limits for those deposits— 

Chairman MEEKS. The gentleman’s time has expired. 

Let me just remind the gentleman that we are here to talk about 

banking. This committee only has jurisdiction over the banking aspects of it. And the purpose of this hearing is simply so that we 

could understand the banking aspects of cannabis and to make 

sure about the public safety and what that entails. 

I am going to allow Chairwoman Waters to ask questions. There 

are votes on the Floor. And so, after the questions of Chairwoman 

Waters, we will adjourn and come back immediately after votes— 

we will recess. Excuse me. We will recess and come back immediately after votes. 

But I yield 5 minutes to the chairwoman. 

Chairwoman WATERS. Thank you very much, Mr. Chairman. 

This question is directed to the Honorable Fiona Ma, California 

State treasurer. 

Thank you for your very thorough testimony. And I think you 

very well described that the clash between Federal law and State 

law in the cannabis industry presents an especially difficult problem for States such as California. You went on to talk about a 

working group that you had belonged to who actually considered 

establishing a State-backed financial institution devoted exclusively 

to the cannabis business. But after all of that work, it was decided 

that it would be better if we could have a safe harbor for banks 

who are dealing with the cannabis industry. 

If we don’t get it done here in Washington, D.C., do you think 

the working group would say we have to do something and they 

will go back to the whole idea of exploring establishing a State 

bank financial institution? 

Ms. MA. Thank you, Chairwoman Waters. 

Yes. The report did say that States can establish their own State 

public banks, such as North Dakota as well as America Samoa. But 

it would take a long time and a lot of money to capitalize a bank. 

25 

And, yes, I said the most expeditious way would be for this committee and Congress to act to allow banks to continue to follow the 

FinCEN guidelines, fill out their SARs reports, their AAM—know 

their customers, AML reports. And that would create the safest, 

quickest solution to the issues that many States are facing right 

now. 

Chairwoman WATERS. Thank you. 

And you also added that to do that would improve the efficiency 

of collecting the taxes and fees we use to regulate the industry, 

does not allow banks and credits unions to totally abdicate their responsibilities to know their customers, on and on and on. 

You have made a really strong case here for why it makes good 

sense to have a safe harbor and why you, and California, are supporting the SAFE Banking Act. So there are about 300 financial institutions that are following the FinCEN guidelines and doing all 

the reporting and accepting cannabis clients. But that is clearly not 

enough. And that is why we are here. If they could get a safe harbor provision, then I think more banks would consider banking the 

industry. 

Thank you very much. 

And, Mr. Chairman, let me thank you for making this your very 

first hearing. This is so important. So many people have been waiting on it. I appreciate it so much. 

And I yield back the balance of my time. 

Chairman MEEKS. Thank you. 

The committee will now pause for votes and resume immediately 

after. 

The committee now stands in recess. 

[recess] 

Chairman MEEKS. The hearing is now in order. And I think 

where we are now is I recognize the gentleman from North Carolina, Mr. McHenry, for 5 minutes. 

Mr. MCHENRY. I thank the witnesses for taking this long break. 

I hope you are still attuned to the subject matter we are dealing 

with. But I want to talk a little more—get back into the details of 

this. 

And so, Mr. Deckard, Ms. Pross, we are talking about legislation 

that would allow financial institutions to operate in direct conflict 

with Federal law. 

Are either one of you banking lawyers by trade or primarily involved in regulation of your institutions? 

Ms. PROSS. I am not an attorney, no. 

Mr. MCHENRY. All right. 

Mr. Deckard? 

Mr. DECKARD. I am not, no. 

Mr. MCHENRY. Okay. I just wanted to check before I started getting to these questions for disclosure purposes. 

So, as an institution, when you have those two conflicts between 

Federal and State law, that creates uncertainty, does it not? 

Mr. DECKARD. Correct. 

Ms. PROSS. It does. 

Mr. MCHENRY. And we are trying to resolve that uncertainty 

with changes to the Federal law, correct? 

Mr. DECKARD. Correct. 

26 

Mr. MCHENRY. Okay. So how do you limit risks to financial institutions if you have a law that still leaves the rest of the Federal 

regulatory scheme opposed to what you are doing as an institution? 

How would you resolve that as an institution? 

Mr. DECKARD. I think that has been a difficult thing for each financial institution to do their own cost-benefit analysis and determine what the risks are and what benefits are derived from being 

involved in the banking of the industry. 

My particular bank, we are not involved in banking— 

Mr. MCHENRY. Right. 

Is there reputational risk? Is there a question about reputational 

risk? 

Mr. DECKARD. I believe there is a reputational risk, sure. 

Mr. MCHENRY. And not just regulatory but reputational and 

compliance risk. 

Okay. Ms. Pross? 

Ms. PROSS. Yes. Certainly. There is reputational risk and legal 

risk. And we certainly understand the risks and challenges that financial institutions are facing with this issue, and we understand 

positions like the financial institution of Mr. Deckard, that they 

choose that this is not worth that risk. 

But from Maps Credit Union, we had the FinCEN guidance, and 

that is not safe harbor, but it is guidance on how to comply with 

reporting requirements for banking this industry, and it really 

came down to an issue of community safety. 

Mr. MCHENRY. Right. 

And so, because of that guidance, you had three different ways 

to have a suspicious activity report, right? 

Ms. PROSS. Correct. 

Mr. MCHENRY. And how you disclose that, right? 

Ms. PROSS. We file—yes. 

Mr. MCHENRY. How many SARs have you filed over the last 12- 

month period, roughly? 

Ms. PROSS. In the last 2 years, we filed approximately 3,000 suspicious activity reports. 

Mr. MCHENRY. So, a massive amount. 

Ms. PROSS. Correct. 

Mr. MCHENRY. A massive amount. 

And there are regulatory costs associated with that. 

Ms. PROSS. Sure. 

Mr. MCHENRY. But the reputational risk piece, your institution 

resolved that. In your community, you resolved the reputational 

risk, right? 

Ms. PROSS. We did. 

Mr. MCHENRY. Because it is a State-regulated product, and you 

resolved that reputational risk piece? 

Ms. PROSS. Yes, I believe we have. 

Mr. MCHENRY. So are you familiar with Operation Choke Point? 

Ms. PROSS. I am. 

Mr. MCHENRY. Okay. Mr. Deckard? 

Mr. DECKARD. Yes. 

Mr. MCHENRY. Operation Choke Point focused on reputational 

risk, State-regulated products, also federally recognized as lawful, 

27 

and yet you had Federal regulators trying to force institutions to 

stop doing things that comply with both State and Federal law. 

It is difficult to see how we flipped this conversation to, in essence, mandate institutions to do something that is in conflict with 

the Federal law without resolving the substance of the Federal law, 

which is the classification of the product you are using, right? 

Ms. PROSS. My understanding is that the SAFE Banking Act 

does not mandate any financial institution to provide services— 

Mr. MCHENRY. I am not saying that. But it makes it an opt-out 

rather than an opt-in situation for institutions. 

So, going back to this, do you think that this legislation as it is 

currently written resolves those issues for you to engage in this? 

Mr. Deckard, you are not currently engaged in it. We passed this 

law. Does that resolve this for your institution? 

Mr. DECKARD. It resolves the lack of clarity regarding how a Federal regulator could come in— 

Mr. MCHENRY. Have you checked with your insurers about that? 

Mr. DECKARD. Yes. 

Mr. MCHENRY. And your insurers would be comfortable insuring— 

Mr. DECKARD. I’m sorry. Have I checked with our insurers about 

this bill? No, I have not. 

Mr. MCHENRY. Correct. Okay. 

So there is a lot to be resolved, a lot of questions, including the 

reputational risk question that in most communities would come 

down to a different understanding just based off of where they are, 

right? The 33 States and the difficulties of each individual State’s 

version of regulation of this, much less the 17 States that have no 

form of this. Do you see that as a major challenge for us legislating 

in this area? I think so. 

I yield back. 

Chairman MEEKS. The gentleman’s time has expired. 

Mr. Scott is now recognized. 

Mr. SCOTT. Thank you very much, Mr. Chairman. 

I would like to ask who was putting up the map on the screen. 

Yes, there it is. Right there. I want us to put our attention on that 

map because I think it points out the great necessity and importance that we need to do in getting Mr. Perlmutter’s bill enacted. 

I listened very attentively to Mr. Talcott and others on the other 

side, and speaking about the debate on this issue of marijuana. 

But the point is the people of America have already spoken. Just 

look at that map. And it gives you the reason why we need this 

bill more than anything else we could say. Up there, it says that 

47 States, the people in 47 States in this Nation have said that at 

some level, they are accepting the use of marijuana. 

Now, there is nothing we can do about that but to try to bring 

some significant regulation properly that reflects the concerns of 

the American people. If we don’t do that, we will have a tremendous safety issue if we don’t bring this. 

And that is why I am just proud to work with Mr. Perlmutter 

on this. And I hope that we all can see the value of that. It is a 

safety issue. And then it becomes an issue of, how do we regulate 

it, because I think the issue is basically this, that some of the 

States, 47 of them, have accepted in some form or another the acVerDate Nov 24 2008 16:39 Jul 12, 2019 Jkt 095071 PO 00000 Frm 00035 Fmt 6633 Sfmt 6633 K:\DOCS\HBA044.150 TERRI
28 

ceptance of legalization of the use of marijuana for the American 

people. But without having some uniformity, it creates a tremendous problem of uncertainty as well as safety. 

Now, Ms. Pross, I would like for you to comment for a moment 

because I think that you really hit the nail on the head. Could you 

please tell us—it is SARs, correct? 

Ms. PROSS. Correct. 

Mr. SCOTT. —that have to be performed. Tell us how problematic 

that is and the added pressure of complications that this issue 

brings. 

Ms. PROSS. So the suspicious activity reports are outlined in the 

FinCEN guidance, and those are the requirements laid out for us. 

There are three different types of SARs. There are marijuana-limited SARs for activity that appears to be operating within the 

guidelines of State law. There are marijuana priority SARs, which 

are the SARs that we are flagging if we suspect that there could 

be some illicit activity going on. And then there are marijuana termination SARs that we would file if we needed to terminate an account relationship because of either failure to communicate with us 

and allow us to have it transparently in our compliance program 

or if there is activity that could indicate a serious concern about 

violating the law. 

Mr. SCOTT. Thank you very much. 

There are two other points I want to make that really give a 

sense of urgency here. 

We have what is called transaction payments, credit cards, debit 

cards. How do we intercede them into our banking and financial 

system? And how does the transaction payment caucus industry 

react to that? How do we bring them into the flow? 

This is basically a cash business. But how long before now they 

will be paying with credit cards or debit cards? Where are we 

there? 

In my final 30 seconds, I want to call to our memory, 85 years 

ago, we had a similar problem with alcohol. But this Nation rose 

to the occasion, and we responded. Just think if we hadn’t. There 

were people then who were saying, ‘‘Well, we don’t like liquor,’’ just 

like many people are now saying, ‘‘We don’t want marijuana.’’ But 

it is here just as surely as alcohol was. 

But we responded to that, and we were able to do that in a very 

meaningful way at a very critical time. And I think we had the 

wherewithal to do this with Mr. Perlmutter’s bill. 

Thank you. 

Chairman MEEKS. The gentleman’s time has expired. 

Mr. Posey is recognized for 5 minutes. 

Mr. POSEY. Thank you, Mr. Chairman. And thank you for holding this hearing today. 

The discussion draft bill that we have before us today, as you 

probably already know, is titled the Secure and Fair Enforcement 

Banking Act of 2019. And as you know, it basically is to encourage 

banks to have the ability to deal with people who dispense marijuana or sell marijuana or whatever. 

And to me, fair would mean repealing Operation Choke Point, 

which prohibits banks from doing businesses with—or for doing 

business or allowing businesses—banks to do business with busiVerDate Nov 24 2008 16:39 Jul 12, 2019 Jkt 095071 PO 00000 Frm 00036 Fmt 6633 Sfmt 6633 K:\DOCS\HBA044.150 TERRI
29 

nesses the government doesn’t like. And now I guess the government is going to like your business, the marijuana business, but 

they are still not going to like a lot of other legal businesses that 

are legal in every single State. In my district, they are not going 

to like or allow banks to do business with somebody that manufactures weapons for our military because they don’t like guns. 

So I am just wondering if any of you—we can start on the left 

end—could just tell me one iota of a reason that this makes sense, 

that it is honorable, that it is fair, that I should support something 

like this when we can’t get this kind of support for legal businesses? 

Ms. Ma? 

Ms. MA. I believe the gentleman up there, Mr. Scott, said, first 

off, that 47 States have passed it, some form of it. And so we at 

the State level are dealing— 

Mr. POSEY. No. No. No. I mean, why it makes sense to do this 

and not do other businesses that are absolutely legal, have been 

legal in every State since 1776. 

Okay. Next one. You don’t have a good reason. 

Yes, sir? 

Major FRANKLIN. So, from my perspective of public safety, it is 

all about the cash that is out in our communities and these businesses. So any business, from my perspective, that is dealing in 

large amounts of cash needs a process to eliminate that. 

Mr. POSEY. I agree. 

Major FRANKLIN. So that is— 

Mr. POSEY. I agree. That is why I just wonder why the fair banking act, the SAFE Act, doesn’t repeal Operation Choke Point, which 

prohibits legal businesses that are legal in every State for over 200 

years to do business with them. 

Ms. Pross? 

Ms. PROSS. I agree with the comments that Major Franklin 

made. I think that this issue is these are—these cannabis businesses—we are certainly not taking a position on legalization of 

cannabis. But they are, by nature, very cash-intensive businesses. 

And we are talking millions of dollars of cash that is unbanked. 

Mr. POSEY. Well, so are the other businesses. I mean, they are 

cash-intensive too. Just why should we single out the cannabis suppliers and nobody else from Operation Choke Point? 

Mr. Deckard, can you give me a good reason? 

Mr. DECKARD. Well, community bankers around the country have 

to make a decision of the risk and return of entering any line of 

business. So there is no mandate. There is no opt-out. It is a choice 

of the bank to live in an uncertain environment of the conflict between Federal law and what is a legal licensed business, in my 

case, in the State of Washington, so— 

Mr. POSEY. Okay. But maybe I didn’t make it clear. 

I am hoping that one of you can tell me why we should encourage banks to do business with cannabis sellers and not with other 

legal businesses that have been legal for over 200 years in this 

country because the government doesn’t like those people. 

Mr. DECKARD. I don’t feel— 

Mr. POSEY. Why should we single this business out? I am trying 

to understand the bill. The bill title is, ‘‘Fair and Equitable.’’ And 

30 

I don’t see anything fair and equitable when we take one segment 

of the market now that hasn’t been able to do business like they 

want that is cash-intensive, but we still don’t include the other 

businesses that have been legal for years that are very cash-intensive as well. 

Mr. Barnette? 

Mr. BARNETTE. Congressman, I believe that all the time we pass 

laws that are designed to target one industry or one sector of our 

economy without reference or giving precedence to the other sectors 

of our economy. We don’t have to look any further than the tax 

laws in order to see that there are certain preferences given to certain industries. 

Right now, this bill gives you the opportunity to address a huge 

safety issue, and as someone who has been— 

Mr. POSEY. Reclaiming my time, because I am almost out. 

Mr. Talcott, can you give me a reason? 

Mr. TALCOTT. I totally agree with you. 

Chairman MEEKS. The gentleman’s time has expired. 

Mr. Clay, for 5 minutes. 

Mr. CLAY. Thank you, Mr. Chairman. 

And let me thank the witnesses for your participation in this 

hearing today. 

Let me start with Mr. Deckard. 

I understand your bank does not accept cannabis businesses as 

customers. And why is that? 

Mr. DECKARD. For a multitude of reasons. First and foremost is 

that we do not want to take the risk exposure of the actions that 

Federal regulators could take depending on what the politics of the 

moment are versus what the laws of the State of Washington are. 

So, again, nobody is encouraging us to participate in this line of 

business. But we have made a choice that, based upon the ambiguity of the statutes, the cost-benefit, the size of my market, the 

size of my bank, the risk-reward aspects of all those things, that 

when the law was first passed, we determined there was too much 

uncertainty for us to engage. 

Mr. CLAY. Let me ask you, have you had to cut ties with any customers as a result of them getting involved with the cannabis business? 

Mr. DECKARD. We have not. 

Mr. CLAY. Okay. How many of your agricultural customers have 

considered entering the marijuana business and consulted with 

you? 

Mr. DECKARD. I am not aware of any agricultural customers that 

have contemplated that. We have had some requests to open accounts from clients in our metropolitan area, and we have respectfully declined to open those. 

Mr. CLAY. If you had better guidance from Federal regulators 

with banks, would you then participate in the market? 

Mr. DECKARD. I think that we would get past that initial risk of 

having the threat of civil money penalties or me even barred from 

the industry. I mean, my board of directors, who are investors in 

the bank, take on that risk. So, if you eliminate that, we certainly 

would reconsider a cost-benefit analysis on the rest of the issues 

that are related to it. 

31 

Mr. CLAY. Thank you for that response. 

And, Mr. Barnette, how does oversight work in the District of Columbia for cannabis businesses? 

Mr. BARNETTE. We are very heavily regulated. We are subjected 

to routine random inspections, and we are required to conform to 

a lot of regulatory oversight on behalf of the Department of Health 

and several other departments in the District of Columbia regularly. 

Mr. CLAY. Okay. Thank you for that. 

Let me ask Ms. Ma, can you talk to us about limitations to employees who work in the cannabis business who—as far as regular 

banking is concerned, say, when they go to buy a home, a car, student loans, do they encounter— 

Ms. MA. Yes. 

Mr. CLAY. —difficulties. 

Ms. MA. Yes. As we all know, a lot of what we talk about is our 

FICO credit rating. And they always tell us the best way to get a 

good rating is to get a credit card, buy things on your credit card, 

and pay them off. Well, these folks don’t have an opportunity to 

even do that. 

So trying to get an apartment where you are supposed to fill out 

an application based on your income, you don’t have any, based on 

your tax return, you don’t have any. And the list goes on. An auto 

loan, a student loan, a home mortgage, all of these things depend 

on having credit, establishing credit, having a bank account, filing 

a tax return. And all of this is very, very difficult for an industry 

that is barred from even opening up one bank account to start even 

that process. 

Mr. CLAY. So you are saying potential creditors discriminate; 

they are fearful of engaging with a potential customer because of 

the origins of the income? 

Ms. MA. Right. This is why we believe this bill is very necessary 

because it gives the banks that safe harbor and some security in 

entering this industry and accepting these type of cannabis employers, vendors, anybody who is associated. And, therefore, they can 

start accessing credit, paying with a credit card or a bank debit account. And that is kind of the American way at this moment, to 

move away from cash, not move back to cash. There is a whole industry and folks who are prohibited from transacting what everybody else is asking us to do, right? Go paperless. Go cashless. 

Mr. CLAY. Thank you. 

Chairman MEEKS. The gentleman’s time has expired. 

Mr. Tipton, for 5 minutes. 

Mr. TIPTON. Thank you, Mr. Chairman. 

I appreciate the panel for taking the time to be here today. And 

I respect the hard work and effort I know that my colleague out 

of Colorado, Mr. Perlmutter, has put into trying to be able to address a challenge that we have in many of our States. 

In Colorado, we have had many questions that have been raised 

about the relationship between the Federal, State, and local governments and regulators since legalization, including, obviously, 

the banking industry. 

When we move forward on issues of the banking industry, however, I think that one issue that we may not have fully explored 

32 

here in today’s hearing is giving the ability of our regulators to be 

able to aid the communities in their fight against some of the bad 

actors and having those tools. 

So, Ms. Ma, as Treasurer of the State of California, one of the 

chief concerns that we have heard with the retail marijuana industry in southern Colorado has been the possibility that cartels can 

gain access to State legitimate retail stores and financial institutions to be able to mask illicit operations. There was an article in 

yesterday’s Denver Post that cited that. And an October 28th report from the Colorado Division of Criminal Justice stated that organized crime cases almost tripled in the 5 years since legalization. 

So we have had the concerns raised that the cartels are increasingly able to commingle traffic products and funds with products 

and profits from legitimate retail businesses. 

As a top elected official out of California, you may have well 

heard as you went to the other States some of these issues as well 

and encountered some of those problems that I have just highlighted. 

So, in your view, Ms. Ma, does Mr. Perlmutter’s legislation give 

regulators the ability to be able to conduct necessary oversight to 

be able to root out potential illicit activity, especially given that the 

banking industry can and has served as a check against those who 

want to take advantage of State legitimized businesses? 

Ms. MA. Yes. 

So, in California, this industry is highly scrutinized in terms of 

licensing, permitting, even having to pay your taxes. And we have 

found that the cartels, whereas before they would come to California and nestle in some of our forests, stay for 2 years. They have 

to do their setup in terms of water distribution and canopies and 

protecting their grows. The cartels actually don’t come to California 

anymore because of Prop 215, because of Prop 64 that passed. 

So the legalization in our State has actually made it safer where 

we are requiring extensive labeling and testing, which is why many 

of us are here today is because we are concerned with the quality 

of the product. So we believe that the initiatives that have passed 

have enabled better, safer, more regulated products in the States, 

and, therefore, less cartels are even involved in cannabis these 

days. 

Mr. TIPTON. I appreciate that. I get the concern, though, coming 

out of my State on the AML, on the SARs reports, that they are 

seeing some cartel activity that is being involved with that. 

Mr. Deckard, Ms. Pross, would you like to maybe speak to that? 

Ms. PROSS. Sure. 

A lot of the speaking engagements that I have had over the last 

couple of years have actually been with law enforcement audiences, 

and that is one of the points that we try to drive home to law enforcement is that, by banking this industry and abiding by the 

FinCEN guidance, we are providing information to law enforcement about financial activity related to the cannabis industry that 

they would not otherwise have if the industry was forced completely into the underground economy. 

Mr. TIPTON. Mr. Deckard? 

Mr. DECKARD. In the State of Washington, there was a very deliberate active effort once the initiative passed. I think there was 

33 

a lot of collaboration with legislators and regulators in the industry 

in crafting what is a very good model for regulating cannabis. 

And so, as was previously stated, everything is tagged from seed 

to sale. So there is a lot of oversight of it of which the banks perform part of that oversight of the filing of SARs and currency 

transaction reports and all those things. Nothing in this bill 

changes what any of the reporting is being presently done to alert 

regulators of— 

Mr. TIPTON. Thanks. I appreciate that. I am going to be running 

out of time. I think this is something as this bill moves forward 

that we do need to probably look into. 

And the final question is for Mr. Deckard. Does this answer 

transporting dollars across State lines, say into Kansas where it is 

illegal, in terms of the commingling of funds given the current regulation on marijuana? 

Mr. DECKARD. My understanding is it doesn’t address that. The 

Cole Memo specifically talks about that being one of the prohibited 

activities, so I am not aware of any institution that is— 

Chairman MEEKS. The gentleman’s time has expired. 

Mr. Heck, for 5 minutes. 

Mr. HECK. Thank you, Mr. Chairman. 

I am not particularly interested in relitigating someone’s paradigm of reefer madness or who stands where on the 10th Amendment and States’ rights. I am, with all due respect, not interested 

in relitigating the Choke Point controversy, indeed. 

I am interested in pointing out that quite some time ago the 

ranking member, Mr. Luetkemeyer, led an effort to get the FDIC 

to issue guidance that said that this can no longer occur. It has to 

be done on a business-by-business basis. I think he had to take a 

victory lap for that instead of us pretending as though this was 

still going on. 

And I do want to keep my questions/comments to the banking access part of this. However, I want to ask Mr. Barnette a question 

about his customers who have medical issues, as a predicate for 

that. 

And like all of us, I am often asked where is it that my motivation for this legislation comes from. And we all have a personal 

story. I don’t often share mine, but here it is. 

My older brother Bob graduated from high school in 1965. He 

had a football scholarship. He turned it down. He went to community college. Kicked it around a while. And then he did what he 

had always wanted to do. He enlisted in the United States Marine 

Corps. 

And if you get the year reference, you know what happened next. 

He went to Vietnam. In fact, he was there during the Tet Offensive. He served in I Corps near the DMZ for 13 months. He came 

home. 

Two and a half years later he developed a large lump on his 

neck. It turned out to be diagnosed as the most common manifestation of exposure to Agent Orange, namely Hodgkins disease. 

He fought that battle for 12 years. Indeed, on two occasions, it 

had been in remission for 5 years, and he was told his chances of 

it recurring were the same as anybody else’s, until December of 

1981 when he passed. 

34 

Toward the end of his life, the only relief he could find from what 

was then chemotherapy, initially it was cobalt, was from the illegal 

consumption of marijuana. And I have always thought and lived 

with the irony that the same Nation that asked my brother to put 

on a uniform and put his life at risk in an activity that eventually 

did, in fact, take his life held him to be a criminal when he found 

relief in the only way that he could. 

Mr. Barnette, I am certain that you have customers who come 

in terminally ill, maybe with children with medical conditions. And 

I am wondering if you could just anecdotally suggest whether or 

not you have observed or have had reported to you people finding 

relief from your dispensary’s products. 

Mr. BARNETTE. Congressman, I have had mothers come in with 

their children elated at the fact that their children are being more 

responsive than they have ever been. They are having reduced seizures. I have had actual fathers show up at our dispensary and get 

driven to tears at the relief that they are being able to see that 

their children are having. I have had members of our military talk 

to us about how they are dealing with PTSD and that, for the longest time, they haven’t been able to have a good night’s rest and are 

plagued with the memories of having fought in the field, in the theater of war and are getting relief from cannabis. 

And daily, daily, we have instances where people are coming in 

and sharing their stories and actually thanking the members of my 

staff for being there despite some of the things that they are having to deal with as employees of our dispensary, because without 

them, they would have to go through illicit channels to just get the 

same relief that you are talking about, absolutely. 

Mr. HECK. So, then, sir, to bring this back to banking, does it 

stand to reason to you that if the SAFE Banking Act were to be 

passed, that it would be easier for dispensaries with banking services to be able to provide these kinds of products more uniformly 

to those who are suffering under the kinds of conditions which you 

outlined? 

Mr. BARNETTE. Simply put, yes. 

Mr. HECK. Thank you, sir. 

Major Franklin, first of all, I want to thank you for your career 

and your presence here as well today. I want to thank you for appropriately placing this emphasis on public safety. 

Just quickly, sir, do you know of any entity, maybe even including your own, which is collecting the data on how it is that the incidence of crimes associated with cash-based businesses has trended 

over time? 

Major FRANKLIN. Not at this point. We usually get most of our 

data from UCR, Uniform Crime Reporting, under the Department 

of Justice, by the FBI. And right now it is not categorized. It would 

be an extensive project to do that because we would have to find 

a reliable source for the data. 

Chairman MEEKS. The gentleman’s time has expired. 

Mr. Loudermilk, for 5 minutes. 

Mr. LOUDERMILK. Thank you, Mr. Chairman. 

And I want to thank our panel for being here. I want to thank 

every member of the subcommittee because this is a conversation 

we should be having. It is refreshing that this is truly a bipartisan 

35 

issue, both for and against. This doesn’t go down party lines. It will 

be more on ideological lines. 

And, quite personally, I am not interested in the least in helping 

the marijuana industry or the marijuana retailers. But in my position as a Representative in the Federal Government, I think these 

decisions are better made at the local level. I have several concerns 

with the industry, but I also have several concerns with the regulatory industry. And so I think it is very important for us to have 

this discussion and this debate. 

I will tell you what I do support. I do support the Georgia State 

legislature who, just about 3 years ago, passed a law to allow cannabis oil to be used to treat symptoms of certain illness. Now, one 

of the concerns I have is that the Federal Government is determining what is moral and what is immoral over the business. And 

I agree with Mr. Posey in that is, determining a gun seller is immoral, so, therefore, we are going to make it difficult for them. 

I do think this is something that is better held at the local level, 

as I said. In fact, in Georgia, we have pushed most of the decisions 

like that down to the local level. I know in several of the counties 

in my district, adult stores were not able to operate and still aren’t 

able to operate in certain counties because the citizens have said 

this is not the type of retail that they want there. But in other 

counties where they do operate, they do have access to financial 

services. 

So my concern is not the retailers or the marijuana industry but 

the financial services industry. And do we put those businesses in 

a catch-22 situation of conflicting regulations? And are we putting 

the financial services industry in a no-win situation while we battle 

it out between the State and the Federal Government in this? And 

so that is really where my concern is. And especially when we are 

forcing businesses into a cash-only operation, my concern is, does 

that allow these businesses to go around certain other regulatory 

requirements that financial institutions have such as suspicious activity reporting? Does this, and this is one of the questions I have, 

does our current policy maybe incentivize nefarious activity of 

money laundering or organized crime using these businesses to get 

around financial institutions? So that is kind of where I am coming 

from on this. I want everybody to understand. I am not taking a 

pro or con stance on the issue itself. 

Ms. Pross, I know that financial institutions are operating under 

FinCEN guidance for filing the suspicious activity reports that I 

just mentioned for these businesses, and the SAFE Act would codify that requirement into law. 

I am very focused on this issue and have introduced legislation 

that would raise the Bank Secrecy Act’s (BSA’s), CTR, and SAR 

thresholds. If the SAFE Act becomes law, how do you see it affecting the SAR compliance regime? 

Ms. PROSS. My understanding with the SAFE Banking Act is 

that the FinCEN guidance would remain in place and that we 

would be required to comply with that guidance. And I actually— 

we value that guidance as a compliance framework for being able 

to offer the service to our members. I think that changing—I understand that there are conversations about changing the reporting 

thresholds. And I do believe that would have an impact on our 

36 

credit union, but I am certainly not an expert on the specific proposals around the Bank Secrecy Act. But I think having clear guidance from Treasury on those reporting thresholds is absolutely critical in being able to do this. 

Mr. LOUDERMILK. Okay. Thank you. 

Mr. Deckard, another area of concern I have is, even though we 

have 47 States that at some level legalized marijuana, whether it 

is cannabis oil or recreational use, the laws differentiate. But yet 

when we are talking about electronic payments, that is a nationwide service that operates nationwide. 

What problems do you anticipate, given that only some States 

have chosen legalized recreational and medical marijuana, but yet 

the payments are going nationwide? 

Mr. DECKARD. One of the things that the SAFE Banking Act does 

is to not only provide clarity for financial institutions but provides 

clarity for those indirect businesses, such as a service credit card 

provider or debit card provider, to be able to use the payment system to reduce the amount of cash that comes through and to enhance public safety via that method. 

We have, in the State of Washington, the largest armored car delivery service that not only will not go and pick up from a CRB but 

won’t provide services to a bank that is involved in banking that 

business. 

So providing that clarity is not only just to help banks and to enhance public safety, it is to open up the rest of the system of providers of that that gives them the clarity that they are not going 

to be penalized for— 

Chairman MEEKS. The gentleman’s time has expired. 

Mr. LOUDERMILK. Thank you. 

Chairman MEEKS. Mr. Foster, for 5 minutes. 

Mr. FOSTER. Thank you. And I would like to thank Chairman 

Meeks for convening this important hearing. I would also like to 

thank Representative Perlmutter, Representative Heck, and the 

other bill sponsors for their long work on this issue. And I think 

I can speak for the entire committee when I say that the image of 

Representative Perlmutter sitting alone at the witness stand with 

a smile like the cat that just ate the canary is an image that we 

will all cherish forever. 

Now, at this time, a majority of States covering a majority of the 

Nation’s population have legalized cannabis for medical and adult 

use. And that number will most likely grow in the coming years. 

In the State of Illinois alone, there has been almost $280 million 

in retail sales by licensed medical cannabis dispensaries since 

State legalization of medical marijuana first took effect. And in this 

landscape, it has become ever more important to address the welldocumented public safety issues experienced by cannabis-related 

businesses that operate primarily or exclusively in cash. 

With this in mind, I would like to ask Ms. Pross and Mr. 

Deckard, as representatives of the Credit Union National Association and the ICBA, to tell us a little bit more about how ensuring 

that cannabis-related businesses can have access to banking services, how that will increase transparency and accountability of 

those companies and allow law enforcement and regulatory authorities to effectively focus their limited resources towards invesVerDate Nov 24 2008 16:39 Jul 12, 2019 Jkt 095071 PO 00000 Frm 00044 Fmt 6633 Sfmt 6633 K:\DOCS\HBA044.150 TERRI
37 

tigating other criminal activity? And specifically, if you could describe in a little more detail the types of information that banks 

would be able to share with law enforcement and regulatory authorities if lawful cannabis-related businesses are allowed to access 

standard banking services like deposit taking payroll, other information that banks would not otherwise have and perhaps give 

some concrete examples of how this additional information might 

be of use to law enforcement? 

Ms. PROSS. I appreciate your question. With the FinCEN guidance, I believe that with the passage of the SAFE Banking Act, you 

will see more financial institutions who are willing to take on the 

risk of banking cannabis businesses. There is still risk with just 

the regulatory requirements in order to be able to provide services 

and adequately monitor and maintain those accounts, but the 

FinCEN guidance again we are providing this information to law 

enforcement that they wouldn’t otherwise have if these businesses 

were not banking with us. So we are filing quarterly suspicious activity reports, and those suspicious activity reports are escalated if 

we see any type of activity that is indicated as a red flag in the 

FinCEN guidance. 

We are also submitting currency transaction reports, so that is 

cash moving through the system related to cannabis businesses. 

And to that end, in the last 2 years, my credit union alone, Maps 

Credit Union in a relatively rural part of Oregon, has filed over 

13,000 reports to FinCEN. And that again is free information to 

law enforcement that wouldn’t otherwise be available if we weren’t 

banking this industry. 

Mr. FOSTER. Mr. Deckard? 

Mr. DECKARD. While my bank is not involved in banking cannabis, several of my colleagues in the State, you know, we talk 

about what the status of things are. There is not a business line 

in financial institutions that is regulated more and scrutinized 

more than marijuana banking. The amount of reports from the 

State from what banks are filing, what law enforcement is looking 

at is a very onerous task to put on the bank, and yet, for public 

policy reasons, financial institutions are choosing to engage in that. 

Some of the anecdotal information I can share with you is there 

is a bank on the west side of the State of Washington that has 50 

accounts, and they have 4 full-time employees staffed in the compliance department just to manage the amount of reporting. So, 

when you look at the ratio of staff to number of accounts, it is robust and something that each bank has to decide whether they 

want to devote those kinds of resources to. 

Mr. FOSTER. Let’s see. I was just thinking that there may be a 

lot to learn of the history of liquor legalization and taxation. Initially, there was a lot of moonshining, which I think at least in my 

part of the country has faded away with time. And now most taxes 

are being collected, and I think liquor distribution is pretty well 

regulated. Do you think there are any lessons to learn from that 

experience? Anyone on the panel? 

Major FRANKLIN. I think there are some great lessons to learn 

from the end of alcohol prohibition where, number one, it was the 

States that led that effort. My home State of Maryland never participated in it, so we now moved into—I mean, I don’t know where 

38 

you can get bootleg whiskey today. I know some people do, but I 

can’t because it is a well-regulated industry, and whatever you 

need you can go buy at a regulated store, and again, as you mentioned, what is really important is that the taxes are being paid, 

and it is very easy to track because of the banking system and the 

methods that are used, and it is clear-cut policy. There is very little 

question about what you are required to do when, where, and how. 

Chairman MEEKS. The gentleman’s time has expired. 

Mr. Williams, for 5 minutes. 

Mr. WILLIAMS. Thank you, Mr. Chairman, and before I begin my 

questioning, I want to thank all of you today. But I wanted to reiterate that the substance at the center of today’s hearing is still illegal at the Federal level. States like Colorado and California have 

exercised their authority to legalize marijuana, and under the 10th 

Amendment, they have the right to do just that. 

This committee can debate this issue all they want and perform 

the cost-benefit analysis of banking this emerging industry, but regardless of what we come up with, marijuana is federally illegal. 

It affects people’s minds. It affects their thinking. And the breakdown of the family structure today is too prevalent. Opioids are 

killing thousands of Americans a year, and countless Americans 

suffer from addiction every single day. Those are problems that deserve our immediate attention in this body, not to debating the use 

of a federally controlled substance. 

So, additionally, I find it hard to believe this committee is going 

to be considering legislation to make marijuana more commercially 

available to the public when there are still so many unanswered 

questions about the drug. 

So, Mr. Talcott, is it a universally accepted fact that marijuana 

is not a gateway drug and has no negative impacts to public 

health? 

Mr. TALCOTT. No, it is very clearly a gateway drug, and it has 

a lot of negative impacts for public health. In particular, if you look 

at the opioid crisis, a vast majority of people who die a death by 

opioid overdose started off with pot as a gateway drug. I think 

thatthe other public health problems with pot are people who have 

smoked pot and regularly have been known to go into a psychotic 

state. As a matter of fact, if you look at places like California or 

you interview the people in emergency rooms in Colorado—these 

are people we hear from all the time—you will find out that the 

number of people coming in with marijuana-induced psychosis or 

psychosis generally has skyrocketed since legalization. 

Mr. WILLIAMS. Okay. Thank you. Last Congress, there were 

many discussions on possible changes to the Bank Secrecy Act regarding anti-money-laundering policy. 

Mr. Deckard, in your testimony you mentioned the Bank Secrecy 

Act and the current suspicious activity reports and currency transaction reports that institutions must file. I have been told from 

ICBA and other banking groups that the existing SAR and CTR reporting requirements are onerous and offer little feedback to the financial institutions. So, Mr. Deckard, what do you think the effect 

will be on the number and quality of CTRs and SARs should this 

safe harbor provision pass? 

39 

Mr. DECKARD. I don’t see any impact on the filing of SARs in 

terms of the number or anything else for the existing businesses 

that are legally licensed in the State. They are banking somewhere. 

I am told from our department of financial institutions that 97 percent of all of the licensed marijuana businesses are making their 

tax payments with a checking account. So I don’t necessarily see 

that as an expansion of the number of businesses. In fact, the liquor and cannabis board in the State of Washington controls the 

number of licensed businesses that can operate. 

Mr. WILLIAMS. Okay. Major Franklin, thank you for your service 

in law enforcement. During your time as a police officer, I am sure 

you saw lots of people driving while under the influence of drugs 

and alcohol. And as I am sure you know, marijuana affects the 

brain, specifically the parts responsible for memory, learning, decision-making, coordination, and reaction time. So all of these capabilities we are talking about are vitally important to keep our roads 

safe, which I know you want to do, and so my question to you, 

Major Franklin, is, if police officers have a device or a method by 

which they can accurately detect if someone is driving under the 

influence because of marijuana? 

Major FRANKLIN. If they do currently? 

Mr. WILLIAMS. Is there a way to detect if somebody is driving 

under the influence of marijuana when you pull them over? 

Major FRANKLIN. Oh, Yes. As the head of training for the Baltimore Police, as well as the Maryland State Police during my career, drug recognition experts are very good at making this detection of whether or not someone is driving under the influence of 

any mind-altering substance, and this is what we recommend: to 

train, to provide the money to law enforcement to train so that we 

can have more DREs out in our communities. And, again, this is 

nothing new. It has always been illegal to drive under the influence 

of any mind-altering substance, and that is what we do. We work 

very hard on the highways and in our communities in pushing back 

against this. We are very effective at doing this. 

Mr. WILLIAMS. So, if you are buying or smoking marijuana, don’t 

be driving, right? 

Major FRANKLIN. Correct. 

Mr. WILLIAMS. Okay. 

Chairman MEEKS. The gentleman’s time has expired. 

Mr. WILLIAMS. Thank you. I yield back. 

Chairman MEEKS. Mr. Lawson, for 5 minutes. 

Mr. LAWSON. Okay. Thank you very much, Mr. Chairman, and 

witnesses, welcome to the committee. 

It has been very educational listening to all of you. And I have 

just a few things I would like to say. Florida is part of a growing 

train of States that are now permitting medical or recreational cannabis use. Currently, most of the cannabis industry operates, as 

you know, on a cash basis without the benefit of using traditional 

financial institutions and financial products, such as credit cards. 

Your testimony here today has been very significant. None of us 

are medical people, but over the years, for those who have served 

in the legislature before, not only do you have problems under the 

influence of alcohol but with prescription drugs and everything else 

on the road. I ask unanimous consent to enter this into the record 

40 

from the Florida Department of Agriculture and Consumer Services 

Commissioner Nicole ‘‘Nikki’’ Fried who said, ‘‘On behalf of the 

Florida farmers and medical marijuana professionals and consumers, I want to thank you for the efforts to provide the cannabis 

industry across the traditional banking and express my strong support for securing the Fair Enforcement Banking Act, H.R. 2215. 

Conflicting guidance from the Federal Government has unsuccessfully led to a high level of risk and hustles from businesses and 

emerging markets.’’ I won’t read the whole letter, which I will give 

to the chairman here, but the problem, what we are here to resolve 

today is, what do you do with this particular cash business? And 

I know, from the banking standpoint, if I walked into the bank 

today with $20,000 or $30,000 in cash in a suitcase, and said I 

wanted to deposit it in my savings, what would you do? You would 

start questioning me about where I got the money from, am I in 

the business, whatever, and I have seen this happen. I have gone 

into, for instance, a Bank of America, and a lot of people, especially 

people, Hispanics and so forth, deal in a lot of cash and they are 

working, and they come into the banks on Saturday morning and 

try to make their deposits. And sometimes they are held up because people are saying, you have all this cash, and they are coming in to make cash to send money back home. And so, from my 

standpoint, I am not here to debate what marijuana is going to do 

to you and all the other stuff, but what I am here to do is to try 

to make it safe for people who are in this business that the consumers, the people in the States have voted on, at 65 to 70 percent 

on, how do we deal with this cash situation? And you all are the 

experts, and I ask the experts, especially the banking experts on 

the committee, I am not going to debate how bad it is or whatever 

it is, but how do we deal with this to make it safe for people to 

make deposits. And I will just ask the treasurer, Ms. Ma, just to 

comment on it because you are working with it every day, and so 

I am not going to continue to talk, but I just want you to make a 

comment on it. 

Ms. MA. Well, as a tax collector, we would see hundreds of thousands sometimes of tax payments come in. So not only is it not safe 

for the business owners to have to keep all that cash then to drive 

it around and then come to our offices, it also poses a public safety 

risk for the people in government who have to accept this type of 

cash. We have to count it. We hold it until the bank sends an armored truck and then ship it over to the bank. 

So it is not only a public safety risk for the communities, homes, 

and businesses, but also, for government, I would say. So having 

some safe harbor allowing folks to put it directly into a bank that 

is best equipped to deal with cash in terms of security protocols 

and cash—fast cash counters and deposits, big vaults and security 

cameras, I mean, that is where cash should be stored, not in our 

homes and in our businesses or in government agencies. 

Mr. LAWSON. I can understand that. Before I yield back, it is important because I walked into Bank of America and had a check 

for about $45,000, and everybody in the bank came to see what was 

going on, and it might have been because of my color and not because I had the ability to actually bring it in, and they said, ‘‘Well, 

41 

you need to go someplace else; we don’t know whether we can handle this.’’ 

So I can imagine what it is like with a cash situation, and that 

is the thing we need to resolve. 

Mr. Chairman, I yield back. 

Chairman MEEKS. Thank you. The gentleman’s time has expired. 

Mr. Barr, for 5 minutes. 

Mr. BARR. Thank you, Mr. Chairman, and I want to first recognize and acknowledge my good friend from Colorado, Mr. Perlmutter. You and I have had many conversations over the past 6 

years about your legislation about this issue, and to a certain degree, our interests and our views converge, and on other parts of 

this issue, they may diverge a little bit, but one thing I admire is 

persistence, and you are a portrait of persistence, and I really do 

appreciate that. 

As my colleagues know, I represent central Kentucky, and we in 

central Kentucky at one time were the burley tobacco capital of the 

world. And before that, we were the cannabis capital of the world. 

We legally grew and produced rope for the war effort and cannabis 

and industrial hemp. And as you all know, in the 2018 farm bill, 

with my support, we descheduled industrial hemp, low THC cannabis for our farmers, and I will just say just as an aside, it is ironic that many of the people who supported policies that literally 

bankrupted the burley tobacco industry in my area are now the 

very same people who want to legalize smoking recreational pot. 

That is a little ironic to me, but nevertheless, the fact that our tobacco farmers are now out of business has given them a renewed 

interest in industrial hemp, and that was the impetus behind our 

farm bill legislation that now has descheduled low THC cannabis. 

One question about that, and I will direct this to Mr. Talcott, following the passage of the farm bill back in December, do legally 

licensed hemp businesses low THC, nonmarijuana cannabis businesses, now have unfettered access to the banking system? 

Mr. TALCOTT. Yes, they do. 

Mr. BARR. Okay. And I think that raises kind of a fundamental 

issue. I am going to kind of play a little devil’s advocate with Mr. 

Perlmutter here because we have a mechanism for doing this if we 

want to provide legal certainty to higher THC cannabis businesses, 

right? We did it. We did it in December in the farm bill, and 

whether we like it or not, wherever you are on this issue, the fact 

remains that the Controlled Substances Act, Federal law, continues 

to make illegal high THC marijuana, high THC cannabis, and with 

the rescission of the Cole Memo, we now have a direct conflict of 

Federal law, assuming Mr. Perlmutter’s legislation were to pass. 

So, given that reality, to Ms. Pross and to Mr. Deckard, in the 

event that a United States Attorney was actively prosecuting a 

cannabis-related business in your area, even if Mr. Perlmutter’s 

legislation was passed, would you and your institution be willing 

to bank that business that is under Federal prosecution, would you 

do that? Ms. Pross? 

Ms. PROSS. I certainly think it would depend on the situation. 

There are times where law enforcement, and I am not just referring to the cannabis industry, but in general, there are times when 

law enforcement requests us to keep an account open so that it can 

42 

assist them in analyzing the activity in determining what exactly 

is going on. 

Mr. BARR. So, Mr. Deckard, to you, if a U.S. Attorney is prosecuting a cannabis-related business under Federal law under the 

Controlled Substances Act and the current rescinded Cole Memorandum, would you feel comfortable banking that business? 

Mr. DECKARD. No, I wouldn’t. That is one of the reasons that my 

bank has not engaged in providing services. 

Mr. BARR. And I think that is the point. The point is that, even 

if we were to pass Mr. Perlmutter’s legislation, and Lord knows he 

has put his heart and soul into this thing, and I really respect that, 

but the reality is his legislation would not solve the problem because you could have a U.S. Attorney who would—I guess my point 

is this, we have shown the blueprint of how to do this, and it is 

an amendment to the Controlled Substances Act, which is not in 

the jurisdiction of this committee. I am raising the point because 

I am just wondering if— 

Mr. HECK. Will the gentleman yield? 

Mr. BARR. I will. I would like to know how this legislation ultimately solves that problem. 

Mr. HECK. Are you willing to vote to delist marijuana? 

Mr. BARR. No, I am not. 

Mr. HECK. Okay. I don’t understand the argument. It is spurious 

if you suggest that is the solution, but say you are against it. 

Mr. BARR. No, what I am saying here, I am making the point 

that the Congress—reclaiming my time—would have to make the 

same moves, the same policy choices that we did in the case of industrial hemp, and this Congress has not done that. And while I 

appreciate the intent of the legislation, I think we have to think 

through whether or not it is an efficacious solution to the problem 

that we are dealing with here. 

Chairman MEEKS. The gentleman’s time has expired. 

Mr. BARR. My time has expired, and it is a very interesting topic. 

I would love to have more time, but I yield back. 

Chairman MEEKS. Ms. Porter, for 5 minutes. 

Ms. PORTER. Thank you, Mr. Chairman. 

I wanted to welcome my fellow State resident, Ms. Ma, to testify 

before the committee. I have testified before this committee, and I 

appreciate all of your patience. These can be very, very long days, 

so thank you. 

Ms. Ma, I have a question about how much money, just an estimate, has California collected from taxes on the cannabis industry 

in this State? 

Ms. MA. The latest figure I have is in November 2016, we collected about $228 million. 

Ms. PORTER. Okay. And as California Treasurer, you have oversight over where California’s tax revenues are deposited? 

Ms. MA. That is under the California Department of Tax and Fee 

Administration. That is where the taxes are supposed to be deposited. 

Ms. PORTER. To the best of your knowledge, has any bank ever 

refused to accept the taxes generated by the cannabis industry because the income is derived from cannabis transactions? 

43 

Ms. MA. No. As many of you know, even if you are in an illegal 

business, you still must pay your taxes either to the Federal Government or the State government. We passed Prop 215 in 2006. We 

did not start collecting sales tax until—I’m sorry, 1996. We did not 

start collecting sales tax until 2006, which is 10 years later. And 

even then, we were assessing a 10-percent penalty for anyone who 

paid their taxes in cash. The Federal Government still to this day 

charges a 10-percent penalty to anyone who pays their taxes in 

cash. 

Ms. PORTER. So have you ever told any of the banks that are 

happy to bank the tax dollars that as a condition—or do you think 

the State should, not you personally, but do you think the State 

should say to banks that as a condition of banking this considerable cannabis industry tax revenue those institutions ought to have 

to accept deposits from cannabis-related businesses? 

Ms. MA. Yes, so we do business with about eight different large 

banks, and each one is in charge of a different sector. So our cannabis or cash tax payments from sales taxes, which are commingled, go into one national bank. And there have been issues surrounding this type of issue whether they want to continue to accept 

it. In California, we expect to collect about a billion dollars in cannabis taxes, and it really is going to be dependent on whether these 

banks are going to accept cannabis freely or at least with some sort 

of safe harbor, are we going to be able to continue to collect even 

any tax from the cannabis industry. 

Ms. PORTER. Thank you. That is very helpful. At this time, I ask 

unanimous consent to enter into the record two statements, one 

prepared by a fellow Californian and one of the Nation’s leading 

cannabis industry experts, Henry Wykowski. He is counsel to the 

National Cannabis Industry Association, and in his statement he 

describes the difficulty he has as an attorney providing legal advice, and he is required to have a bank account in which to hold 

client funds by the California State Bar Association and yet is continually being denied banking services. 

The second statement is prepared by Lindsay Robinson, who is 

the executive director of the California Cannabis Industry Association, which represents businesses who employ over 11,000 Californians in cannabis-related jobs. 

Chairman MEEKS. Without objection, it is so ordered. 

Ms. PORTER. I yield back the remainder of my time. 

Chairman MEEKS. The gentlelady yields back. I will say, at this 

point, there being no other Republicans who are on the subcommittee, we will now go through the Democrats who are present 

on the subcommittee, and then we will go on to hear questions 

from individuals. So next would be Mr. McAdams for 5 minutes. 

Mr. MCADAMS. Thank you, Mr. Chairman. 

Before I begin, I would ask unanimous consent to have a letter 

from Utah State Treasurer David Damschen entered into the 

record. 

Chairman MEEKS. Without objection, it is so ordered. 

Mr. MCADAMS. Thank you, Mr. Chairman. So this past November, Utah voters approved the use of medical cannabis in Utah 

through Proposition 2. And with its passage and then subsequent 

legislation by the Utah legislature, Utah joined, as we see on this 

44 

map, nearly every other State in permitting the use of medical 

marijuana in some capacity. 

But unlike other States, Utah has not approved the use of marijuana for recreational purposes. Despite this difference, however, 

Utah is now beginning to grasp how to implement its medical cannabis program and is now encountering the same challenges that 

so many of the witnesses have testified to today; that is, how do 

businesses operating legally pursuant to State law have access to 

our financial system? 

So I want to briefly quote from the letter from Utah State Treasurer Damschen that he sent to the Utah congressional delegation, 

and then I have a question for the witnesses on this. He said, ‘‘ The 

inability of insured financial institutions to handle cannabis-related 

transactions has forced businesses and governments throughout 

the U.S. to resort to cash to settle transactions. This represents an 

enormous public safety issue, increasing risk of violent crime, 

fraud, and theft.’’ 

So, to the witnesses, I would ask just a yes or no, do each of you 

agree with the comments that I read from Treasurer Damschen 

that cash-only operations present a public safety risk and a risk of 

fraud and theft? 

Ms. MA. Yes. 

Major FRANKLIN. YES, in all caps. 

Ms. PROSS. Yes, I do. 

Mr. DECKARD. I wholeheartedly agree. 

Mr. BARNETTE. Very much so. 

Mr. TALCOTT. I think engaging in any illegal activity produces 

cash, and that produces problems. Your banking system is having 

problems because you are engaging in a felony. 

Mr. MCADAMS. So I want to quote again from the letter from 

Treasurer Damschen. He said, quote, ‘‘Providing regulated and insured financial services to cannabis businesses allows law enforcement and specifically the Financial Crimes Enforcement Network, 

or FinCEN, with the U.S. Department of Treasury, provides them 

the transparency needed to distinguish legal cannabis businesses 

from illegal activity.’’ 

So, to the witnesses, I would also ask, do you agree or disagree 

that bringing these cash businesses into the regulated financial 

system would increase transparency for law enforcement communities? 

Ms. MA. Yes. 

Major FRANKLIN. I know for a fact that it would, yes. 

Ms. PROSS. Yes, I do. 

Mr. DECKARD. Absolutely. 

Mr. BARNETTE. Yes. 

Mr. TALCOTT. I think bringing every illegal activity into the 

banking system would make it more transparent, so maybe we 

should bring the heroin business into the banking system. Maybe 

we should bring the illegal betting system into the banking system. 

I mean, all of this—this is kind of a fallacious question because ultimately the decision has to be made, are we going to have legal 

marijuana, or are we going to have illegal marijuana? And right 

now, we have illegal marijuana, so any kind of business that involves marijuana is engaged in a felony, and any—I was interested 

45 

earlier to hear about questions directed to my colleague Mr. 

Deckard about, gosh, what should happen with respect to banking? 

You know, all the people who are on the board of a bank are personally liable for any activities, any activity with a bank—a felony. 

Mr. MCADAMS. Thank you. Let me just interrupt right there, 

thank you, and reclaim my time. The purpose of this hearing isn’t 

about heroin or other illegal industries. This is about medical marijuana and the industry which 47 States have legalized to some degree. 

Mr. TALCOTT. But the Federal Government hasn’t. 

Mr. MCADAMS. That is correct, but my question is would—somebody was saying earlier today let’s not—the inability to do everything shouldn’t stop—maybe shouldn’t stop us from doing something that would make the industry safer and create transparency 

and help us to ferret out illegal activities that haven’t been made 

legal by 47 States. 

One last question, and then I will be done, but I would like to 

ask maybe Major Franklin—thank you, also, for your service—if 

you could or would care to elaborate and provide any insights on 

how access to the banking system for these businesses could actually improve the operations of law enforcement? 

Major FRANKLIN. Well, one of the things that we used to do, and 

I commanded a number of task forces as you heard in the State of 

Maryland, and we had a unit that dealt specifically with financial 

research on people we were targeting, businesses we were targeting, and banks were the number one source to go to to check 

financial records to get a clear, accurate picture of money transactions where the money was coming from, where it was going to. 

In an all-cash environment, for the most part, it is nearly impossible, unless you conduct a search warrant and just happen to luck 

out and get some records that are being maintained by your target. 

This recommendation here is crucial to law enforcement being able 

to do that work. 

Chairman MEEKS. The gentleman’s time has expired. 

Ms. Ocasio-Cortez, for 5 minutes. 

Ms. OCASIO-CORTEZ. Thank you. 

I am listening to all of this testimony today, and one of the questions and the concerns that I have is with respect to the racial 

wealth gap. Very often and very frequently we think of racial justice issues as independent of our financial industry or independent 

of financial issues, but that is like saying there are no for-profit 

motives in the practice of slavery, in addition to the scaffoldings of 

white supremacy. Same goes for Jim Crow, and same goes for our 

systems of mass incarceration, which right now 80 percent of people kept in Federal prison are Black or Latino, but at the same 

time the private for-profit prison industry is a $5 billion valuated 

business. 

So my question is really about, are we compounding the racial 

wealth gap right now based on who is getting the first mover advantage? And so, according to an industry trade publication, 73 

percent of cannabis executives in Colorado and Washington are 

male; 81 percent are white. In the State of Massachusetts, just 3.1 

percent of the marijuana businesses in the State were owned by 

minorities, and just 2.2 percent were owned by women. 

46 

So, Mr. Barnette, one of my questions for you is, first of all, does 

this seem kind of in line with your personal experience on the 

ground? Is this industry representative of the communities that 

have historically borne the greatest brunt of injustice based on the 

prohibition of marijuana? 

Mr. BARNETTE. Absolutely not. 

Ms. OCASIO-CORTEZ. So these industries are in no way looking— 

and it doesn’t look like any of the people who are reaping the profits of this are the people who were directly impacted? 

Mr. BARNETTE. That is correct. 

Ms. OCASIO-CORTEZ. Ms. Pross or Mr. Deckard, one of the questions that I have is, in your opinion, do you foresee investments 

from private equity groups or firms to kind of be funneling into this 

industry? 

Ms. PROSS. We are certainly seeing more interest in that. 

Ms. OCASIO-CORTEZ. And so do you foresee—is it possible for a 

situation where a private equity group that profited off of for-profit 

incarceration could turn around and take that margin, invest it as 

a first mover in the cannabis industry while there are still systematic barriers for investment from Black and Brown Latinos, particularly—Black and Brown communities, including Latinos. 

Ms. PROSS. I think you are raising really valid points, but as a 

chief risk officer for a financial institution, my focus is just keeping 

my program in compliance and making the streets of Oregon safer. 

So I really couldn’t speak to that with any level of expertise. 

Ms. OCASIO-CORTEZ. Of course. Mr. Barnette, do you have any— 

Mr. BARNETTE. The answer to your question is yes. I mean, certainly it is the case that private equity firms who make money in 

one sector of our economy can definitely come in and—into this industry and, because they have tremendous access to wealth and 

banks, aren’t necessarily going to say to a $12 billion hedge fund 

that, ‘‘No, we won’t bank you.’’ They will turn around and have access that the average mom-and-pop Black-owned businesses, 

Latino-owned businesses what have you, just won’t be able to actually surmount some of the same hurdles that they can. 

Ms. OCASIO-CORTEZ. And have you experienced or seen any barriers to entry for individuals who were formerly incarcerated, particularly for nonviolent drug offenses, to enter the cannabis industry? 

Mr. BARNETTE. Absolutely. In fact, we work tirelessly here in 

Washington, D.C., to get the laws changed to allow people who had 

previously been incarcerated or had marijuana-related offenses to 

allow them to be able to work in the industry. And you do see a 

movement across the industry to try to make that happen, but it 

is a challenge. 

Ms. OCASIO-CORTEZ. Great. And so you see really what this looks 

like, it is kind of coming to the big picture, that the folks who profited off of for-profit incarceration get to profit off of the legalization 

of marijuana first while the communities most impacted are last in 

the door. 

Mr. BARNETTE. Absolutely. But I would also say that this particular Act serves to actually give a valuable tool to winners of licenses in that if banks do actually get active, then you do have an 

access to capital that you previously didn’t have. And having startVerDate Nov 24 2008 16:39 Jul 12, 2019 Jkt 095071 PO 00000 Frm 00054 Fmt 6633 Sfmt 6633 K:\DOCS\HBA044.150 TERRI
47 

ed the second dispensary that I ever owned for under $100,000, it 

definitely puts opportunity firmly within reach. 

Ms. OCASIO-CORTEZ. Great. And just one last question. So would 

you recommend that in us kind of opening this opportunity or 

opening this lane that also be paired with kind of affirmative licensing laws that prioritize frontline communities and communities 

that were most impacted to get those licenses first so that they can 

reap the benefits or recoup some segment of costs that they had 

beared in the nineties in the war on drugs. 

Mr. BARNETTE. Absolutely. There should definitely be social equity opportunities that allow those hit hardest by the war on drugs 

to be first in line to benefit. 

Ms. OCASIO-CORTEZ. Thank you very much. 

Chairman MEEKS. The gentlelady’s time has expired. 

Ms. Wexton, for 5 minutes. 

Ms. WEXTON. Thank you, Mr. Chairman. 

And thank you to the witnesses for coming and testifying today. 

Treasurer Ma, I would ask, what assurances do you have that 

your State received the full tax remittances that would have been 

due on these cannabis-related businesses? 

Ms. MA. In California, we definitely are not collecting all of the 

taxes due. So the way we audit these businesses is we will go in, 

and we will ask them for their financial statements. And many of 

them will say, ‘‘We don’t have any; we are all cash.’’ 

And then we proceed by having someone stand outside and 

watch how many people go into a dispensary on 3 given days. Then 

we assess an amount, maybe $65 on average per person. We send 

them a bill for 3 years. We extrapolate back 3 years, add interest 

and penalties, and send them the bill. That is the way we audit 

these cash businesses in California. It is not efficient. It is not effective. It is not accurate. So many of these businesses are not paying their fair share of taxes. 

Ms. WEXTON. So it is not a very scientific method of determining 

what taxes are due. 

Ms. MA. It is not. Without a paper trail, as you know, it is very 

hard to audit a cash business. 

Ms. WEXTON. Major Franklin, you testified about some of the 

dangers to these businesses of being robbed and other crimes taking place. Do you have statistics that show that marijuana-related 

businesses are more likely to be robbed or more in danger than 

other businesses in the same geographic areas? 

Major FRANKLIN. No, I don’t know of anyone or any source for 

that data that is even capable of really collecting that data. And 

it is still rather early, but we do know there are plenty of anecdotal 

stories that we are able to pick from across this country where this 

does occur, even one right here, an attempt right here at Takoma 

Wellness in Washington, D.C., where armed people were attempting to rob that particular dispensary. 

Ms. WEXTON. And related to that, what sort of steps do these 

dispensaries have to take for security? Are they allowed to have 

armed guards or are they prohibited under the marijuana laws? 

Major FRANKLIN. For the most part, when this initially started, 

there was a lot of confusion there. I don’t know if all of them are, 

but many of them do now, but it is very expensive. The security 

48 

measures are enormous from cameras, the personnel, I mean, the 

cost. Again, just tracking the possibilities of internal theft, and 

then you have to deal with the possibilities of armed people robbing 

you and your employees, so it’s quite extensive and expensive. 

Ms. WEXTON. Thank you very much. 

Ms. Pross, could you please describe briefly what your financial 

institution goes through before accepting a cannabis-related business and accepting them as a banking client? 

Ms. PROSS. Of course. We do an extensive—it is a very lengthy 

application process where we are getting extensive corporate 

records, financial records. We run criminal background checks on 

all account signers, so that is anybody who is going to be interacting with the credit union we are running criminal background 

checks on. We are validating their licensure with the State of Oregon and ensuring that their license is in good standing with the 

Oregon Liquor Control Commission, so it is quite an extensive 

process to get an account with us. 

Ms. WEXTON. And you had testified that there was some large 

number of SARs that you filed, the marijuana-related SARs. How 

many was that over how long a period of time? 

Ms. PROSS. In the last 2 years, we filed nearly 3,000 marijuanarelated suspicious activity reports to FinCEN. 

Ms. WEXTON. And do you have a breakdown of how many of 

those were cannabis limited, cannabis priority, and cannabis termination SARs? 

Ms. PROSS. Unfortunately, under the Bank Secrecy Act, I am prohibited from disclosing details around suspicious activity reports, 

but I can tell you out of the 3,000 that we filed, 90 percent were 

related to cannabis businesses that we serve. 

Ms. WEXTON. Thank you. 

Ms. PROSS. Of course. 

Ms. WEXTON. And, Mr. Barnette, can you explain some or just 

tell us a little bit more about some of the challenges that your business or other businesses that you are familiar with have faced with 

regard to finding commercial leases or purchasing property and 

credit card processing with the inability to be clients of commercial 

banks? 

Mr. BARNETTE. Absolutely. We have had—you know, the problem 

not only affects our business, right? We definitely can’t take credit 

cards. Our customers have to walk up with cash in their pockets. 

That obviously puts them in harm’s way both coming into the dispensary and leaving the dispensary. When we are actually transporting cash and trying to get it offsite so that we aren’t exposed 

onsite, we have employees and/or security professionals leaving 

with tens of thousands of dollars of cash on their person and moving it to a safer location and things like that. All of that presents 

a huge issue, but then there are certain things that we just don’t 

even think about. When you go to recruit talent and you try to 

build your business, and you look to try and hire someone, let’s say 

maybe as a marketing MBA needing to be paid $150,000 a year, 

how do you pay that person $150,000 a year in cash? They can’t 

take it to their bank. They are in all kinds of situations if they try 

to do so, and it affects your employees. You can’t do business with 

49 

service providers because you can’t pay an architect $75,000 in 

cash to do a design so that you can improve your business. 

Chairman MEEKS. The gentlelady’s time has expired. Ms. 

Pressley, for 5 minutes. 

Ms. PRESSLEY. Thank you, Mr. Chairman, and thank you all for 

being here. And I want to thank Representative Perlmutter for his 

leadership here. I really do see this legislation as being one that 

is pro-jobs, pro-small business, pro-equity, and it is really apropos 

that we would have this subcommittee hearing today when we had 

a Full Committee hearing earlier today on homelessness. And I do 

definitely see an intersectionality here. We need more small businesses that will prioritize hiring locally, hiring veterans, hiring 

people of color, hiring women, and ultimately just the broader goal 

here, and although this is not the debate for today because we 

know that whether or not legalization is good or bad, I am so glad 

that this was not a subcommittee hearing about that because that 

is a State’s rights issue. But what I would say is that to the 

gentleladyfrom New York’s point, and I represent Representative 

Clay’s line of questioning and Representative Porter, as well, that 

there are these systemic inequities and disparities along racial 

lines, many or all of which have been created and perpetuated by 

policy. And so this is an opportunity to right the injustices of the 

past, but we need equity embedded, and we need the financial industry to be—and institutions to be nimble as they are with any 

other growing industry. And the data supports that the two fastest 

growing industries in the country right now are green jobs, clean 

energy, and the green rush. And so one of the contributors to homelessness is that people are underemployed. And this is an industry 

whereby people are fully employed. 

So just a couple of my questions, I wanted to know—oh, and then 

also this is an industry for those who face barriers to employment, 

including those with queries. And so we can’t have a situation 

which is what we see playing out where people who have been historically locked up are now locked out of a multibillion dollar industry. 

But I wanted to speak about the impact here on small businesses 

and on real people. That is the advice we were given in new Member orientation, to not forget the plot. The plot here is about the 

people, the small business owners. 

So, Mr. Barnette, if you could just elaborate a little bit more on 

what that burden is for you as a dispensary, as a small business 

owner. I am curious if anyone could just share generally speaking 

how many employees, how many people are usually employed by 

small businesses, and then how many ancillary businesses are we 

talking about, and what is that impact? 

Mr. BARNETTE. Sure. Right now, in our cultivation operation, we 

employ right around nine people. In our dispensary, we employ just 

under 14 people. And that is full-time equivalent employees. 

Now what we estimate is that, because our growth is impeded 

with because we can’t do business with banking that if we could, 

we would actually be able to grow our operation within 12 months 

to more closely like 16 employees in our cultivation operation and 

just approximately 30 people in our dispensary. So you could definitely—we could definitely see how we end up creating jobs, but 

50 

more or less, right now, when you look at the number of businesses 

around us that we spend our money with because we operate in 

cash, we spend almost all of our money within a 25-mile radius of 

our actual business. That is a tremendous stimulant to the local 

economy, and it is a lot of relationships that we end up going to. 

I have made the decision in my operations to work with other small 

businesses for two reasons. One, they will take our cash. 

Ms. PRESSLEY. I’m sorry. I am going to lose my time. 

Mr. BARNETTE. I am sorry about that. 

Ms. PRESSLEY. No, no. I want to know more, so I am going to follow up with you. So how do you pay your employees, and have any 

of them had any problems with their banks as a result of doing 

business with you or being employed by you? 

Mr. BARNETTE. Right now, we pay our employees in cash. We file 

taxes just like we normally would or what have you, and currently 

none of them have had problems actually depositing their checks, 

but they have had some problems getting things like credit cards 

or other things like that. 

Ms. PRESSLEY. And how do you pay your bills? 

Mr. BARNETTE. The same way. 

Ms. PRESSLEY. Okay. If you want to pick back up on that last 

point, oh, it looks like my time is up. 

Mr. BARNETTE. What I was saying was, just generally, you know, 

that we try to do business with local businesses. One, they will 

take our cash. Two, we actually find that we have an opportunity 

to radically impact their businesses, as well, and they tend to have 

some of our shared values. So their employee base looks a lot like 

our employee base, and it tends to be very localized, and so we are 

really trying to make an impact on the city. And I think that to 

the degree that you can usher in mom-and-pops and small businesses, minority-owned businesses, you will see more impact in 

that space. 

Chairman MEEKS. The gentlelady’s time has expired. 

Ms. Tlaib, for 5 minutes. 

Ms. TLAIB. Thank you so much, Mr. Chairman. 

Mr. Barnette, how are you? 

Mr. BARNETTE. Hi. 

Ms. TLAIB. I know, it is tiring. I am trying to get everybody’s attention. So does the money smell? I am being serious. We are talking about bags of cash, right? 

Mr. BARNETTE. You joke about it. That is actually how— 

Ms. TLAIB. No, I heard it is true. The money does smell, correct? 

Mr. BARNETTE. That has been the case in some instances, yes. 

Ms. TLAIB. So one of the things that is frustrating for me is our 

State is probably the latest State that passed what I would call a 

ballot measure. Most of these States, it was through a people’s initiative, people put it on the ballot; they voted for it; they legalized 

it. Just like you know it is a democratic process, that is how it was 

done, and we are talking about thousands of people. It wasn’t even 

close. Like most people want to legalize marijuana. And that is not 

the question. The States have spoken. I think you are looking for 

obviously support as this legalized form of business now in many 

of these States, and the frustration that I have, again, is obviously, 

collection of taxes, paying for all the things that I think are so imVerDate Nov 24 2008 16:39 Jul 12, 2019 Jkt 095071 PO 00000 Frm 00058 Fmt 6633 Sfmt 6633 K:\DOCS\HBA044.150 TERRI
51 

portant to the American people and I think everyone wants to do 

right, but the constant discrimination towards these businesses. 

And I am wondering, have you all ever tried to challenge this 

through the courts, and this is me, my ACLU hat, thinking to myself because you have to be having trouble getting insurance, real 

estate. Can you talk a little bit about that? 

Mr. BARNETTE. Sure. There are a number of organizations that 

have been very active in our space. You have the Drug Policy Alliance. You have the National Cannabis Industry Association. You 

have the Marijuana Policy Project. And a whole host of other organizations that have been active on Capitol Hill trying to address 

the needs of the industry and help get these laws changed. Our industry funds lobbyists to try and make relationships with the proper authorities so that we can tell our stories and we can get our 

businesses in. 

But also you see a very significant activity at the local level as 

we are impressing upon our council members and our State legislators to try and make sure that they understand the issues because 

they have a better voice. When the Treasurer of the State of California steps up and speaks to Federal legislators, obviously, the 

issues that she is dealing with carry a little bit more weight than 

perhaps my small business actually can. And so we spend a lot of 

time trying to make sure that our local politicians also understand 

what we are dealing with and the perils that we are actually facing. And so we try to encourage all of the cannabis businesses, no 

matter where they are, to be just that active. We have definitely 

taken that position, but then we are right down the street from you 

guys, and so we can spend time on the Hill 

Ms. TLAIB. Thank you so much. 

And I yield the rest of my time to the chairman. 

Chairman MEEKS. The gentlelady yields back. 

Mr. Stivers, for 5 minutes. 

Mr. STIVERS. Thank you, Mr. Chairman. 

I want to thank Mr. Perlmutter for his hard work on this, and 

I want to say he has been bugging me about this bill for about 5 

years. And, finally, I relented, not because I believe that marijuana 

should be a recreational drug, but because I live in the world of reality, and I know that there are marijuana-related business out 

there, and we can’t endanger them by putting people in a cash-only 

business. 

So I have a few questions. They are pretty simple. Ms. Ma, you 

already stated this, but just a simple yes-or-no question, do you believe that allowing marijuana related—legal marijuana-related 

businesses access to the banking system will make them more 

auditable and reduce tax fraud? 

Ms. MA. Absolutely, yes. 

Mr. STIVERS. Thank you. Major Franklin, you have already indicated this, but do you believe that passing the SAFE Act will make 

these marijuana-related businesses safer? I know that my colleague 

talks a lot about a Marine Corps member who was working in one 

of these businesses who was killed because he was robbed. Do you 

believe that giving them access to the banking system and reducing 

cash will make them safer? 

52 

Major FRANKLIN. Absolutely, I do. Can I comment quickly on the 

fraud issue? 

Mr. STIVERS. Quickly, because I don’t have much time. 

Major FRANKLIN. So, in the mid-1990s, many people are familiar 

with the raid we did on the Baltimore block of the strip clubs down 

there. Sunday was their all-cash day, and we were able to, through 

our investigation, recoup $3.1 million for the State of Maryland. So 

that is that is the kind of fraud— 

Mr. STIVERS. As they say, cash is fungible, and it was hard to 

find. My guess is, you had to go there on a Sunday? 

Major FRANKLIN. No comment. 

Mr. STIVERS. Several Sundays. 

Thank you. Great levity. 

My next few questions are for Mr. Deckard. There is an agriculture business that operates in Ohio that does not do direct business with marijuana-related businesses that has told me they are 

worried about losing their banking relationships because they know 

their products are used, sold through other folks by marijuana-related businesses. I know you don’t do business with any marijuanarelated businesses, but have you heard from anybody in the supply 

chain that is worried about losing their banking relationships? 

Mr. DECKARD. Yes. 

Mr. STIVERS. So I think that is—we are not even talking about 

people who are directly in the marijuana-related business now, and 

they are worried about losing their banking relationships, and I 

have a letter I would like to submit to the record from one of those 

businesses, Mr. Chairman. 

Chairman MEEKS. Without objection, it is so ordered. 

Mr. STIVERS. Thank you, Mr. Chairman. Finally, I also have a 

letter from a banking company that does not do business with 

marijuana-related businesses, and they do think that there are 

some things that need to be changed about this piece of legislation, 

and maybe you are the right person to ask this about, Mr. Deckard. 

Would you like to see more clarity on making sure that financial 

institutions have access to see if these businesses are legitimately 

licensed in States? Would that be part of your due diligence? 

Mr. DECKARD. I think, as a community banker, the more clarity 

we can have, the better. 

Mr. STIVERS. Would you like to have more clarity on suspicious 

activity reports and when you file them, in fact, both you and Ms. 

Pross, would you like more clarity on that? 

Mr. DECKARD. I think our anti-money-laundering and BSA regs 

and policies are pretty clear on when it is required to do so, so I 

don’t see any ambiguity there. 

Mr. STIVERS. Would you like to have an effective and written 

anti-money-laundering policy for these businesses, because that is 

what this chief risk officer has asked for, those four things they 

would like to see. Maybe you don’t see that, but this chief risk officer of a bank, I would like to submit that one for the record, also, 

Mr. Chairman. 

Chairman MEEKS. Without objection, it is so ordered. 

Mr. STIVERS. Thank you. Do either of you think that there is 

some additional clarity we can give to this Act, and my intent is 

not to undermine but to improve this Act? 

53 

Ms. PROSS. Sure. I believe that the FinCEN guidance provides 

quite a bit of clarity for financial institutions who choose to serve 

the industry, so I would not be seeking additional guidance regarding the suspicious activity reports. 

Mr. STIVERS. Great. And, Mr. Deckard, one last question because 

I have 34 seconds. Can you speak to reputational risk and that 

some financial institutions may choose not to provide services even 

after the SAFE Act is passed into law? 

Mr. DECKARD. As a community banker, we take pride in serving 

the communities that we operate in. At my bank, it is right in our 

mission statement that we know our customers by name. So it is 

a relationship model, not a transaction model. Speaking for the 

community banks across the country that may be family-owned, operating in a rural community where there is not competition, we 

have to keep in mind the processes that those banks would need 

to go through. We are always looking for clarity and, this bill when 

you are talking about opening an account or originating a loan, we 

go through that process of every legal business within the State of 

Washington of getting a copy of the business license, the UBI number, a copy of their driver’s license and go through the due diligence for every type of business, not just—and it is expanded for 

marijuana-related business certainly. 

Chairman MEEKS. The gentlemen’s time has expired. 

I now recognize Mr. Davidson. 

Mr. DAVIDSON. Thank you, Mr. Chairman. 

And I thank you all for a long day and an important cause. 

Frankly, I view this as a civil liberties issue. We have had some 

troubled past in our country on any number of fronts where people 

looked askance at someone and said, ‘‘You are not going to bank 

those people, are you? You are not going to do business with these 

people?’’ 

And this is a case where communities all across the country have 

decided to legalize something that is, frankly, still sensitive for lots 

of people. We have seen it on display in this hearing, a range of 

views as to whether it should or shouldn’t be. The reality is, it is. 

And our financial institutions are the wrong place to kind of 

backdoor relitigate whether it should be legal or not. Frankly, that 

is at the core of the issue here when we talk about banking legal 

marijuana in the States. States have said it is legal. 

There are a number of other fronts, as a couple of my colleagues 

alluded to, where there are legal business activities that some people object to, whether that is selling firearms or doing payday loans 

or you name it. Regulators, at times, have deemed them to have 

reputational risk. And we don’t have to look back too far to find 

people who thought, well, maybe there is reputational risk because—‘‘You are not going to bank Jewish people, you are not going 

to bank these people with this race or group, you are not going to 

bank these people with this religious group, are you?’’ And I think 

we need to move away from that. 

Personally, I think it is very important. When we speak about 

intersectionality, a lot of that comes together right here. And the 

civil liberties are protected when we say, if it is legal in the jurisdiction you are in, then you should be free to do that without some 

regulator telling you that you can’t because you are doing it wrong. 

54 

But we also shouldn’t diminish the fact that there are 

reputational risks with any business. So the way that a business 

is operated, the type of activities that the business engages in could 

draw suspicion. 

For example, the FinCEN guidance talks about businesses in 

this space, the marijuana business, that would maybe market their 

products to juveniles. 

Ms. Pross, you are familiar with the FinCEN guidance on that? 

How would you apply that type of reputational risk to the situation? 

Ms. PROSS. Part of our compliance with the FinCEN guidance is 

our cannabis businesses that bank with us, they certify their compliance with the Cole Memo priorities. 

And we also work hand-in-hand with the Oregon Liquor Control 

Commission to ensure that we are monitoring violations of licenses. 

And if we do see a violation like that, we have the choice then to 

terminate an account or to file a marijuana priority SAR for a violation of that nature. 

Mr. DAVIDSON. I am glad to hear you mention SARs there because, frankly, in all the States that it is legal, it is prohibited to 

do business in marijuana with juveniles. And, pediatricians will tell 

you that there are, frankly, big differences in the impact these 

chemicals have on juvenile brain development versus adult brain 

function. So, I think it is an important protection. 

It is an application of reputational risk that isn’t in violation, in 

my mind, of civil liberties. You have a law that says it is legal, and 

you also have a law that says it is illegal. And so you are actually 

applying the law there. 

I think a lot has been said already—it hasn’t been said by everyone, but there is only one person left. And I want to thank Mr. 

Perlmutter for his hard work and, frankly, his openness to continue 

to find language that can make this as bipartisan as possible. I 

truly believe that if we open it up and get at the core issue of 

reputational risk, this can be an enormously bipartisan bill. 

I thank the committee and the witnesses for all this work. And 

I yield back. 

Chairman MEEKS. The gentleman yields back his time. 

Mr. Perlmutter, for 5 minutes. 

Mr. PERLMUTTER. Thank you. 

And I want to thank the witnesses for your stamina, for being 

here this long. 

Even you, Mr. Talcott, I thank you for being here. 

And I just want to say— 

Mr. TALCOTT. Thanks. 

Mr. PERLMUTTER. —a couple of things. 

For years, we have been trying to address this in one form or another here in the Congress, whether you like marijuana or you 

don’t like marijuana, whether you think is has medicinal, beneficial 

purposes or you think it causes a psychosis or medical problems. 

But, obviously, the people across the country have made a decision 

that they want to pursue this. Okay? 

We have a problem in the banking system, and this is the banking committee, this is the Financial Services Committee, and our 

job is to try to assist the system so that it can deal with this cash, 

55 

deal with these businesses, help these employees, help these ancillary businesses—the real estate company, the lawyer, the accountant, whomever. 

And I would say to my friend, Mr. Luetkemeyer, and my friend 

Mr. Barr—and they are my friends—for 6 years, we tried to go to 

the Judiciary Committee, we tried to have a hearing in this committee, we tried to have a hearing in the Rules Committee, we 

tried to get this in front of the Congress to address these problems. 

Not one hearing. 

And, instead, we had to go to the Obama Administration, in 

which case we got the Cole Memo and we got the FinCEN guidance 

almost 5 years, to the day, 5 years ago. The Trump Administration, 

under Attorney General Sessions, rescinded the Cole Memo, but 

Secretary Mnuchin and the Treasury Department has maintained 

the FinCEN guidance. 

So it isn’t for lack of trying to try to address this problem. 

And is this a perfect solution? No, because we only have jurisdiction over banks and financial services. And that is what is trying 

to be addressed in this so that banks and credit unions and other 

financial service companies can provide legitimate financial services to businesses that are legitimate in one form or another in 

their particular State. That is the purpose of the SAFE Banking 

Act. And its other purpose is to provide for public safety. 

So I would like to read a couple of things and then ask some 

questions. 

The National Cannabis Industry Association has a lot of, sort of, 

testimonials. And I have a number of things to introduce into the 

record, including a statement from the Florida Agriculture Commission and a number of letters. 

But just a couple of testimonials. 

This is from Mandy Tingler: ‘‘Our company is all female-founded 

and -run. When we are unable to utilize banks to store our money, 

it puts us at significant risk for break-in, theft, or being targeted 

by attackers. We regularly struggle with large quantities of cash 

management. It doesn’t work well for us to carry suitcases full of 

cash to our local tax office to pay our taxes. Our businesses are already forced into less desirable parts of town because of the type 

of business we have. This leaves us as sitting ducks to be attacked 

or worse for what we have in our possession. Please allow us access 

to banking.’’ 

Then, another one is from Sabrina Fendrick of Berkeley Patients 

Group. She says, ‘‘Regardless of our State compliance, we have 

been removed from well over 30 banking institutions so far. We 

seek and request to be treated like any other business, with the 

rights and privileges that come with being recognized as a legitimate industry.’’ 

Last is sort of the ancillary industry kind of things. It is from— 

let’s see if I can find it. There it is. ‘‘Eden Labs in Seattle, Washington, is a 24-year-old botanical extraction and distillation company that has worked in a multitude of industries, such as biofuels, 

flavorings, perfumes, natural products, and liquor, to name a few. 

However, because of our work in the cannabis industry, we have 

been getting moved from bank to bank to bank.’’ 

And so that is what we are trying to address. 

56 

I am going to ask a safety issue of you, Major Franklin. In your 

career, you were, I believe, a narcotics officer. Was it important for 

you to be able to track and trace? And would having, sort of, banking records help you as a law enforcement officer? 

Major FRANKLIN. Absolutely. We were always in search of banking records. We were always getting subpoenas from the local prosecutor’s office to seize those records, to freeze accounts. That was 

so important—and still is—to the work that we do, because we 

need the evidence when we finally charge the individual to get a 

conviction in court, but, again, to also be able to positively track 

not just for evidence but also for removing those illegal proceeds 

and profits from the hands of these criminal enterprises so they 

can’t use that money to start up other criminal enterprises. And, 

many times, we will find that tied to things like human trafficking 

and other nefarious activities. 

So, again, the banking records are just so critical. Trying to do 

it with pretty much 100-percent cash—I will say this again—we 

really have to luck out when we search warrants in getting computer records or written records, but they are so easy to dispose of 

rather quickly, so it is hard to do. 

Chairman MEEKS. The gentleman’s time has expired. 

Mr. PERLMUTTER. Well, I just want to thank the chairman. And 

I want to thank this panel for being here today. 

Chairman MEEKS. I, too, want to thank this panel for a long 

afternoon but a very productive afternoon. The information that 

you have given has been very productive. 

This is the first such hearing that we have had on the financial 

regulations of banking with cannabis. And I think that the array 

of questions that have come from both sides of the aisle has been 

very informative also and wide-ranging in talking about, from what 

Mr. Clay, Ms. Ocasio-Cortez, and Ms. Pressley have talked about 

with reference to some of the injustices that have taken place by 

not having banking, to some of the things that Mr. Heck has talked 

about in regards to relieving pain for his brother and some life 

issues. 

And we tried to stick to and make sure that the focus of this 

hearing was on the relevant jurisdiction of this committee, which 

has oversight over banking and financial service regulations, as indicated by Mr. Perlmutter. 

I want to thank Mr. Perlmutter particularly. I thought it was important that we started and ended with your testimony, because 

you have been working long and hard at this and have made the 

difference. 

I want to also, this being our very first hearing for the 116th 

Congress and the first one for the Consumer Protection and Financial Institutions Subcommittee, I want to thank my ranking member for his patience and diligence and cooperation in working on 

this together. 

So, again, let me thank the witnesses. 

Before I close, I think that there were a couple of items that Mr. 

Perlmutter wanted to put into the record, so without objection, it 

is so ordered. 

Also, I know Mr. Lawson had made a request earlier about a letter from Florida. I did not at that time say so ordered, but that is 

57 

from the Florida Department of Agriculture and Consumer Services. Without objection, it is also submitted. 

The Chair notes that some Members may have additional questions for these witnesses, which they may wish to submit in writing. Without objection, the hearing record will remain open for 5 

legislative days for Members to submit written questions to these 

witnesses and to place their responses in the record. Also, without 

objection, Members will have 5 legislative days to submit extraneous materials to the Chair for inclusion in the record. 

This hearing is now adjourned. 

[Whereupon, at 6:40 p.m., the hearing was adjourned.] 

(59) 

A P P E N D I X 

February 13, 2019 

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Safe Banking Act Testimony before the Committee on Financial 

Services 

By 

Corey Barnette 

Owner, District Growers, LLC & Metropolitan 

Wellness Center, Inc 

Good afternoon members of the committee. Thanks you for inviting me today to discuss banking 

services to the cannabis industry. My name is Corey Barnette and I have lived here in 

Washington, D.C. since 1999 and currently own District Growers cultivation center and the 

Metropolitan Wellness Center dispensary- both licensed in Washington D.C. 

The medical cannabis industry in Washington D.C. is incredibly well regulated. There is 

mandatory licensing, background checks, financial disclosures, video surveillance, alarm 

systems, seed-to-sale tracking, RFID tags, child-resistant packaging, labeling and testing 

regulations, and routine random inspections. The same is the case throughout many states. In 

essence our businesses are safe, well vetted, and should be a welcomed addition in the efforts to 

dismantle cannabis prohibition. However, we are crippled by federal restrictions on banking that 

serve to stifle state sanctioned operators while buttressing the illicit markets that regulators are 

targeting. 

The issue of access to the banking industry is acutely concerning to business owners like me. A 

large majority of the country has access to legal medical cannabis and ten states, including 

Washington D.C., have legalized cannabis for adult use. However, there is still no federally 

approved system for businesses to perform typical duties like pay salaries, service customers 

using credit/debit cards, access working capital loans, pay bills via check, etc. The current 

system serves to create a public safety disaster, disadvantages small and minority-owned 

businesses, hassles both employees and service providers to the industry, makes tax collection 

over burdensome, and serves to largely stifle the growth of the industry. 

In terms of safety, businesses are often forced to operate as "cash-only", making the businesses 

and their customers incredibly vulnerable to robberies and other threats. Many dispensaries have 

hired on-site armed security guards, maintain excessive on-site security infrastructure, and utilize 

armored trucks to transport cash. The problem of large cash reserves on site- anywhere -

creates an enormous headache and significant public safety threat. 

For the federal government, the current system is a disaster too. Like my firm in the past, many 

cannabis businesses bounce from bank to bank - opening accounts only to have them randomly 

closed within weeks. As a result, law enforcement and regulators struggle to preserve and ensure 

the system is transparent. Payment of federal and state tax is made difficult. Ancillary service 
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providers are unable to work with cannabis operators. Many employees have had their bank 

accounts closed and are often denied basic services such as mortgages, credit cards, and other 

basic personal banking services simply for working in this industry. 

It should also be noted that the absence of bank participation hits especially hard to small and 

minority owned businesses operators. Mom-and-pop businesses and minority-owned businesses 

traditionally look first to bank loans as a method of financing the start and growth of their 

operations. Without bank participation, the hurdle to entry is substantially higher. Restrictions 

on banking serve to create a barrier to entry that only the wealthy can overcome. In short, 

nobody benefits from this system, with the exception of some private security firms and super 

wealthy operators. 

Fixing the banking issue is a crucial part of fixing the broken system of cannabis prohibition. But 

it is far from the only issue we need to resolve. In recent years, I have been involved in numerous 

campaigns and spoke on many panels- including here in Congress - about the need to increase 

diversity in the cannabis industry. Despite cannabis arrests falling on the backs of people of 

color, the vibrant legal industry has often closed the door to these same communities. Congress 

should tackle the banking issue, but it should do so in a way that is inclusive of other reforms 

like the need for expungement of criminal records, investments in communities impacted by the 

war on drugs, and more. Banking is an important piece of the puzzle, but it is only a small step as 

we seek to unwind decades of failed cannabis policy. We must be bold if we are to solve 

problems and have the impact that our communities deserve. 
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~~NOENT COMMUNITY 

BANKERS of AMERICA 

Testimony of 

Gregory S. Deckard 

Chairman, President and Chief Executive Officer 

State Bank Northwest 

Spokane, Washington 

On behalf of the 

Independent Community Bankers of America 

Before the 

United States House of Representatives 

Committee on Financial Services 

Subcommittee on Consumer Protection and Financial Institutions 

Hearing on 

"Challenges and Solutions: Access to Banking Services for CannabisRelated Businesses" 

February 13, 2019 

Washington, D.C. 
63 


Insert offset folio 4 here 35631.004

Chairman Meeks, Ranking Member Luetkemeyer, and members of the subcommittee, I am Greg 

Deckard, Chairman, President, and CEO of State Bank Northwest in Spokane, Washington. I 

testify today on behalf of the Independent Community Bankers of America and community 

banks nationwide, with more than 52,000 locations. I have played an active role in JCBA for 

numerous years, having served as chairman of the Policy Development Committee and curren!ly 

chairing the Legislative Issues Committee. I am also past chairman of the Community Bankers 

of Washington State. 

Thank you for the opportunity to testify at today's hearing titled ''Challenges and Solutions: 

Access to Banking Services for Cannabis-Related Businesses.'' I am pleased to provide the 

perspective of thousands of community banks such as mine that operate in states that have 

legalized cannabis in various forms and for various purposes. 

The current conflict between state and federal law has created a cloud of legal uncertainty for 

community banks, inhibited access to the banking system for cannabis-related businesses and 

created a serious public safety concern. ICBA urges this committee to consider legislation that 

would create a federal safe harbor for banks that offer direct or indirect services to cannabisrelated businesses that comply with state law. The SAFE Banking Act, sponsored by 

Representatives Eel Perlmutter, Denny Heck, Steve Stivers, and Warren Davidson would create 

such a safe harbor. ICBA suppmted this legislation in the last Congress and plans to support it 

again upon reintroduction. 

At the outset l want to clarify that ICBA 's support for a safe harbor must not be interpreted as 

support for legalization of cannabis for medical, therapeutic. or recreational usc. We make no 

moral or scientific judgments with regard to cannabis use. 

State Bank Northwest is a $145 million asset community bank founded in 1902. With 30 

employees and three full service branches, we serve urban, suburban, and rural communities in 

and around Spokane and Garfield. State Bank Northwest meets the needs of our communities 

through small business, agricultural, and consumer banking. Like any community bank, we have 

a stake in the economic prosperity and the public safety of our communities: The two go hand in 

hand. We are responsible corporate citizens who abide by the laws of our state and our nation -

which is difficult when the two are in conflict. At this time, State Bank NorthV>'CSt has chosen not 

to serve cannabis-related businesses. As I will clarify in this statement, the legal stakes arc 

simply too high for me, my board, and my investors to tolerate. We owe it our community to 

ensure that our doors remain open. 

As you know, Washington and Colorado were the first states in the nation to legalize cannabis 

for recreational use in 2012 though the passage of referenda. Retail sales began in 2014. 

Cannabis is now legal for recreational usc in 10 states and the Dii'trict of Columbia and for 

medical use in 33 states. Today, Washington has nearly 500 active, licensed recreational 

cannabis retailers, over I ,000 active, licensed producers or growers, and several dozen licensed 

cannabis transporters, according to the Washington State Liquor and Cannabis Board. 1 In 

Washington, the cannabis industry is tightly regulated, including tracking from seed to sale and 

accounting for literally ever gram of cannabis. A fixed number of licenses arc available for every 

category of cannabis business, and cultivation is limited to two million square feet. Security 

1 https://lcb. wa.gov/ 
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requirements include 24-hour video surveillance and other measures to prevent theft. Cannabis 

businesses arc subject to a 37 to 43 percent excise tax, and tax revenues are dedicated to health 

care and substance abuse education. 

Cannabis Banking Too Risky for Overwhelming Majority of Community Banks 

While legal under state law, every cannabis business licensed in the state of Washington is illegal 

under the federal Controlled Substances Act, which puts cannabis in the same category as heroin 

and LSD. As a financial institution, though chartered by the state of Wa;,hington, I am regulated, 

supervised, and examined by the Federal Deposit Insurance Corporation (FDIC). Other stalechartered community hanks arc regulated by the Federal Reserve. Based on long experience with 

examiners, bankers fear they will be highly critical of loans to businesses that are illegal under 

federal law. An examiner could, for example. reduce the balance sheet value of a sound and 

petforming loan, forcing the bank to raise capital, or even pressure the bank to terminate the 

relationship. 

The memories of Operation Choke Point are still fresh. Even legal, legitimate, long-established 

businesses were, and unfortunately remain, subject to examiner coercion, both subtle and direct. 

ICBA appreciates the ongoing work of Ranking Member Luetkemeyer and others on this 

committee to hring an end to Operation Choke Point, just as we now seek your help in creating a 

safe harbor for legal cannabis businesses. 

Financial Crimes Enforcement Network (FinCEN) guidance (described below) does provide 

some assurances that a bank is complying with anti-money laundering mlcs if it follows the 

agency's heightened Suspicious Activity Report (SAR) guidelines. However, without a statutory 

safe harbor, bankers rationally fear that the politics could shift against cannabis in an instant. It is 

telling that banks that choose to serve cannabis-related business are required to have an exit plan 

to unwind their loans, a requirement that docs not exist for any other category of lending. 

Cannabis Banking Compliance 

Financial institutions that choose to accept the risk of serving cannabis-related businesses- and 

there arc only three such banks and three credit unions in the state of Washington- must comply 

with FinCEN guidance requiring heightened due diligence and ongoing monitoring consistent 

with the priorities of the 2013 Cole Memo. Named for then-Dcpoty Attorney General James M. 

Cole, the Cole Memo reaffirms the Justice Department's commitment to enforcing the 

Controlled Substances Act, while establishing a set of priorities for the Department's usc of its 

limited investigative and prosecutorial re,sources. These priorities include preventing distribution 

of cannabis to minors, preventing the involvement of a cannabis business with organized crime, 

and ensuring that cannabis is not diverted to a state where it is not legal, among others. In 

response to the Cole Memo, FinCEN issued guidance creating three new types of SARs for 

cannabis banking: The Cannabis Limited SAR, Cannabis Priority SAR, and Cannabis 

Termination SAR, reflecting various degrees of risk of violation of the Cole Memo. FinCEN also 

establishcd"red !lags" to guide institutions' selection of the appropriate SAR. Essentially, the 

bank is appropriated in a law enforcement capacity and charged with ongoing monitoring of the 

cannabis-related business. Any lapse or oversight in bank due diligence or monitoring, however 

inadvertent, could result in severe penalties. 

2 
65 


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The Cole Memo was rescinded by then-Attorney General Jeff Sessions, but the Treasury 

Department chose to keep the FinCEN guidance in place. 

Cannabis banking compliance goes well beyond compliance associated with other types of 

banking relationships. This is appropriate given the nature of the industry and the risks involved, 

but compliance expense, in addition to legal uncertainty, is a significant part of the risk calculus 

a bank like mine must perform in deciding whether to enter into cannabis banking. 

Risk Goes Beyond Direct Cannabis Lending 

What I have described so far are the risks and burdens associated with serving direct cannabis 

businesses- the licensed producers, processors, and retailers. State Bank Korthwest has chosen 

not to assume those risks and burdens. What is less well appreciated are the risks and burdens of 

serving, or merely monitoring in the course of our due diligence, the numerous indirect cannabisrelated businesses. Ancillary businesses provide specialized products and services for growers, 

processors, and retailers of cannabis. These could include anything li·om specialized fertilizers, 

grow lights, marketing. and legal compliance. It could include the owner of a converted 

warehouse used for indoor cannabis cultivation or a storefront used for retail sales. As businesses 

that derive revenue ultimately attributable to the sale of cannabis, they too are a source of 

compliance risk to banks. 

But even these businesses do not represent the full scope of compliance risk. Consider the 

plumbers, electricians, internet service providers, and accountants, all of which offer their 

services to the broader public, whose customer base includes cannabis-related businesses. These 

businesses are also drawn into the net, as is any business that, knowingly or unknowingly, 

derives any revenues from a cannabis business. As a senior official from the Washington State 

Depanmcnt of Financial Institutions recently told me, "banks may not know'' that they arc 

serving cannabis-related businesses. 

In the Inland Northwest, we have a major energy provider. Naturally, their customers include 

cannabis-related businesses. Utilities don't discriminate in who they serve. For that reason alone, 

my bank cannot bank this utility without assuming legal risk and additional compliance burden. 

But what about their vendors" How many degrees of separation from cannabis do 1 as a 

community banker have to investigate and monitor to ensure compliance with federal law? 

The problem extends to consumer lending. Employees of cannabis-related businesses are paid 

from the sale of cannabis, illegal proceeds under federal law and technically subject to a superior 

federal lien. This means that as a banker l cannot rely on the employee's salary to underwrite 

consumer debt. If I want to make a car loan, for example, l would have to consider outside 

collateral, such as home equity. 

This may sound like an overabundance of caution and extreme risk aversion, but I can assure you 

the risks arc very real and carry potentially catastrophic consequences for community banks, 

including asset forfeiture of tainted deposits which could put a bank out of business overnight. 

Community bankers are conservative by nature and insist on legal bright lines. This approach has 

ensured the survival and prosperity of State Bank N01thwest for over a century. I like to describe 

my banking model as "vanilla." Typical among community banks, we take local deposits and we 

make local loans. 

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If State Bank Northwest were to change its risk calculus and offer services to cannabis-related 

businesses, my bank itself would effectively become a cannabis-related business and ''toxic" to 

other hanks l rely on ior day-to-day services. ](is the nature of our financial system that a bank 

exists within a network of other financial institutions. These include credit card processors, 

check clearing providers, wire transfer services, correspondent banks, and bankers' banks, 

among others. Since cannabis legalization, many of these critical partners, facing the same legal 

conflicts that we face, have refused or threatened to withdraw services from hanks that serve 

cannabis-related businesses in states where it is legal. At least one prominent bankers' bank in 

my region, has tlatly refused to work with such banks. The largest armored car services provider 

has cancelled contracts with hank:; that serve the cannabis industry. 

The SAFE Banking Act of 2019 

I hope that l have given yon a sense of the full scope of the legal and compliance quagmire faced 

by community hanks in stale> that have legalized cannabis. This statement reflects not only my 

judgment hut a broad consensus of the many bankers I've spoken with in Washington state and 

around the country. While a small number of institutions have chosen to assume the risk of 

serving cannabis-related businesses, the industry remains cash intensive and a target for armed 

robbery. While I am not aware of violent crime statistics specifically associated with cannabis 

businesses, intuition, supported by anecdote, tells us that cash businesses arc a potentially grave 

public safety hazard. This is the most urgent aspect of limited acce5s to banking services for 

cannabis-related businesses. 

The solution is an effective, statutoJy safe harbor such as that embodied in the Safe Banking Act. 

Among other provisions. the Act would: 

• Prohibit federal banking regulators from taking certain actions against a depository 

institution that provides financial services to cannabis-related legitimate businesses. 

These include threatening or limiting a bank's deposit insurance, downgrade a loan, 

prohibit or discourage the provision of banking services, or take any other prejudicial 

action solely because a bank customer is a CRB. 

• Provide prOtection from liability under any federal law for providing financial services to 

cannabis-related legitimate businesses and front forfeiture of collateral for loans to such 

businesses or to owners of real estate or equipment leased to cannabis-related legitimate 

businesses. 

• Clarify that the SAFE Act does not impose a new obligation to provide financial services 

to cannabis-related legitimate businesses. 

• Amend the BSA to require financial institutions to comply with guidance issued by 

FinCEN when filing suspicious activity rcpons (SARs) related to cannabis-related 

legitimate businesses. 

Public Ranking is Not a Viable Solution 

Before concluding this statement, I wish to stress that, with an effective safe harbor, America's 

community hanks have ample capacity and willingness to serve all facets of the legal cannabisrelated industry, should they choose to. 

I urge this committee not to consider various forms of public banking as a viable solution to the 

banking access problem. The California State Treasurer's Office, represented on today's panel, 

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recently commissioned a study of the feasibility of establishing a state bank in California to serve 

the cannabis industry2 That study, conducted by Level 4 Ventures, Joe., a business analytics firm 

specializing in cost modeling, was released in December 2018. The study found that such a bank 

would not be viable because it would he too costly to capitalize and would not return a profit for 

at least 30 years. The study states that: "Our conclusion is that no option for a public bank 

focused on the cannabis industry is feasible." 

lCBA concurs with the conclusion of this independent study. It is worth noting that thenCalifornia Treasurer John Chiang, Ms. Ma's predecessor, had previously suggested the creation 

of a public hank, so the report's conclusions were not predetermined by its sponsorship. 

Following the release of the report, Chiang said, "While today' s announcement [on the 

infeasibility of providing a California public bank to service the cannabis industry] may not lay 

out the path some of us had hoped, it did reinforce the inconvenient reality that a definitive 

solution will remain elusive until the federal government takes action." 

Beyond the question of viability, community bankers are rightly concerned that once established, 

a special purpose cannabis bank would expand beyond its original scope and compete directly 

with community banks and other private sector competitors. We've seen this time and again with 

the creation of limited purpose financial im,titutions. 

Conclusion 

Thank you again for convening this hearing and raising the profile of a critical issue in 

Washington state and other states that have legalized cannabis. If a solution is not found, the 

problems I have described in this statement will only become more urgent in the coming years. 

ICBA hopes to work with this committee to advance the SAFE Banking Act of 10 J 9 to create a 

statutory safe harbor so that banks like mine are free to serve the growing cannabis industry, 

should we choose to do so, without fear of legal and regulatory repercussion. 

I'm happy to answer any questions you may have. 

lmim'LY:!.~lli!~~L£1!,£.!rt}j;£!!J!l!ll::Ql!:!Jlilll:.ill:!l!il£illl!lilh!H£!!1iihl!ill::l!!!ll:!mlltbll!!£. See also: Laura Alix. "Public 

Bank Isn't the Answer for California's Pot Industry: Report" American Banker. December 28, 2018. 

https;Uwww.americanbanker.com/news/publlc-bank-isnt-the-answer-fur-californias-marijuana-industrv·report 

5 
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Medford, Massachusetts 02 I 55 

T, (781) 393.6985 

To: Chairwoman Maxine Waters and 

Members of the Subcommittee on Consumer Protection and Financial Institutions 

From: Major Neill Franklin, Ret, on behalf of the 

Law Enforcement Action Partnership [LEAP) 

Re: Challenges and Solutions: 

Access to Banking Services for Cannabis-Related Businesses 

Hearing: Wednesday, February 13,2019, 2:00p.m. 

Position: Support 

Distinguished members of the Committee, thank you very much for the opportunity 

to present the views of the Law Enforcement Action Partnership (LEAP) in support 

of this legislation. 

LEAP's mission is to unite and mobilize the voice of law enforcement in support of 

drug policy and criminal justice reforms that will make communities safer by 

focusing law enforcement resources on the greatest threats to public safety, 

promoting alternatives to arrest and incarceration, addressing the root causes of 

crime, and working toward healing police-community relations. 

"LEAP envisions a world in which criminal justice and drug policies keep our 

communities safer." This is a quote directly from our website and that quote is 

exactly what this hearing is about It is about enacting policy that will dramatically 

enhance public safety in our communities. 

This hearing is not, nor should it be, a hearing about whether we should legalize, 

regulate, and control marijuana for adult use. It should be clear to everyone here 

that Americans have already decided this issue. In October, Gallup said 66% of 

American residents supported legalizing marijuana. More than half of states already 

allow marijuana for medical andjor adult~use purposes. A vast majority of 

Americans live in a state where marijuana can be purchased legally. This is not a 

niche business market; it's a significant part of our economy. 

If Congress respects the rights of the states and the will of the people, as protected 

in the Tenth Amendment, then we don'tneed to debate the legalization of marijuana 

or medical marijuana here today. We need to decide how best to protect those 

states, given the choices they've democratically enacted. However, I know some 

opponents will try to cloud the banking issue with attacks on legalization, so I will 

quickly address some of these concerns. 

LawEnforcementActionPartnership.org 
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Let's talk about what's happened in Colorado, the first state to legalize marijuana for adult use. A federal study by 

the National Survey on Drug Use and Health showed that teen marijuana use decreased after legalization.' The 

American Public Health Association determined that "motor vehicle crash fatality rates ... were not statistically 

different from those in similar states without recreational marijuana legalization." 2 Furthermore, legalization has 

resulted in a significant decrease in traffic stops, leading to fewer negative interactions between police and drivers, 

potentially limiting dangerous clashes and tensions with people of color} And because police didn't have to waste 

their time on these stops and could concentrate on real crime, researchers studying Uniform Crime Reports data 

(another federal publication) concluded legalization had resulted in greater police clearance rates.' So don't listen 

to Chicken Little. The sky over Colorado did not fall. 

Licensed marijuana businesses are legitimate contributors to our economy. It follows that regulated banking, 

vendor relations, payroll, and tax payments should be permitted as part of that legitimacy -a condition that will 

further serve to dismantle the illicit market's influence in this growing industry and help local economies. 

Current conditions, which require all-cash transactions in every aspect of the business encourage tax fraud, add 

expensive monitoring and bookkeeping expenses, and - most importantly- leave legitimate businesses vulnerable 

to theft, robbery, and the violence that accompany those crimes. The SAFE Banking Act presents us with an 

opportunity to greatly assist in stabilizing the industry and enhancing public safety. 

As more legitimate businesses are established, opportunities for cash robberies will increase as more growfacilities and dispensaries come on line. Securing cash onsite, transporting cash to secure locations, and managing 

cash payroll are necessities for these businesses. And criminal entities are quite adept at conducting high· level 

reconnaissance of businesses and their security protocols when they know those businesses will have tens of 

thousands - or even hundreds of thousands- of dollars on hand. 

Although extremely important for business owners and the people they employ, my greatest fear is not the loss 

of profits due to theft. It is the potential for serious assaults and death to the people attempting to protect that 

cash, or who are merely responsible for it. I fear dispensary employees being at great risk.! fear for the safety of 

those transporting the cash, and I fear for the well-being of employees on payday. Two weeks of pay for one 

employee can easily exceed a few thousand dollars. That one employee trying to get home safely from work is an 

attractive "score" for any criminal, and a very easy target for those who know what to look for. Beyond any 

concern for protecting profit, we have a duty to protect the lives of community members working to earn a living. 

In 2012, Melinda Haag, the U.S. Attorney for Northern California, said, "Marijuana dispensaries are full of cash, 

they are at risk of being robbed, and many of them are." One example of what can happen: In October 2012, three 

people kidnapped the owner of a lucrative dispensary in Orange County. According to court documents, the 

assailants zip-tied the victim, tortured him, and drove him to a patch of desert where they believed he had buried 

large sums of money. When the kidnappers couldn't fmd jt, they burned him with a blowtorch, cut off his penis, 

and doused him with bleach before dumping him along the side of a road. 

Four of my pol1cing years were spent investigating crimes within Maryland's Division of Corrections. I've 

interviewed hundreds of incarcerated civilians convicted of serious crimes, many of whom were proud to boast 

of their criminal activities and strategies. Their strategic thought process is minimal. The easier the target the 

better. The bigger the "score" the better. Casing the next target Is about finding the softest target, and the current 

conditions in this industry have created many soft targets. 

We, the police, teach target hardening when we conduct security assessments for business owners. Our advice to 

them is not to have large amounts of cash on hand, to make use of credit and debit card services, avoid routine 

1 https: I 1\.vww.washingtonpost.com /news /wonk/wp /2017/12/11 /following-marijuana-legalization-teen-drug·use-is-downln-colorado/?noredirect-on&utm term-.5cfcd88d0b9e 2 lillp"5:1/i.ilPl!..<Ulh?-P_ublications.org ldoi !absDQ."V 05/AI PH.2017 .303848 3 https: //www.themarshall proiectorg /2017/06/21 /how-to-cut-down-on-traffic-stops-legalize-pot# DCrn V04Wf 4 https·//journals.sagepub.com/doi/full/10.1177/1098611118786255 

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trips to the bank, and to make use of armored car services. This valuable "crime prevention 101" advice is literally 

useless to marijuana business owners, making them very attractive soft targets. 

I'm not one for fear mongering what I testifY to here today is rooted in experience and research. Any police 

officer who has worked the street, or investigated enough robberies, will testifY to the same regarding any 

business forced to handle large amounts of cash. 

Members of the committee, it is up to you and other members of Congress to act upon this legislation, establishing 

access to banking for legitimate marijuana businesses. The safety of thousands of employees, business owners, 

security personnel, police officers, and community members is in your hands. 

On behalf of myself and the Law Enforcement Action Partnership, I ask that you act swiftly on the SAFE Banking 

Act because we know it will enhance public safety within our communities. Thank you for your time. 

Sm,erely, { 

~~trM~Ret. Executive\Director 

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California State Treasurer Fiona Ma addresses 

U.S. House Committee on Financial Services: 

House Consumer Protection and Financial Institutions Subcommittee 

Wednesday, February 13th, 2019 

"Challenges & Solutions: Access to Banking Services 

for Cannabis-Related Businesses" 

Good afternoon, Chairman Meeks and members of the Committee. Thank you for offering me the 

opportunity to speak on a matter of critical importance to California. 

My name is Fiona Ma, and I am a licensed CPA who is proud to serve as California's 34th State 

Treasurer. As the State's Banker, $2.3 trillion dollars in transactions rnove through my office, I 

oversee $85 billion in bond debt and rnanage $92 billion dollars in short term investments for the 

State and local governments. In addition, I chair 16 boards, commissions, and authorities that provide 

financing for our schools, roads, housing, levees, public facilities, and other crucial infrastructure 

projects that better the lives of all Californians, and provide programs that help Californians save 

money for costs associated with college, disability, and retirement. 

I have served in government since 1995 as a staff to the former California State Senator John Burton 

who also served in U.S. Congress. In 2002, I got elected to the San Francisco Board of Supervisors 

and moved on to serve as Majority Whip and Speaker pro Tempore in the California State Assemblypassing 60 pieces of legislation under 2 Governors and 3 Speakers during the Great Recession from 

2006-2012. 

In 2014, I was elected to the State Board of Equalization, one of the two principal tax collection 

agencies in our state where cannabis dispensaries are supposed to collect and remit sales taxes. 
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Duffel bags and sometimes suitcases of cash would arrive quarterly at some of our designated offices 

and some business owners had to drive 350 miles to pay their taxes. I asked how much we collected 

from the cannabis industry and my agency really didn't know since tax revenues are "commingled" 

and deposited with other cash tax payments. I participated in educational tours in Humboldt, 

Mendocino, and Trinity Counties in California, also known as the Emerald Triangle- where legal 

outdoor harvest can generate up to $474 million annually in revenue. To better educate myself and 

my staff around barriers and challenges of the industry, I held public stakeholder meetings around 

transportation, track & trace, and banking. Many business owners didn't know the local and state 

filing requirements and many didn't even file income taxes. And we were also concerned with the 

public safety surrounding all cash businesses and heard many off-the-record stories. Eventually it 

became starkly clear that the "Big Elephant" in the room was lack of banking access. 

Additionally, I travelled to Colorado, Washington, and Canada and met with Executives of their 

respective tax collection departments to discuss their experience with this emerging industry and 

around banking. According to the Colorado Department of Revenue, overall cannabis revenue (from 

taxes, licenses & fees) has increased dramatically from approximately $68 million in 2014 to over 

$266 million in 2018. Additionally, Washington State has also seen a significant tax collection 

increase of $130 million from 2016 to 2017- when the state collected $319 million in excise taxes 

alone. Sales of legal cannabis in Washington have skyrocketed from $259 million in fiscal year 2015 

to $1.3 billion in fiscal year 2017 -to put that in perspective that is a 500% growth in just two years. 

Now we get to California -With nearly 40 million residents and more than a million medical cannabis 

patients, California's market represents about a third of the North American cannabis market. In the 

first three-quarters after legalizing adult-use cannabis in November 2016, we collected approximately 

$228 million in tax revenue. 

The cannabis market in California alone is expected to exceed $5.1 billion in overall revenue in 2020 

according to an Arcview Market Research and BDS Analytics report. This same Report highlighted 

that the legal cannabis market could triple over the next four years -being worth as much as $32 

billion GLOBALLY. The US will fuel a majority of this revenue, and it's critical we accommodate the 

magnitude of this economic uptick with access to banking for this new state regulated industry. 

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I wanted to give some history on medical cannabis. The first public cannabis dispensary was founded 

in San Francisco in 1994 to alleviate nausea and pain to AIDS patients. 

Speaking of advocating for patients, we are elected to speak on behalf of our constituents. Additional 

problems we don't commonly think about related to the unbanked cannabis industry is the negative 

impact on families when employees are paid in cash because their cannabis employer can't secure a 

payroll system as an unbanked business: 

How is someone supposed to build credit by operating primarily in cash? If they can't build 

credit, how can they buy a car, buy a home to support their family, or even qualify to rent a home or 

an apartment? 

Social Security, State and, Federal Income taxes can't be accurately collected on cash payments 

wage statements done manually to employees. This doesn't allow employees to pay into -or receive -

Social Security benefits. 

- The lack of a paper trail for all-cash businesses can pose as a challenge in meeting financial 

obligations such as paying alimony and child support if an employee chooses to not report their cash 

income. 

The early adopters of medical cannabis helped pass California's landmark Prop. 215 in 1996, the first 

medicinal cannabis initiative in the U.S. 

Fast forward to 2016 and Prop 64: the Adult Usage Marijuana Act also known as California 

Marijuana Legalization Initiative which was passed by the California voters with 7.9 million votes 

representing 57% of the vote. 

Following the passage of Prop 64, my predecessor Treasurer John Chiang invited me to join a 

seventeen-member working group made up of members of the cannabis industry, the banking and 

financial services sector, state licensing officials and the related tax collecting agencies. 

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The group published a report of its findings in November of 2017 concluding that even though there 

were some temporary, or adaptation steps the state itself could take to improve the safety of the 

public and enable efficient collection of tax and fee revenue, the only truly durable solution was for the 

federal government to act 

One of the recommendations of the group suggested that the state explore establishing a statebacked financial institution devoted exclusively to the cannabis business. That exploration produced 

another thoughtful report, released just six weeks ago, that concluded much the same thing-that the 

only effective long-term solution that would produce acceptable results for the financial services 

sector was to change federal laws and regulations related to offering basic banking services to this 

growing industry. 

I recognize that there have been multiple federal congressional proposals to tackle the complex and 

multi-faceted issues surrounding this industry. But all have stalled either from lack of broad-based 

support or from some measure of over complexity. One particular and promising standout in this 

group of proposals is to offer some form of "SAFE HARBOR" to banks engaged with the industry. 

support this approach. 

The Committee is undoubtedly aware that cannabis businesses are not alone in struggling to gain 

access to banking-even though theirs is the most difficult situation. Any business that handles 

significant amounts of currency is also subject to greater scrutiny by the financial services industry for 

all of the reasons that are well understood by members of this committee. Large sums of cash are 

untraceable and are frequently associated with illicit activities making banks and financial service 

providers approach these businesses with a high degree of caution. Even with these barriers, it is 

important to note that more than three hundred financial institutions across the U.S have filed 

Suspicious Activity Reports associated with cannabis businesses in a recent quarter. 

However, the clash between federal law and state law in the cannabis industry presents an especially 

difficult problem for states such as California where cannabis use is now legal. Currently, there are 33 

states that allow legal medicinal use and 10 states plus the District of Columbia that allow adult 

recreational use. One of the surest ways of bringing a business out of the shadows and collecting 

lawfully-imposed taxes is to promote access to the economy's banking and payments systems. 

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Yet, federally regulated banks and financial institutions risk severe penalties if they inadvertently aid 

and abet-no matter how remotely-activities that the federal government deems illegal. 

The well understood Cole Memorandum offered some sense of comfort to those financial institutions 

skilled enough to properly know their customer, apply appropriate due diligence to the business 

activities of those customers, and to safeguard their banks as well as the nation's payment system 

from known bad actors who violated the eight basic tenets set forth in that Memo. 

Unfortunately, the Cole Memorandum has been rescinded and now these financial institutions are left 

without even the most basic safe harbor mechanisms to guide their business decisions. 

It is for this reason that I believe that the risk management of these financial service firms has been 

transformed into outright risk avoidance by too many institutions and why we need your help. 

We supported "The SAFE Banking Act", originally introduced as H.R. 2215 in 2017, proposed by 

Congressman Perlmutter. The SAFE Banking Act would provide a "safe harbor" for those federally 

regulated or federally insured banks and credit unions wishing to accommodate cannabis businesses 

in my state-and the thirty two others-who have approved the use of cannabis in some form or 

another, is a necessary step, represents a positive evolution of public policy, and exhibits a common 

sense approach to the problems I've described. 

To sum, an effective safe harbor mechanism in federal law promotes the safety of the public, 

improves the efficiency of collecting the taxes and fees we use to regulate the industry, and does not 

allow the banks and credit unions to totally abdicate their responsibilities to know their customers and 

avoid illicit money laundering. I encourage the committee to consider and approve such a measure. 

I would be happy to answer any questions you have and I thank you again for the opportunity to 

speak with you today. 

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Reference Page/Citings: 

North Bay Business Journal, The Press Democrat, October 12, 2018: 

httos:l/www. northbaybusinessjournal.com/northbay/sonomacounty/8835554-181/sonoma-mendocinocalifornia-cannabis-harvest 

Colorado Dept of Revenue: https://www.colorado.gov/pacific/revenue/colorado-marijuana-tax-data 

Washington State Treasurer's Website: https://www.tre.wa.gov/portfolio-item/washinqton-statemarijuana-revenues-and-health/ 

CISION PR Newswire: https://www.prnewswire.corn/news-releases/california-cannabis-marketexpected-to-reach-51-billion-market-value-685917 412. html 

California Department of Tax and Fee Administration https://www.cdtfa.ca.gov/news/18-58.htm 

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l"e~ Credit Union 

..)--(. National 

cuN_; Association 

WASHINGTON, D.C. 

99 M Street SE 

Sutfe 300 

Washington, D.C. 20003~3799 

Phone: 202-638-5777 

Fax: 202-638-7734 

Testimony 

Of 

Rachel Pross 

Chief Risk Officer 

Maps Credit Union 

On Behalf Of 

The Credit Union National A.ssociation 

Before the 

Subcommittee on Consumer Protection and Financial Services 

Committee on Financial Services 

House of Representatives 

At a Hearing on 

""Challenges and Solutions: 

Access to Banking Services for Cannabis-Related Businesses"" 

February 13, 2019 

cuna.org 
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Testimony 

Of 

Rachel Pross 

Chief Risk Officer 

Maps Credit Union 

OnBehalfOf 

The Credit Union National Association 

Before the 

Subcommittee on Consumer Protection and Financial Services 

Committee on Financial Services 

House of Representatives 

At a Hearing on 

""Challenges and Solutions: 

Access to Banking Services for Cannabis-Related Businesses"" 

February13,2019 
79 


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Good afternoon, Chairman Meeks, Ranking Member Luetkemeyer, and Members 

of the Subcommittee. Thank you for this opportunity to testify on a very important 

issue: ensuring access to mainstream financial services for cannabis businesses that 

operate legally under state law. 

My name is Rachel Pross. I am the Chief Risk Officer of Maps Credit Union, a 

midsized financial cooperative in Salem, Oregon. I am testifying today on behalf of the 

Credit Union National Association, the nation's largest credit union advocacy 

organization. CUNA represents both state and federal credit unions and the 115 million 

members across the United States that they serve. 

Maps Credit Union ("Maps") has approximately two hundred and fifty employees 

and $750 million in assets. Our credit union was founded in 1935 when a group of 

teachers pooled together their scarce resources for the collective, greater good. Today, 

Maps has a community charter and serves over 65,000 member-owners in Oregon's 

relatively rural Willamette Valley. Our cooperative has ten branches in addition to a 

robust educational outreach program that includes two student-operated branches in 

our local high schools. 

As a community-focused organization, we have seen and experienced first-hand 

the many challenges facing both financial institutions and state-sanctioned cannabis 

businesses seeking to operate within the financial mainstream. My testimony will talk 

about those challenges, but, before going into great detail, I'd like to start by telling you 

a story. It is the story of how my credit union, Maps Credit Union, has sought to 

overcome those challenges since 2014 and has become a part of the solution for the 

Willamette Valley communities of Oregon. Our efforts were sparked by the people of the 

state of Oregon voting in favor of ballot measure 91 and, as a result, making the use of 

cannabis for both recreational and medicinal purposes legal under Oregon law.' 

1 Cannabis usage for medicinal purposes became legal in the state of Oregon in 1998. 
80 


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The Maps Credit Union Approach to Cannabis Banking: 

Offering Communities in Oregon a Safe Solution 

As a financial cooperative, Maps believes that it is our duty to serve the members 

of our community and to listen to the needs of the individuals and businesses who 

contribute to that community. Though Maps has no position on whether cannabis 

should be legalized federally, we acknowledge that the voters of Oregon have already 

spoken on that issue for the people of our state. Accordingly, after extensive research 

and risk analysis in 2014, our member-elected, volunteer Board of Directors voted to 

serve cannabis businesses for two primary reasons: 

(1) to serve the underserved-which speaks to the Credit Union mission and 

philosophy as a not-for-profit financial cooperative, and 

(2) to enhance the safety of our community in the Willamette Valley by removing 

large amounts of cash from the streets of our cities by ensuring that legal cannabis 

businesses operating in the State of Oregon had access to mainstream financial services. 

To our knowledge, Maps is the only financial institution in the state of Oregon 

that has continuously served the cannabis industry since 2014. And, in the five years 

since, our organization has come to provide banking services to five hundred Oregonsanctioned cannabis businesses. That makes the cannabis banking program at Maps 

one of the largest in the United States. 

In terms of safety, statistics show that cash-only businesses increase the risk of 

crime. This is especially true in the cannabis industry given the lack of access to 

mainstream financial services. A 2015 analysis by the Wharton School of Business 

Public Policy Initiative found that, in the absence of being banked, one in every two 

cannabis dispensaries were robbed or burglarized-with the average thief walking away 

""'ith anywhere from $20,000 to $50,000 in a single theft. Compare that with the 

statistics from our credit union. In 2017 and 2018 alone, Maps received well over $529 

million in cash deposits from cannabis businesses--meaning that five hundred million 

dollars in cash was removed from the sidewalks of Oregon's communities just in the last 

two years. That's millions of dollars that used to be carried around in backpacks and 
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shoeboxes by legitimate, legal business owners in the State of Oregon, making them 

prime targets for thieves and other criminals. 

When Maps's Board of Directors voted to serve cannabis businesses, they knew it 

would be one of the first programs of its kind in the country, and they committed to 

fostering the diligent culture of risk management and compliance necessary to do it 

properly. Maps' goal was and is to help set a standard nationwide, enabling other credit 

unions to eventually serve the industry with tried-and-true best practices. 

The compliance framework Maps utilizes to serve canna-businesses is based on 

the U.S. Department of the Treasury's Financial Crimes Enforcement Network BSA 

Expectations Regarding Marijuana-Related Businesses ("FinCEN Guidance"). Though 

the February 2014 Cole Memorandum from the Department of Justice ("Cole Memo") 

was rescinded in January of 2018 by Attorney General Sessions, the guidelines of the 

Cole Memo remain in place as part of the FinCEN Guidance. 

To comply with the FinCEN Guidance, Maps has established a rigorous screening 

and compliance protocol and has invested considerably in the robust infrastructure 

required to appropriately monitor and maintain these high-risk accounts. We have a 

centralized team of dedicated professionals in our cannabis banking program, and the 

staffing averages one full time employee for every forty cannabis business accounts. Our 

Bank Secrecy Act and Anti-Money Laundering Compliance Program has been reviewed 

by both State and Federal financial regulators on multiple occasions, and we also obtain 

an independent, external compliance audit of the Program annually. In February 2018, 

I had the opportunity to represent Maps as a guest presenter on behalf of the financial 

sector at U.S. Attorney Billy Williams' Oregon Marijuana Summit in Portland. The 

subsequently issued enforcement priorities of the Oregon U.S. Attorney also play an 

important role in the monitoring of cannabis business account activity at Maps. 

As part of Maps's initial evaluation and ongoing monitoring of cannabis-related 

accounts, we collect corporate records, ownership information (including criminal 

background checks on all account signers), ongoing financial statements, and day-today account transaction activity. All that information is meticulously scrutinized to 

ensure the activity on the accounts is legitimate and, to the best of our knowledge, 
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completed in accordance with State laws and the FinCEN Guidance. We work closely 

and transparently ·with our regulators, and we take pride in having a collaborative 

relationship with the Oregon Liquor Control Commission to ensure that the cannabis 

businesses we serve are operating in compliance with all applicable state licensure 

requirements. That information sharing is permissible under Oregon House Bill 4094, 

which was signed into law in April 2016 by Oregon Governor Kate Brown. HB 4094 

exempts financial institutions tllat provide financial services to lawful marijuana-related 

businesses from any applicable criminal law in the State of Oregon and includes a 

provision on information sharing. 

Most importantly, in accordance with the FinCEN Guidance, the Credit Union 

files quarterly Suspicious Activity Reports ("SARs") on every cannabis-related business 

account in tile organization, and we file Currency Transaction Reports ("CTRs") on 

every cash transaction or group of cash transactions aggregating to over $10,ooo in one 

business day. Also, in accordance with the FinCEN Guidance, the Credit Union 

prioritizes SARs with regard to which cannabis accounts are acting in accordance with 

State law and any accounts we suspect could possibly be engaged in illegal activities 

such as diversion into other states, money laundering, or black-market sales. 

To put some numbers around tllis compliance program, Maps filed over 13,500 

individual reports related to cannabis business accounts in 2017 and 2018 alone. For 

more context around those numbers, Maps has filed 2,770 Suspicious Activity Reports 

since January 1, 2017, and 90.2% of those SARs were directly due to our filing 

obligations for cannabis businesses. When filing SARs, Maps provides the names of all 

individuals who are involved with the accounts, all account activities broken down by 

individual transactions, and a description of that activity. Once a SARis filed, law 

enforcement can request additional supporting documentation related to tile reported 

activity, giving the government a very broad ability to review the information we have so 

diligently collected and retained on the accounts. 

Because the cannabis industry is primarily cash-based, these transaction records 

would not otllerwise be available if financial institutions were not permitted to serve the 

industry. We firmly believe that providing banking services to this industry delivers a 
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significant benefit to law enforcement, because Maps is essentially providing free, 

highly-detailed information at least every quarter on cannabis-related monetary activity 

in the State of Oregon. Furthermore, we educate each and every one of our cannabisrelated accountholders about the FinCEN Guidance and the criticality of compliance 

and transparency. This ultimately reduces the likelihood of financial crime on their 

parts. They want to keep their accounts with us, so they carefully adhere to the 

requirements given to them. 

As a pressing word of caution, there are numerous unscrupulous players trying to 

benefit from the severe shortage oflegitimate financial services available to cannabis 

businesses, and concerns around criminal prosecution are only feeding those predatory 

players' flames. Cannabis businesses are frequently bombarded with proposals for 

payment "solutions" that are unregulated (and therefore not subject to Bank Secrecy Act 

compliance), and their "solutions" are often very clearly a form of money laundering. 

We have heard of proposals involving everything from cryptocurrency to cashless "chit" 

mechanisms to the use of prepaid gift cards-none of which would provide the Federal 

government any valuable information on cannabis-related financial activity or the 

movement of cannabis within the United States. Credit unions, however, are heavily 

regulated and prudently abide by State and Federal guidelines, so we are undoubtedly a 

safe and transparent choice for both cannabis businesses and the U.S. government. 

With the momentum currently seen across the United States toward the 

legalization of cannabis either medicinally or recreationally in many states, there is 

deepening interest in the financial sector for serving these businesses. Having been 

founded by a group of teachers, it should come as no surprise that Maps is passionate in 

our beliefs about the importance of education and advocacy. To that end, I presented 

Maps' cannabis banking program sixteen times natiomvide last year. This collaboration 

is part of the DNA in credit unions, and we consider it a privilege and an honor to assist 

other credit unions with vetting their own programs. 

Even Without Directly Accepting the Cannabis Industry as Clients, Credit 

Unions and Banks Operating in States Where Cannabis is Legal Still Risk 

Unknowingly Serving Cannabis-related Businesses. 
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Indirect connections to marijuana revenues are hard, if not impossible, for 

financial institutions to both identifY and avoid. The simple reality is that growers and 

retailers in the cannabis industry do not operate in a vacuum. Instead, like almost every 

other business, the industry is dependent upon any number of vendors and suppliers to 

function. These are everyday businesses like the printing company that makes a 

business card, the office supply company that fulfills order for pens and copy paper, the 

housekeeping crew or landlord that cleans or rents office or retail space, and even the 

utility company that provides that office/retail space or growing location with water or 

electricity. Under the existing status quo, a credit union that does business with any one 

of these indirectly affiliated entities could unknowingly risk violating the federal 

Controlled Substance Act, USA Patriot Act, Bank Secrecy Act, and/ or the Racketeer 

Influenced and Corrupt Organizations Act, among other federal statutes. 

Yet, as a bipartisan group of Senators noted in a 2016letter to FinCEN, "[l)ocking 

Lawyers, landlords, plumbers, electricians, security companies, and the like out of the 

nation's banking and finance systems serves no one's interests." 2 The current rift 

between federal and state law has left credit unions and other financial institutions 

trapped in a scenario where their mission to serve the financial needs of their local 

communities is directly pitted against the inability to have perfect information regarding 

every indirect business activity and the threat of federal enforcement action. 

Without banking services, cannabis businesses and the businesses indirectly 

related to them are less able to obey the law, pay taxes, and follow state regulations. The 

public safety risks posed by these businesses are easily mitigated through access to 

mainstream banking service providers and keeping the cash off the streets. This is a 

critically important public service. 

Congress Should Grant Financial Institutions That Serve State-Sanctioned 

Cannabis or Cannabis-Related Businesses a Safe Harbor from Criminal 

Prosecution for Providing Banking Services. 

2 2016 Senate Letter to FinCEN requesting guidance on ancillary businesses (12/14/16), available at 

https://www.warren.senate.gov/files/documents/12-14-16 SL FinCEN Indirect Businesses.pdf (last accessed 

02/08/19). 
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In the absence of a federal law providing explicit legal clearance for financial 

institutions to provide banking services to the Cannabis industry, it is highly likely that 

many of these businesses will be forced to continue operating outside of the financial 

mainstream. That outcome increases the potential oflost tax revenue, increases the 

likelihood of criminal thefts in our communities, and deprives both state and federal law 

enforcement with important information about cannabis activity. We need Congress to 

resolve the risk financial institutions face by providing a safe harbor for credit unions 

and banks serving state-sanctioned cannabis businesses. That's why both Maps and the 

Credit Union National Association support legislation like "The SAFE Banking Act," 

previously sponsored by Representative Perlmutter as H.R. 2215 in the House and 

Senator Merkley as S. 1152 in the Senate during.the 115th Congress. 

If enacted, the SAFE Banking Act would offer narrowly targeted federal 

protections for credit unions and other financial institutions accepting deposits from, 

extending credit or providing payment services to an individual or business engaged in 

marijuana related commerce in states where such activity is legal \\ith a safe harbor, so 

long as they are compliant with all other applicable laws and regulations. Furthermore, 

the SAFE Banking legislation provides safe harbor to credit unions and their employees 

who are not aware if their members or customers are involved in this business. We 

believe that this is a reasonable and sound approach. 

Conclusion 

Credit unions do not have a position on the federal legalization of cannabis. The 

simple fact of the matter, however, is that many credit unions operate in states and 

communities that have made cannabis usage or growth legal for medicinal and/or 

recreational purposes. We strongly believe that financial institutions should be 

permitted to lawfully serve businesses that engage in activities that are authorized under 

their state laws, even when such activity may be inconsistent with federal law. For that 

reason, credit unions will continue to support the SAFE Banking Act. 

On behalf of America's credit unions and their 115 million members, we urge both 

Congress and the Administration to work towards turning this legislation into the law 
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and providing financial institutions with the certainty needed to better serve our 

communities. 

Thank you for the opportunity to testify today. I am happy to answer any 

questions the subcommittee members may have. 
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Testimony of 

Jonathan H. Talcott 

Chairman of the Board of SAM, Inc. (d/b/a Smart Approaches to Marijuana, Inc.) 

On behalf of 

SAM, Inc. 

before the meeting of 

The House Financial Services Committee 

Subcommittee on Financial Institution and Consumer Credit 

of the 

United States House of Representatives 

February 13, 2019 

Chairman Meeks and Ranking Member Luetkemeyer and members of the 

Subcommittee, thank you for the opportunity to testify on the "Secure And Fair Enforcement 

Banking Act of2019" or the "SAFE Banking Act of2019." 

My name is Jonathan Talcott, Chairman of Smart Approaches to Marijuana, Inc. 

("SAM, Inc."), a 50l(c)(3), non-partisan organization co-founded by former Congressman 

Patrick J. Kennedy, Senior Editor of The Atlantic David Frum, and former Obama 

Administration Senior Drug Policy Advisor Kevin A. Sabet, PhD. The mission of SAM is to 

educate citizens on the science of marijuana and to promote health-first, smart policies and 

attitudes that decrease marijuana use and its consequences. I am also an attorney at Nelson 

Mullins Riley & Scarborough LLP where I am co-chairman of the Securities Practice Group 

and have worked with the community banking industry for thirty years. I previously served as 

a banking regulator in the Office of Thrift Supervision, as well as having worked for the 

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banking industry as a banker for J.P. Morgan & Company, Inc. I am here to speak on behalf 

of myself and on behalf of SAM, Inc., not on behalf of my law firm. 

I am here to testify against the adoption of the SAFE Banking Act of2019. Ironically, 

no name could be less appropriate for this legislation. Not only is the SAFE Banking Act of 

2019 a smokescreen to hasten the legalization of marijuana, but without a change to the 

Controlled Substances Act ("CSA"), changes proposed by the legislation will not be effective 

and will have some unintended consequences. This bill should be opposed and marijuana 

should remain illegal. We believe no one should have the rest of their life ruined simply 

because they got caught with a joint, but there are ways to make needed changes to the 

criminal justice system without fully legalizing and commercializing marijuana. When it comes 

to researching new medicines derived from the marijuana plant, SAM is in strong support of 

reducing the barriers to legitimate research. 

SAM, Inc. is funded by donations from individuals, concerned citizens, mothers and 

fathers, and sisters and brothers of people who have seen firsthand the problems caused by 

marijuana or who wish to educate the public about its dangers. In the last twenty-five years 

vast amounts of false information about marijuana have been spread across the United States in 

an effort to achieve legalization and, more importantly for the people involved, 

commercialization. I would note that I am the only non-government witness you will hear 

from today who is not paid to be here and who stands to make no money from this position. 

The first issue with the proposed legislation is that it does not actually protect 

community banks or credit unions. Under the Money Laundering Control Act of 1986 

("MLCA"), banks are prohibited from providing financial services to businesses that are 

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engaged in illicit activities. These provisions are enforced, in part, through the Bank Secrecy 

Act ("BSA"). While the SAFE Act purports to provide a safe harbor under the MLCA and 

BSA to banks serving the marijuana industry, these proposals will have no practical effect 

because the use, possession and distribution of marijuana remains illegal at the federal level 

under the CSA. 

The CSA was passed in 1970 and makes it unlawful to use or possess or distribute any 

controlled substance, except as authorized by the Act. In addition, abetting such activity is a 

federal crime. Marijuana is considered a Schedule I controlled substance and, as such, 

manufacturing, distributing, dispensing, or possessing marijuana is a criminal offence. The 

CSA is a federal law which generally preempts all state laws intended to govern the marijuana 

industry. As a result, all activity in the marijuana industry continues to remain illegal under 

federal law. 

The MLCA prevents banks from engaging in fmancial transactions involving criminal 

proceeds. In particular, banks may be liable if they engage in activities involving proceeds of 

a "specified unlawful activity" with the "intent to promote the carrying on of such specified 

unlawful activity" among other things. Because cultivating, distributing and using marijuana 

are unlawful activities under the CSA, providing banking services to participants in the stateapproved marijuana industry could result in liability under the MLCA. 

MLCA requirements applicable to banks are set forth in the BSA and other related 

legislation. Under the BSA banks are required to monitor customers transactions and make 

various reports of suspicious activities. 

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Finally, through the Financial Crimes And Enforcement Network ("FinCEN"), the 

Bureau of the Department of Treasury administers and enforces the BSA and the Department 

of Justice ("DOJ") may bring criminal actions against the banks under the BSA. 

FinCEN has issued guidance for banks interested in providing services to the marijuana 

industry. Separately, the DOJ issued the Cole Memo which provides guidance to prosecutors 

about enforcement of federal law in connection with medical marijuana and other statesanctioned marijuana-related activities. 

While a thorough analysis of the laws affecting the marijuana industry and banks 

attempting to serve that industry is beyond the scope of this testimony, a few specific facts 

should be noted. 

The Cole Memo, which has since been rescinded by Attorney General Jeff Sessions, is 

not controlling law. The FinCEN guidance does not protect financial institutions from criminal 

prosecution under the BSA and the MLCA addresses money laundering but does not address 

the question of criminal violations under the CSA. 

The proposed SAFE Act attempts to provide a safe harbor for banks serving certain 

marijuana businesses. This safe harbor will aid banks only insofar as it permits them to assist 

the marijuana industry without fear of prosecution under the MLCA or fear becoming the 

subject of an enforcement action by FinCEN or other bank regulatory agencies. The Safe Act 

does nothing to address the illegal nature of all marijuana-related activities under the CSA or 

the threat of prosecution by the DOJ. 

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In addition, the SAFE Act would introduce existing criminal elements into the banking 

system. Contrary to the promises of legalization, the black market hasn't gone away in 

legalized states. Many unlicensed operators have store-fronts, delivery services, and even pay 

for Internet advertising. It is not far-fetched to think they would also apply for bank accounts 

were they given the opportunity. 

In Oregon, 70% of transactions' were found to be on the black market several years 

after legalization, trafficked to 37 statesn. California pot growers admit to growing five to 

twelve times the amount of marijuana compared to what the whole state consumedm. The rest 

was shipped out of state. These organized crime networks are not small enterprises'v. 

A detailed expose on Rocky Mountain PBS revealed the growth of the black market in 

Colorado following legalizationv. Former Colorado Governor John Hickenlooper said, "We 

thought that the black market would disappear. Evidently it contracted and then began to 

expand again, and that's counter-intuitive, right? It is not what you would expect." Colorado's 

former U.S. attorney Bob Troyer, who was an Obama Administration appointee, observed, 

"The thing that nobody predicted [was that] normalization, commercialization, would be a 

magnet for international black market activity." 

In California, Mexican drug cartels are propping up black market marijuana farms all 

across Northern California, devastating the environment by stealing water and contaminating 

large areas with pesticides that kill endangered wildlife and harm humansv'. Earlier this week, 

California Governor Gavin Newsom said, "We're seeing a lot more cartel activity" and "the 

issue of enviromnental degradation persists. vii" 

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We should also watch closely to what's happening with our neighbor to the north. 

Access to banking in Canada has allowed offshore firms to invest'"', some with ties to 

organized crime''. We shouldn't repeat Canada's mistake. Andrew Lelling, the US Attorney 

for Massachusetts, warns, " ... marijuana trafficking whether done legally under state law or not 

can be a source of revenue for organized crime. It can be pursued illegally out of state and the 

drugs moved into state."' 

In regard to public health and safety, the marijuana sold today in pot shops is orders of 

magnitude more potent than anything available at any point in history. Extracts that have been 

declared "legal" under state law can go up to 99% purity for the active ingredient THC, 

earning nicknames like "green crack," "wax," and "shatter." Even one of the most prominent 

voices to legalize marijuana in Colorado, Dr. Rav Ivker, now believes that these substances 

should be completely banned''. The Netherlands moved to classify anything over 15% THC as 

a hard drug'"'· This is not your daddy's Woodstock weed. 

This new, high potency pot is having devastating effects on the mental health of our 

young people. Malcom Gladwell, the author of Tipping Point, recently penned a cover story 

for The New Yorker magazine, asking "Is Marijuana As Safe As We Think?" The answer was 

a resounding no. The National Academies of Science conducted a comprehensive review of 

thousands of studies of the effects of marijuana on the brain and came to the conclusion that 

there were significant links with serious mental illnesses, including psychosis, schizophrenia, 

and suicidal ideation. More frequent use was linked with stronger negative effects.';;' That is 

why every major medical society has opposed the legalization of marijuana. xiv 

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Based on the National Academies report and many newer studies, former New York 

Times reporter and best-selling author Alex Berensen wrote a critically important work called 

Tell Your Children: The Link Between Marijuana, Mental Illness and Violence. He has 

presented the data on which psychiatrists have been sounding the alarm to a popular audience, 

and you only need to look at the marijuana industry's overreaction to realize that he has 

touched a very sensitive nerve. Marijuana causes psychosis and psychosis causes violence; this 

is a simple equation. Statistically speaking, marijuana users are about six times more likely to 

become psychotic or have psychotic episodes." The marijuana industry is sitting on a ticking 

time bomb of product liability, and they may soon face a reckoning that will make the Tobacco 

settlements look small by comparison. 

From Tell Your Childrenxv;: 

"The first four states that legalized marijuana for recreational use (Alaska, Colorado, 

Oregon and Washington) have seen rates of murder and aggravated assault increase 

much faster than the United States rates as a whole since legalization. The gap has 

increased every year." (152) 

"Uruguay, the first country to legalize recreational marijuana sales, saw its murder rate 

increase sixty-four percent year-over-year from 2017 to 2018. This is not a 

coincidence." (185) 

Finally, contrary to assertions by the marijuana industry, marijuana legalization has a 

direct correlation with overdose deaths from opioids since 2005. The rate of people dying 

from opioid overdose in the United States and Canada where marijuana has slowly been 

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legalized have increased dramatically. In the United Kingdom, where marijuana use has been 

declining, the number of opioid deaths has been declining dramatically. Americans are dying 

from overdoses at a rate of three times that of the United Kingdom. xv;; 

If all of this sounds disturbingly familiar, it's because in our recent history, we still 

remember the Big Tobacco executives testifYing in a room similar to this: "Do you believe 

nicotine is not addictive?" One by one, they replied, "I believe nicotine is not addictive." "I 

believe nicotine is not addictive." "I believe nicotine is not addictive." I believe the scene 

would look very similar today if you lined up the top executives of the marijuana industry. Of 

course, you would now get some of those same tobacco executives showing up to testifY with 

Altria's (formerly Philip Morris) investment of $1.8 billion into the medical and recreational 

marijuana industry in Canadaxvm. That is what happens when you federally legalize marijuana. 

Surely you are not so naive to think that won't happen here? And I cannot neglect to mention 

that the CEO of Purdue Pharma, the very man who oversaw the rollout and deceptive 

marketing plan for OxyContin, left that company to lead a marijuana company.''' 

There is much more that could be said about the public health impact of the marijuana 

industry, when it comes to the doubling of roadway fatalities due to marijuana impairment in 

Colorado"" and Washington Statexx•, the increased number of hospital emergency room visits 

from overdose and marijuana-induced psychosis"'ii, the increased number of teens and children 

hospitalized for accidental ingestion of a pot gummy""';; (which Washington State almost 

banned""'v until the industry promised to be better about regulating itself""v), and the rising 

impact to mental health. The public health costs of our legal drugs, alcohol and tobacco, are 

ten times the amount of revenue raised through taxes. A similar marijuana banking 

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amendment failed last year in the House Appropriations Committee, and one of the arguments 

against came from a Congressman in a legalized state: he wanted to know why he should give 

the marijuana industry this great benefit of access to capital markets and institutional investors 

when we aren't even collecting any revenue to cover the collateral costs of their product. 

Already in Colorado, a very limited set of short-term costs exceeds the amount of tax revenue 

by 4.5 times.'"' The long-term costs of increased marijuana use could eventually exceed those 

of tobacco and alcohol. 

In conclusion, I urge you to reject this bill. The SAFE Act does not accomplish its 

intended purpose, and this is the wrong committee to have a debate over whether marijuana 

should be legal. If those who want to see marijuana legalized, commercialized, advertised, 

and promoted are successful in legalizing marijuana at the federal level, the SAFE Act is 

superfluous. If they are not, the SAFE Act is still superfluous. The people and businesses 

who deposit the proceeds from the sales of high potency marijuana, concentrates, and gummies 

will still be violating the Controlled Substances Act. That is no small matter, and it is very 

disturbing to me that those businesses would be willing to take that risk and overlook its 

implications in order to service an industry that is so harmful to public health. 

The legislation as written would not have its intended effect. Most importantly, it is a 

backdoor means to accomplish full federal legalization. Full federal legalization is a tragedy 

that will bring in more drugged driving deaths, opioid use, and psychosis and violent crime. 

ask that you not pass this UN-SAFE Banking Act. 

Thank you. 

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' See https: //leamaboutsam. org/wp-content/uploads/20 17/04/0regon-State-Police-report-J anuary-20 17. pdf 

" See https://www .oregonlive.com/marijuana/2018/08/new _report _finds _rampant _pot_ o.html 

"' See https: //www .latimes.com/politics/essential/la-pol-ca-essential-politics-updates-california-producing-potsurplus-150 II 0 1923-htmlstory. html 

''See https://www.latimes.cornllocal/lanow/la-me-ln-marijuana-bust-20181221-story.html 

' See http://www. rmpbs. org/blogs/news/how-colorado-became-a-major -exporter -of-illegal-marijuana/ 

''See https://www.newsweek.com/2018/0l/19/mexican-drug-cartels-taking-over-california-legal-rnarijuana775665.html 

~~ See https://twitter.com/JeremyBWhite/status/109508161 0435690496 

viii See 

https://translate. goog1e. com/translate?hl = en&sl = auto&tl = en&u =http% 3A % 2F %2Fwww .journaldemontreal. co 

m% 2F20 18% 2FO 1 % 2F22 %2Fles-paradis-fiscaux-financent-les-firmes-de-pot-canadiennes 

'' See https://www .cbc. cal news/canada/montreal/ cannabis-health-canada-enquete-investigation-1. 4887997 

' See https://www. wgbh. org/news/politics/2018/07/30/us-attorney-andrew-lelling-talks-marijuana-immigrationand-attorney-general-jeff-sessions 

"See https://www.westword.com/news/famed-medical-marijuana-doctor-calls-for-rnaking-concentrates-illegal10476374 

'"See https://www.theguardian.com/world/2011/oct/07/netherlands-potency-cannabis-hard-drug 

''" See http: I /www8.nationalacademies. org/onpinews/newsitern. aspx?RecordiD =24625 

''' See https: //learnaboutsam. orglthe-issues/public-health-organizations-positions-on-medical-rnarijuana/ 

~See https://www.health.harvard.edu/blog/teens-who-smoke-pot-at-risk-for-later-schizophrenia-psychosis201103071676 

"' Berensen, Alex. Tell Your Children: The Truth About Mal]jll_ana, Mental Illness, and Violence. Simon & 

Schuster. (2019) 

"" Ibid. page 111 

""' See https: //www .cube. com/20 18/12/07/altria-to-invest -1 pointS-billion-in-cannabis-cornpany-cronos-group. htrnl 

''' See https://www. theglobeandrnail. com/news/nationallleadership-behind-canadian-medical-rnarijuana-companyhas-an-ox ycontin-past/article33200287/ 

"See https://Jearnaboutsam.org/sam-staternent-denver-posts-new-stoned-driving-analysis/ 

"'See http://aaa.corn12016/05/fatal-road-crashes-involving-rnarijuana-double-state-legalizes-drug/ 

"" https: //www .ctvnews. calhealth/colorado-experienced-a-sharp-spike-in-er -visits-after -legalizing-cannabisdoctor-1.4137154 

""'See https://www.reuters.com/article/us-health-marijuana-kids/rnarijuana-related-er-visits-by-colorado-teens-onthe-rise-idUSKBNlH038A 

""See 

https: //kinja.cornl api/profile/ getsession?redirect = https %3A% 2F %2Fthetakeout. corn %2Fsetsession% 3Fr% 3D http 

s% 253A% 252F% 252Fthetakeout.corn% 252Fwashington-state-ban-rnarijuana-candy-edibles-1829625086 

"' https://www .seattletirnes. cornlseattle-news/rnarijuana/washington-cannabis-regulators-approve-new-ediblesrules-avoid-candy-ban/ 

"''See http://www.ccu.edu/centennial/policy-bricfs/rnarijuana-costs/ 

Page 10 of 10 
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February 13, 2019 

Statement for the Record 

On beha!f oft he 

American Bankers Association 

before the 

Consumer Protection and Financial Institutions Subcommittee 

oft he 

Financial Services Committee 

United States House of Representatives 

February 13, 2019 

American 

Bankers 

Association 
98 


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February 13, 2019 

Statement for the Record 

oft he 

American Bankers Association 

jar the 

Consumer Protection and Financial Institutions Subcommittee 

of the 

Financial Services Committee 

United States House of Representatives 

February 13, 2019 

Chairman Meeks, Ranking Member Luetkemeyer and Members of the Subcommittee, the 

American Bankers Association (ABA) is pleased to submit this statement for the record on the 

challenges of banking cannabis-related businesses and to share our views on the recently released 

discussion draft of the SAFE Banking Act The ABA is the voice of the nation's $17 trillion banking 

industry, which is composed of small, mid-size, regional and large banks that together employ more 

than 2 million people, safeguard $13 trillion in deposits and extend more than $9 trillion in loans. 

Since 1996, beginning with California, voters across the country have determined that it is 

appropriate to allow their citizens to use cannabis for medical purposes and, since 2012, for adult use. 

Despite that, current federal law prevents banks from safely banking these businesses. Leaving this 

industry unbanked is no longer a viable option- thirty-three states covering 68 percent of the 

nation's population have now legalized cannabis for medical or adult-use and that number is only 

expected to grow. 

ABA does not take a position on the legalization of cannabis. However, our member banks 

find themselves in a difficult situation due to the conflict between state and federal law, with local 

communities encouraging them to bank cannabis businesses and federal law banning it. 

Since these businesses find it difficult to access banking services, many operate on an allcash basis. These stockpiles of cash become attractive targets for armed robbers; just last month, 

someone was shot inside a cannabis dispensary in East Los Angeles. Operating on an all-cash basis 
99 


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February 13, 2019 

also means that these businesses often remit payments for taxes and licensing fees to the states in 

cash while the states would prefer to use more modem payment methods. Moreover, operating on an 

all-cash basis means that there are no paper trails for auditors to follow. To address these problems, 

ABA supports a banking-specific solution that would address the reality of the current marketplace 

and allow banks to serve cannabis-related businesses in states where the activity is legal. 

Critically, that solution must come from Congress. 

The Controlled Substances Act (21 U.S.C. §801 et seq.) classifies cannabis as an illegal drug 

and prohibits its use for any purpose. For banks, that means that all proceeds generated by a 

cannabis-related business, even when it is operating in compliance with state law, are unlawful 

proceeds under federal law, and so any attempt to conduct a financial transaction with that money 

(including simply accepting a deposit) is considered money-laundering. All banks, whether state or 

federally chartered, are subject to federal anti-money laundering laws. And, all banks must have 

access to the federal payment system to operate, which is under the purview of federal authority. 

Currently, the only direction available to financial institutions in connection with cannabisrelated accounts comes from guidance issued by the Financial Crimes Enforcement Network in 2014. 

That guidance, which references a now rescinded memorandum from the U.S. Department of Justice 

(the "Cole Memo"), describes how financial institutions can report cannabis-related business activity 

consistent with their Bank Secrecy Act obligations. It does not create a safe harbor or otherwise 

modifY federal law to protect banks from criminal and civil liability for money laundering. The 

FinCEN guidance is designed to help banks report suspicious activity that is legal under state law but 

illegal under federal law. While banks often turn to the federal banking regulators for guidance, the 

federal banking agencies have not taken an official position, constrained by the restrictions of federal 

law. In fact, no federal banking regulator has the authority to advise the financial institutions that 

they supervise on how to break federal money laundering statutes, or absolve them from the potential 

consequences of doing so. 

Although a small number of financial institutions have weighed the prevailing climate of 

non-enforcement and have decided to shoulder the risk in order to serve the needs of their 

communities, the majority of financial institutions will not take the legal, regulatory, or reputational 

2 
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February 13, 2019 

risk associated with banking cannabis-related businesses without congressional action. As a result, 

state-legal businesses arc excluded from the mainstream financial system. 

The problems, though, are not limited to those businesses which have direct contact with the 

marijuana plant, such as growers and dispensaries. The impact of the divide between state and federal 

law extends to any person or business that derives revenue from a cannabis firm - including real 

estate owners, security firms, utilities, vendors and employees of cannabis businesses. In a recent 

survey of ABA member banks, 75% of respondents reported having to close an existing account, 

terminate a banking relationship or tum away a potential customer because of the customer's 

association with cannabis. Many of the examples provided by our members are related to customers 

with indirect connections to the cannabis industry such as small businesses and entrepreneurs who 

lease space or sell their goods and services to dispensaries or growers. As the legal state-cannabis 

industry continues to grow, the indirect connections to cannabis revenues will also continue to 

expand. Without a change to federal law, that entire portion of economic activity in legal cannabis 

states will continue to be marginalized from the banking system. 

Cannabis businesses will be safer and better regulated if they are permitted to use the banking 

system. which would increase the transparency and accountability of the industry and better protect 

our communities. Offering deposit and payroll services would help reduce the amount of cash being 

held on-hand, which would in tum reduce the risk of theft and violent crime. Moving proceeds of 

cannabis businesses into banks would also strengthen the ability of state and federal government to 

detect suspicious activity and ensure compliance with tax laws. Simply excluding legal state 

cannabis activity from the banking sector has not prevented the growth and spread of this industry, 

but providing access to the banking system could help facilitate public safety, streamline tax 

payments, and enable effective oversight in the states where voters have chosen to embrace cannabis 

legalization. 

As released, the discussion draft of the SAFE Banking Act would be an important first step 

toward enabling financial services for cannabis-related businesses. The bill specifies that proceeds 

from a legitimate cannabis business would not be considered unlawful under federal money 

laundering statutes or any other federal law, which is necessary to allow services to cannabis 

businesses as well as any ancillary businesses that derive some portion of their income from cannabis 

businesses. The bill would also direct FinCEN, and the federal banking regulators through the 

3 
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February 13, 2019 

FFIEC, to issue guidance and exam procedures. Explicit, consistent direction from federal financial 

regulators will provide needed clarity for banks and help them to better evaluate the risks and 

supervisory expectations for cannabis-related customers. The SAFE Banking Act is not a cure all for 

the cannabis banking challenge, and many financial institutions will undoubtedly decide that the 

industry is still too high risk tor their bank. Nevertheless, the bill will give some added clarity and 

legal protection for banks that choose to directly or indirectly do business with cannabis-related 

businesses. 

We thank you for holding today's hearing and advancing the important discussion about 

banking cannabis-related businesses. If these businesses are to be brought into the mainstream 

financial sector, Congress must provide a path for that to happen. We urge the House Financial 

Services Committee to consider Representatives Perlmutter, Heck, Stivers and Davidson's bipartisan 

SAFE Banking Act, which will improve the ability of banks to meet the needs of their local 

communities. 
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~A.crea~e HOlDINGS 

CONGRESSIONAL TESTIMONY 

Addressing U.S. Financial Services Policy in 21't Century Cannabis 

Marketplace: Impact on U.S. Economy 

Committee on Financial Services 

Subcommittee of Consumer Protection and Financial Institutions 

United States House of Representatives 

February 13, 2019 

Kevin Murphy, Chairman and CEO 

Acreage Holdings 

My name is Kevin Murphy and I am the CEO of Acreage Holdings. I respectfully submit the 

following testimony to this Subcommittee in support of advancing financial services reform to 

reconcile current federal policies with the 46 states 1 that have enacted laws to regulate and 

legalize cannabis. Current policies must be updated to align with an industry that has rapidly 

become the fastest growing in the US and which has the potential to produce historic economic 

growth and job creation. 

Acreage Holdings ("Acreage") is the largest vertically integrated, multi-state owner of cammbis 

licenses and assets in the US with business interests in 19 states. Having entered the cannabis 

market in 2011, Acreage now employs more than 300 individuals across the US and serves a 

population of consumers and patients representing more than 172 million Americans. Acreage 

will expand its dispensary operations from 19 at the end of2018 to 55 by the end of2019. 

Based on Acreage's growing national footprint, we are uniquely positioned to convey to the 

1 A total of 33 states, the District of Columbia, Guam and Puerto Rico have approved a comprehensive public medical cannabis 

programs. A total of 10 states have approved adult consumption or recreational use laws. A total of 13 states have enacted laws 

regulated some form of cannabis, including consumption of "low TI lC. high cannabidiol (CBD)" products for medical reasons ln 

limited situations or as a legal defense. 

See http://www.ncsl.org/research!health!statc~medical-marijuana-laws.aspx 
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Members of this Committee, the economic gains to be realized by reconciling the glaring 

discrepancies between current federal banking laws and the reality of both the US and global 

cannabis economy. These gains include: 

I. Reclaim the "first mover" competitive advantage for US jobs and the US economy; 

2. Improve transparency of tax revenue collection so as not to forego significant new tax 

revenue; and 

3. Decrease the number of violations of money laundering activity, and improve oversight 

in the AMLIKYC regulations. 

1. Reclaim the "first mover" advantage for US jobs and the US economy 

Current US policy denies cannabis companies access to capital markets. Therefore, when these 

companies need to raise capital, they are left to rely on foreign financial markets to fuel their 

growth, which results in a lost opportunity for the US economy and for the growth and job 

creation that would otherwise be captured as a benefit to our country. 

Although Acreage has created a significant number of jobs - and has made economic investments 

across the country - our company nevertheless remains disadvantaged among global cannabis 

companies because we have not been permitted to participate in capital markets within our own 

country. Access to these markets would improve Acreage's profitability and our ability to 

reinvest in the US. 

In addition, current policy has the effect of barring US investors from domestic opportunities. As 

US capital markets are permitted to infuse US dollars in non-US cannabis companies, this has 

the effect of exporting jobs, exporting dollars and exporting an economy that the US could and 

should be leading. In 2018, New Frontier Data estimates that there were 259,000 people working 

full-time in the legal cannabis industry in the US- a nearly 30% increase from the previous year 

-and that such jobs are expected to increase to 659,000 by 2025.2 As an industry leader in this 

economy, Acreage's eligibility to participate in US capital markets would add significant 

1 New Frontier Data/2019 Global Cannabis Outlook/January 2019 

2 
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momentum - and an even more rapid upward trajectory for job growth - if domestic capital 

markets were open to the regulated cannabis market. 

Thus, as long as the US Congress delays updates to the existing financial regulations, the current 

policies unnecessarily give other countries and their financial markets the "first mover" 

advantage. Only by addressing these outdated federal banking policies will the US be able to 

continue to lead with innovation and economic excellence. 

2. Improve transparency in the collection of tax revenue 

In addition to exporting jobs and relinquishing market share for this thriving economic 

opportunity, Congress' failure to avail industry stakeholders of banking and financial services 

harms not only lawful, licensed and regulated US businesses and entrepreneurs, but it also 

deprives the federal government itself by leaving millions of tax dollars uncollected. Although 

this Committee is not charged with addressing the inequitable tax treatment which significantly 

stifles cannabis industry market valuations, the current cannabis banking policy impacts US 

Treasury revenues. 

In 2019, the regulated cannabis market will generate approximately $12.9 billion in sales. While 

a segment of cannabis industry stakeholders does have access to fundamental banking services, 

an estimated 70% of this market operates in unbanked cash. When unbanked cash is not tracked 

and not traced, we know that it is also likely not taxed at its full value. 

According to New Frontier Data, in 2018, the estimated total federal tax revenue raised by 

cannabis businesses was $2.7 billion, with an estimated for increase to $6.9 billion by 2025. 

Even with the the most conservative estimate, leaving even a nominal percentage of tax dollars 

against a multi-billion dollar tax base is wholly unnecessary, especially if this regulated industry 

had access to banking. 

3 
105 


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3. Decrease number of violations of money laundering activity, improve oversight in 

the AML/KYC regulations, and protect public safety. 

Enacting the safe harbor lan~,>uage in the SAFE Banking Act would provide banking access for 

the cannabis industry and reduce money laundering. This much needed update to the current 

federal policy for banking as it relates to the cannabis industry would improve efficiency and 

effectiveness for combatting money laundering activity. 

More than 486 banks filed SARS as reported by FinCEN as of the end of 2018. However, given 

estimate that less than half of the businesses in the regulated cannabis industry have access to 

banking, regulators arc unable to extend the appropriate level of financial oversight for this 

industry.3 Banking access for regulated and licensed cannabis stakeholders would place banks 

and credit unions in the position to assist law enforcement by distinguishing between compliant 

financial activity and illicit financial activity. 

Arguments against the proposed Safe Harbor language fail to appreciate that this exception does 

not create statutory "carte blanche" defense for proceeds from cannabis banking. Further, 

adopting the proposed Safe Harbor language in the SAFE Banking Act is restricted to 

establishing the safe harbor from federal sanctions in states where cannabis is legal - it does not 

create unlimited protection if a financial institution otherwise violates its AMLIKYC obligations. 

Although the intent of US banking regulations are centered around prioritizing and measuring 

risk based on Know Your Customer and tracking business proceedings to counter money 

laundering, current US banking policies undermine effective and efficient AML/KYC 

regulations; current banking restrictions are based on antiquated policies and systems and do not 

reflect the capabilities currently available to banks to trace activities using modem technologies. 

!1I1JllCC:CSS.<!rii.Y..S.liP.Q.Otti!lgp..Q.!!<:Ylli<lt..kecps.;;l!ctum_i_n_ordi!llltely_h!gh_atn_()tlll1 Q[Ci!S.hlll1Qallk_c:d 

tf!.r_r:;ate11:s andundermines US._a_I)ti::f11.9.!1.9Y laundering efforts. 

3 See: https:/ /www. inc.com/will-yakowic7Jthe-startup-quictly-convincing-banks-to-accept-cash-marijuana-industry .html 

4 
106 


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If every dollar generated from a regulated licensed cannabis entity were banked, bankers could 

then apply a comprehensive AMLIKYC policy to the entire regulated and licensed cannabis 

market, thus permitting regulators and law enforcement to pursue actual money laundering 

criminal activity. 

Finally, the lack of access to banking creates a significant public safety hazard. Licensed 

cannabis entitities are forced to pay vendors and employees in cash as opposed to electronic 

transfer. In many eases, vendors are paid with dufflebags full of cash. This situation presents a 

clear and present danger to the public at large, especially those whose job it is to transport or 

accept these all-cash payments. The ongoing lack of banking for the cannabis industry has 

directly led to such heinous crimes as torture and murder. Without access to banking, licensed 

cannabis entities will continue to be a target for theft and violent crime. 

Adopting the principles in the SAFE Act constitutes the beginning of this Committee's work on 

formulating responsible, fair and credible policies for 94% of the states with the means to bank, 

track and tax this inevitable and significant economy. Lawfully regulated and compliant 

businesses and service providers in the cannabis industry must have the same access to 

fundamental banking as other industries in the US. 

Again, we applaud the Subcommittee for holding today's hearing and look forward to working 

with Members of Congress to ameliorate the issues created by the federal government's 

continued policy of prohibition. 

5 
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Americans for Safe Access 

Statement for the Record 

House Subcommittee on Consumer Protection and Financial Institutions: 

Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses 

February 13, 2019 

Americans for Safe Access (ASA) would like to thank Chair Gregory Meeks (D-NY), 

Ranking Member Blaine Luetkemeyer (R-MO), and the entire House Financial 

Services Subcommittee on Consumer Protection and Financial Institutions for the 

opportunity to submit testimony regarding the importance of cannabis-related 

businesses' ability to access banking services. As the nation's largest member-based 

organized of patients, medical professionals, scientists, and concerned citizens working 

to promote safe and legal access to cannabis for therapeutic use and research, ASA 

would like acknowledge that this hearing is an historic forum for an overdue discussion 

about the need to update our banking laws to reflect the changing landscape around 

cannabis in the United States. 

Twenty-three years have passed since California became the first state to legalize 

cannabis for medicinal purposes in 1996. Today, the adult use of cannabis is legal in 10 

states and the District of Columbia. 1 Thirty-three states and DC have created 

comprehensive medical cannabis programs, and 14 additional states have created more 

limited medical cannabis programs or protections.2 It should be noted that progress is 

not limited to the 50 states and DC: Puerto Rico, Guam, 3 and the U.S. Virgin Islands4 

have legalized medical cannabis, while the Commonwealth of the Northern Mariana 

Islands has legalized the adult use of cannabis with special provisions and protections 

for medical cannabis patients.' American Samoa, Idaho, Nebraska, and South Dakota 

are the only U.S. jurisdictions that have not liberalized their laws regarding cannabis to 

allow for medical or other adult use. 

The federal government's continued classification of cannabis as a Schedule I 

controlled substance means that the cannabis industry has developed in the face of 

federal hostility. That hostility has taken many forms over the years, some of which are 

1 Marijuana Overview. National Conference of State Legislators. December 14, 2018. 

http://www.ncsl.org/research/civil-and-criminal-justice/marijuana-overview.aspx 

2 State Medical Marijuana Laws. National Conference of State Legislators. January 23,2019. 

http://www.ncsl.org/research/health/state-medical-marijuana-laws.aspx 

3 State Medical Marijuana Laws. 4 Bryan Signs Medical Cannabis Law. The St. John Source. January 19,2019. 

https ://syohnsource.com/20 19/0 1/19/ gov-bryan-signs-medical-cannabis-law/ 5 State Medical Marijuana Laws. 
108 


Insert offset folio 49 here 35631.049

more obvious than others. While a lack of banking access for cannabis-related 

businesses may not be as terrifying as a SWAT -style raid on a medical cannabis 

dispensary by federal law enforcement officers, it nevertheless does inflict harm on 

patients, consumers, and businesses. 

When cannabis-related businesses cannot access traditional banking services, they must 

either operate on an all-cash basis or tum to high-cost, high-risk payment processors in 

order to operate. Such payment processors may offer an alternative to working 

exclusively with cash, but their terms are unfavorable and affect businesses' bottom 

lines and ability to conduct normal operations.6 They are not a effective solution for 

many businesses. The more difficult and unstable a business' operating environment, 

the less likely that business is to succeed - and fewer successful cannabis businesses 

can mean reduced patient access to medical cannabis. 

Businesses that handle high-value goods and operate on an all-cash basis are 

compelling targets for robbers. From January 2014 through October 2016, there were 

almost 600 dispensary robberies in the city of Denver, CO alone.' In June 2016, Travis 

Mason, a 24-year-old security guard, was shot and killed during an attempted robbery 

at a dispensary in Aurora, CO. Mr. Mason, a former U.S. Marine with dreams of 

becoming a police officer, was the father of three young children. 8 The two men who 

murdered him were never apprehended.9 One can't help but wonder whether Mr. 

Mason would be alive today were his place of employment a less attractive target. 

Access to banking services would reduce the amount of cash kept on hand at 

dispensaries, cultivation centers, and other cannabis-related operations, which would 

make robbing them a less lucrative endeavor. The result would be lower crime rates and 

safer employees, patients, and customers. 

Changing federal law to allow banks to work with cannabis-related businesses would 

make life easier not only for business owners, but for medical cannabis patients, too. 

For many people with mobility issues or serious illness, every trip outside of the home 

must be carefully planned and may subject the patient to greater risk of further illness 

or injury than one who is not ill or dealing with mobility issues would face. When 

6 Payment Processors Purge All Ancillary Marijuana Startups After Trump. Inc. April I 0. 2017. 

https://www.inc.com/will-yakowiczJpayment-processors-purge-marijuana-related-businesses.html 

7 Dispensary robberies have pot businesses calling for access to banks. New York Post. October 31, 2016. 

https: 1/nypost. com/2016/1 0/31/dispensary-robberies-have-pot -businesses-calling-for -access-to-banks/ 8 Slain dispensary security guard dreamed of becoming a police officer. The Denver Post. June 20, 2016. Updated 

October 2, 20 16. https://www .denverpost.com/20 16/06/20/green-heart-marijuana-dispensary-security-guard-killed/. 9 Metro Denver Crime Stoppers highlight Marine cold case on Veterans Day. KDVR. November II, 2018. 

https:/lkdvr .com/20 18/1 1/11/metro-denver-crime-stoppers-highlight -marine-cold-case-on-veterans-day I 
109 


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cashless payments are not an option, patients often must plan to visit a bank or ATM in 

addition to a dispensary in order to retrieve their medication. The ability to pay without 

cash would reduce the number of trips patients must make in order to acquire medicine. 

Some jurisdictions allow cannabis delivery, but patients would still need to have cash 

on hand with which to pay the delivery driver. Giving cannabis-related businesses 

access to traditional banking services would enable online sales, which would facilitate 

patients' use of delivery services and increase delivery drivers' safety by reducing their 

cash on hand. Therefore, access to banking services for cannabis-related businesses 

would reduce the burden on, and barriers to access for, people with mobility issues or 

serious illness. 

The Obama Administration recognized the need to allow some form of access to 

banking services for cannabis-related businesses but could not unilaterally change 

federal law in that regard. Instead, the Administration released guidance through the 

Financial Crimes Enforcement Network on February 14, 2014 that described how 

financial institutions might do business with these entities without being prosecuted 

under the law with the stated goal of enhancing "the availability of financial services 

for, and the financial transparency of, marijuana-related businesses.'' 10However, 

relatively few financial institutions have begun servicing cannabis-related businesses 

since the guidance was issued. As of September 30, 2018, a total of 486 financial 

institutions (375 banks and Ill credit unions) are providing banking services for 

cannabis-related businesses in the United States.u 

Outdated laws regarding access to financial services for cannabis-related businesses are 

placing undue burdens on patients, hampering business operations, limiting economic 

growth, and contributing to violence by making cannabis operations and their 

employees and customers the targets of criminals. It is well past time for an overhaul of 

banking laws to finally enhance the availability of financial services for, and the 

financial transparency of, cannabis-related businesses. 

Americans for Safe Access is grateful to have been able to submit testimony on this 

important topic and would like to thank the members of the subcommittee again for 

giving us the opportunity to do so. 

10 BSA Expectations Regarding Marijuana-Related Businesses. U.S. Treasury, Financial Crimes Enforcement 

Network. February 14, 2014, 

https://www.fincen.gov/resources/statutes-regulations/guidance/bsa-expectations-regarding-marijuana-related-busin 

esses 

"Marijuana Banking Update. U.S. Treasury, Financial Crimes Enforcement Network. No date. 

https://www.fincen.gov/sites/default/files/shared/Marijuana_Banking_Update_Septcmber_2018.pdf 
110 


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United States House of Representatives 

Committee on Financial Services 

Subcommittee on Consumer Protection and Financial Institutions 

Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses 

February 13, 2019 

Statement of the American Property Casualty Insurance Association 

INTRODUCTION 

Dear Chairman Meeks, Ranking Member Luetkemeyer and Members of the Subcommittee: 

The American Property and Casualty Insurance Association (APCIA) appreciates the opportunity 

to address this important hearing. 

Representing nearly 60 percent of the U.S. property casualty insurance market, APCIA promotes 

and protects the viability of private competition for the benefit of consumers and insurers. APCIA 

represents the broadest cross-section of home, auto, and business insurers of any national trade 

association. APCIA members represent all sizes, structures, and regions, which protect families, 

communities, and businesses in the U.S. and across the globe. 

The following comments do not seek to promote views for or against the legalization of 

marijuana. However, to the extent that states decide to make marijuana "state legal", APCIA 

supports full consideration of a broad range of necessary regulatory and enforcement standards 

and a resolution of the direct conflict between state and federal law on the legality of providing 

financial services, including insurance, to marijuana related business and activities. Specifically, 

APCIA supports adoption of comprehensive marijuana standards, including adoption of a federal 

safe harbor allowing voluntary coverage of state legal marijuana related activities as well as a 

number of other essential policy elements discussed in our testimony. 

BACKGROUND 

Thirty-three states and the District of Columbia have approved medicinal marijuana, eleven of 

which have also approved recreational use. These state laws conflict with federal law, which 

classifies marijuana as an illegal drug with no currently accepted medical use and a high potential 

for abuse. 

Insurers are experiencing increased accident frequency, seemingly attributable to expanding 

marijuana use as we examine below. At the same time, in this "state legal" environment, insurers 

are being asked-and in some states required-to provide reimbursement for medical marijuana 
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AMERICAN PROPERTY CASUALTY INSURANCE ASSOCIATION Page I 2 

and insurance coverage for marijuana-related commercial activities or even routine losses that 

may involve marijuana. Additionally, surety exposures are increasing because of state 

requirements for individuals or entities to maintain license bonds, tax bonds and even fidelity 

bonds. In this regard, insurers, including sureties, are like other financial services sector 

participants, such as banks, who are seeing increased demand for services or may be unwittingly 

handling transactions that may implicate marijuana directly or indirectly. 

In fact, claims have been asserted against insurers for marijuana-related losses on property 

insurance policies in a number of states. See for examples--Tracy v. USAA Cas. Ins. Co. (D. HI 

2012); Green Earth Wei/ness Center v. Atain Specialty Ins. (D. CO. 2016); KVG Properties, Inc. v. 

Westfield Ins. Ca., (61

h Cir. 2018). At least one state Supreme Court has obligated insurers to 

cover medical marijuana under workers' compensation insurance.1 At the same time, in 

California insurers are now exposed to even greater demand for products and services because 

of regulatory requirements adopted on January 16, 2019.2 

Finally, and perhaps most importantly, property and casualty insurers are state regulated. We 

have state-based rate, form and underwriting regulation and state claims practice laws. This 

element can place even more emphasis on the "state legal" aspects of marijuana for our industry, 

and particularly when one considers that widely adopted and uniform state claims practice laws 

obligate insurers to make speedy claims decisions and payments. 

Whether seeking to write marijuana business based on state law or under compulsion from 

litigation or otherwise, insurers are potentially exposed to liability arising from differences 

between state and federal legal systems. 

LEGISLATIVE LANGUAGE ELIMINATING A CATCH 22 FOR INSURERS 

In the last Congress, Congressman Perlmutter introduced the SAFE Act of 2018, H.R. 221S, to 

address this predicament. He should be commended for his foresight in trying to reasonably 

bridge the demands between the competing legal systems. Unfortunately, however, though that 

bill did address banking activities, it did not include protections for insurers and our consumers. 

To avoid the legal limbo that insurers find themselves in because of inconsistent state and federal 

legality, we are asking that Congress enact language providing that insurers do not have legal 

exposure in situations when we are acting within state legal requirements related to marijuana. 

Insurers and banks want the same thing-no federal criminal exposure when acting lawfully 

under state law in this evolving space. 

1 Vialpando v. Ben's Automotive Services, 331 P.3d 975 (Ct. App. 2014), cert denied, 331 P.3d 924 (2014). 

' See Bureau of Cannabis Control, Tit. 16 California Code of Regulations Div. 42, § 5008 (licensee Bond), 

§ 5308 (insurance requirements for distributors), § 5312 (insurance for cannabis transport) at 

https://cannabis.ca.gov/wp-content/uploads/sites/13/2019/01/0rder-of-Adoption-Ciean-Version-ofTextpdf 
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AMERICAN PROPERTY CASUALTY INSURANCE ASSOCIATION Page I 3 

Moreover, this is not to say all insurers, including surety bond writers, want to write this business. 

There are some who will, and some who will not. However, neither group believes they should 

be forced to write the business for a variety of reasons that we examine further below. 

Nonetheless, they may be compelled to make claims payments or underwrite the risk based on 

state law or be ordered to do so by a court, which is untenable. 

To resolve this Catch 22, we suggest the inclusion of language such as the following in legislation 

on this subject: 

"A depository institution or insurer that makes or receives payments or any valuable 

consideration or provides other financial services related to cannabis, with respect to a 

cannabis related activity that is legal under the laws of any State or a political subdivision 

of a State shall not be considered in violation of or liable under sections 1956 and 1957 of 

title 18, United States Code." 

This language recognizes that banks and insurers, acting appropriately and within the confines of 

state law, are not unfairly put at risk because federal law has not been as quick to evolve. We 

believe this a prudent step, and one we strongly ask the Committee to include in its legislation. 

IMPORTANT PUBliC POLICY CONSIDERATIONS MUST INFORM EXAMINATION OF MARIJUANA 

In addition to addressing the potential legal jeopardy that the financial sector faces because of 

the federal treatment of marijuana, there are important policy considerations regarding 

marijuana that we wish to share with the committee. We urge the committee, and indeed all 

policymakers, to weigh the following recommendations carefully as they consider legislation 

related to marijuana. 

1. Improved Understanding of Marijuana and Its Risks 

It is indisputable that marijuana is an intoxicant and impairs those who have used it. The 

Highway Loss Data Institute found that collision claim frequency in Colorado, Nevada, Oregon, 

and Washington, all of which legalized marijuana for recreational use, was six percent higher than 

their neighboring states.3 In Colorado, the Rocky Mountain High Intensity Drug Trafficking Area's 

Strategic Intelligence Unit released a report that found traffic deaths involving drivers who tested 

positive for marijuana more than doubled following the legalization of recreational marijuana. 

Nonetheless, science and awareness of the risks associated with marijuana lag. 

For example, the lack of objective marijuana impairment standards or a reliable measurement 

tool is a particular challenge for both auto safety and employers trying to maintain a drug free 

workplace. While many states allow for termination of an employee who tests positive for drugs 

or alcohol, a positive test for marijuana is not necessarily an indicator of impairment. THC, the 

3 Crashes rise in first states to begin legalized retail sales of recreational marijuana, IIHS News, October 

18, 2018 at https://www.iihs.org/iihs/news~sktopnews/crashes-rise-in-first-states-to-begin-legalizedreta i 1-sa les-of -recreationa 1-m a ri juan a 
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AMERICAN PROPERTY CASUAL TV INSURANCE ASSOCIATION Page I 4 

psychoactive component of marijuana, can remain in a user's system for weeks after 

consumption. 

Government agencies have faced difficulties in developing marijuana impairment standards or 

determining medical efficacy because marijuana research has been severely stunted by federal 

prohibitions. In 2017, the National Highway Transportation Safety Administration (NHTSA) 

released a study on the effects of marijuana-impaired driving and concluded that no reliable 

threshold or measurement methodology currently exists.4 As a result, NHTSA found that the best 

method of detecting and prosecuting drivers is a well-trained law officer's able to identify the 

signs of impairment. 

To address these critical lapses in our understanding of marijuana and its hazards, APCIA urges 

the Committee and Congress to: 

• Support increased scientific research to develop objective marijuana impairment 

standards for auto and workplace safety and medical efficacy by allowing the Department 

of Transportation to fund highway safety research at the state level based on the laws of 

the respective states; and 

• Promote increased awareness and education for the public and policymakers on the 

dangers of marijuana-impaired driving or working. 

These are simple, common-sense needs to enhance our knowledge and understanding of 

marijuana and its risks, and to protect the roads, our workplaces and the public. 

2. Adopt the Strongest Marijuana Safety Best Practices and Enforce Them 

As with any intoxicant, marijuana impairment on the job or on the roads will harm people and 

property. Public policy for marijuana must be informed by both the harm that can be done when 

a person is impaired and the need to reduce that potential harm. 

While there is universal support for both enforcing and reducing marijuana-impaired driving, the 

science of marijuana impairment is not yet sufficient to advance a testing regime akin to current 

standards for alcohol field sobriety. NHTSA is right-now we need well-trained law enforcement 

officers who can identify signs of impairment. But, that is not enough. 

In workplace safety, unfortunately, we are seeing something of a retreat from established 

standards for employee sobriety and the ability of employers to act based on intoxication. Many 

states provide some type of employment protection for medical marijuana patients. In other 

states, employers are not allowed to take adverse action based on a positive drug test, while still 

other states specify that medical marijuana users are entitled to disability accommodations and 

protections under state disability laws. Massachusetts, which recently legalized recreational 

4 Marijuana-Impaired Driving: A Report to Congress, National Highway Transportation Safety 

Administration (July 2017) at httos://www.nhtsa.gov /sites/nhtsa.dot.gov /files/documents/812440-

mariiuana-imoaired-driving-report-to-congress.pdf 
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AMERICAN PROPERTY CASUALTY INSURANCE ASSOCIATION Page I 5 

marijuana, is expected to consider further legislation this year to prohibit the termination of 

employees for using marijuana outside of work. The implications for allowing working-while-high 

are enormous. 

While we, of course, understand that unimpaired employee protections may make sense under 

some circumstances, we strongly believe that employers must be empowered to protect their 

workplaces, employees and customers from obviously impaired employees. 

We urge the Committee and Congress to support the same kinds of standards for marijuana that 

we see with alcohol impairment on the roads and in the workplace: 

• Support the strongest marijuana safety best practices from the states and Canada, some 

of which currently include: 

a. Mandatory warning labels on marijuana products about driving and working while 

under the influence of marijuana; 

b. 21 as the minimum age to purchase or consume marijuana; and 

c. Zero tolerance for underage drivers to operate a vehicle with any evidence of 

marijuana consumption. 

• Support strong law enforcement standards for marijuana safety, including law 

enforcement training; and 

• Support employers' rights to a drug free workplace 

3. State Mandates on Property and Casualty Insurers Are Counter Productive 

As the states embrace greater marijuana legalization, we have seen increasing demands for 

insurance products and services for marijuana activities and losses. The recent movement 

toward state legalization of marijuana first embraced legality for therapeutic or medical use. In 

turn, this resulted in the first state court finding that there is an obligation for workers' 

compensation insurance to cover treatment with marijuana in New Mexico.5 Of course, this is 

while marijuana remains illegal under federal law. 

State marijuana mandates on our industry are wrong. First and foremost, marijuana continues 

to be illegal under federal law. In such an environment, any coverage mandate is 

counterproductive, as it may discourage the very capital formation local public policy decision 

makers want because it will inject greater legal uncertainty and conflict for insurers. 

Secondly, given the already examined paucity of reliable knowledge, science and study on 

marijuana use, its efficacy as medicine can neither be confirmed nor safe dosing established. 

5 Vialpando v. Ben's Automotive Services, 331 P.3d 975 (Ct. App. 2014), cert denied, 331 P.3d 924 (2014). 

Other states have also found marijuana compensable under workers compensation including 

administrative law decisions in Connecticut (Petrini v. Marcus Dairy, Inc., 6021 CRB-7-15-7 (May 12, 

2016)), and New Jersey (Watson and 84 Lumber (unpublished)). 
115 


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AMERICAN PROPERTY CASUALTY INSURANCE ASSOCIATION Page I 6 

Moreover, necessary impairment standards cannot be established or enforced for the same 

reasons. A dedicated effort to increase scientific research to develop objective impairment 

standards for auto and workplace safety and medical efficacy is essential. 

Finally, given the history of marijuana as illegal, insurers simply have little, if any, knowledge of it 

as an insurable risk. In the absence of experience, it would be virtually impossible to meet state 

coverage mandates. 

For all these reasons, APCIA: 

• Opposes insurer reimbursement mandates for medical marijuana; and 

• Opposes state marijuana coverage mandates on insurers. 

To be clear, our intent is neither to support nor oppose marijuana legalization, but rather to avoid 

unintended or counterproductive consequences for our consumers and industry that could result 

in adverse outcomes for the very jurisdictions seeking to advance legalization. Moreover, if the 

legal uncertainty presented by the dueling state and federal treatment of marijuana could be 

resolved, that might allow for the more orderly development of products going forward if our 

industry is permitted to develop our understanding of this risk and science-based research on 

marijuana without burdensome mandates. Until then, state coverage mandates on our industry 

are premature. 

CONCLUSION 

APCIA appreciates the Committee holding this important hearing and seeking our input. We 

strongly urge the Committee to resolve the legal predicament insurers currently face under 

competing state and federal laws. APCIA would be happy to answer any questions you may have 

and to engage with the committee, its members, staff or other stakeholders. 
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California 

CREDIT UNION LEAGUE 

February 11, 2019 

The Honorable Maxine Waters 

Chairwoman 

NEVADA 

CREDIT UNION LEAGUE 

House Committee on Financial Services Committee 

2129 Rayburn House Office Building 

Washington, D.C. 20515 

Dear Chairwoman Waters, 

On behalf of the 350 credit unions in California and Nevada, we write to express our appreciation for the 

committee's hearing regarding banking of cannabis related businesses (CRBs ). In 2016, both California and Nevada 

legalized adult recreational use of cannabis in addition to their state's already existing medical cannabis laws. 

While credit unions do not engage in the debate over legalization, credit unions do support the ability to lawfully 

serve businesses that engage in activities authorized under their state laws, even when such activity may be 

inconsistent with federal law. Further, as the association for California and Nevada's credit unions, we continue to 

educate our state government leaders that the only solution to bringing all CRBs into the banking system 

must emanate from Congress. 

California has published findings from the immediate past State Treasurer, who conducted a yearlong assessment 

via the California Treasurer's Cannabis Working Group of which we were an active member. The recently 

published report also acknowledged that the only viable resolution is one from Congress, and that options such as a 

state operated and insured bank are not practical. This is a message we continue to educate and advocate to state 

government officials, legislators, and businesses desiring to bring financial services to credit unions. 

As not for profit, financial cooperatives owned by our members to provide those members financial services, credit 

unions can be a resource in bringing large amounts of CBR related cash off the streets, providing for greater 

transparency for law enforcement, and thus aiding in public safety. Currently, only a few credit unions operate in 

this space. These credit unions work diligently to ensure they are in full compliance with the February 2014 

guidance issued by the Financial Crimes Enforcement Network (FinCEN). Additionally, under the Bank Secrecy 

Act as a part of the FinCEN guidance, these credit unions file numerous Suspicious Activity Reports (SARs) and 

Currency Tmnsaction Records (CTRs). 

Addressing the continual filing of these reports is a topic the committee should explore, as the more such filings are 

made on CRBs, the more law enforcement must investigate for criminal activity. In addition to adhering to 

compliance, these credit unions take on a variety of risks such as adequate processing technologies, specialized 

equipment and providing safety for their employees- and members. It should be noted that following the rescission 

of the Department of Justice's Cole Memo, these credit unions prepared exit strategies on the assumption the 

FinCEN guidance would to be revoked. To date, that guidance remains in place. 

Our hope is that your hearing will explore a sound legislative proposal, such as the Safe Banking Act, which will 

provide a safe harbor for those credit unions adhering to the strict guidance for banking these businesses. 

Indemnifying a credit union in full compliance can serve as a top asset for law enforcement working to filter legal 

vs. criminal enterprises. 

It should be noted that credit unions recognize a need for a larger solution for additional financial service products 

that go beyond a basic business account. While these businesses processing large volumes of cash, they are 

ineligible for savings, lending, payment card processing and other products and services a traditional business 

California and Nevada Credit Union Leagt1es 120 I K Street, Suite I 050 Sacnunento. CA 958 !4 800.439 2285 
117 


Insert offset folio 58 here 35631.058

account holder receives. This impacts their ability for future planning, capital projects and adding to their employee 

base. 

Banking CBRs is also a problem for ancillary and secondary businesses that provide service for a CRB. For 

example, an Information Technology firm that sells hard and software to a CRB is likely receiving a cash payment, 

which in turn forces their financial institution to file a SAR or CTR potentially leading to a law enforcement 

investigation. Additionally, last year the Small Business Administration (SBA) issued guidance to SBA lenders 

stating their objection to any government guarantees aimed at providing services to the CRB sector. 

As the witnesses will likely attest to, the largest benefit of a banking safe harbor will be enhanced public safety. 

Numerous cases of theft, armed robbery, mistaken identities, and deaths due to the large volumes of cash have 

occurred. Allowing banking services for CRBs will greatly curtail these criminal offenses. This is our greatest 

concern, that someone's life is placed in danger due to nothing other than going to their place of business. 

Again, thank you for conducting this hearing. We hope it will lead to a mark-up of a productive resolution to 

cannabis related banking. If the credit unions of California or Nevada can be of service to you in your deliberations, 

please consider us a resource. 

Thank you, 

Diana Dykstra 

President and Chief Executive Officer 

California and Nevada Credit Union Leagues 

Califomia and Nevada Credit Union I .eagues 120! K Street. Suite I 050 Sacramento, CA 95814 800 439.2285 
118 


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~ 

~Congressional Research Service "--' Informing the legislative debate since 1914--------------

Marijuana: Medical and RetailSelected Legal Issues 

Todd Garvey 

Legislative Attorney 

Charles Doyle 

Senior Specialist in American Public Law 

David H. Carpenter 

Legislative Attorney 

April 8, 2015 

CRSREPORT 

Prepared for Members and 

Committees of Congress 

Congressional Research Service 

7-5700 

www.crs.gov 

R43435 
119 


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Marijuana: Medical and Retail-Selected Legal Issues 

Summary 

The federal Controlled Substances Act (CSA) outlaws the possession, cultivation, and distribution 

of marijuana except for authorized research. More than 20 states have regulatory schemes that 

allow possession, cultivation, and distribution of marijuana for medicinal purposes. Four have 

revenue regimes that allow possession, cultivation, and sale generally. The U.S. Constitution's 

Supremacy Clause preempts any state law that conflicts with federal law. Although there is some 

division, the majority of state courts have concluded that the federal-state marijuana law conflict 

does not require preemption of state medical marijuana laws. The legal consequences of a CSA 

violation, however, remain in place. Nevertheless, current federal criminal enforcement 

guidelines counsel confining investigations and prosecutions to the most egregious affront to 

federal interests. 

Legal and ethical considerations limit the extent to which an attorney may advise and assist a 

client intent on participating in his or her state's medical or recreational marijuana system. Bar 

associations differ on the precise boundaries of those limitations. 

State medical marijuana laws grant registered patients, their doctors, and providers immunity 

from the consequences of state law. The Washington, Colorado, Oregon, and Alaska retail 

marijuana regimes authorize the commercial exploitation of the marijuana market in small taxable 

doses. 

The present and potential consequences of a CSA violation can be substantial. Cultivation or sale 

of marijuana on all but the smallest scale invites a five-year mandatory minimum prison term. 

Revenues and the property used to generate them may merely be awaiting federal collection 

under federal forfeiture laws. Federal tax laws deny marijuana entrepreneurs the benefits 

available to other businesses. Banks may afford marijuana merchants financial services only if the 

bank files a suspicious activity report (SAR) for every marijuana-related transaction that exceeds 

certain monetary thresholds, and only if it conducts a level of due diligence into its customers' 

activities sufficient to unearth any affront to federal interests. 

Marijuana users may not possess a firearm or ammunition. They may not hold federal security 

clearances. They may not operate commercial trucks, buses, trains, or planes. Federal contractors 

and private employers may be free to refuse to hire them and to fire them. If fired, they may be 

ineligible tor unemployment compensation. They may be denied federally assisted housing. 

At the heart of the federal-state conflict lies a disagreement over dangers and benefits inherent in 

marijuana use. The CSA authorizes research on controlled substances, including those in 

Schedule I such as marijuana, that may address those questions. Members have introduced a 

number of bills in the 1 14th Congress that speak to the conflict. Additionally, a few marijuanarelated provisions were enacted into law late in the I 13th Congress. 

This report is available in an abridged form, without footnotes or citations to authority, as CRS 

Report R43437, Marijuana: Medical and Retail-An Abbreviated View of Selected Legal Issues, 

by Todd Garvey and Charles Doyle. Portions of this report have been borrowed from CRS Report 

R43034, State Legalization of Recreational Marijuana: Selected Legall~sues, by Todd Garvey 

and BrianT. Yeh. 

Congressional Research Service 
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Marijuana: Medical and Retail-Selected Legal Issues 

Contents 

Introduction ...................................................................................................................................... 1 

Background ...................................................................................................................................... I 

Controlled Substances Act Today .............................................................................................. 3 

Penalties .............................................................................................................................. 5 

Forfeiture ............................................................................................................................. 5 

Developments in the States ........................................................................................................ 7 

Medical Marijuana Laws ..................................................................................................... 8 

Retail Marijuana ................................................................................................................ 11 

Justice Department Memoranda .............................................................................................. 14 

The 2009 Ogden Memorandum ........................................................................................ 15 

The 2011 Cole Memorandum ............................................................................................ 16 

The 2013 Cole Memorandum ........................................................................................... 17 

The 2014 Cole Memorandum ........................................................................................... 18 

Preemption ..................................................................................................................................... l9 

Other Constitutional Considerations .............................................................................................. 22 

Banking .......................................................................................................................................... 24 

Other Federal Law Consequences ................................................................................................. 29 

Employment ............................................................................................................................ 29 

Government ....................................................................................................................... 30 

Private ............................................................................................................................... 31 

Taxation ................................................................................................................................... 32 

Possession of Firearms ............................................................................................................ 33 

Federally Assisted Housing ..................................................................................................... 33 

Ethical Considerations ................................................................................................................... 34 

Marijuana Research Under Federal Law ....................................................................................... 36 

Congressional Response ................................................................................................................ 37 

Enacted Marijuana-Related Measures ..................................................................................... 38 

Legislative Proposals in the 114 th Congress ............................................................................ 3 8 

Contacts 

Author Contact Information ................................................................... , ....................................... 40 
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Marijuana: Medical and Retail-Selected Legal Issues 

Introduction 

Federal law classifies marijuana as a Schedule I Controlled Substance.1 As a result, it is a federal 

crime to grow, sell, or merely possess the drug. In addition to facing the prospect of a federal 

criminal prosecution, those who violate the federal Controlled Substances Act (CSA) may suffer a 

number of additional adverse consequences under federal law. For example, federal authorities 

may confiscate any property used to grow marijuana or facilitate its sale or use; marijuana users 

may lose their jobs, their homes, or their right to possess a firearm or ammunition; and sellers of 

marijuana may lose the tax benefits and banking services that other merchants enjoy, and 

ultimately their businesses. 

Nevertheless, without federal statutory sanction, more than 20 states have established medical 

marijuana regulatory regimes. Four have gone further and "legalized" marijuana under state 

recreational marijuana laws2 State officials lack the constitutional authority necessary to trump 

conflicting federal law. Federal officials, however, lack the unlimited resources necessary to 

trump the impact of conflicting state law. 

The following is an analysis of some of the legal issues the situation has generated and some of 

the proposals to resolve them. 

Background 

Federal regulation of the drugs, chemicals, and plants now considered controlled substances 

began with the Harrison Narcotics Act of 1914.3 Relying upon its constitutional power to tax, 

regulate commerce, and implement the nation's treaty obligations,' Congress used the legislation 

to establish a system under which it taxed lawful medicinal use and proscribed abuse.5 

1 Section 202(c) of the Controlled Substances Act (21 U.S.C. §812(c), Sch.l(c)(!O)). 

2 As ofthe date of this report. the retail marijuana laws in Alaska and Oregon had been enacted but were not yet 

operational. 'n1e terms ''recreational marijuana laws~' and •·retail marijuana Jaws" are used interchangeably in this 

report. Some legislators. advocates, and commentators refer to the Jaws alternatively as ·'recreational marijuana laws," 

••retail marijuana laws," "adult social marijuana laws," or ""states' rights marijuana laws:' E.g., Malanic, Reid, 1be 

Quagmire that Nobody in the Federal Government Wants to Talk About: Marijuana, 44 N.MEX. L.REv. 169. 171 

(2014) ("Colorado and Washington have legalized marijuana use for recreational purposes"); Sam Kamin & Eli Wale!, 

Marijuana Lawyers: Outlaws or Crusaders, 91 ORE. L REV. 869, 878 n.35 (2013)("Many in the marijuana Jaw reform 

movement dislike the term ·recreational use' and prefer the phrase 'adult usc.' ... 'I don't use the tenn recreational, I 

prefer adult social use"'); H.R. 964 (Respect States' and Citizens· Rights Act of2013); Colorado Retail Marijuana 

Code, COLO. REV. STAT. AN,_.. §§12-43.4-101. et seq. 

3 38 Stat. 785 (1914). 

'u.s. Const. Art. I, §8, cis. I. 3. 18; Art. II, §2, cl.2. 

5 H.Rept. 63-23, at I (1913)(" ... [T]he obligations by which [the United States] is bound by virtue of the international 

opium convention signed at the Hague January 23. 1912. should be suflicient evidence of the necessity for the passage 

of Federal legislation to control our foreign and interstate traffic in opium, coca leaves, their salts~ derivatives, and 

preparations .... But there is a real and, one might say, even desperate need of Federal legislation to control our foreign 

and interstate traflic in habit-forming drugs, and to aid both directly and indirectly the States more effectually to 

enforce their police laws designed to restrict narcotics to legitimate medical channels"), quoted in accord, S.Rept. 63-

25S, at 3 (!914). 

Congressional Research Service 
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Mariiuana: Medical and Retail-Selected Legal Issues 

Little more than two decades later, Congress supplemented the Harrison Act with the Marihuana 

Tax Act of 1937,6 explicitly noting reliance on its tax, commerce, and territorial powers.7 The 

Marihuana Act replicated the Harrison Act's procedures in large measure8 and adopted by crossreference the Harrison Act's penalty structure.9 lt became apparent over time, however, that the 

Marihuana Act served no real revenue purpose and in fact had "become, in effect, solely a 

criminal law imposing sanctions upon persons who [sold], acquire[ d), or possess[ed] 

marihuana.''10 

This proved problematic when, in the late 1960s, the Supreme Court pointed out the Fifth 

Amendment difficulties inherent in a tax-based enforcement structure like that of the Harrison 

and Marihuana Tax Acts. The Court in Marchetti observed that a gambler's "obligations to 

register and to pay the [federal] occupational tax created ... real and appreciable ... hazards of selfincrimination" under federal and state anti-gambling laws. 11 The same day, in Haynes, it held that 

by the same token "the constitutional privilege against self-incrimination provides a full defense 

to prosecutions either for failure to register a firearm ... or for possession of an unregistered 

firearm" under the tax-based structure of the National Firearms Act. 12 Finally, in Leary, it struck 

closer to home. There, it held that the Fifth Amendment privilege against self-incrimination 

provided a full defense to a charge of transporting marijuana acquired without paying the 

Marihuana Tax Act transfer tax. 13 

Within months, the Senate Judiciary Committee reported out a Commerce Clause/treaty-based 

controlled substances proposal that featured most of the components ultimately found in the 

Controlled Substances Act. 14 lt classified marijuana with the most tightly regulated substances in 

6 50 Stat. 551 (1937). 

7 H.Rept. 75-792 at 1-3. (1937)("The purpose ofH.R. 6906 is to employ the Federal taxing power to raise revenue from 

the marihuana drug traffic and to discourage the widespread use ofthe drug by smokers and drug addicts .... This bill is 

modeled upon both the Harrison Narcotics Act and the National Firearms Act, which were designed to accomplish 

these same general objectives with respect to opium and coca leaves, and firearms, respectively .... Your committee has 

examined the constitutionality of this bill and is satisfied that it is a valid revenue measure. '!he law is well settled that 

a revenue measure will not be held invalid as an attempt to regulate. under the guise of the taxing power, a subject 

matter reserved to the States under the tenth amendment. if it appears on its face to be a revenue measure and contains 

no regulatory provisions except those reasonably related to the collection of the revenue .... In addition, certain 

provisions of the biB may be sustained under the power of Congress to regulate commerce and the power of Congress 

over the District of Columbia and Territories and possessions of the United States"); see also. S.Rept. 75-900. at2-3 

(1937)("Thc purpose ofH.R. 6906 is to employ the Federal taxing power to mise revenue from the marihuana drug 

traffic and to discourage the widespread use of the drug by smokers an drug addicts .... This bill is modeled upon both 

the Harrison Narcotics Act and the National Firearms Act, which were designed to accomplish these same general 

objective.~ with respect to opium and coca leaves, and firearms, respectively")(but including no other explicit reference 

to constitutional authority). 

8 Marihuana Tax Act. §§2-14, 50 Stat. 551-56 (1937). 

9 !d. at §7(e). 50 Stat. 555 (1937)("Ail provisions of law (including penalties) applicable in respect of the taxes imposed 

by the Act of December 17. 1914 (38 Stat. 785; U.S.C. 1934 ed. title 26, §§1040-1061, 1383-1391 ). as amended. shall, 

insofar as not inconsistent with this Act. be applicable in respect of the taxes imposed by this Act"). 

10 The President's Commission on Law Enfi>rcemenl and Administration of Justice: Task Force on Narcotics and Drug 

Abuse, Task Force Report: Narcotics and Drug Abuse, 12 (1967). 

11 Marchetti v. United States, 390 U.S. 39,48 (1968); see also. Grosso v. United States, 390 U.S. 62,64-6 (1968). 

12 Haynes v. United Stales, 390 U.S. 85, 100 (1968). 

13 Leary v. United Stales. 395 U.S. 6, 29 (1969). 

14 S.Rept. 91-613 (l969).ln Gonzales v. Raich, the U.S. Supreme Court ruled that Congress had the constitutional 

authority under the Commerce Clause to prohibit the wholly intrastate cultivation or possession of marijuana fi>r 

medical purposes. despite slate laws that permit such activity. 545 U.S. I, 32-33 (2005); for more information about 

(continued ... ) 
123 


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Marijuana: Medical and Retail-Selected Legal Issues 

Schedule I, but punished its abuse less severely, explaining in its critique of an earlier proposal 

that 

[T]o impose the same high mandatory minimum penalties for marihuana-related 

offenses as for LSD and heroin offenses is inequitable in the face of a considerable amount 

of evidence that marihuana is significantly less harmful and dangerous than LSD or heroin. 

It had also become apparent that the severity of penalties including the length of 

sentences does not affect the extent of drug abuse and other drug-related violations. The 

basic consideration here was that the increasingly longer sentences that had been legislated in 

the past had not shown the expected overall reduction in drug law violations. The opposite 

had been true notably in the case of marihuana. Under Federal law and under many States 

laws marihuana violations carry the same strict penalties that are applicable to hard narcotics, 

yet marijuana violations have almost doubled in the last 2 years alone. 

In addition, the severe drug laws specifically as applied to marihuana have helped create 

a serious clash between segments of the youth generation and the Government. These youths 

consider the marihuana laws hypocritical and unjust. Because of these laws the marihuana 

issue has contributed to the broader problem of alienation of youth from the general society 

and to a general feeling of disrespect for the law and judicial process." 

Consistent with this view, it called for the establishment of a study commission to examine and 

make recommendations on the troubling marijuana-related issues. 16 The Commission's final 

report recommended the legalization of possession of marijuana for private personal use, but that 

the Controlled Substance Act otherwise remain unchanged. 17 

Controlled Substances Act Today 

Congress enacted the Controlled Substances Act18 as Title II of the Comprehensive Drug Abuse 

Prevention and Control Act of 1970. 19 The purpose of the CSA is to regulate and facilitate the 

manufacture, distribution, and use of controlled substances for legitimate medical, scientific, 

research, and industrial purposes, and to prevent these substances from being diverted for illegal 

purposes. The CSA places various plants, drugs, and chemicals (such as narcotics, stimulants, 

depressants, hallucinogens, and anabolic steroids) into one of five schedules based on the 

substance's medical use, potential for abuse, and safety or dependence liability20 

(. .. continued) 

this decision, see CRS Report RL32844. l11e Power to Regulate Commerce: Limits on Congress;onal Power. by 

Kenneth R. Thomas. 15 S.Rept. 91-613 at l-2. 

16 !d. at I 0 (''The study shall include. but need not be limited to, the following matters: I. Identification of existing gaps 

in our knowledge of marihuana. 2. An intensive examination of the important medical and social aspects of marihuana 

use. 3. Surveys of the extent and nature of marihuana use. 4. Studies of the pharmacology and effects of marihuana. 5. 

Studies of the relation of marihuana use to crime and juvenile delinquency. 6. Studies of the relation between 

marihuana and the usc of other drugs"). 

17 National Commission on Marihuana and Drug Abuse, Drug Use in America: Problem in Prospective, 458, 466 (2d 

Rep. 1973). 

18 21 U.S.C. §§8()], et seq. 

19 P.L. 91-513.84 Stat. 1236 (1970). 

20 21 U.S.C. §§811-812. 
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Marijuana: Medical and Retail-Selected Legal Issues 

Schedule I substances are deemed to have no currently accepted medical use in treatment and can 

be used only in very limited circumstances, whereas substances classified in Schedules II, III, IV, 

and V have recognized medical uses and may be manufactured, distributed, and used in 

accordance with the CSA. The CSA requires persons who handle controlled substances (such a~ 

drug manufacturers, wholesale distributors, doctors, hospitals, pharmacies, and scientific 

researchers) to register with the Drug Enforcement Administration (DEA) in the U.S. Department 

of Justice (DOJ), the federal agency that administers and enforces the CSA.21 Such registrants are 

subject to strict requirements regarding drug security, recordkeeping, reporting, and maintaining 

production quotas, in order to minimize theft and diversion.22 

Because controlled substances classified as Schedule I drugs have "a high potential for abuse" 

with "no currently accepted medical use in treatment in the United States" and lack "accepted 

safety for use of the drug [] under medical supervisions,"23 they may not be dispensed under a 

prescription, and such substances may be used only for bona fide, federal government-approved 

research studies.24 Under the CSA, only doctors licensed by the Drug Enforcement 

Administration are allowed to prescribe controlled substances listed in Schedules II-V to 

patients. 25 Federal regulations stipulate that a lawful prescription for a controlled substance may 

be issued only "for a legitimate medical purpose by an individual practitioner acting in the usual 

course of his professional practice."26 

The CSA establishes an administrative mechanism for substances to be controlled (added to a 

schedule); decontrolled (removed from the scheduling framework altogether); and rescheduled or 

transferred from one schedule to another. 27 Federal rulcmaking proceedings to add, delete, or 

change the schedule of a drug or substance may be initiated by the DEA, the U.S. Department of 

Health and Human Services (HHS), or by petition by any interested person.28 Petitions for 

rescheduling marijuana have been largely unsuccessfuL29 Congress may also change the 

scheduling status of a drug or substance through legislation. 

21 The Attorney Geneml delegated his authority under the CSA to the DEA Administmtor pursuant to 21 U.S.C. 

§871(a); 28 C.F.R. §O.IOO(b). 

22 For more information about these requirements, see CRS Report RL34635, 111e Controlled Substances Act: 

Regulatory Requirements, by BrianT. Yeh. 

23 21 u.s.c. §812(b)(l). 

24 21 U.S. C. §823(!). 

"See 21 C.F.R. §1306.03 (persons entitled to issue prescriptions). 

26 21 C.F.R. §1306.04; United States v. Moore, 423 U.S. 122 (1975). 

27 The procedures for these actions are found at 21 U.S.C. §811. 

28 21 U.S. C. §811 (a), 

29 At one point an administrative law judge did recommend rescheduling, but that represents the high water mark for 

the petition efforts; see, generally, Americans for Sale Access v, DEA, 706 F.3d 438 (D.C. Cir. 2013); and Alliance for 

Cannabis Therapeutics v. Dmg Enforcement Admin .. 15 F.3d 1l3L 1133 (D.C. 1994), citing, National Organization 

for the Reform of Marijuana Laws v. Ingersoll, 497 F.2d 654 (D.C. Cir. 1974 ); National Organization for the Reform of 

Marijuana Laws v Drug Enforcement Admin., 559 F.2d 735 (D.C. Cir. 1977); National Organization for the Reform of 

Marijuana Laws v. Dept of Health, Ed. and Welfare. No. 79· 1660 (D.C. Cir. Oct. 16, 1980): Alliance for Cannabis 

TI1erapeutics v. Drug Enforcement Admin., 930 F.2d 936 (D.C. Cir. 1991). 
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MariJuana: Medical and Retail-Selected Leqa/ Issues 

Penalties 

Federal civil and criminal penalties are available for anyone who manufactures, distributes, 

imports, or possesses controlled substances in violation ofthe CSA (both "regulatory" offenses as 

well as illicit drug trafficking and possession).30 

When Congress enacted the CSA in 1970, marijuana was classified as a Schedule I drug. 31 Today, 

marijuana is still categorized as a Schedule I controlled substance and is therefore subject to the 

most severe restrictions contained within the CSA. Pursuant to the CSA, the unauthorized 

cultivation, distribution, or possession of marijuana is a federal crime.32 Although various factors 

contribute to the ultimate sentence received, the mere possession of marijuana generally 

constitutes a misdemeanor subject to up to one year imprisonment and a minimum fine of 

$1,000.33 A violation of the federal "simple possession" statute that occurs after a single prior 

conviction under any federal or state drug law triggers a mandatory minimum fine of$2,500 and 

a minimum imprisonment term of 15 days (up to a maximum of two years); if the defendant has 

multiple prior drug offense convictions at the time of his or her federal simple possession offense, 

the sentencing court must impose a mandatory minimum fine of $5,000 and a mandatory 

minimum imprisonment term of90 days (up to a maximum term of three years).34 On the other 

hand, the cultivation or distribution of marijuana, or the possession of marijuana with the intent to 

distribute, is subject to more severe penalties, ranging from imprisonment for five years to 

imprisonment for life.35 Moreover, property associated with the offense may be confiscated 

without or with any prior or accompanying criminal conviction.36 

Forfeiture 

Either in addition to, or in lieu of, bringing criminal prosecutions, the Department of Justice may 

choose to rely more heavily on the civil forfeiture provisions of the CSA in order to disrupt the 

operation of marijuana dispensaries and production facilities. Forfeiture is a penalty associated 

with a particular crime in which property is confiscated or otherwise divested from the owner and 

3

° For a detailed description of the CSA's civil and criminal provisions, see CRS Report RL30722, Drug Offenses: 

Maximum Fines and Terms of Imprisonment/or Violation of the Federal Controlled Substances Act and Related Laws, 

by Brian T. Yeh. 

31 21 U.S.C. ~8!2(c). 

32 Very narrow exceptions to the federal prohibition do exist. For example, one may lcgalJy usc marijuana if 

participating in a U.S. Federal and Drug Administration-approved study or participating in the Compassionate 

Investigational New Drug program. 

33 21 U.S. C. §844(a). 

34 Jd 

35 The escalating tenns of imprisonment tOr possession of various amounts of marijuana are as foHows: (1) Less than 

50 kilograms (I !Olbs.)(fewer than 50 plants: imprisonment for not more than 5 years, 21 U.S.C. §841(b)(I)(D); (2) 

Less than 100 kilograms (220/bs) or less than /00 plants: imprisonment tor not more than 20 years, 21 U.S.C. 

§841(b)(l)(C); (3) 100 kilograms (220/bs} or more 1100 plants or more: imprisonment for not less than 5 years or more 

than 40 years, 21 U.S.C. §84l(b)(l)(B); (4) 1000 kilograms or more/1000 plants or more: imprisonment for not less 

than lO years or more than life, 21 U.S.C. §84l(b)(l)(A); (5) Drug kingpin (over 5 or more others & substantial 

income): imprisonment for not less than 20 years or more than life, 21 U.S. C. §848(a), (c); and (6) Drug kingpin 

involving (a) 30,000 kilograms or more/30,000 plants or more. or (b)$/() million or more in annual gross receipts: 

imprisonment for life, 21 U.S.C. §848(b)(2)(emphasis added). 

36 21 U.S.C. §853 (criminal forfeiture of the proceeds and property derived from a violation as well as property used to 

facilitate violation); 21 U.S.C. §881 (civiVadministrative forfeiture of conveyances and real property used in a violation 

and the proceeds of a violation and property traceable to the proceeds of a violation). 

5 
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Marijuana: Medical and Retail-Selected Legal Issues 

forfeited to the government, in accordance with constitutionally required due process 

procedures.37 

Property forfeiture is used both to enforce criminal laws and to deter crime. Forfeitures are 

classified as civil or criminal depending on the nature of the judicial procedure which ends in 

confiscation. Civil forfeiture is ordinarily the product of a civil, in rem (against the property) 

proceeding in which the property is treated as the offender. No criminal charges are necessary 

against the owner, landlord, or mortgage holder because the guilt or innocence of the property 

owner, landlord, mortgage holder, or anyone else with a secured interest in the property is 

irrelevant; it is enough that the property was involved in, or otherwise connected to, an illegal 

activity (in which forfeiture is authorized).38 Criminal forfeiture proceedings, on the other hand, 

are in personam (against the person) actions, and confiscation is possible only upon the 

conviction of the owner of the property and only to the extent of the defendant's interest in the 

property.39 Property that is subject to forfeiture includes both the direct and indirect proceeds of 

illegal activities as well as any property used, or intended to be used, to facilitate that crime.'0 

Section 511 of the CSA (21 U.S.C. §881) makes a wide array of property associated with 

violations of the CSA subject to seizure by the Attorney General and forfeiture to the United 

States. Property subject to the CSA's civil forfeiture provision includes any controlled substance 

that has been manufactured, distributed, dispensed, acquired, or possessed in violation of federal 

law, as well as any equipment, firearm, money, mode of transportation, or real property used or 

intended to be used to facilitate a violation of the CSA.41 In order to seize the covered property, 

the government need only show that the property is subject to forfeiture by a preponderance of 

the evidence.'2 Once forfeited, the Attorney General may destroy the controlled substances 

seized, and sell the other property at public auction.43 After expenses of the forfeiture proceeding 

are recouped, excess funds are forwarded to the DOJ Asset Forfeiture Fund.44 

Forfeiture proceedings are generally less resource intensive than a criminal prosecution and have 

been used in the past against medical marijuana dispensaries.45 In practice, DOJ would be able to 

seize and liquidate property, both real and personal, associated with marijuana production, 

37 U.S. CONST. amend. V ("No person shall ... be deprived of ... property. without due process of law ... "). 

38 Calero-Toledo v. Pearson Yacht Leasing Co. 416 U.S. 663, 683-90 (1974)(confiscation of a yacht upon which those 

to whom it was leased smoke marijuana because the owners failed to show that they had done all they possibly could 

to avoid the illegal usc of their property). In controlled substances cases, there is a limited statutory innocent owner 

defense if the owner of an interest in the property can show by a preponderance of the evidence that either he "(i) did 

not know of the conduct giving rise to the forfeiture; or (ii) uponleaming of the conduct giving rise to the forfeiture, 

did all that reasonably could be expected under the circumstances to terminate such use of the property,'' 18 U.S.C. 

§983(d). 

39 For a more extensive discussion of forfeiture generally, see CRS Report 97·139, Crime and Forfeiture, by Charles 

Doyle. 

40 See. e.g .. 21 U.S. C. §881(a)(6)(proceeds). and 21 U.S.C. §R8l(a)(2)(products and equipment used to facilitate the 

offense). 

41 21 U.S.C. §88l(a)(emphasisadded). 

42 18 u.s.c. §981(b). 

43 21 U.S.C. §88l(e). 

44 21 lJ.S.C. §88l(e). 

45 See, e.g .. U.S. Dep't ofJustice, Press Release: Federal Authorities Take Enforcement Actions Against Commercial 

Marijuana Stores in Orange County Cities of Anaheim and La Habra, August 21 ~ 2012, available at 

http://www.justice.gov/usao/cac/Pressroom/20 12/111.html. 

6 
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Marijuana: Medical and Retail-Selected Legal Issues 

distribution, or retail sale facilities, without bringing any criminal action. As explained above, a 

civil asset forfeiture proceeding is a civil proceeding against the property in question. Although 

an interested party may object to the seizure, given that such facilities are in clear violation of 

federal law, so long as the property is indeed being used for marijuana-related activities, it would 

appear unlikely that many successful challenges to these actions could be waged.46 

Developments in the States 

Most of the states have legislation modeled after the federal Controlled Substances Act.47 Over 

the years, some have reduced possession of small amounts of marijuana to a civil offense under 

state law:8 while the District of Columbia went a step further and fully legalized possession of 

small amounts of marijuana and personal cultivation of a small number of marijuana plants.49 

More than 20 states also have established a state law exception for medical marijuana. 5° Colorado 

46 See David Downs. City of Oakland Loses Lawsuit Against Department of Justice: Harborside Forfeiture Case 

Proceeds, February 15, 2013, EAST BAY EXPRESS, available at http://www.eastbayexpress.comJLegalizationNation/ 

archives/20 13/02/15/city-of-oakland-loses-lawsuit-against-department-of-justice-harborside-forfeiture-case-proceeds 

(describing how a federal magistrate judge dismissed the City of Oakland's lawsuit against Attorney General Erie 

Holder and U.S. Attorney Melinda Haag, which sought to prevent Haag from seizing the building leased by Harborside 

Health Center, one of the world's largest medical marijuana dispensaries. The judge held that only the dispensary and 

its landlords have legal standing to challenge the U.S. government's attempted seizure of the property.). 

47 ALA. CODE §§20-2-1 to 20-2-190; ALASKA STAT. §§I 1.71.010 to 1 1.71.900, !7.30.010 to 17.30.900; ARIZ. REV. 

STAT. ANN. §§36-2501 to 36-2553; ARK. CODE ANN. §§5-64-101 to 5-64-608; Ctu .. HEALTH & SAFETY CODE §§1 1000 

to 11657; COLO. REV. STAT. ANN. §§18-18-101 to 18-18-605; CoNN. GEN. STAT. ANN. §§2la-240 to 21a-283; Del. 

Code Ann. tit.l6 §§4701 to 47696; FLA. STAT. ANN. §§893.01 to 893.165; GA. CODE §§16-13-20 to 16-13-65; HAWAII 

REv. STAT. §§329-1 to 329-128: IDAHO CODE §§37-2701 to 37-2751: 720 ILL COMP. STAT. A. 'IN, §§570/100 to 

570/603; IND. CODE ANN. §§35-48-1-1 to 35-48-7-15; ]OWA CODE Al'<'J>;, §§124.101 to 124.602; KAN-S'rAT. ANN. §§65-

41-l to 65-4166; KY. REv. STAT. ANN. §§218A.010 to 218A.993; LA. REV. STAT. ANN. §§40:961 to 40:995; ME. REv. 

STAT. ANN. tit.17-A §§1101 to 1118; Mo. CODE ANN. Crim. Law §§5-101 to 5-1101; MASS. GEN. LAWS ANN. ch. 94C 

§§1 to 48; Mich. Comp. Laws Ann. §§333.7101 to 333.7545; MINN. STAT. ANN. §§152.QJ to 152.20; MISS. CODEAl'<'J>;. 

§§41-29-101 to 41-29-185; Mo. ANN. STAT. §§195.010 to 195.320; MONT. CODE ANN. §§50-32-101 to 50-32-405; 

NEB. REV. STAT. §§28-401 to 28-457; NEV. REV. STAT. §§453.011 to 453.740; N.H. REV. STAT. ANN. §§318-B:lto 

318-E:l; N.J. STAT. ANN. §§2C:35-lto 2C:35-24, 2c:36-lto 2C:36-10, 24:21-1 to 24-21-54; N.MEX. STAT. ANN. §§30-

31-lto 30-31-41; N.Y. PUBLIC HEAL"Ill LAW §§3300 to 3396; N.C. GEN. SrAT. §§90-86 to 90-113.8; N.D. CENT. CODE 

§§19-03.1-0lto 19-03.1-46; OHIO REV. CODE ANN. §§3719.01 to 3719.99; OKLA. STAT. ANN. tit.63 §§2-101 to 2-610; 

ORE. REV. STAT. §§475.005 to 475.295,475.940 to 475.999; 35 PA. STAT. ANN. §§780-101 to780-144; R.I. GEN. LAWS 

§§21-28-1.01 to 21-28-6.02; S.C. CODE ANN. §§44-53-110 to 44-53-590; S.D. Coo. LAWS §§34-208-1 to 34-20B-114; 

TENN. CODE ANN. §§39-17-401 to 39-17-434, 53-11-301 to 53-11-452: TEX. HEALTH & SAFETY CODE ANN. §§481.001 

to 481.005; UTAH CODE ANN. §§58-37-1 to 58-37-21; VA. CODE §§54.1-3400 to 54.1-3472; WASH. REV. CODE ANN. 

§§69.50.101 to 69.50.609; W.VA. CODE ANN. §§60A·I-10l to 60A-6-605; WIS. STAT. ANN. §§961.001 to 961.62; 

WYO. STAT. §§35-7-1001 to 35-7-1062. Vermont has a Regulated Drugs Act that roughly corresponds to the Controlled 

Substances Act, VT. STAT. ANN. tit.l8 §§4201 to 4254. 

48 E.g., ALASKA STAT. §§11.71.190, 11.71.060, 12.55.1350) (max. fine $500/less than I oz.); CAL HEALTH& SAFETY 

CODE §I 1357(b) (max. fine $100/28.5 grams or less); CoNN. GEN. STAT. ANN. §21a-279a (max. fine $150/less than .5 

oz.); ME. REV. STAT. ANN. tit. 22 §2383[l][A](max. fine $600/1.25 07.. or less): MASS. GEN. LAWS ANN. ch. 94C §32L 

(max. line $100/1 oz. or Jess): MINN. STAT. ANN. §§152.027[subd.4(a)J, 152.01 [subd. 16] (max fine $200/42.5 grams 

or less); MISS. CODE ANN. §41-29-139(c)(2)(A); NEB. REV. STAT. §28-416(13)(a) (max. fine $300/1 oz. or less); NEV. 

REV. STAT. §453.336[4](max. fine $600/1 oz. or less); N.Y. PENAl LAW §130.35; N.C. GEN. STAT. §§90-95(d)(4)(maxs. 

$200 finc~10 days imprisonment/.5 oz. or less); OHIO REV. CODE ANN. §§2925.li(C)(3), 2929.28(A)(2)(a)(v)(max. 

fine $150/100 grams or less); ORE. REv. STAT. §475.864(3)(max. fine $650/1 oz. or less); R.I. GEN. LAWS §2l-28-

4.0l(c)(2)(iii)(max. fine $150/1 oz. or less); Vr. STAT. ANN. tit.l8 §4230a (max. fine $20011 oz. or less). 

49 D.C. CODE §48-901.01(a)(l). There is some uncertainty about whether a provision of the 2015 Consolidated 

Appropriations Act, P.L 113-235, prohibits the implementation of the measure during FY20 15. See CRS Legal Sidebar 

WSLG 1182, The Antideficiency Act as an Impediment to D. C. 's Marijuana Legalization initiative?, by Brian T. Yeh. 

50 ALASKA STAT. §§17.37.010 to 17.37.080; ARIZ. REV. STAT. ANN. )i)i36-2801 to 36-2819; CAL HEAt Til& SAFETY 

(continued ... ) 
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Marijuana: Medical and Retail-Selected Legal Issues 

and Washington have enacted legislation authorizing the retail and personal growth, sale, and 

possession of marijuana under state law. 5

1 Ala<>ka and Oregon have enacted similar retail 

marijuana laws; however, they were not fully operational as of the publication date of this 

report. 5

2 

Medical Marijuana Laws 

State medical marijuana laws follow a general pattern, although most have some individual 

characteristics and the manner in which they are enforced can differ considerably. Some of their 

features are attributable to the CSA and a case from the United States Court of Appeals for the 

Ninth Circuit, Conant v. Walters 5 3 

Conant, a California physician, sought to enjoin the federal government from revoking his 

authority to prescribe controlled substances at all in retaliation for his recommending marijuana 

to some of his patients. 54 Then, as now, the CSA permits the Attorney General, acting through the 

Drug Enforcement Administration, to withdraw a physician's authority to prescribe controlled 

substances upon a failure to comply with the demands of the CSA.55 

The Ninth Circuit acknowledged the prospect of criminal liability if the doctor were doing more 

than engaging in an abstract discussion with his patient: "A doctor would aid and abet by acting 

with the specific intent to provide a patient with the means to acquire marijuana. Similarly, a 

conspiracy would require that a doctor have knowledge that a patient intends to acquire 

marijuana, agree to help the patient acquire marijuana, and intend to help the patient acquire 

marijuana."56 Yet, "[h ]olding doctors responsible for whatever conduct the doctor could anticipate 

a patient might engage in after leaving the doctor's office is simply beyond the scope of either 

conspiracy or aiding and abetting. "

57 On the other hand, such doctor-patient discussions do 

( ... continued) 

CODE §§11362.5 to 11362.9; CoLO. REV. STAT. ANN. §§12-43.3-101 lo 12-43.3-1102; CONN. GEN. STAT. ANN. §§21a408 to 2la-408q; DEL. CoDE ANN. tit.l6 §§490!A to 4926A; D.C. CODE §§7-1671.01 to 7-1671.13; HAWAII REV. STAT. 

§329-121 Io 329-128; 410 ILL. COMP. STAT. ANN. §§130!10 to 130/140; ME. REV. STAT. ANN. tit. 22 §§2421 to 2430-B; 

Mo. CODE ANN. HEALTH-GEN. §§13-3301 to 13-3316; MASS. GEN. LAWS ANN. ch. 94C App. §§I-I to 1-17; MICH. 

COMP. LAWS A~. §§333.26421 to 333.26430; MONT. CODE ANN. §50-46-301 to 50-46-344; NEV. REV. STAT. 

§§453A.010 to 453A.810: MINN. STAT. §§125.22 to 152.37: N.H. REV. STAT. ANN. §§126-X:I to 126-X:Il; N.J. STAT. 

ANN. §§24:61-1 to 24:61-16; N.MEX. STAT. ANN. §§26-2B-l to 26-28-7; ORE. REV. STAT. §§475.300 to 475.346; R.I. 

GEN. LAWS §2!-28.6-1 to 21-28.6-13; N.Y. PUB. IlEAL Til §§3360 to 3369-E.; Vr. STAT. ANN. tit.l8 §§4471Io 44741; 

WASH. REV. CODE ANN. §69-51A.005 Io 69-51 A.903. The Supreme Court in Oakland Cannabis Buyers • Cooperative 

held that the federal Controlled Substances Act does not contain an implicit medical marijuana exception, United States 

v. Oakland Cannabis Buyers· Cooperative, 532lJ.S. 483,495 (2001). 

51 COLO. REV. STAT. ANN. §§12-43.3-101 to 12-43.1-1102; WASH. REV. CODE ANN. §§69-50.325 to 69-50.369. 

52 ALASKA STAT.§§ 17.38.010 to 17.38.900; 43.61.010 to 43.61.030; Oregon Ballot Measure 91, Control. Regulation. 

and Taxation of Marijuana and lndustrialllemp Act (hereinqfier Oregon Ballot Measure 9 J ). 

53 309 F.3d 629 (9'h Cir. 2002). 

54 /d. at 632. 

5

' 21 §823(f)(''The Attorney General shall register practitioners (including pharmacies ... ) to dispense ... controlled 

substances .... The Attorney General may deny an application for such registration ... I in J the public interest. In 

determining the public interest, the tbllowing factors shall be considered: ... (4) Compliance with applicable State, 

Federal, or local laws relating to controlled substances .... "). 

56 /d. at 636 (internal citations omitted). 

"/d. (emphasis in the original). 
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Marijuana: Medical and Retail-Selected Legal Issues 

implicate First Amendment free speech principles. The Ninth Circuit therefore affirmed the 

district court's order which had enjoined any DEA enforcement action.58 

As a consequence of the CSA and the Conant decision, the state medical marijuana laws are 

predicated upon a doctor's recommendation, rather than a prescription and the medicine is 

dispensed other than through a pharmacy. 59 In addition, the laws afford registered patients, care 

givers, cultivators, and distributors immunity from the consequences of state criminallaws.60 

Patients 

Physicians may recommend medical marijuana only for patients suffering from one or more 

statutorily defined "debilitating," or "qualifYing" medical conditions. The typical list would 

include the following: 

"Debilitating medical condition" means one or more of the following: 

(a) Cancer, glaucoma, positive status for human immunodeficiency virus, acquired 

immune deficiency syndrome, hepatitis c, amyotrophic lateral sclerosis, crohn' s disease, 

agitation of alzheimer's disease or the treatment of these conditions. 

(b) A chronic or debilitating disease or medical condition or its treatment that produces 

one or more of the following: cachexia or wasting syndrome; severe and chronic pain; severe 

nausea; seizures, including those characteristic of epilepsy; or severe and persistent muscle 

spasms, including those characteristic of multiple sclerosis. 

(c) Any other medical condition or its treatment added by the department pursuant to 

section 36-2801.01 61 

The list usually includes a condition such as "severe pain," or "chronic pain," or "severe and 

chronic pain" that is easy to claim, difficult to diagnose, and grounds for potential abuse. Some 

states seek to limit the scope of the term by statute or by regulation. 62 In many jurisdictions, a 

"/d. at 636-39. 

w ALASKA STAT. *§17.37.010 to 17.37.080; ARIZ. REV. STAT. Ar<N. §§36-2801 to 36-2819; CAL. HEALTH & SAFETY 

CODE §§11362.5 to ll362.9: CON'I. GEN. STAT. ANN. §§21a-408 to 21a-408q; COLO. REV. STAT. Ar<N. §§12-43.3-101 

to 12-43.3-ll02: DEL. CODE ANK tit.l6 §§4901A to 4926A; D.C. CODE §§7-1671.01 to 7-167l.l3; HAWAII REv. STAT. 

§§329-121 to 329-128; 410 ILL COMP. STAT. ANN. §§130/IO to 130/l40; MD. CODE ANN. HEALTH-GEN. §§13-3301 to 

13-3316; ME. REV. STAT. ANN.tit. 22 §§2421 to 2430-B; MASS. GEN. LAWS ANN. ch. 94C App. §§1-1 to 1-17; MICH. 

COMP. LAWS ANN. §§333.26421 to 333.26430; MINN. STAT. §§125.22 to 152.37; MONT. CODE ANN. §§50-46-301to 

50-46-344: NEV. REv. STAT. §§453A.010 to 453A.810: N.H. REV. STAT. ANN. §§126-X: 1 to 126-X:11; N.J. STAT. ANt<. 

§§24:61-1 to 24:61-16: N.MEX. STAT. ANN. §§26-2B-1to 26-2B-7: N.Y. PUB. HEALTH §§3360 to 3369-E.: ORE. REv. 

STAT. §§475.300 to 475.346; R.I. GEN. LAWS §§21-28.6-l to 21-28.6-13; VT. STAT. ANN. tit.l8 §§4471 to 4474/; 

WASH. REV. CODE ANN. §§69-51A.005 lo 69-51A.903. 

60 ALASKA STAT. §17.37.030: ARlZ. REV. STAT. ANN. §36-2811: CAL. HEALTH & SAFETY CODE §§1!362.71(c), 

11362.765, 1 1362.775; CONN. GEN. STAT. ANN. §§21a-408a to 2la-408c: DEL. CODE ANN. tit.l6 §4903A; D.C. CODE 

§7-1671.02: !-lAWAI! REV. STAT. §329-122: 410 ILL COMP. STAT. ANN. §130/25; MD. CODE ANN. HEALTH-GEN. §13-

3313; ME. REV. STAT. ANN. tit. 22 §§2423-A to 2423-D: MASS. GEN. LAWS ANN. ch. 94C App. §§1-4, 1-5; MtCH. 

COMP. LAWS ANN. §333.26424: MINK STAT. §152.32: MONT. CODE ANN. §50-46-319; NEV. REV. STAT. §453A.3JO; 

N.H. REv. STAT. ANN.§ 126-X:2: N.J. STAT. ANN. §24:61-6: N.MEX. STAT. ANN. §26-2B-4; N.Y. PUB. HEALTH §3369; 

ORE. REv. STAT. §§475.316, 475.319; R.I. GEN. LAWS §21-28.6-8; VT. STAT. ANN. tit.18 §4474b; WASH. REV. CODE 

ANN. §69-51A.030. 

61 ARIZ.REV.STAT.ANN. §36-2801[3]. 

62 E.g., DEL. CODE ANN. tit. 16 §4902A(3)[b](" .. severe, debilitating pain. that has not responded to previously 

(continued ... ) 

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qualified patient must be a resident ofthejurisdiction.63 Most states and the District of Columbia 

restrict the amount of marijuana a patient may possess for medical purposes. The limit is usually 

an amount less than three ounces.64 Medical marijuana statutes ordinarily do not allow patients to 

usc marijuana in public65 

Caregivers 

Typically, caregivers must register and be designated by one or more registered medical 

marijuana patients.66 Many medical marijuana laws also afford caregivers the same immunity and 

impose the same limitations upon them as apply to patients.67 

Dispensaries 

Some state medical marijuana laws contemplate cultivation exclusively by the patient or his or 

her caregiver.68 Most, however, establish a regulatory scheme for dispensaries.69 

( ... continued) 

prescribed medication or surgical measures for more than 3 months or for which other treatment options produced 

serious side effects .... "). 

63 E.g., CONN. GEK STAT. ANN. §Zia-408(10): D.C. CODE §7-1671.01(19); MICH. COMP. LAWS ANN. 

§333.264246(a)(6); MONT. CODEA"'N. §50-46-307(J)(d); N.H. REV. STAT. ANN. §126-X:1[X], [XVI]; N.J. STAT. ANN. 

§24:6!-3; N.MEX. STAT. ANN. §26-28-3 [GJ; R.I. GEN. LAWS §21-28.6-3(10); VT. STAT. ANN. lit.18 §4472(12); but see 

NEV. REv. STAT. §453A.364 (recognition of nonresident cards). 

64 E.g., ALASKA STAT. §17.37.040(a)(4)(1 oz.); DEL CODE ANN. tit.l6 §4903A(a}(6 oz.); D.C. CODE §7-1671.03(a)(2 

oz.); 410 ILl .. COMP. STAT. ANN. §130/IO(a)(1), 130125(a)(2.5 oz.); ME. REV. STAT. ANN. tit. 22 §§2423-A[IJ[Aj(2.5 

oz.); MICH. COMP. LAWS Ar.;N. §333.26424(2.5 oz.); MONT. CODE ANN. §50-46-319 (I oz.); NEV. REv. STAT. 

~453A.200 (I oz.); N.H. REV. STAT. ANN. §126-X:2flj(2 oz.); ORE. REV. STAT. §475.320 (24 oz.); R.I. GEN. LAWS §21· 

28.6-4 (2.5 oz.). 

65 E.g., ALASKA STAT. §17.37.040(a)(2); CONN. GEN. STAT. ANN. §21a-408a(b}(2); DEL. CODE ANN. tit.l6 §4904A(3); 

D.C. CODE §7-1671.03; 410 ILL COMP. STAT. ANN. §130/30(3)(1'); MtCH. COMP. LAWS ANN. §333.26427(b}(3)(8); 

N.H. REV. STAT. ANN. §126-X:3[1l](c); N.MEX. STAT. ANK §26-2B-5[A](3)(d); ORE. REV. STAT. §§475.316(l)(b). 

66 E.g., ALASKA STAT. §17.37.010(e): ARJZ. REv. STAT. ANN. §36-2804.02; CoNN. GEN. STAT. ANN. §21a-408b; DEL 

CODE ANN. tit.l6 §4909A; 410 ILL. COMP. STAT. ANN. §130/55; ME. REv. STAT. ANN. tit. 22 §§2425; MASS. GEN. 

LAWS ANN. ch. 94C App. §1·1: MONT. CODE ANN. §50-46-308; NEV. REV. STAT. §453A.210: N.H. REV. STAT. ANN. 

§126-X:4; N.J. STAT. ANN. §24:61-4; N.MEX. STAT. ANN. §26-2B-7; ORE. REv. STAT. §§475.309, 475.312: R.I. GEN. 

LAWS §21-28.6-4; VT. STAT. ANN. tit. I& §4474. 

67 E.g., ARJZ. REV. STAT. A"N. §36-2811; CAl .. HEALTH & SAFETY CODE ~§11362.77, 11362.775; CONN. GEN. STAT. 

ANN. §2la-408b; DEL. CODE ANN. tit.l6 §4903A; 410 ll.L. COMP. STAT. ANN. §130/25; MASS. GEN. LAWS ANN. ch. 94C 

App. §§1-4, 1-5; MICH. COMP. LAWS ANN. §333.26424: MONT. CODE ANN. §50-46-319; NEV. REV. STAT. §453A.200; 

N.H. REV. STAT. ANr.;. §126-X:2; N.J. STAT. ANN. §24:61-6: N.MEX. STAT. ANN. §26-28-4; ORE. REV. STAT. 

§§475.316, 475.319: R.I. GFN. LAWS §21-28.6-8: VT. STAT. ANN. tit.l8 §4474b. 

68 E.g., ALASKA STAT. §17.37.030; HAWAII REv. STAT. §329-122; MtCil. COM!'. LAWS ANN. §333.26424; ORE. REV. 

STAT. §§475.316, 475.319; R.I. GEN. LAWS §21-28.6-8. 

69 E.g., ARIZ. REV. STAT. ANN. §36-2804; CAL. HEALTH & SAFETY CODE§ 11362.8; CONN. GEN. STAT. ANN. §21a-408h; 

DEL. CODE ANN. lit.l6 §4914A; D.C. CODE §7-1671.06: HAWAII REV. STAT. §329-122; 410 ILL. COMP. STAT. ANN. 

§§ 130185 to 130/130; ME. REV. STAT. ANN. tit. 22 §2428; MASS. GEro. LAWS A >IN. ch. 94C App. §§1-9; MONT. CODE 

ANN. §§50-46·308, 5-46-309; NEV. REV. STAT. §§453A.320 to 453A.344; N.H. REV. STAT. ANN. §!26-X:8; N.J. STAT. 

ANN. §24:61-7: N.MEX. STAT. ANN. §26-28-7: ORE. REv. STAT. §475.304; Vr. STAT. ANN. ti!.l8 §4474g. 

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Retail Marijuana 

Four states, Washington, Colorado, Oregon, and Alaska, have established retail marijuana 

regimes. Each regulates the distribution of marijuana without a necessary medical nexus, but 

raises many of the same federal-state conflict issues found in the medical marijuana statutes. 

Much like the medical marijuana regimes, each recreational marijuana regime shares general 

patterns, but they also each have some unique characteristics. In some instances, for example 

Washington, the statutory authority establishing the retail regime is fairly specific. In others, such 

as Colorado, the statute provides only a broad framework while authorizing a state regulatory 

agency to fill in the details through regulations. 

Decriminalization of Personal Possession and Consumption 

Each of the retail marijuana laws decriminalizes the consumption and possession of varying 

amounts and forms of marijuana by individuals at least 21 years of age within the state. The laws, 

however, prohibit consumption of marijuana in public and maintain a prohibition on driving 

vehicles under the influence of marijuana, even if it was acquired and consumed in compliance 

with the state law. 70 

Washington Initiative 502, for example, legalizes marijuana possession by amending state law to 

provide that the possession of small amounts of marijuana "is not a violation of this section, this 

chapter, or any other provision of Washington law."71 Under the Initiative, individuals over the 

age of 21 may possess up to one ounce of dried marijuana, 16 ounces of marijuana-infused 

product in solid form, or 72 ounces of marijuana infused product in liquid form. 72 However, 

marijuana must be used in private, as it is unlawful to "open a package containing marijuana ... or 

consume marijuana ... in view of the general public."73 

Colorado voters approved an amendment to the Colorado Constitution (Amendment 64) to ensure 

that it "shall not be an offense under Colorado law or the law of any locality within Colorado" for 

an individual 21 years of age or older to possess, use, display, purchase, consume, or transport 

one ounce of marijuana; or possess, grow, process, or transport up to six marijuana plants.74 

Unlike Initiative 502, which permits only state-licensed facilities to grow marijuana, Amendment 

64 allows any individual over the age of21 to grow small amounts of marijuana (up to six plants) 

for personal use.75 In similar fashion to Washington's Initiative 502, marijuana may not be 

consumed "openly and publicly or in a manner that endangers others'' under Colorado law. 76 

Oregon Ballot Measure 91 decriminalizes personal possession, for individuals of at least 21 years 

old, of up to eight ounces of"homegrown marijuana," up to 16 ounces of"homegrown marijuana 

70 E.g .. Washington Initiative 502 §3 ], amending RCW 69.50.4013 and 2003 c 53 s 334. available at http://sos.wa.gov/ 

_assets/elections/in itiativcs/i 502 .pdf (hereinafter Washington Initiative 502). 

71 !d. at §20 

72 /d. at §15. 

73 !d. at §21. 

74 Colorado Amendment 64. Amending Colo. Cons!. Art. XVlll ~16(3), available at http://www.colorado.gov/cs/ 

Satellite?hlobco!~"UrJdata&blobheader=application!pdf&blobkey=id&blobtable=MungoBiobs&blobwhere"" 

125183406471 9&ssbinarrtrue (hereinafter Colorado Amendmen!64). 

75 !d. 

76 ld. 
132 


Insert offset folio 73 here 35631.073

Marijuana: Medical and Retail-Selected Legal Issues 

products in solid form," and up to 72 otmces of"homegrown marijuana in liquid form." It also 

decriminalizes cultivation of up to four marijuana plants.77 Ballot Measure 91 also explicitly 

prohibits "the use of marijuana items in a public place,"78 as well as the production and storage of 

marijuana or marijuana products where they "can be readily seen by normal unaided vision from 

a public place."79 

Alaska law allows individuals of at least 21 years old to possess up to one ounce of marijuana and 

six (but no more than three that are mature and flowering) marijuana plants.80 The public 

consumption and cultivation of marijuana is prohibited under Alaska law.81 

Licensing Regime for Retail Production, Distribution, and Sale 

Another common feature of recreational marijuana laws is the establishment oflicensing regimes 

for the retail production, distribution, and sale of marijuana. Although the specifics vary, each 

retail marijuana regime establishes license application processes, qualification standards, and 

license maintenance standards that are to be implemented and overseen by a state regulatory 

agency. 

Washington Initiative 502 provides that the "possession, delivery, distribution, and sale" by a 

validly licensed producer, processor, or retailer, in accordance with the newly established 

regulatory scheme administered by the state Liquor Control Board (LCB), "shall not be a criminal 

or civil offense under Washington state law."82 The Initiative establishes a three-tiered production, 

processing, and retail licensing system that permits the state to retain regulatory control over the 

commercial life cycle of marijuana. Qualified individuals must obtain a producer's license to 

grow or cultivate marijuana, a processor's license to process, package, and label the drug, or a 

retail license to sell marijuana to the general public.8 

Initiative 502 also establishes various restrictions and requirements for obtaining the proper 

license and directs the state LCB to adopt procedures for the issuance of such licenses. On 

October 16,2013,84 the LCB adopted detailed rules for implementing Initiative 502. These rules 

describe the marijuana license qualifications and application process, application fees, marijuana 

packaging and labeling restrictions, recordkeeping and security requirements for marijuana 

facilities, and reasonable time, place, and manner advertising restrictions.85 

The licensing standards in Colorado were implemented through a combination of statutes and 

regulations enacted to supplement Amendment 64. The Colorado General Assembly passed three 

bills that were signed into law by Governor Hickenlooper on May 28,2013.86 On September 9, 

77 Oregon Ballot Measure 91 §6. 

"Id at §54. 

79 ld. at §56. 

80 ALASKA STAT.§ 17.38.020. 

81 ALASKA STAT.§ 17.38.020 and §17.38.030. 

82 Wa,hington Initiative 502 §4. 

83 Jd. 

84 Joel Millman, Washington State Sets Pot-Sales Rules, WALL ST. JOURNAL, October 16. 2013. 

85 Washington State Liquor Control Board. Marijuana Licenses, Application Process~ Requirements. and Reporting, 

available at https://lcb.app.box.corn!adoptcd-rules. 

86 See Colorado Dep't of Revenue, Permanent Rules Related to the Colorado Retail Marijuana Code. September 9, 

(continued ... ) 
133 


Insert offset folio 74 here 35631.074

Marijuana: Medical and Retail-Selected Legal Issues 

2013, the Colorado Department of Revenue and State Licensing Authority adopted regulations to 

implement licensing qualifications and procedures for retail marijuana facilities.87 The regulations 

establish procedures for the issuance, renewal, suspension, and revocation of licenses; provide a 

schedule of licensing and renewal fees; and specify requirements for licensees to follow regarding 

physical security, video surveillance, labeling, health and safety precautions, and product 

advertising.88 

Alaska's recreational marijuana law establishes a licensing and registration regime for cultivation 

facilities, manufacturing facilities, and retail stores.89 A state Marijuana Control Board is 

authorized to issue regulations to implement the licensing and registration regime, including rules 

that establish license application and renewal processes, qualification standards, labeling 

requirements, and advertising limitations.90 

Oregon Ballot Measure 91 empowers the Oregon Liquor Control Commission to issue regulations 

establishing similar licensing standards.91 

Taxation Authority 

Each of the retail marijuana laws also imposes taxes on recreational marijuana. These taxing 

measures vary in size and applicability and establish different purposes for which the revenue 

generated through these taxes will be used. 

For example, in accordance with adopted regulations, Washington will impose an excise tax of 

25% of the selling price on each marijuana sale within the established distribution system.92 The 

state excise tax will, therefore, be imposed on three separate transactions: the sale of marijuana 

from producer to processor, from processor to retailer, and from retailer to consumer. All 

collected taxes are deposited into the Dedicated Marijuana Fund and distributed, mostly to social 

and health services, as outlined in the lnitiative.93 

Similarly, Colorado voters approved a 25% tax on retail marijuana transactions (a 15% excise tax 

that would raise revenues generally to be used for public school capital construction, and an 

additional 10% sales tax that predominately would generate revenues to fund the enforcement of 

the retail marijuana regulations ).94 

( ... continued) 

2013. available at https://www.colorado.gov/pacitic/sites/dctault/files/ 

Retaii%20Marijuana%20Rules.o/o20Adopted%20090913.o/o20Eflectivc%20 1 OJ 513%5B I %5D _ O.pdf. 

87 /d. 

88 /d. 

gq ALASKA STAT.§ 17.38.70. 

90 ALASKA STAT. §17.38.90. 

91 Oregon Ballot Measure 91 §7. 

qz See Colorado Dep't of Revenue, Permanent Rules Related to the Colorado Retail Marijuana Code, September 9, 

2013, available at https://www.colorado.gov/pacific/sitcs/dcfault/files/ 

Retail%20Marijuana%20Rulcs, %20Adopted%20090913,%20Effective%201 0 1513%5B I %51)_ O.pdf.at 20-21. 

93 Washington Initiative 502 §26. 

94 Colorado Legislative Council Staff. Fiscal Impact Statement: Proposition AA, Retail Marijuana Taxes, September 

24.2013, available at http://www.leg.state.co.us/LCS/lnitiative%20Referendum/1314initrefr.nstl 

b74b3fc5d676cdc987257ad8005bcc6a/e3e37fa33a36873887257b6c0077ac93/$FlLE/ 

(continued ... ) 
134 


Insert offset folio 75 here 35631.075

Manjuana: Medical and Retail-Selected Legal Issues 

Under Oregon Ballot Measure 91, marijuana producers will be taxed $5 for each immature 

marijuana plant, $10 tor each ounce of marijuana leaves, and $35 for each ounce offlowers.95 

The revenue generated will be used first to offset the costs of implementing the state's marijuana 

regime and remaining monies will be distributed to a variety of existing state funds, including the 

state's Common School Fund and the Mental Health Alcoholism and Drug Services Account.96 

Alaska law imposes an excise tax of $50 per ounce marijuana for each transaction between a 

marijuana cultivation center and either a processor or retail store?7 

Local Control 

Another issue relevant to each retail marijuana law is the question of whether local governments 

within the state are permitted to ban or otherwise regulate marijuana businesses within their local 

jurisdictions. Colorado Amendment 64 expressly permits local governments within Colorado to 

regulate or prohibit the operation of such facilities.98 The Alaska recreational marijuana law also 

expressly provides local governments with certain authority to ban recreational marijuana 

businesses from operating and otherwise restrict "the time, place, manner, and number of 

marijuana establishment operations" with their respective jurisdictions.99 Oregon Ballot Measure 

91 also expressly authorizes localities to impose "reasonable time, place, and manner" restrictions 

on marijuana businesses. HJO Washington's Initiative 502, on the other hand, does not expressly 

allow Washington cities to ban marijuana stores from opening within their borders, and there is 

uncertainty about the degree to which such local prohibitions or moratoriums on the operation of 

recreational marijuana businesses may be enforced. 101 

Justice Deparbnent Memoranda 

The Department of Justice is not required, and realistically lacks the resources, to prosecute every 

single violation of the CSA. Pursuant to the doctrine of"prosecutorial discretion," federal law 

( ... continued) 

Retail%20Marijuana%20Taxes_FN.pdf. A provision of the Colorado Constitution may affect the disbursements of 

marijuana-related tax revenue. See Jack llealy, In Colorado, Marijuana Taxes A1ay Have to Be Passed Back N.Y. 

TIMES, April 1, 2015, available at http://W\\wnytimcs.com/2015/04/02/us/colorado-lawmakers-scramble-to-keepmillions-in-marijuana-taxes.html? _ rO. 

9

.r; Oregon Ballot Measure 91 §33. 

96 !d. §44. 

97 ALASKA STAT. §43.61.010. 

98 Colorado Amendment 64 §16(5)(1). See also Dan Frosch, Colorado Localities Make Own Rules B~fiJre FiiUl! 

Decision on ;\1arijuana Sales, N.Y. TIMES, June 12, 2013; John Ingold, Colorado A1arijuana Stores Likely to be 

Concentrated in F'ew Cities, THE DENVER POST. July 25.2013. 

99 ALASKA STAT. §17.38.110. 

100 Oregon Ballot Measure 91 §58. 

101 See Chelan County Judge Agrees l-llith Attorney General's Opinion, Holds that Local Governments Can Ban 

Marijuana Businesses, Wash. State Off. of the Attorney Gen. Press Release, Oct. 17, 2014, available at 

http://\vww.atg. wa.gov/news/ncws~releases/chelan-oounty~judge-agrees-attorney-gcneral-s-opinion-holds-local~ 

governments-can~ Jake Ellison, City/County Bans, Moratoriums, and Zoning Approvals for Marijuana Businesses in 

Washington. SEATTLE PosT lNTELLIGENCER, December 12. 2013, available at http:/lhlog.seattlepi.com/marijuana/2013/ 

12/ J 2/bans-moratoriums-and-zoning-approvals-for-marijuana-businesses-as-f3.r-as-we-know/# 18853101 =-0& 

1841310391; Gene Johnson, No Welcome Yet for Pot Shops in Many Wash Cities. SEA'lTLEPOSTINTELLIGENCER, 

January I, 2014. 
135 


Insert offset folio 76 here 35631.076

Marijuana: Medical and Retail-Selected Legal Issues 

enforcement officials have "broad discretion'' as to when, whom, and whether to prosecute for 

violations of the CSA. 102 Courts have recognized that the "decision to prosecute is particularly illsuited to judicial review," as it involves the consideration of factors, such as the strength of 

evidence, deterrence value, and existing enforcement priorities, "not readily susceptible to the 

kind of analysis the courts are competent to undertake."103 

Through the exercise of prosecutorial discretion, DOJ is able to develop a policy outlining what 

marijuana-related activities will receive the most attention from federal authorities. DOJ has 

issued four memoranda since 2009 that explain the Obama Administration's position regarding 

state-authorized marijuana activities, as described in the following sections. 

The 2009 Ogden Memorandum 

In 2009, Deputy Attorney General David W. Ogden provided guidance to federal prosecutors in 

states that have authorized the use of medical marijuana. 104 Citing a desire to make "efficient and 

rational use of its limited investigative and prosccutorial resources," the memorandum stated that 

while the "prosecution of significant traffickers of illegal drugs, including marijuana ... continues 

to be a core priority," federal prosecutors "should not focus federal resources[] on individuals 

whose actions are in clear and unambiguous compliance with existing state laws providing for the 

medical use ofmarijuana."105 The memorandum made clear, however, that "this guidance [does 

not] preclude investigation or prosecution, even where there is clear and unambiguous 

compliance with existing state Jaw, in particular circumstances where investigation or prosecution 

otherwise serves important federal interests." 106 Nevertheless, the Ogden Memorandum was 

widely considered an assurance that DOJ would not prosecute any marijuana cultivation, 

distribution, or possession, as long as those activities complied with state law. 107 

At about the same time, it became apparent the state medical marijuana programs had 

consequences that were perhaps unintended. In some states, the affliction most easily claimed and 

most difficult to diagnose--chronic pain-accounted for 90% of all physicians' 

102 United States v. Goodwin, 457lJ.S. 368_ 380 (1982). 

103 Wayte v. United States, 470 U.S. 598,607 (1985). 

104 Memorandum fiJr selected U.S. Attorneys from David W. Ogden. Deputy Attorney General, Investigations and 

Prosecutions in States Authorbng the Medical Use of Marijuana, October 19,2009 (hereinafter Ogden Memorandum) 

available at http://www.justice.gov/opaldocuments/medical-marijuana.pdL 

105 Id at 1-2. 

106 Id at3. 

107 Todd Grabarsky, Conflicting Federal and State AJedical Marijuana Policies: A 1l1reat to Cooperative Federah\'m, 

116 W.VA. L. REv. I, 3 (20 13)("While the Ogden Memo reaftirmed the illegality of all fbm1s of medical marijuana at 

the federal level, it made clear that the federal executive policy with regards to medical marijuana pcnnissible at the 

state level would be f(>r the most part hands-off."): Karen O'Keefe, State Medical Marijuana Implementation and 

Federal Policy, 16 J. HEALTH CAREL& PoL'Y 39, 51 (2013)("0n October 19, 2009, Deputy Attorney General David 

Ogden issued a memorandum memorializing the new federal policy .... This memo was widely interpreted as meaning 

that the federal government would not be targeting medical marijuana providers."); Sam Kamin & Eli Wald. Marijut1na 

Lawyers: Outlaws or Crusaders? 91 ORE. L. REV. 869. 881 (2013)("1n states that had adopted [Medical Marijuana) 

provisions, the memo was seen a~ a green light to the open sale of marijuana.")~ Alex Kreit, Reflections on }.fedical 

Marijuana Prosecutions and the Duty to Seek Justice, 89 DENV. U. L. REV. 1027, 1037 (2012)("The New York Times 

ran a front-page article about the memo under the headline U.S. Won't Prosecute in States Ihat Allow Medical 

Mar1juana reporting that ·rvleople who use marijuana for medical purposes and those who distribute it to them should 

not face federal prosecution, provided they act according to state law. the Ju:>iice Department said Monday in a 

directive with far-reaching political and legal implications.··~). 
136 


Insert offset folio 77 here 35631.077

Mari]uana: Medical and Retail-Selected Legal Issues 

recommendations. 108 lt was said that Los Angeles alone had somewhere between 500 and 1,000 

medical marijuana dispcnsaries. 109 No one knew how many for sure, but all agreed there were 

more dispensaries than there were Starbucks coffee shops. 1 10 Rather than the old and infinn, 

"[r]emarkably the age distribution of medical marijuana users seem[ed] to mimic that of 

recreational users in its concentration of young persons."'111 

The 2011 Cole Memorandum 

DOJ reiterated and clarified its position in a subsequent memorandum in 201 I drawing a clear 

distinction between the potential prosecutions of individual patients who require marijuana in the 

course of medical treatment and "commercial" dispensaries. 112 After noting that several 

jurisdictions had recently "enacted legislation to authorize multiple large-scale, privately operated 

industrial marijuana cultivation centers," DOJ stated that 

The Ogden memorandum was never intended to shield such actiVIties from federal 

enforcement action and prosecution, even where those activities purport to comply with state 

law. Persons who are in the business of cultivating, selling or distributing marijuana, and 

those who knowingly facilitate such activities, are in violation of the [CSA] regardless of 

state law. Consistent with resource constraints and the discretion you may exercise in your 

district, such persons are subject to federal enforcement action, including potential 

prosecution. 113 

The surge in enforcement activity proximate to the release of the 2011 Cole Memorandumll4 

caught unawares many of those who considered the Ogden Memorandum a green light for 

marijuana entrepreneurship. 115 

108 Gerald Caplan, Medical Marijuana: A Study of Unintended Consequences, 43 MCGEORGE L. REv. 127, 130, 136-37 

(2012)("Statewide, more than 70% of doctors recommendations were written by fewer 1han 15 physicians in Colorado, 

and severe or chronic pain. a catchall category, accounted for ninety-four percent of all reported conditions .... [In I 

Oregon, fewer than ten percen1 ofthc roughly 35,000 patients holding cards suffered from cancer, multiple sclerosis, 

glaucoma, or the other specific debilitating conditions cited in the legislation. Ninety percent of registered cardholders 

cited chronic pain as their qualifying debilitating disease. Nevada's percentages are nearly identical. Montana's are 

slightly lower, with seventy-one percent of a11 medical marijuana users suffering from chronic pain."). 

109 Alex Kreit, The Federal Response to State 'Marijuana Lega/i:::ation· Room for Compromise, 91 ORE. L. REv. 1029. 

1036 n.33 (2013). 

110 ld 

111 ld. at 135. 

112 Memorandum for U.S. Attorneys from James M. Cole, Deputy Attorney GeneraL Guidance Regarding the Ogden 

Memo in Jurisdictions Seeking to Authori=e Afari_juanafor A1edical Use. June 29, 2011 (hereinafter Cole 2011 

Memorandum), available at http://wwwjusticc.gov/oip/docs/dag-guidance-2011-for-mcdical-marijuana-use.pdf. 

lLl !d. at 2. 

"'Sam Kamin & Eli Wald. Mar(iuana Lawyers: Outlaws or Crusaders> 91 ORE. L. REV. 869,881-83 (2013)("1n lhe 

fall of2011. California's four Untied Stales A1tomeys announced that a federal grand jury had returned indictments 

against several marijuana cooperative m.vners throughout the state, charging them with violations ofthe CSA. In 

addition, the United States Attorneys sent cease and desist lcUcrs to both dispensary ovvners and their landlords, giving 

them fOrty-five days to move their operations or else face arrest. ln addition to the clear threat of criminal prosecution, 

this action made clear that the threat of civH enforcement ····explicit in the Cole memo---was not an empty one. For a 

federal government with limited enforcement resources. the specter of civil forfeiture is an incredibly powerfhl tool. 

Similar crackdov.ms have since taken place in Washington state, Co1orado. and Montana."'). 

'''See, e.g., Montana Caregivers Association, LLC v. Uniled States, 841 F.Supp.2d 1147, 1148 (D.Mont. 2012)("Thc 

p1aintifi'5 describe themselves as ·caregivers: growers and distributors of medical marijuana to qualified patients within 

the State of Montana.' They tiled their complaint aflcr federal authorities raided their facilities in March 20 II and 

(conlinued ... ) 
137 


Insert offset folio 78 here 35631.078

Marijuana: Medical and Retail-Selected Legal Issues 

The 2013 Cole Memorandum 

The Obama Administration's official response to the Colorado and Washington initiatives was 

provided on August 29, 2013, when Deputy Attorney General James M. Cole sent a memorandum 

to all U.S. Attorneys intended to guide the "exercise of investigative and prosecutorial discretion" 

when it comes to civil and criminal enforcement of the federal Controlled Substances Act within 

all states, including those that have legalized marijuana for medicinal or recreational use. 116 The 

memorandum expresses DOJ's position that, although marijuana is a dangerous drug that remains 

illegal under federal law, the federal government will not pursue legal cha!lenges against 

jurisdictions that authorize marijuana in some fashion, assuming those state and local 

governments maintain strict regulatory and enforcement controls on marijuana cultivation, 

distribution, sale, and possession that limit the risks to "public safety, public health, and other law 

enforcement interests." This DOJ decision has received both praisem and criticism.ll8 

The memorandum instructs federal prosecutors to prioritize their "limited investigative and 

prosecutorial resources to address the most significant [marijuana-related] threats" and identified 

the following eight activities as those that the federal government wants most to prevent: (I) 

distributing marijuana to children; (2) revenue from the sale of marijuana going to criminal 

enterprises, gangs, and cartels; (3) diverting marijuana from states that have legalized its 

possession to other states that prohibit it; ( 4) using state-authori7..ed marijuana activity as a pretext 

for the trafficking of other illegal drugs; (5) using firearms or violent behavior in the cultivation 

and distribution of marijuana; (6) exacerbating adverse public health and safety consequences due 

to marijuana use, including driving while under the influence of marijuana; (7) growing 

marijuana on the nation's public lands; and (8) possessing or using marijuana on federal 

property. 119 The memorandum advises U.S. Attorneys and federal law enforcement to devote their 

resources and efforts toward any individual or organization involved in any of these activities, 

regardless of state law. Furthermore, the memorandum recommends that jurisdictions that have 

legalized some form of marijuana activity "provide the necessary resources and demonstrate the 

willingness to enforce their laws and regulations in a manner that ensures they do not undermine 

federal enforcement priorities."120 However, the memorandum cautions that, to the extent that 

state enforcement efforts fail to sufficiently protect against the eight harms listed above, the 

federal government retains the right to challenge those states' marijuana laws. 

( ... continued) 

seized live marijuana plants, dried marijuana. and related equipment. The plaintiffs claim the raids were unlawful 

because (I) Montana Jaw allowed them to grow and produce marijuana tOr medical consumption and (2) the United 

States Department of Justice represented that they would not actively prosecute medical marijuana caregivers."); 

United States v. Washington, 887 F.Supp.2d !077. !090-9! (D. Mont. 20l2)("All of the pending motions to dismiss on 

estoppel grounds rely on the common underlying principle that the federal government, having stated several times that 

it would not initiate federal drug prosecutions of sellers or users of medical marijuana acting in compliance with the 

Jaws of their respective states, should now be estopped from pursuing this federal prosecution in contradiction of those 

statements. 'Jbe most prominent of the federal government's various pronouncements on the topic of medical marijuana 

is what has become known as the 'Ogden memo."'). 

116 Memorandum for U.S. Attorneys from James M. Cole, Deputy Attorney General. Guidance Regarding Marijuana 

En/i>rcement, August 29,2013 (hereinafter 20!3 Cole Memorandum), available at http://www.justice.gov/iso/opal 

resources/30520 !382913275685 7 46 7. pdf. 

117 See. e.g .. New York Times Editorial, A Saner Approach on Drug Laws. N.Y. TIMES. September I, 2013. 

118 See. e.g .. Wall Street Journal Editorial. l11e BeltwayChoam Gang, WAI.LST.J., September 5, 20!3. 

119 20!3 Cole Memorandum, at l-2. 

120 Jd. at 2·3. 
138 


Insert offset folio 79 here 35631.079

Marijuana: Medical and Retail-Selected Legal Issues 

Two additional points made in the memorandum are worth highlighting. First, the memorandum 

acknowledges a change in Administration policy with respect to "large scale, for-profit 

commercial enterprises" that may ease the concerns of potential state-licensed marijuana 

distributors and retailers in Colorado and Washington. 121 In previous guidance issued to U.S. 

Attorneys in states with medical marijuana laws, DOJ had suggested that large-scale marijuana 

enterprises were more likely to be involved in marijuana trafficking, and thus could be 

appropriate targets for federal enforcement actions. 122 In the guidance, DOJ directs prosecutors 

"not to consider the size or commercial nature of a marijuana operation alone as a proxy for 

assessing whether marijuana trafficking implicates the Department's enforcement priorities ... " 123 

The memorandum suggests that a state with a robust regulatory system for the control of 

recreational marijuana "is less likely to threaten [] federal priorities ... " than a state that lacks such 

controls. This statement may inform the long-running debate over the extent to which state 

marijuana regulatory and licensing laws (as opposed to mere penalty exemptions) conflict with 

federal law. Some courts have suggested, for example, that whereas a state is generally free to 

remove state penalties for marijuana use, the more robust a state's licensing and regulatory 

program, the more likely the law is to be preempted by federallaw. 124 The Oregon Supreme 

Court, for instance, has suggested that states may not "affirmatively authorize" an individual to 

participate in conduct prohibited by federal law. 125 

The memorandum makes no statements with regard to the application of various federal money 

laundering and banking laws that have hampered the ability of commercial marijuana 

establishments to obtain the necessary financing and financial services to establish and grow their 

businesses. 126 

The 2014 Cole Memorandum 

The 2014 Cole memorandum, however, did address banking and money laundering laws. 127 1t 

recited eight priority points listed in the 2013 memorandum and explained that the same 

considerations should guide the allocation of investigation and prosecution resources to 

marijuana-related offenses involving financial transactions-money laundering, money transfers, 

and Bank Secrecy Act transgressions, discussed later in this report. 

121 !d. at3. 

121 201 I Cole Memorandum, at 1~2. 

123 2013 Cole Memorandum. at 3. 

124 See discussion supra pp. 14-19. 

125 Emerald Steel Fabricators. Inc., v. Bureau of Labor and Indus., 348 Ore. 159, 230 P.3d 518 (2010). 

12' For more information about this topic. see CRS Legal Sidebar WSLG682, Banking Difficulties for State-Legalized 

Marijuana Dispensaries, by M. Maureen Murphy; see also Reuters, Easier Pot Policy Won't Relieve Dispensaries' 

Banking Woes, CNBC.com, September 5, 2013, available at http://www.cnbc.comlidiiOlOll966; Serge F. Kovaleski. 

Banks Say No to Marijunna ,\Janey. Legal or Not. N.Y. TIMES, January I I. 2014. 

127 Memorandum for U.S. Attorneys from James M. Cole, Deputy Attorney General, Guidance Regarding MariJuana 

Related Financial Crimes, February 14, 2014 (hereinqfter 2014 Cole Memorandum), available at 

http://wwwjustice.gov/usao/wae/news/20 14/2014-02 -14-FinCin.html. 
139 


Insert offset folio 80 here 35631.080

Marijuana: Medical and Retail-Selected Legal Issues 

Preemption 

To what extent does the CSA trump or preempt state medical and recreational marijuana laws? 

The preemption doctrine stands at the threshold of the federal-state marijuana debate. The 

preemption doctrine is grounded in the Supremacy Clause of Article VI, cl. 2, which states that 

"[t]he Constitution, and the Laws of the United States which shall be made in Pursuance thereof; 

and all Treaties made ... under the Authority of the United States, shall be the supreme Law of the 

Land."128 The Supremacy Clause, therefore, "elevates" the U.S. Constitution, federal statutes, 

federal regulations, and treaties129 above the laws of the states. 130 As a result, where federal and 

state law are in conflict, the state law is generally preempted, leaving it void and without effect. m 

Preemption is a matter of Congress's choice when it operates within its constitutionally 

enumerated powers. In some instances, Congress has exercised its authority so pervasively as to 

preclude the possibility of state activity within the same legislative field. 132 On the other hand, 

where Congress prefers the co-existence of state and federal law, state law must give way only 

when it conflicts with federal law in either of two ways: (I) if it is "physically impossible" to 

comply with both the state and federal law ("impossibility preemption"); or (2) if the state law 

"stands as an obstacle to the accomplishment and execution of the full purposes and objectives of 

Congress" ("obstacle preemption"). 133 

What constitutes an obstacle for preemption purposes is a matter "to be informed by examining 

the federal statute as a whole and identifying its purpose and intended effects." 134 When Congress 

acts within an area traditionally within the purview of the states, it will be assumed not to have 

intended to give its words preemptive force unless a contrary purpose is manifestly clear. 135 

The Controlled Substances Act contains an explicit statement of the extent of Congress's 

preemptive intent. Section 903 provides that 

No provision of this subchapter shall be construed as indicating an intent on the part of the 

Congress to occupy the field in which that provision operates, including criminal penalties, 

to the exclusion of any State law on the same subject matter which would otherwise be 

within the authority of the State, unless there is a positive conflict between that provision of 

this subchapter and that State law so that the two cannot consistently stand together. 156 

12& U.S. CoNST., Art. VI, cL 2. 

129 See discussion of preemptive effect of treaties infra. 

130 Northern States Power Co. v. Minnesota. 447 F.2d ll43. 1145 (8'h Cir. 1971). 

131 See. e.g., Mutual Phannaceutical Co., Inc. v. Bartlett, 133 S.Ct. 2466.2473 (20l3)("Underthe Supremacy Clause, 

ti·om which our pre·cmption doctrine is derived. any state law, however clearly within a State's acknowledged power, 

which interferes with or is contrary to federal law., must yield.""). 132 Arizona v. United States. 132 S.Ct. 2492, 2501 (2012)("[T]he States arc precluded from regulating conduct in a 

field that Congress., acting within its proper authority, ha<; determined must be regulated by its exclusive governance. 

The intent may be inferred tfom a framework of regulation so pervasive ... that Congress has left no room for the states 

to supplement it or where there is a federal interest ... so dominant that the federal system will be assumed to preclude 

enforcement of state laws on the same su~jcct."). 

133 Hillman v. Maretta. 133 S.Ct. 1943, 1950 (2013). 

" 4 Arizona v. United States. 132 S.Ct. at 2501. 

135 Hillman v. Maretta, 133 S.Ct. 1943, 1950 (2013). 

136 21 u.s. c. §903. 

Congressional Research Servtce 19 
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Marijuana: Medical and Retail-Selected Legal Issues 

Several state courts have addressed the preemption challenges to state medical marijuana laws 

with mixed results. For example, appellate courts in Colorado, California, and Michigan have 

concluded that at least some aspects of the medical marijuana laws in those states survive both 

impossibility and obstacle preemption analysis. In two instances, they have held that the language 

in Section 903 evidences an intent to preempt state laws only under impossibility preemption and 

not under obstacle preemption. 137 

The Colorado case, People v. Crou~e, arose when a defendant, acquitted of cultivation charges on 

the basis of immunity under the state medical marijuana law, petitioned the trial court to order 

police to return marijuana plants they had seized in connection with his prosecution. 138 The state 

questioned whether the CSA precluded such an action. The Court of Appeals of Colorado 

determined that a state marijuana law is only in ''positive conflict" with the CSA when it is 

"physically impossible" to simultaneously comply with the state and federal law. It held that in 

order to preempt the CSA Section 903 "demands more than that the state law 'stands as an 

obstacle to the accomplishment and execution' of the federallaw."'139 Thus, the language of the 

CSA "cannot be used to preempt a state law under the obstacle preemption doctrine."140 The 

decision in Crouse adopted141 the reasoning of County of San Diego v. San Diego NORML, a 

California state court decision that also determined that obstacle preemption should not be 

applied in determining whether a state marijuana law is preempted by the CSA. 142 

In both instances, however, the court supplied an alternative, obstacle preemption explanation. In 

Crouse, the court noted Section 885(d) of the CSA "carves out a specific exemption for 

distribution of controlled substances by law enforcement officers.'' 143 Thus, if the officers 

returned ("distributed") the marijuana to Crouse they would not be obstructing the CSA but acting 

in a manner which it authorized. 144 

In San Diego NORML, the California law required local governments to issue medical marijuana 

cards to qualified applicants.'" In the eyes of the California appellate court, the medical 

marijuana statute posed no obstacle to the CSA, because "[t]he purpose of the CSA is to combat 

recreational drug use, not to regulate a state's medical practices."146 

The Michigan case, Beek v. City of Wyoming, involved a Wyoming City property owner and 

medical marijuana registrant who sought a declarative judgment against a city ordinance which 

proscribed the use of his property in a manner contrary to federal law including the CSA. 147 Beek 

ll7 See, e.g., County of San Diego v. San Diego NORML, 165 Cai.App. 41

h 798 (2008)(holding that a stale law conflicts 

with the CSA only where it is impossible to comply with both the state and federal law). 

138 2013 Colo.App. LEXIS 1971 (December 19, 20!3). 

139 Jd. at *4. 

140 Jd at *11. 

141 Jd at *4 ("We consider County of San Diego well-reasoned and fiJilow it here.") 

142 Cnty. of San Diego v. San Diego NORML. 165 Cai.App. 4'" 798 (2008). 

143 2013 Colo.App. LEXIS 1971 at *4. 

144 ld. at *5. 

1

'" Cnty. of San Diego v. San Diego NORML, 165 Cai.App.41

h at 808. 

146 !d. at 826. The court also found that the California law was not vulnerable to impossibility preemption since the 

CSA did not outlaw the issuance of the medical marijuana cards that the California law required. Thus. it was not 

impossible for an individual to honor both the CSA and the California card law. ld. at 819-21. 

147 495 Mich. I, 24-25 (Mich. 2014). 
141 


Insert offset folio 82 here 35631.082

Marijuana: Medical and Retail-Selected Legal Issues 

argued that the Michigan Medical Marihuana Act (MMMA), which immunized an individual's 

cultivation of marijuana for medical purposes, invalidated the city ordinance. The City argued 

that the CSA preempted the MMMA. The Michigan Supreme Court held that the CSA did not 

preempt the MMMA, but also that the ordinance must yield to the MMMA. 148 As understood by 

the court, the MMMA escaped impossibility preemption because it was permissive and therefore 

did not command the performance of an act prohibited by federal Jaw: "impossibility results when 

state law requires what federal law forbids, or vice versa."149 The MMMA escaped obstacle 

preemption because it merely conveyed immunity from the consequences of state law: "the 

MMMA's limited state-law immunity for [medical marijuana] use does not frustrate the CSA's 

operation nor refuse its provisions their natural effect, such that its purpose cannot otherwise be 

accomplished .... [T]his immunity does not purport to alter the CSA's federal criminalization of 

marijuana, or to interfere with or undermine federal enforcement of that prohibition."150 

The Oregon Supreme Court understood obstacle preemption a little differently in Emerald 

Steel. 151 State regulators had charged Emerald Steel with disability discrimination for firing an 

employee for medical marijuana use. The Oregon court concluded, based on its interpretation of 

U.S. Supreme Court precedent, that "[a]ffirmatively authorizing a use that federal law prohibits 

stands as an obstacle to the implementation and execution of the full purposes and objectives of 

the Controlled SubstancesAct." 152 Thus, "[t]o the extent that [the Oregon statute] affirmatively 

authorizes the use of medical marijuana, federal law preempts that subsection leaving it without 

effect."153 

The continued viability of Emerald Steel may be open to question. While the Oregon Supreme 

Court has not overturned its earlier decision, it has observed in Willis that Emerald Steel's 

"affirmative ;tuthorization" obstacle preemption test may have been an overgeneralization: 

"Emerald Steel should not be construed as announcing a stand-alone rule that any state law that 

can be viewed as 'affirmatively authorizing' what federal law prohibits is preempted. Rather it 

reflects this court's attempt to apply the federal rule and the logic of the most relevant federal 

cases to the particular preemption problem that was before it. And particularly where, as here, the 

issue of whether the statute contains an affirmative authorization is not straightforward, the 

analysis in Emerald Steel cannot operate as a simple stand-in for the more general federal rule." 154 

148 ld at 24. 

149 /d.atl2. 

150 ld. at 14-15. 

151 Emerald Steel Fabricators. Inc. v. Bureau of Labor and Indus., 230 P.3d 518 (2010). 

152 Jd. at 529 ("To be sure. state law docs not prevent the federal government ffom enforcing its marijuana laws against 

medical marijuana users in Oregon if the tCderal government chooses to do so. But the state law at issue in Michigan 

Canners did not prevent the federal government from seeking injunctive and other relief to enforce the federal 

prohibition in that case. Rather, state law stood as an obstacle to the enforcement of federal law in Michigan Canners 

because state law affirmatively authorized the very conduct that federal law prohibited, as it does in this case''), citing, 

Michigan Canners & Freezers Assoc. v. Agricultural Marketing and Bargaining Bd., 46 7 U.S. 461. 478 ( 1984). 

153 !d. at 529. 

154 Willis v. Winters, 253 P.3d 1058, 1064 n.6 (2011). In Willis, the court held that the federal statute that outlawed 

firearm possession by a user of controlled substances did not preempt the Oregon statute that authorizes sheriffs to 

issue "'concealed carry·· permits to otherwise qualified applications who were users of medical marijuana. !d. at I 065-

66. 
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Marizuana: Medical and Retail-Selected Legal Issues 

Finally, in what is one of the few reported statements by a federal court relating to preemption of 

state marijuana laws, in In re: Rent-Rite Super Kegs West LTD, 155 a bankruptcy court noted (in 

what was clearly dicta) that "conflict preemption is not an issue here. Colorado constitutional 

amendments for both medical marijuana, and the more recent amendment legalizing marijuana 

possession and usage generally, both make it clear that their provisions apply to state law only. 

Absent from either enactment is any effort to impede the enforcement of federallaw." 156 

Other Constitutional Considerations 

Other colorable constitutional issues involving the CSA and state medical or recreational 

marijuana statutes have arisen on a number of occasions. The Supreme Court resolved one of 

them when it found that Congress's constitutional authority to regulate interstate and foreign 

commerce enabled it to craft the CSA so as to categorically outlaw the cultivation and possession 

of marijuana. 157 

Congress's Commerce Clause authority, however, docs not include the power to compel a state 

legislature to act at its bidding or a state official to enforce its will. 158 From time to time, medical 

marijuana litigants have invoked this limitation in an effort to shield themselves from the CSA. 

Because the CSA makes no demands of state legislatures or officials, those efforts have been to 

no avail. 159 The related Tenth Amendment argument that the CSA intrudes upon those police 

powers reserved to the states has enjoyed no greater success. 160 

155 In re: Rent-Rite Super Kegs West Ltd., 484 B.R. 799 (December 19. 2012). Whether the debtor was engaged in 

criminal activity was an issue in the case because ·'a federal court crumot be asked to enfOrce the protections of the 

Bankruptcy Code in aid of a Debtor whose activities constitute a continuing federal crime.'' !d. at 805. 

'"!d. at 805 ("The fact that there is a diliCrence in legislative philosophy creates no conflict that requires an analysis of 

federal preemption under the Supremacy Clause.''). Part of the confusion over the proper application of obstacle 

preemption to state marijuana laws may stem iT-om an apparent disagreement over the nature of the obstacle that is 

required to trigger preemption. As previously noted, the Supreme Court has held that a state law is preempted when it 

"stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Hillman 

v. Maretta. 133 S.Ct. at 1950 (emphasis added). Most courts that have rejected preemption challenges to state medical 

marijuana laws have interpreted "'the full purposes and objectives of Congress" in relation to the federal government's 

ability to enforce federal law. As such, these courts have generally held that because the state law does not create a 

shield or otherwise immunize state residents from federal criminal prosecutions, the law does not constitute an obstacle 

to "the enforcement of federal law." To the contrary, the Oregon Supreme Court reasoned that the fact that the state law 

in no way inhibited federal prosecutions did not mean that the law did not othervvise create an obstacle to the 

Congress's chief objective in enacting the CSA: that of curtailing drug use. Emerald Steel Fabricators, Inc. v. Bureau of 

Labor Indus .. 230 P.3d at 529. 

157 Gonzales v. Raich, 545 U.S. I. 5. 22 (2005)(The question presented in this case is whether the power vested in 

Congress by Article I, §8, of the Constitution, 'Lt]o make all Laws which shall be necessary and proper for carrying into 

Execution' its authority to ·regulate Commerce with foreign Nations. and among the several States' includes the power 

to prohibit the local cultivation and usc of marijuana in compliance wilh California law .... Given the enforcement 

difliculties that attend distinguishing between marijuana cultivated locally and marijuana grown elsewhere, . _we have 

no difficulty concluding that Congress had a rational basis for believing that f3ilure to regulate the intrastate 

manufacture and possession of marijuana would leave a gaping hole in the CSA. Thus, as in Wickard, ... Congress wa..:; 

acting well within its authority to ·make all Laws which shall be necessary and proper' to 'regulate Commerce_ 

among the several States.'"). 

158 New York v. United States, 505 U.S. 144. 161 (1981)("Congress may not commandeer the legislative process of the 

States by directly compelling them to enact and enforce a regulatory program."). Printz v. United States, 52 I U.S. 898, 

935 (1997)("1be Federal Government may [not] ... command the States' officers, or those of their political 

subdivisions, to administer or enforce a federal regulatory program.''). 

159 United States v. Washington. 887 F.Supp.2d I077, I 101 (D.Mont. 2012); United States v. Stacy, 696 F.Supp.2d 

(continued ... ) 
143 


Insert offset folio 84 here 35631.084

Mari[uana: Medical and Retail-Selected Legal Issues 

Of course, the purported exercise of an explicit constitutional power such as the Commerce 

Clause will be defeated, if the exercise is beyond the scope of the asserted power or is contrary to 

some other explicit or implicit constitutional limitation. In the case of the fundamental rights of 

the people, the Tenth Amendment, the Ninth Amendment, and the substantive due process 

components of the Fifth and Fourteenth Amendments all impose limits on the federal or state 

legislative powcrs. 161 Here too, litigants generally have been unable to convince the courts that 

the limitations entitle them to relief. Tenth Amendment reservations with respect to the rights of 

the people disappear once it is established that the Constitution has expressly delegated a power 

to the United States, as in the case of the Necessary and Proper Clause and the CSA. 162 A 

limitation on intrusion upon the rights of the people, however, may flow from the Ninth 

Amendment and the Due Process Clauses' implicit prohibition on governmental encroachment on 

a fundamental right. 

Fundamental rights are those "deeply rooted in this Nation's history and tradition, and implicit in 

the concept of ordered liberty, such that neither liberty nor justice would exist if they were 

sacrificed." 163 The courts have thus far declined to find such a fundamental right in the 

possession, use, or cultivation of marijuana, even for medicinal purposes. 164 

Due process and equal protection challenges have surfaced both in cases questioning the CSA and 

those contesting application of the various state marijuana laws. At the federal level, several 

courts have rejected the suggestion that the government is estopped from enforcing the CSA by 

virtue of misleading or inconsistent statements in the Ogden Memorandum and elsewhere. 165 

( ... continued) 

1141, 1145 (S.D.Cal. 2010); Raich v. Gonzales, 500 F.3d 850, 867 n.l7 (9th Cir. 2007). 

160 Sacramento Nonprofit Collective v. Holder, 855 F.Supp.2d 1100 (E.D.Cal. 2012)("(l]t is well established under 

United States Supreme Court authority that if a power is delegated to Congress in the Constitution, the Tenth 

Amendment expressly disclaims any reservation of that power to the States. Since the power to regulate the intrastate 

possession. manufacturing, and distribution of marijuana is delegated to Congress through the Commerce Clause, 

Raich I, 545 U.S. at 15, [the] allegation that the power to regulate marijuana in California was reserved to California 

through the Tenth Amendment is foreclosed by United States Supreme Court precedent."). Montana Caregivers 

Association, LLC v. United States, 841 F.Supp.2d 1147, 1149-150 (D. Mont. 2012)(to the same effect). 

161 U.S. Cons!. amend. X (emphasis added)("The powers not delegated to the United States by the Constitution, nor 

prohibited by it to the States, are reserved to the States respectively, or to the people."); amend. IX ("The enumeration 

in the Constitution, of certain rights, shall not be construed to deny or disparage others retained by the people.")~ 

amend. V ("No person shall ... be deprived of life, liberty, or property without due process of law .... ''); amend. XIV, §I 

('"" ... No State shall ... deprive any person oflife, liberty, or property without due process oflaw .... ''). 

162 C(, Raich v. Gonzales, 500 F.3d 850. (9'' Cir. 2007)("The Supreme Court held in Gonzales v. Raich that Congress 

acted within the bounds of its Commerce Clause authority when it crirninalizcd the purely intrastate manufacture, 

distribution, or possession of marijuana in the Controlled Substances Act, See 125 S.Ct. at 2215. Thus, after Gonzales 

v. Raich, it would seem that there can be no Tenth Amendment violation in this case.'"). 

163 Washington v. Glucksberg, 52! U.S. 702, 721 (1997)(internal citations omitted). 

JM Raich v. Gonzales. 500 F.3d at 861-66; United States v. Fry, 787 F.2d 903,905 (4'h Cir. 1986); United States v. 

Fogarty, 692 F.2d 542, 547 (8"' Cir. 1982); Marin Alliance for Medical Marijuana v. Holder, 866 F.Supp.2d 1142. 

1156-157 (N.D.Cal. 2011); Kuromiya v. United States, 37 F.Supp.2d 717,725-27 (E.D.Pa. !999). 

165 United States v. Washington, 887 F.Supp.2d 1077 (D. Mont 2012)("Estoppel by oflicial misleading statement .. 

applies where the defendant had a reasonable belief that his conduct was sanctioned by the government. [It] requires 

the accused to show that (I) an authorized government oflicial, empowered to render the claimed erroneous advice, (2) 

who has been made aware of all the relevant historical facts. (3) aflirmatively told him the proscribed conduct was 

permissible, (4) that he relied on the false information, and (5) that his reliance was reasonable. The Defendants assert 

the defense of estoppel by official misleading statement based on the Ogden memo~ statements made to the press or to 

Congress by then-presidential~candidatc Barack Obama his campaign spokesman, his White House spokesman, and 

United States Attorney General Eric Holder; the characterizations of those statements in news media; the government's 

(continued ... ) 

Congressional Research Service 23 
144 


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Some of these same cases have rejected the contention that placement of marijuana in Schedule I 

of the CSA is irrational and consequently constitutes a violation of equal protection. 166 

Municipal zoning or land use ordinances set the stage for most of the state marijuana-related due 

process cases. State laws vary as to whether municipalities may ban or restrict marijuana-related 

activities within their jurisdictions. 167 Where they may do so, the regulatory scheme must comply 

with due process requirements. 168 

Banking 

The federal banking laws are designed to shield financial institutions from individuals and entities 

that deal in controlled substances. Congress has crafted several of them to enlist financial 

institutions in the investigation and prosecution of those who violate the CSA. As a consequence, 

medical marijuana providers have experienced difficulty securing banking services. 169 On 

( ... continued) 

entry into the stipulation in Santa Cruz; and statements made to at least one Defendant by Flathead Tribal Police drug 

investigator Arlen Auld. None of these statements justifies dismissal on a theory of estoppel by official misleading 

statement."); Marin Alliance for Medical Marijuana v. Holder, 866 F.Supp.2d at 1155-156; Sacramento Nonprofit 

Collective v. Holder, 855 F.Supp.2d at 1 II 1; United States v. Stacy, 696 F.Supp.2d atll46-148; United States v. 

Schafer, 625 F.3d 629,637-38 (9"' Cir. 2010). 

The Second Circuit has rejected the contention that the Ogden memo constituted a rescheduling of marijuana. United 

States v. Canori, 737 F.3d 181, 184-85 (2d Cir. 2013). 

166 United States v. Washington, 887 F.Supp.2d at 1102-103 ("The Ninth Circuit squarely rejected a rational basis 

challenge to the classification of marijuana as a schedule I substance in United States v. Miroyan, 577 F.2d 489, 495 

(9'h Cir. 1978). Although Fleming argues that since Miroyan, additional studies and changes in state law have called 

into question the rationality of Congress' policy, there remains sufficient debate regarding the public benefits and 

potential for hannfu1 consequences of marijuana use to find a rational basis to uphold the continued classification of 

marijuana as a schedule I controlled substance."); Marin Alliance for Medical Marijuana v. Holder. 866 F.Supp.2d at 

1146-147 ("There is no right under the Constitution to have a law go unenforced against you, even if you are the first 

person against whom it is enforced, and even if you think (or can prove) you arc not as culpable as some others who 

have gone unpunished. The law does not need to be enfOrced everywhere to he legitimately enforced 

somewhere")( responding to plaintifis' equal protection challenge that prosecutors' threatened to take legal action 

against them as the landlords of marijuana dispensaries' but visited no similar threats upon the landlords of Colorado 

dispensaries); Sacramento Nonprofit Collective v. Holder, 855 F.Supp.2d at 1109-110 (same equal protection 

challenge; same result). 

167 Beek v. City of Wyoming. 2014 Mich. LEX1S 194 (Mich. 2014)(Michigan Medical Marihuana Act precludes any 

absolute municipal ban on cultivating marijuana within city limits); City of Riverside v. Inland Empire Patients Health 

and Wellncss Center, Inc., 300 P.3d 494, 499 (CaL 2013)(City may use its municipal powers to ban marijuana 

dispensaries within the city); Giuliani v. Jefferson County Board of County Commissioners, 303 P.3d 131, 135 

(Colo.App. 2012)(municipal officials may ban the cultivation or sale of marijuana within the county). 

168 Santa Barbara Patients' Collective Health Coop. v. City of Santa Barbara, 91 I F.Supp. 884, 892-93 (C.D.CaL 

2012)(pre-ordinance permit holder enjoyed a vested right to operate a marijuana dispensary that could not be curtailed 

without due process of law); Conejo Wellness Center, Inc. v. City of Agoura Hills, 214 Cai.App.4"' 1534, 1562 (2013) 

(pre-ordinance dispensary operator had no vested liberty right requiring procedural due process to extinguish). 

169 See. e.g., Deirdre Fernandes, Banks Shun Fled!(ling Marijuana Firms in Mass, THE BosTON GLOBE ("Elsewhere in 

the country, legal marijuana businesses have run into the same problems ... Some marijuana businesses have found 

ways to get a bank account by, for example, setting up separate holding companies that avoid any reference in the 

names to marijuana. Even then, once banks get a whiff of where the money comes from. they close the accounts''), 

available at http://www. bostonglobe.com/business/20 14/0 1/29/med ical-marijuana-firms-face-cash-economy-bankssteer-clear/88ftlJTUbcaYvZfA7fpuENN/story.htm; Legal Marijuana Market Exceeds Tax !lopes, Creating 

Opportunities, MARKETWATCH ("The Denver Post reported Wednesday that banks holding commercial loans on 

properties that lease to Colorado marijuana businesses say they don't plan to refinance those loans when they come 

(continued ... ) 
145 


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Marituana: Medical and Retail-Selected Legal Issues 

February 14,2014, the Department of Justice and the Treasury Department's Financial Crimes 

Enforcement Network (FinCEN) issued guidance with respect to marijuana-related financial 

crimes.17° FinCEN's guidance specifically addresses the obligations to file suspicious activity 

reports (SARs). 

Banks must file SARs with FinCEN relating to any transaction involving $5,000 or more that 

they have reason to suspect are derived from illegal activity.m Willful failure to do so is 

punishable by imprisonment for not more than five years (not more than 10 years in cases of a 

substantial pattern of violations or transactions involving other illegal activity). 172 Breaking up a 

transaction into two or more transactions to avoid the reporting requirement subjects the offender 

to the same 5/l 0 year maximum terms of imprisonment. 173 Banks must also establish and 

maintain anti-money laundering programs, 174 designed to ensure that bank officers and employees 

will have sufficient knowledge of the banks' customers and of the business of those customers to 

identify the circumstances under which filing SARs is appropriate. 175 

Suspicion aside, banks must file currency transaction reports (CTRs) with FinCEN relating to 

transactions involving $10,000 or more in cash. 176 Willful failure to do so is punishable by 

imprisonment for not more than five years (not more than 10 years in cases of a substantial 

pattern of violations or transactions involving other illegal activity). 177 Again, structuring a 

transaction to avoid the reporting requirement exposes the offender to the same 5/l 0 year 

maximum terms of imprisonment. 178 

Banks, their officers, employees, and customers may also face criminal liability under the money 

laundering statutes for marijuana-related financial transactions. Section 1957 makes it a federal 

crime to deposit or withdraw $10,000 or more in proceeds derived from the distribution of 

marijuana and any other controlled substances. 179 Section 1956 makes it a federal crime to engage 

in a financial transaction involving such proceeds conducted with an eye to promoting further 

offenses, for example, by withdrawing marijuana-generated funds in order to pay the salaries of 

medical marijuana dispensary employees. 180 

( ... continued) 

due. Banks say property used a> collateral f<>r those loans theoretically is subject to federal drug-seizure laws, which 

makes the loans a risk. Colorado's two largest banks, Wells Fargo Bank and First Bank. say they won't offer new loans 

to landowners with preexisting leases with pot businesses. And Wells Fargo and Vestra Bank have told commercial 

loan clients they either have to evict marijuana business or seek refinancing elsewhere:·), available at 

http://www.marketwateh.com/story /legal-marijuana-market-exceeds·tax-hopes-creating-opportunities-20 14-02-2 7? I 

rcflink=MW-news-stmp. 

170 2014 Cole Memorandum: Department of the Treasury. Financial Crimes Enforcement Network, BSA EJ.pectations 

Regarding Marijuana-Related Business. HN-2014-GOOI (Feb. 14. 2014)(hercin after FinCEN guidance), available at 

http://W"-w.fincen/ gov/sstatutes_ regs/ guidancc/pdl7FIN-20 14-G002. pdf. 

171 21 lJ.S.C. §5318(g): 31 C.F.R. ~1020.320. 172 31 u.s. c. §5322. 

173 3lll.S.C. §5324(d). 

174 31 U.S.C. §5318(h); 12 U.S.C. ~1818(s); 12 U.S.C. §!786(q)(l). 

175 31 C.F.R. §§1020.200-1020.220. 

176 31 U.S.C. §5313; 31 C.F.R. subpt.l020C; 31 C.F.R. subpt.lOJO C. 177 31 U.S.C. §5322. 

178 31 u.s.c. §5324(d). 

179 18 U.S.C. §§1957(a), (d). 

" 0 18 U.S.C. §1956(a)(I)(A)(i). 

25 
146 


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Marijuana: Medical and Retail-Selected Legal Issues 

Section 1956 violations are punishable by imprisonment for not more than 20 years. 181 Section 

1957 violations are punishable by imprisonment for not more than I 0 years. 182 Conspiracy to 

violate either section carries the same maximum penalties, 183 as does aiding and abetting the 

commission of either offense. 184 Moreover, any real or personal property involved in, or traceable 

to, a transaction proscribed by either statute is subject to confiscation under either civil or 

criminal forfeiture. 185 

Federally insured state- and federally chartered depository institutions that engage in illegal or 

unsafe banking practices also run the risk of being assessed civil money penalties and even losing 

deposit insurance coverage, which would result in the termination of their status as an insured 

depository institution. 186 

In its recent guidance, FinCEN addressed banks' SAR reporting requirements. FinCEN began its 

guidance by emphasizing the point made in the accompanying 2014 Cole Memorandum, that the 

Justice Department's investigation and prosecution of financial crimes would be focused on 

activities that conflict with any of several federal priorities: 

• preventing the distribution of marijuana to minors; 

• preventing revenue from the sale of marijuana from going to criminal enterprises, 

gangs, and cartels; 187 

preventing the diversion of marijuana from states where it is legal under state law 

in some form to other states; 188 

preventing state-authorized marijuana activity from being used as a cover or 

pretext for the trafficking of other illegal drugs or other illegal activity; 

• preventing violence and the use of firearms in cultivation and distribution of .. 189 manJuana; 

• preventing drugged driving and the exacerbation of other adverse public health 

consequences a~sociated with marijuana use; 

181 181J.S.C. §1956(a)(l). 

182 18 U.S.C. §1957(a). 

183 18 U.S. C. § 1956(h). 

'" 18 U.S. C. §2. E.g., United States v. Lyons. 740 F.3d 702.715 (I" Cir. 2014)(intemal citations omitted)("An aider 

and abet1or is punishable as a principal if. first, someone else actually committed the offense and, secontL the aider and 

abettor became associated with the endeavor and took part in it, intending to ensure its success. The central requirement 

for the second element is a showing that the defendant consciously shared the principal's knowledge of the underlying 

criminal act, and intended to help the principaL"). 

185 181J.S.C. §§98l(a)(J)(A), 982(a)(l). 

186 121J.S.C. §1818. 

187 This presumably does not include enterprises, gangs, or cartels that possess or distribute marijuana in violation of 

the CSA but in compliance with applicable state law. 

188 This would seem to serve as a warning to interstate marijuana tourists and the businesses that serve them. 

189 Given the value of the product, violence may be an inescapable attribute of marijuana cultivation and sale, see e.g., 

Benjamin B. Wagner & Jared C. Dolan, Medical Marijuana and Federal Narcotics Enforcement in the Eastern District 

ofCalijiJrnia, 43 McGEORGE L. REV. 109. 121 (2012). 
147 


Insert offset folio 88 here 35631.088

Marizuana: Medical and Retail-Selected Legal Issues 

preventing the growing of marijuana on public lands and attendant public safety 

and environmental dangers posed by marijuana production on public Jands; 190 

and 

• preventing marijuana possession or use on federal property. 191 

FinCEN advised financial institutions that in providing services to a marijuana-related business 

they must file one of three forms of special SARs: a marijuana limited SAR, a marijuana priority 

SAR; or a marijuana termination SAR. The marijuana limited SAR is appropriate when the bank 

determines, after the exercise of due diligence, that its customer is not engaged in any of the 

activities that violate state law or that would implicate any of the Justice Department investigation 

and prosecution priorities listed in the 2014 Cole Memorandum. 192 A marijuana priority SAR 

must be filed when the bank believes its customer is engaged in such activities. 193 A bank files a 

marijuana termination SAR when it finds it necessary to sever its relationship with a customer in 

order to maintain an effective anti-money laundering program. 194 

FinCEN also provides examples of"red flags" that may indicate that a marijuana priority SARis 

appropriate: 

• The business is unable to produce satisfactory documentation or evidence to 

demonstrate that it is duly licensed and operating consistently with state Jaw. 

The business is unable to demonstrate the legitimate source of significant outside 

investments. 

• A customer seeks to conceal or disguise involvement in marijuana-related 

business activity. For example, the customer may be using a business with a nondescript name (e.g., a "consulting,'' "holding," or "management" company) that 

purports to engage in commercial activity unrelated to marijuana, but is 

depositing cash that smells like marijuana. 

Review of publicly available sources and databases about the business, its 

owner(s), managcr(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 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. 

A marijuana-related business engages in international or interstate activity, 

including by receiving cash deposits from locations outside the state in which the 

business operates, making or receiving frequent or large interstate transfers, or 

190 /d. at 122 ("About seventy percent or more of marijuana eradicated in California every year comes from public 

lands."); Marijuana Crops in California Threaten Forests and Wildlife, The New York Times, available at 

http://www.n)1imes.eom/2013/06/21/us/marijuana-crops-in-califomia-threaten-forests-and-wildlife.html. 

191 FinCEN guidance, at 2. 

192 /d. at 3-4. 

'

93 ld. at 4. 

"'!d. at 4-5. 

Congressional Research Service 27 
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Marijuana: Medical and Retail-Selected Legal Issues 

otherwise transacting with persons or entities located in different states or 

countries. 

The owner(s) or manager(s) of a marijuana-related business reside outside the 

state in which the business is located. 

• A marijuana-related business is located on federal property or the marijuana sold 

by the business was grown on federal property. 

• A marijuana-related business's proximity to a school is not compliant with state 

law. 

• A marijuana-related business purporting to be a "non-profit" is engaged in 

commercial activity inconsistent with that classification, or is making excessive 

payments to its manager(s) or employee(s). 

• A customer appears to be using a state-licensed marijuana-related business as a 

front or pretext to launder money derived from other criminal activity (i.e., not 

related to marijuana) or derived from marijuana-related activity not permitted 

under state Jaw. Relevant indicia could include the following: 

The business receives substantially more revenue than may reasonably be 

expected given the relevant limitations imposed by the state in which it 

operates. 

• The business receives substantially more revenue than its local competitors 

or than might be expected given the population demographics. 

• The business is depositing more cash than is commensurate with the amount 

of marijuana-related revenue it is reporting for federal and state tax purposes. 

The business is unable to demonstrate that its revenue is derived exclusively 

from the sale of marijuana in compliance with state law, as opposed to 

revenue derived from (i) the sale of other illicit drugs, (ii) the sale of 

marijuana not in compliance with state law, or (iii) other illegal activity. 

The business makes cash deposits or withdrawals over a short period of time 

that are excessive relative to local competitors or the expected activity of the 

business. 

• Deposits apparently structured to avoid Currency Transaction Report 

('"CTR") requirements. 

Rapid movement of funds, such as cash deposits followed by immediate cash 

withdrawals. 

• Deposits by third parties with no apparent connection to the account holder. 

Excessive commingling of funds with the personal account of the business's 

owner(s) or manager(s), or with accounts of seemingly unrelated businesses. 

• Individuals conducting transactions for the business appear to be acting on 

behalf of other, undisclosed parties of interest. 

• Financial statements provided by the business to the financial institution are 

inconsistent with actual account activity. 

28 
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Marruana: Medical and Retail-Selected Legal Issues 

• A surge in activity by third parties offering goods or services to marijuanarelated businesses, such as equipment suppliers or shipping servicers." 195 

The FinCEN guidance ends with the observation that a bank is not absolved of its obligation to 

file a currency transaction report for any financial transaction involving more than $10,000 in 

cash, regardless of how it resolves its marijuana SAR obligations. 196 

Other Federal Law Consequences 

Employment 

The use of marijuana, medicinal or otherwise, may have adverse employment consequences. 197 

Both state and federal courts have upheld firing an employee for medical marijuana use. 198 

Employee challenges have cited in vain state medical marijuana laws as well as federal and state 

anti-discrimination laws. The state medical marijuana laws ordinarily immunize medical 

marijuana users from the adverse consequences of the law, but do not give them a right that can 

be used affirmatively against a private cntity. 199 The Americans with Disabilities Act (ADA) and 

similar state anti-discrimination in employment statutes are predicated upon discrimination based 

on lawful activity and the CSA has consequently proven to be an insurmountable obstacle?00 

They differ somewhat in the case of nongovernment employees, because, among other things, 

federal, state, and local government employees enjoy Fourth Amendment protections. The Fourth 

Amendment, binding on government employers, does not give employees the right to use 

marijuana, medical or otherwise, but it limits the likelihood that their employers will discover 

their use. The Fourth Amendment's proscription on unreasonable governmental searches means 

195 /d. at 5-7. 

t% /d. at 7. 

197 See, generally, Matthew D. Macy. Employment Law and Medical Marijuana, 41 COLORADO LAWYER 57 (2012). 

19' Coats v. Dish Network, LLC. 303 P.3d 147 (Colo.App. 2013); Casias v. Wal-Mart Stores, Inc., 695 F.3d 428 (6'h 

Cir. 2012); Emerald Steel Fabricators, Inc. v. Bureau ofLahor and Indus .. 230 P.3d at 518; Ross v. Raging Wire 

Telecomm .. Inc .. 42 Cal.4'h 920 (2008). 

199 Casias v. Wai-Mart Stores, Inc., 695 F.3d at 435 (internal citations omitted)( emphasis in the originai)("[T]he 

MMMA [Michigan Medical Marihuana Act] does not regulate private employment; [r]ather the Act provides a 

potential defense to criminal prosecution or other adverse action by the slate .... MMMA contains no language stating 

that it repeals the general rule of at-will employment in Michigan or that it otherwise limits the range of allowable 

private decisions by Michigan businesses''); Emerald Steel Fabricators, Inc. v. Bureau of Labor and Indus., 230 P.3d at 

169 n.7, citing, Roe v. TeleTech Customer Car Management, 152 Wash,App. 388, 216 P.3d 1055 (2009); Ross v. 

Raging Wire Telecommunications. 42 Cal.4'" 920 (2008) ("Both the California and Washington courts have held that, in 

enacting their states' medical marijuana laws, the voters did not intend to affect an employer's ability to take adverse 

employment actions ba-.ed on the use of medical marijuana."). 

20° Coats v. Dish Network, LLC, 303 P.3d at !49-53 (The Colorado Civil Rights Act (CCRA) outlaws firing employees 

for "lawful'' out of work activities. Use of marijuana as permitted by the Colorado medical marijuana but in violation of 

the CSA was not a lawful activity for purposes of the CCRA); Emerald Steel Fabricators, Inc. v. Bureau ofLahor and 

Indus., 230 P.3d at 535 (Because the emplo-yee was fired for illegal use of marijuana under the CSA, the state 

employment discrimination statute, modelled after the ADA, does not apply); see also James v. City of Lake Forest, 

700 F.3d 394, 397 n.3 (9'h Cir. 2012)("[T]he ADA does not protect medical marijuana users who claim to lace 

discrimination on the basis of their marijuana use."). 
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Insert offset folio 91 here 35631.091

MariJuana: Medical and Retail-Selected Legal Issues 

that federal, state, or local entities must have either reasonable suspicion or a constitutionally 

recognized special need in order to conduct employee drug testing.201 

Government 

A significant number of government employees, however, must undergo random drug testing 

because the nature of their duties places them in a "special needs" category. For example, random 

drug testing is a fact oflife and continued condition of employment for anyone with access to 

classified or similarly sensitive information202 

In the case of employees of state or local governmental entities, the "lower courts have allowed 

drug testing in other safety-sensitive occupation" such as "aviation personnel, railroad safety 

inspectors, highway and motor carrier safety specialists, lock and dam operators, forklift 

operators, tractor operators, engineering operators, and crane operators."203 

More generally, federal contractors may face the loss of federal funding or could be subject to 

administrative fines if they do not maintain and enforce policies aimed at achieving a drug-free, 

safe workplace. The federal Drug-Free Workplace Act of 1988 (DFWA/04 imposes a drug-free 

workplace requirement on any entity that receives federal contracts with a value of more than 

$150,000 or that receives any federal grant.205 DFWA requires these entities to make ongoing, 

201 Maryland v. King. 133 S.Ct. 1958, 1969 (2013)(intemal citations and quotation marks omitted)("ln giving content 

to the inquiry whether an intrusion is reasonable, the Court has preferred some quantum of individualized suspicion ... 

as a prerequisite to a constitutional search or seizure. But the Fourth Amendment imposes no irreducible requirement of 

such suspicion. In some circumstances, such as when faced with special law enforcement needs, diminished 

expectations of privacy, minimal intrusions, or the like, the Court has found that certain general, or individual 

circumstances may render a warrantless search or seizure reasonable."). See, generally, CRS Report R42326, 

Constitutional Ana~vsis ofSuspicion!ess Drug Testing RequiremenL<ifor the Receipt a,_{ Governmental Benefits, by 

David H. Carpenter. 

202 50 U.S. C. §3343(b)("After January I. 2008, the head of a Federal agency may not grant or renew a security 

clearance for a covered person who is an unlawful user of a controlled substance .... ); 50 U.S.C. §3343(a)(2)("The tem1 

covered person means: (A) an oflicer or employee of a Federal Agency; (B) a member of the Army, Navy, Air Force, 

or Marine Corps who is on active duty or is in an active status; and (C) an officer or employee of a contractor of a 

Federal Agency''); e.g., 51 U.S.C. §31 I 02(b)("(l) Employees ofadministration.-1lle Administrator shall establish a 

program applicable to employees of the Administration whose duties include responsibility for satCty~sensitive, 

security, or national security functions. Such program shall provide tOr preemployment, reasonable suspicion, random, 

and post-accident testing tor use. in violation of applicable law or Federal regulation, of alcohol or a controlled 

substance ... (2) Employees of contractors.-The Administrator shall, in the interest of safety, security, and national 

security, prescribe regulations. Such regulations shall establish a program that requires Administration contractors to 

conduct preemployment. reasonable suspicion, random. and post-accident testing of contractor employees responsible 

fOr safety-sensitive, security. or national security fUnctions (a'> determined by the Administrator) for use, in violation of 

applicable law or Federal regulation, of alcohol or a controlled substance .... (3) Suspension, disqualitication, or 

dismissal.-Jn prescribing regulations under the programs required by this subsection, the Administrator shall require, a.;; 

the Administrator considers appropriate, the suspension, disqualification, or dismissal of any employee to which 

paragraph (1) or (2) applies. in accordance with the provisions of this section, in any instance where a test conducted 

and confirmed under this section indicates that such employee has used, in violation of applicable law or Federal 

regulation, alcohol or a controlled substance."). See also 49 U.S. C. §20140(Program of required preemployment, 

reasonable suspicion, random, and post-accident testing of all railroad employees responsible for safety-sensitive 

functions). 

203 Barrett v. Claycomb. 705 F.3d 315,322 (81

h Cir. 2013), referring to cases collected in Kreig v. Seybold, 481 F.3d 

512.518 (7'h Cir. 2007). 

204 41 U.S.C. §§81 01, et seq. 

205 41 U.S.C. §§8102, 8103; 2 C.F.R. pt.l82; 48 C.F.R. §§23.500. et seq.; 48 C.F.R. §2.101 (simplified acquisition 

threshold). U.S. Dept of Labor, Drug-Free Workplace Act of 1988 Requirements, available at http://www.dol.gov/ 

(continued ... ) 

30 
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Insert offset folio 92 here 35631.092

Marijuana: Medical and Retail-Selected Legal Issues 

good faith efforts to comply with the drug-free workplace requirement in order to qualify, and 

remain eligible, for federal funds. 206 

Private 

Absent status as a federal contractor and grantee status or some other federal influence,207 

employers are relatively free to establish their own drug-free workplaces and to fire employees 

who test positive for marijuana use, medical or otherwise.208 Although an occasional medical 

marijuana statute will shield employees/09 more often the statute is silent and thought not to 

cabin at-will employment status, as noted earlier. 210 Depending upon the factual situation and the 

( ... continued) 

elawslasp/drugfreelscreenr.htm. 

206 41 U.S.C. §§8102, 8103. Titcre are slightly different requirements for individuals and organizations that receive 

federal contracts or grants. 41 U.S.C. §§8102, 8103. See U.S. Dept of Labor. Drug-Free Workplace Act of 1988 

Requirements for Individuals. available at http://www.dol.gov/elaws/asp/drugfree/rcq_ind.htm (''Any individual who 

receives a contract or grant from the Federal govemment, regardless of dollar value~ must agree not to engage in the 

unlawful manufacture, distribution, dispensation, possession or use of a controlled substance in the perfOrmance of this 

contract/grant"), and U.S. Dept. of Labor, Drug-1:/·ee Wor/..place Act of 1988 Requirements for Organizations, 

available at http://www.dol.gov/elawslasp/drugfree/require.htm ("All organizations covered by the Drug-Free 

Workplace Act of 1988 are required to provide a drug-free workplace by ... [publishing] and [giving] a policy statement 

to all covered employees informing them that the unlawful manufacture, distribution, dispensation, possession or use of 

a controlled substance is prohibited in the covered workplace and specifying the actions that will be taken against 

employees who violate the policy). 

207 Due to their potential impact on public safety, commercial pilots, truckers, bus drivers and the like are subject to 

periodic drug testing which the United States Department of Transportation has recently made clear does not excuse a 

positive drug test fOr either medical or recreational marijuana use, U.S. Dep't ofTransp., Fact Sheet: DOT 'A1edicaf'' 

Marijuana Notice (Feb. 23, 2013). citing 49 C.F.R. 40.151, available at http://www.dot.gov/sites/dot.gov/files/docsl 

ODAPC _ medicalmarijoananotice.pdf ("The Department of Justice (DOJ) issued guidelines for Federal prosecutors in 

states that have enacted laws authorizing the use of·medical marijuana.' We have had several inquiries about whether 

the DOJ advice to Federal prosecutors regarding pursing criminal cases will have an impact upon the Department of 

Transportation's longstanding regulation about the use of marijuana by safety-sensitive transportation employees~ 

pilots~ school bus drivers, truck drivers, train engineers, subway operators, aircraft maintenance personnel. transit firearmed security personnel, ship captains, and pipeline emergency response personnel~ among others. We want to make it 

perfectly clear that the DOJ guidelines will have no bearing on the Department ofTransportation's regulated drug 

testing program. We will not change our regulated drug testing progr<~m based upon these guidelines to Federal 

prosecutors."). DOT issued a similar notice with regard to recreational marijuan~ U.S. Dcprtment of Transportation. 

DOT 'Recreational' Marijuana Notice (Feb. 22, 2013), available at http://www.dot.gov/odape/dot-recreationalrnarijuana-notice. 

208 See, generai~l~. A Cruel Choice: Patients Forced to Decide Between :Vedical !vfarijuana and Employmenl, 26 

HOFSTRA LAB. & EMP. LJ. 619 (2008). 

~' E.g., R.I. GEN. LAWS §22-28.6-4(c)("No school, employer or landlord may refuse to enroll. employ or lease to or 

otherwise penalize a person solely for his or her status as a cardholder.''): ARlZ. REV. STAT. ANN. §36-2813[B]("Unless 

a failure to do so would cause an employer to lose a monetary or licensing related benefit under federal law or 

regulations, an employer may not discriminate against a person in hiring, termination or imposing any tem1 or 

condition of employment or otherwise penali?£ a person based upon either: I. '!11e person's status as a cardholder. 2. A 

registered qualified patient's positive drug test for marijuana components or metabOlites. unless the patient used, 

possessed or was impaired by marijuana on the premises of the place of employment or during the hours of 

employment"). 

21° Casias v. Wal-Mart Stores.lnc., 695 F.3d at 435; Emerald Steel Fabricators, Inc. v. Bureau of Labor and Indus., 230 

P.3d at 169 n.7, citing, Roe v. TcleTech Customer Car Management, !52 Wash.App. 388, 216 P.3d 1055 (2009): Ross 

v. Raging Wire Telecommunications, 42 Cal.4'h 920 (2008). 
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state unemployment statute in play, employees fired for marijuana use may also be ineligible for 

unemployment benefits.m 

Taxation 

Income from any source is ordinarily subject to federal taxation.212 This is so even when the 

activity that generates the income is unlawful.m Marijuana merchants, however, operate under a 

special federal tax disadvantage.214 Section 280E of the Internal Revenue Code provides: 

No deduction or credit shall be allowed for any amount paid or incurred during the taxable 

year in carrying on any trade or business if such trade or business (or the activities which 

comprise such trade or business) consists of trafficking in controlled substances (within the 

meaning of schedule I and II of the Controlled Substances Act) which is prohibited by 

Federal law or the law of any State in which such trade or business is conducted215 

As a result of this provision, marijuana merchants, unlike most businesses,216 may not deduct 

their operating expenses (e.g., general labor, rent, and utilities) when computing their federal 

income tax liability. Section 280E does not, however, apply to the cost of goods sold (COGS), 

which means marijuana sellers may subtract COGS when determining gross income.217 Courts 

and the IRS have interpreted Section 280E to apply to marijuana so long as it is a controlled 

substance under the CSA, regardless of whether the purchase and use are allowed under state 

law. 218 The customers of a medical marijuana merchant cannot deduct the amounts spent on 

marijuana as medical expenses.219 

211 Under some state laws, eligibility for unemployment compensation turns on proof the marijuana use occurred on the 

job or had job-related consequences, Compare, Peace River Distributing, lnc. v. Florida Unemployment Appeals 

Commission. 80 So.3d 461,464 (Fia.App. 2012)(discharged employee who tested positive for marijuana use was not 

enlitled to unemployment compensation); Virginia Employment Commission v. Comty. Alternatives, Inc., 705 S.E.2d 

530, (Va.App. 201l)(same); Maskerincs v. Unemployment Comp. Bd. of Review, 13 A.3d 553, 560 (Pa.Comm. 

20ll)(employer need not show job nexus where discharged employee had agreed to comply with employers drug free 

policy); Div. ofEmp. Sec. v. Comer, 199 S.W.3d 915,921 {Mo.App. 2006); with, Johnson v. So Others Might Eat, 

Inc., 53 A.3d 323, (D.C.App. 2012); Cusack v. Williams, 286 S.W.3d 180. 182 (Ark.App. 2008)(employer need not 

show job nexus where bus driver's off duty marijuana use made him ineligible for the commercial driver's license, a 

reasonable condition of employment). See also Desilet v. Glass Doctor, 132 P .3d 412. 415-16 (Idaho 2006)(off-duty 

marijuana use is presumed job-related if the employer fOllowed state approved testing guidelines~ otherwise the 

employer must show a job nexus). 

212 26 u.s.c. *6 I. 

213 James v. United States. 366 U.S. 213, 218-20 (1961 ). 

214 For more information on this subject, see CRS Report WSLGl J 01, Federal Taxation o_[I'Uarijuana Sellers. by Erika 

K. Lunder. 

215 26 U.S.C. §280E. See also Californians Helping to Alleviate Med. Problems, Inc. v. Comm'r, 128 T.C. 173 (2007); 

Olive v. Comm'r, 139 T.C. 19 (2012). 

216 Taxpayers are generally allowed to deduct all "ordinary and necessary" business expenses. See 26 U.S.C. §!62(a). 

217 See CHAMP, 128 T.C. at 178 n.4; Olive, 139 T.C. at 20 n.2; Peyton v. Comm'r, T.C. Memo 2003-146, *15 (2003); 

Franklin v. Comm'r, T.C. Memo. 1993-184, *28 n.3 (1993). 

218 See CHAMP, 128 T.C. at 182; Olive, 139 T.C. at 38.; I.R.S. lnfonnation Letter 2011-0005 (Mar. 25. 2011), 

available at http:l/www.irs.gov/pub/irs-wd/ll-0005.pdt: 

219 See Rev. Rul. 97-9, !997-1 C.B. 77. In this ruling, the IRS held that an amount paid to obtain marijuana for medical 

care was not a deductible medical expense even though the purchase and use was allowed under state Jaw. This is 

because Treasury regulations deny a deduction for illegally procured drugs and illegal treatments. See 26 C.F.R. 

§1.213-1(e)( l)(ii) and (2). The IRS reasoned that marijuana obtained in violation of the CSA is not legally procured 

(continued ... ) 

Congressional Research Serv1ce 32 
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Possession of Firearms 

It is a federal crime punishable by imprisonment for not more than l 0 years for an unlawful user 

of a controlled substance to possess a firearm or ammunition.22° Federal regulations define an 

"unlawful user" to include "any person who is a current user of a controlled substance in a 

manner other than as prescribed by a licensed physician."221 The Bureau of Alcohol, Tobacco, 

Firearms and Explosives (ATF) has made it clear that "any person who uses ... marijuana, 

regardless of whether his or her State has passed legislation authorizing marijuana use for 

medicinal purposes, is an unlawful user of ... a controlled substance, and is prohibited by Federal 

law from possessing firearms or ammunition."222 

Those associated with a marijuana-cultivation or -sales operation may incur additional firearmrelated criminal liability. In addition to the penalties for growing or selling, anyone who provides 

security for the operation and possesses a firearm in furtherance of that enterprise is subject to a 

series of mandatory terms of imprisonment.223 The offender and any accomplices face an 

additional five-year mandatory minimum term of imprisonment for possession of a fireann; a 

seven-year mandatory term if he brandishes the firearm; and a 1 0-year mandatory tenn if 

discharges it. 224 

Federally Assisted Housing 

''Illegal drug users" are ineligible for federally assisted housing.225 Public housing agencies and 

owners of federally assisted housing must establish standards that would allow the agency or 

owner to prohibit admission to, or terminate the tenancy or assistance of, any applicant or tenant 

who is an illegal drug user.226 An agency or an owner can take these actions if a determination is 

made, pursuant to the standards established, that an individual is "illegally using a controlled 

substance," or if there is reasonable cause to believe that an individual has a ''pattern of illegal 

use" of a controlled substance that could "interfere with the health, safety, or right to a peaceful 

enjoyment of the premises by other residents."227 Thus, any individual whom the housing 

authority reasonably believes is using marijuana could be denied access to, or evicted from, 

federally assisted housing. 

( ... continued) 

and constitutes an illegal treatment. regardless of how the purchase and use nmy be treated under state law, and 

therefore the amounts could not be deducted as medical expenses. 

220 18 U.S. C. §§922(g)(3). 924(a)(2). 

221 27 C.F.R. §478.11. 

122 See Open Letter to All Federal Fiream1 Licensers, September 21, 2011, available at http://www.at[gov/fileslpress/ 

re leases/20 II /09/092611-at f-open-letter-to-all-ffis-marij uana-for-medicinal-purposes. pdf. 

221 18 U.S.C. §924(c), 21 U.S.C. §841. 

224 18 U.S.C. §§924(c)(l)(A)(i) to (iii), 2. Co-conspirators are subject to imprisonment for not more than 20 years, 18 

U.S.C. §924(o). 

"'42 U.S. C. §§13661-13662. See. general(v. Medical Marijuana and the Effect of State l.aws on Federally Subsidi=ed 

Housing, 57 WAYNEL. REV. 1437 (2011). 

226 42 u.s.c. §§13661-13662. 

227 !d. 
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Manjuana: Medical and Retail--Selected Legal Issues 

With respect to medical marijuana, the Department of Housing and Urban Development 

previously concluded that public housing agencies or owners "must deny admission" to 

applicants who are using medical marijuana, but "have statutorily-authorized discretion with 

respect to evicting or refraining from evicting current residents on account of their use of medical 

marijuana. " 228 

The question of whether marijuana users may be excluded from federally assisted housing is not 

the same as whether applicants for such housing may be required to undergo drug testing. The 

Eleventh Circuit's Lebron decision, decided in another context, would seem to preclude such 

preliminary testing in the absence of some individualized suspicion.229 

Ethical Considerations 

Rule 1.2(d) of the American Bar Association's Model Rules of Professional Conduct, adopted in 

virtually every jurisdiction, states that "A lawyer shall not counsel a client to engage, or assist a 

client. in conduct that the lawyer knows is criminal or fraudulent, but a lawyer may discuss the 

legal consequences of any proposed course of conduct with a client and may counsel or assist a 

client to make a good-faith effort to determine the validity, scope, meaning or application of the 

law.',230 

Bar officials in several states-Arizona, Colorado, Connecticut, Maine, and Washington, among 

them-have issued ethics opinions addressing ethical constraints arising out of the conflict 

between state and federal marijuana laws.231 

The Arizona State Bar concluded in Opinion 11-01 that the Ogden Memorandum had created a 

"safe harbor" for those that operated within the confines of the state's medical marijuana 

statute.232 In its view, Arizona lawyers may counsel and assist their clients in any activity 

permitted under the Arizona medical marijuana law as long as their clients were made fully aware 

of the consequences under federallaw. 233 

228 Memorandum ffom Helen R. Kanoovsky, Aledical Use of Marijuana and Reasonable Accommodation in Federal 

ruhlic and Assisted Housing, January 20, 2011. available at http://www.scribd.com/doc/47657807/ 

HUD-policy-Memo-on-Medicai-Marijuana-in-Public-Housing. See also Assenberg v. Anacortes 

Hou. Auth., 268 Fcd.Appx. 643 (9'h Cir. 2008)(Undcr the Fair Housing Act, tenant in publicly assisted housing is not 

entitled to medical necessity defense and termination oflease based on tenant's drug use did not violate HUD policy). 229 1n Lebron v. Sec. of the Fla. Dep't of Children and Families, 772 F.3d 1352 ( ll'h Cir. 2014), the U.S. Court of 

Appeals upheld. on Fourth Amendment grounds, a challenge to a state requirement that applicants for Temporary 

Assistance for Needy Families (TANF) benefits submit to drug testing. See CRS Report R42326. Constitutional 

Analysis ofSuspicionless Drug Testing Requirements for the Receipt of Governmental Benefits, by David H. Carpenter. 

230 A second Rule, Rule 8.4(b) provides that. '·it is professional misconduct for a lawyer to ... (b) commit a criminal act 

that reflects adversely on the lawyer's honesty, trustworthiness. or fitness as a lawyer in other respects."' See, generally, 

Sam Kamin & Eli Wald, Marijuana Lawyers: Outlaws or Crusaders? 91 OR. L. REv. 869 (2013). 

231 A sample of ethics opinions was chosen for illustrative purposes. This report docs not provide an exhaustive 

analysis of all state bar association ethics opinions on the issue. 

232 State Bar of Arizona Ethics Opinion 11-0 l (Feb. 2011 ). available at http://www.azbar.org/Ethics/EthicsOpinions/ 

ViewEthics0pinion?id=71 0. 

233 ""• If a client or potential client requests an Arizona lawyer's assistance to undertake the specific actions that the 

!Arizona medical marijuana] Act expressly permits; and • The lawyer advises the client with respect to the potential 

federal law implications and consequences thereof or, ifthe lawyer is not qualified to do so, advises the client to seek 

(continued ... ) 

Congressional Research Service 34 
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In contrast, Opinion 199 of the Maine Professional Ethics Commission advised attorneys that, 

absent an amendment to either the Rules of Professional Conduct or the CSA, a member of the 

Maine bar "may counsel or assist a client in making good faith efforts to determine the validity, 

scope, meaning or application of the law," but "the Rule forbids attorneys from counseling a 

client to engage in the [marijuana] business or to assist a client in doing so."234 The Commission 

declined to provide more specific advice, but warned that significant risks attended practice in the 

area. 

The Connecticut Bar Association offered much the same advice.235 Lawyers may advise their 

clients about the features of the state medical marijuana statute, but they may not assist clients in 

a violation of the CSA. 

While the Arizona, Maine, and Connecticut opinions are relatively general and relatively terse, 

the Colorado opinion provides far more examples of its view of the permissible and 

impermissible?36 It concluded that, consistent with Rule 1.2( d) and the CSA, a Colorado attorney 

might (I) represent and advise a client concerning the consequences of marijuana-related 

activities for purposes of criminal law, family law, or labor law; (2) as a government attorney 

advise a client in a matter involving the establishing, interpreting, enforcing, or amending zoning 

relations, local ordinances, or legislation/37 or (3) advise a client on the tax obligations incurred 

when cultivating or selling marijuana. 

It concluded, on the other hand, that a Colorado attorney may not (I) draft or negotiate contracts, 

leases, or other agreements to facilitate the cultivation, distribution, or consumption of marijuana; 

or (2) provide ta;x planning assistance with an eye to violating federal law. The Opinion points out 

that providing such assistance while aware of a client's intent is "likely to constitute aiding and 

abetting the violation of or conspiracy to violate federal law." 

Washington State attorneys have the advantage of not one, but two bar advisories. Both take a 

position similar to the Arizona opinion: attorneys transgress no ethical boundaries if their 

professional conduct is consistent with state law and perhaps with federal enforcement priorities. 

The Bar Association of King County (Seattle and environs) opined that an attorney who advises 

and assists a client to establish and maintain a marijuana dispensary is not subject to discipline, as 

long as his client's conduct is pennitted under state marijuana law and a~ long as he makes his 

client aware of the provisions of the CSA including the Cole Memorandum.m 

( ... continued) 

other legal counsel regarding those issues and limits the scope of his or her representation~ and • The client~ having 

received full disclosure of the risks of proceeding under the state law, wishes to proceed with a course of action 

specifically authorized by the Act; then • The lawyer ethically may pcrthnn such legal acts as are necessary or desirable 

to assist the client to engage in the conduct that is expressly permissible under the Act." 

234 Maine Professional Ethics Commission, Opinion #199 (July 7, 2010)~ available at http://www.rncbarovcrscers.org/ 

attorney _services/opinion.html?id=ll 0134. 

235 Connecticut Bar Association, Professional Ethics Committee, Infonnal Opinion 2013-02 (Jan. 16, 2003), available 

at http:/ /c. ymcdn.com/ sites/ctbar.site-ym.com/resource/resmgr/Eth ics _ Opinions/Infonnal_ Opinion_ 20 13-02.pdf. 

236 Colorado Bar Association Ethics Committee, Fonnal Opinion 125 (Oct. 21, 2013), 42 CoLO. LAWYER 19 (Dec. 

2013). 

237 Here. the Opinion finds support in 21 U.S.C. §885(d) which affords federal, state, and local law enforcement 

officers immunity for enforcement of federal, state, and local controlled substance laws. 

238 King County Bar Association, KCBA Ethics Advisory Opinion on 1-502 & Rules of Professional Conduct (Oct. 

2013 ), available at http://www. kcba.orgljudicial/legislativelpdf/i502 _ethics _advisory_ opinion_ october_ 20 J 3 .pdf. 

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Marizuana: Medical and Retail-Selected Legal Issues 

Moreover, in the opinion of the King County Bar Association, an attorney is likewise not subject 

to discipline merely because he owns an interest in a marijuana dispensary. Although such 

activity may constitute a crime under the CSA, it is not "a criminal act that reflects adversely on 

the lawyer's honesty, trustworthiness or fitness as a lawyer," in the eyes of the County Bar 

Association. 

The secood Washington opinion is a proposed advisory opinion which the Washington State Bar 

Association submitted to the Washington Supreme Court along with a proposal to add a comment 

to Rule 1.2 of the Washington Rules of Professional Conduct239 1n its proposed opinion, a lawyer 

would be free to advise a client as to the nuances of state marijuana law as long as he did not do 

so in furtherance of an effort to violate or mask a violation of state marijuana law. A lawyer would 

also be free to advise and assist a client to establish and maintain a dispensary within the bounds 

of state law at least until such time as federal enforcement policies change. Finally, under the 

proposed opinion and accompanying proposed comment, a lawyer would be free to engage in a 

marijuana business without offending the Rule that condemns criminal conduct that reflects 

adversely on a lawyer's fitness to practice.240 

Marijuana Research Under Federal Law 

The federal government retains strict controls over the use of marijuana for research purposes. 

Under the CSA, the Attorney General, as delegated to the Drug Enforcement Agency, is 

authorized to register "practitioners" to "dispense, or conduct research with" controlled 

substances.241 In instances where the practitioner seeks to conduct research on a schedule I drug, 

such as marijuana, that application is forwarded to the Secretary of Health and Human Services 

"who shall determine the qualifications and competency of each practitioner requesting 

registration, as well as the merits of the research protocol."242 The Secretary is also directed to 

"consult" with the Attorney General to ensure "effective procedures to adequately safeguard 

against diversion of such controlled substances from legitimate medical or scientific use."243 As 

of May 2014, the DEA has registered approximately 237 practitioners to conduct marijuana 

239 Washington State Bar Association~ Committee on Professional Ethics, Proposed Advisory Opinion2232 (Jan. 8. 

2014). available at http://www.wsba.org/-/mcdia/Filcs/LegaN{.20Community/Committces_Boards_Pancls/ 

Committee~+,20ono/o20Professionai%20Ethics/CPE%20Reporto/o20 1-8-14 _ Attachmts.ashx (The proposed comment 

would state: "Since the passage ofl-502 by Washington voters in November 2012, both the federal and state 

government have devoted considerable resources to allowing l-502 [relating to recreational marijuana] to come into 

cfl'ect without regard to federal controlled substances la-w&, as long as certain stated federal concerns regarding matters 

such as sales to minors and other unlawfUl conduct are addressed. See, e.g., Washington State Bar Association 

Advisory Opinion 2232 and sources cited. At least until there is a subsequent change of federal enforcement policy, a 

lawyer who counsels or assists a client regarding conduct permitted under I-502 does not, without more, violate RPC 

1.2(d). See also Wa,hington Comment [71 to RPC R.4 [related criminal acts committed by attorneys]."). 

240 Proposed Advisory Opinion 2232. The proposed comment to accompany Rule 8.4 would state: "A unique 

circumstance was presented by the November 2012 passage by Washington voters ofl-502, which allows for the 

creation of a state-regulated system for the production and sale of marijuana for recreational purposes. At least until 

there is a subsequent change offederal enforcement policy, a lawyer who engages in conduct permitted under 1-502, 

docs not. without more. violate RPC 8.4(g), (i). (k). or (n). See also Washington Comment [18] at RPC 1.2." 

241 21 U.S.C. §823(1). 

242 ld. 

241 Jd. 

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Mari7uana: Medical and Retail-Selected Legal Issues 

research, including 16 "approved to conduct research with smoked marijuana on human 

subjects."244 

Practitioners obtain marijuana for approved research through the National Institute on Drug 

Abuse (NIDA) drug supply program. Under the CSA, the Attorney General is authorized to 

register applicants to manufacture or grow marijuana "if he determines that such registration is 

consistent with the public interest and with United States obligations under international treaties 

••• " 245 Currently, the National Center for Natural Products Research (NCNPR) at the University of 

Mississippi is the only organization registered to manufacture marijuana.246 NIDA administers the 

federal contract with the NCNPR and therefore acts as the "single official source" through which 

researchers may obtain marijuana for research purposes. 247 

Congressional Response 

Several statutory provisions were enacted late in the 113tl' Congress and a number of legislative 

proposals have been introduced in the !14th concerning marijuana and state legalization 

initiatives. 

244 See The Dangers and Consequences ofA1arijuana Abuse, U.S. Dept. of Justice. Drug Enforcement Admin., at p. 4, 

May 2014, available at http://www.dea.gov/docs/dangers-conscquences-marijuana-abuse.pdf. Researchers have 

reportedly encountered difficulties obtaining the marijuana necessary for their research. See, e.g., Gardiner Harris. 

Researchers Find Study of A1edical A.farijuana Discouraged, N.Y. Times, January 18) 20 I 0. 

245 21 U.S. C. §823(a). In evaluating whether granting a registration is in the "public interest'· the Attorney General must 

consider: 

( J) maintenance of effective controls against diversion of particular controlled substances and any controlled 

substance in schedule I or H compounded therefrom into other than legitimate medical, scientific, research, or 

industria] channels, by limiting the importation and bulk manufacture of such controlled substances to a 

number of establishments which can produce an adequate and uninterrupted supply of these substances under 

adequately competitive conditions for legitimate medical, scientific, research, and industrial purposes; 

(2) enmpliancc with applicable State and local law: 

(3) promotion of technical advances in the art of manufacturing these substances and the development of new 

substances~ 

( 4) prior conv1ction record of applicant under Federal and State laws relating to the manufacture, distribution, 

or dispensing of such substances: 

(5) past experience in the manufacture of controlled substances, and the existence in the establishment of 

effective control against diversion~ and 

( 6) such other factors as may he relevant to and consistent with the public health and safety. 

!d. With respect to the CSA ·s reference to the nation's ··obligations under international treaties,'~ the Single Convention 

on Narcotic Drugs establishes that ''any signatory nation that 'pennits the cultivation of[marijuana or opium]' must 

designate one or more agencies to: license cultivators and designate where plants may be grown; purchase and take 

physical possession of each year's crops; and have the exclusive right of importing, exporting, wholesale trading and 

maintaining stocks other than those held by manufacturers of opium alkaloids, medicinal opium or opium 

preparations." Craker v. Drug Enforcement Admin., 714 F.3d 17,20 (I" Cir. 2013). 

246 Craker v. Drug Enforcement Admin .. 714 F.3d 17,20 (1" Cir. 2013). 

247 See NIDA's Role in Providing Marijuana for Research, available at http://v.ww.drugabuse.gov/drugs-abuse/ 

marijuana/nidas-mle-in-providing-marijuana-research. 
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Mari"uana: Medical and Retail-Selected Legal Issues 

Enacted Marijuana-Related Measures 

P.L. 113-235 §809(b), 2015 Consolidated and Further Continuing Appropriations Act. This 

provision was enacted with the apparent attempt of preventing the implementation oflnitiative 

71, D.C.'s recreational marijuana Jaw. However, there is some uncertainty regarding the legal 

effect of the provision.l It states: "[ n ]one of the funds contained in this Act may be used to enact 

any law. rule, or regulation to legalize or otherwise reduce penalties associated with the 

possession, use, or distribution of any schedule I substance under the Controlled Substances Act 

(21 U.S.C. 801, et seq.) or any tetrahydrocannabinols derivative for recreational purposes." Some 

argue that this provision bars D.C. employees from using FY2015 appropriated funds to 

implement Initiative 71 and that any employee who takes official acts to implement the law could 

be subject to civil or criminal liability under the Antideficiency Act.l Others, including D.C.'s 

attorney general, argue that the provision does "not prevent the District from using FY 15 

appropriated local funds to implement Initiative 71'' because the marijuana law was enacted 

before the enactment of the 2015 Consolidated and Further Continuing Appropriations Act. 

P.L. 113-79 (H.R. 2642), Agricultural Act of 2014. This public Jaw has two marijuana-related 

sections. One relates to the Supplemental Nutrition Assistance Program (SNAP) (fonnerly, food 

stamps), and the other relates to industrial hemp. Eligibility for the receipt of SNAP benefits is 

governed in part by a means test. Only individuals below a certain income level are eligible. 

Section 4005 ofP.L. 113-79 (7 U.S.C. §2014(e)(5)(C)) instructs the Secretary of Agriculture to 

promulgate rules to ensure that the costs of medical marijuana are not treated as a deduction in 

that calculation. Section 7606 of P.L. I 13-79 authorizes institutions of higher education and state 

departments of agriculture to grow and cultivate industrial hemp for research purposes. 

Legislative Proposals in the 1141

h Congress 

P.L. 113-235 §538, 2015 Consolidated and Further Continuing Appropriations Act. This 

provision prohibits the Department of Justice from using FY20 15 appropriated funds "to prevent 

[32 listed states and the District of Columbia] from implementing their own State laws that 

authorize the use, distribution, possession, or cultivation of medical marijuana." There appears to 

be disagreement regarding the breadth of this appropriations language. The Department of Justice 

reportedly argues that it only prevents the Department from using appropriations to restrict a 

named state's administrative implementation of state medical marijuana laws. Others maintain 

that it should be interpreted much more broadly to even bar the Department from enforcing the 

CSA against individuals who were acting in compliance with a named state's medical marijuana 

1aws.248 

S. 683/H.R. 1538, Compassionate Access, Research Expansion, and Respect of States Act of 

2015. This bill, also referred to as the CARERS Act, would exempt from the CSA "any person 

acting in compliance with State law relating to the production, possession, distribution, 

dispensation, administration, laboratory testing, or delivery of medical marihuana."249 It also 

would reclassify marijuana as a Schedule II substance, meaning that marijuana would be 

248 See Erik Eckholm, Medical Marijuana Dispensers Trapped by Conflicting Laws, N.Y. TIMES, AprilS, 2015, 

available at http://www.nytimes.com/2015/04/09/us/medical-marijuana·dispcnscrs-trappcd-by·conflicting-laws.html? 

hp&action=click&pgtypc=Homepage&module=second-column-region®ion-=top~ncws&WT.nav=top-news. 

249 s. 683/H.R. 1538 §2. 

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Marijuana: Medical and Retail-Selected Legal Issues 

recognized under federal Jaw as having medical benefits and could be prescribed to patients for 

legitimate medical reasons in accordance with the CSA250 The CARERS Act also would provide 

legal protections to depository institutions (i.e., banks, thrifts, and credit unions) that provide 

financial services to marijuana businesses, including by adding a provision stating that "[a] 

Federal banking regulator may not prohibit, penalize, or otherwise discourage a depository 

institution from providing financial services to a marijuana-related legitimate business" (i.e., one 

that is in compliance with a state or local marijuana regulatory regime).251 The bill also would 

attempt. to further allcviat~ BSA reportin~ ~urdens beyond that which is provided by the February 

2014 FmCEN gUJdance d1scussed above. -

The bill also would attempt to make it easier for individuals to be able to conduct research on 

marijuana and for entities to obtain approval from the Drug Enforcement Agency to cultivate 

marijuana for medical research use.253 Finally, Section 8 of the CARERS Act would authorize 

Department of Veterans Affairs health care providers to offer recommendations and opinions 

regarding veterans' use of marijuana in compliance with state medical and recreational marijuana 

regimes.254 

S. 134/H.R. 525, Industrial Hemp Farming Act of 2015. This bill would remove industrial 

hemp from the definition of"marihuana" under the CSA.l 

H.R. 262, States' Medical Marijuana Property Rights Protection Act. This bill would amend 

the civil forfeiture provisions of the CSA 255 to provide that no real property may be subject to 

civil forfeiture to the United States due to medical marijuana-related activities that are performed 

in compliance with state law. 256 

H.R. 667, Veterans Equal Access Act. This bill would authorize Department of Veterans Affairs 

health care providers to offer recommendations and opinions regarding veterans' use of marijuana 

in compliance with state medical and recreational marijuana regimes. 257 

H.R. 1013, Regulate Marijuana Like Alcohol Act. This bill, among other things, would require 

the Attorney General to remove marijuana from all schedules of the CSA and would amend other 

federal laws to regulate marijuana like alcohol.258 

H.R. 1014, Marijuana Tax Revenue Act of2015. This bill would amend the Internal Revenue 

Code to impose an excise tax on the sale of marijuana by the producer or importer of the drug, at 

a rate of I 0% for the first two years after the law goes into effect and increa'iing by 5% each year 

until maxing out at 25% from the fifth year on. 259 The bill would provide certain exemptions to 

the taxation, including "on the distribution or sale of marijuana for medical use in accordance 

,,0 !d. §3. 

251 !d. §6. 

252 /d. §6(d). 

153 /d_ §7. 

254 /d. §8. 

"'21 U.S.C. §881. 

256 H.R. 262 §3, amending 21 U.S.C. §881(a)(7). 

257 H.R_ 667 §2. 

258 RR. 1013 §101, amending 21 U.S.C. §§801, et seq. and §201, amending 27U.S.C. §§201, et seq .. 

259 H.R. 1014 §2(a), adding new 26 U.S.C. §5901. 

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Mari;uana: Medical and Retail-Selected Legal Issues 

with State law.''260 In addition, the bill would require anyone engaged in a "marijuana 

enterprise"261 to pay an occupational tax of$1,000 per year for marijuana producers, 

manufacturers and importers, and $500 per year for other marijuana enterprisers?62 The bill 

would require all marijuana enterprises to obtain a permit from the Secretary of the Trea~ury?63 

Finally, the bill would impose civil and criminal penalties for violation of the duty to pay the new 

marijuana-related taxes, engaging in business a~ a marijuana enterprise without obtaining the 

requisite permit, and for otherwise violating the provisions of the bill 264 The bill does not amend 

the CSA, thus its provisions would remain in effect. 

H.R. 1635, Charlotte's Web Medical Access Act of201S, This bill would remove cannabidiol 

and cannabidiol-rich plants from coverage under the CSA and the Federal Food, Drug, and 

Cosmetic Act, subject to a three-year sunset date from the date of enactment. 

Author Contact Information 

Todd Garvey 

Legislative Attorney 

tgarvey@crs.loc.gov, 7-0174 

Charles Doyle 

Senior Specialist in American Public Law 

cdoyle@crs.loc.gov, 7-6968 

260 Jd. §2(a), adding new 26 U.S.C. §5902. 

David H. Carpenter 

Legislative Attorney 

dcarpenter@crs.loc.gov, 7-9118 

261 The biH defines "'marijuana enterprise" as "a producer, importer, manufacturer, distributor. retailer, or any person 

who transports, stores. displays. or othcnvise participates in any business activity that handles marijuana or marijuana 

products." ld. §2(a), adding new 26 U.S. C. §5904(8). 

262 !d. §2(a), adding new 26 U.S.C. §5911. 

263 Jd. §2(a), adding new 26 U.S.C. §5912. 

264 !d. §2(a), adding new 26 U.S.C. §§592!, 5922. 
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~ ~ • Congressional 

'~ Research Service Informing the legislative debate since 1914 ----~ 

The Marijuana Policy Gap and the 

Path Forward 

Lisa N. Sacco, Coordinator 

Analyst in Illicit Drugs and Crime Policy 

Erin Bagalman 

Analyst in Health P0licy 

Kristin Finklea 

Specialist in Domestic Security 

Sean Lowry 

Analyst in Public Finance 

Updated March 10,2017 

Congressional Research Service 

7-5700 

CRS REPORT 

Prepared for Members .and 

Committees of Congress"~'-

www.crs.gov 

R44782 
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The Mariiuana Policy Gap and the Path Forwarrt_ 

Summary 

Under federal law, the cultivation, possession, and distribution of marijuana are illegal, except for 

the purposes of sanctioned research. States, however, have established a range of laws and 

policies regarding marijuana's medical and recreational use. Most states have deviated from an 

across-the-board prohibition of marijuana, and it is now more so the rule than the exception that 

states have laws and policies allowing for some cultivation, sale, distribution, and possession of 

marijuana-all of which are contrary to the federal Controlled Substances Act (CSA). As of 

March 2017, nearly 90% of the states, as well as Puerto Rico and the District of Columbia, allow 

for the medical use of marijuana in some capacity. Also, eight states and the District of Columbia 

now allow for some recreational use of marijuana. These developments have spurred a number of 

questions regarding their potential implications for federal law enforcement activities and for the 

nation's drug policies as a whole. 

Thus far, the federal response to state actions to decriminalize or legalize marijuana largely has 

been to allow states to implement their own laws on marijuana. The Department of Justice (DOJ) 

has nonetheless reaffirmed that marijuana growth, possession, and trafficking remain crimes 

under federal law irrespective of states' positions on marijuana. Rather than targeting individuals 

for drug use and possession, federal law enforcement has generally focused its counterdrug 

efforts on criminal networks involved in the drug trade. 

While the majority of the American public supports marijuana legalization, some have voiced 

apprehension over possible negative implications. Opponents' concerns include, but are not 

limited to, the potential impact of legalization on (I) marijuana use, particularly among youth; (2) 

road incidents involving marijuana-impaired drivers; (3) marijuana trafficking from states that 

have legalized it into neighboring states that have not; and ( 4) U.S. compliance with international 

treaties. Proponents of legalization have been encouraged by potential outcomes that could result 

from marijuana legalization, including a new source of tax revenue for states and a decrease in 

marijuana-related arrests. Many of these potential implications are yet to be fully mea.~ured. 

Given the current marijuana policy gap between the federal government and many of the states, 

there are a number of issues that Congress may address. These include, but are not limited to, 

issues surrounding availability of financial services for marijuana businesses, federal tax 

treatment, oversight of federal law enforcement, allowance of states to implement medical 

marijuana laws and involvement of federal health care workers, and consideration of marijuana as 

a Schedule I drug under the CSA. The marijuana policy gap has widened each year for some 

time. It has only heen a few years since states began to legalize recreational marijuana, but over 

20 years since they began to legalize medical marijuana. In addressing state-level legalization 

efforts and considering marijuana's current placement on Schedule I, Congress could take one of 

several routes. It could elect to take no action, thereby upholding the federal government's current 

marijuana policy. It may also decide that the CSA must be enforced in states and not allow them 

to implement conflicting laws on marijuana. Alternatively, Congress could choose to reevaluate 

marijuana's placement as a Schedule I controlled substance. 
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Contents 

Introduction ..................................................................................................................................... I 

Controlled Substances Act ........................................................................................................ 2 

Evolution of Public Opinion ..................................................................................................... 2 

Marijuana as Medicine .............................................................................................................. 3 

Scientific Evaluations of Medical Marijuana Effects ......................................................... 4 

Federal Regulation of Marijuana Research ......................................................................... 5 

Current Federal Status of Marijuana and the Policy Gap with States ............................................. 6 

DEA Rejection of Petitions to Reschedule ................................................................................ 6 

Trends in States ............................................................................................................................... 7 

Decriminalization ...................................................................................................................... 7 

Decriminalization in Cities ................................................................................................. 8 

Medical Marijuana Exceptions .................................................................................................. 9 

Recreational Legalization .......................................................................................................... 9 

Federal Response to State Divergence ........................................................................................... 11 

Enforcement Focused on Traffickers ....................................................................................... !! 

Department of Justice Guidance Memos for U.S. Attorneys ............................................ 12 

Monitoring Enforcement Priorities ................................................................................... 14 

Federal Enforcement in States: Directives through Federal Appropriations ........................... 15 

Financial Services for Marijuana Businesses .......................................................................... 16 

Bank Secrecy Act and Federal Anti-Money Laundering Laws ......................................... 16 

FinCEN and DOJ Guidance to Financial institutions ....................................................... 19 

Select Implications of State Marijuana Legalization ..................................................................... 20 

U.S. Demand for Marijuana .................................................................................................... 20 

Marijuana-Related Traffic Incidents ....................................................................................... 22 

Marijuana Arrests .................................................................................................................... 23 

Marijuana Trafficking ............................................................................................................. 24 

Transnational Trafficking .................................................................................................. 24 

Trafficking from States that Have Legalized into Other States ........................................ 24 

The Changing Domestic Black Market.. ........................................................................... 25 

Legalization Impact on Criminal Networks ...................................................................... 26 

International Response ............................................................................................................ 28 

Tax Revenue ............................................................................................................................ 30 

Selected Issues Before Congress-The Path Forward .................................................................. 30 

Provision of Financial Services to the Marijuana Industry ..................................................... 30 

Federal Tax Treatment.. ........................................................................................................... 31 

Oversight of Federal Law Enforcement .................................................................................. 33 

Review of Agency Missions ............................................................................................. 33 

Cooperation with State and Local Law Enforcement ....................................................... 33 

Oversight and Continuation of Federal Enforcement Priorities ........................................ 33 

Medical Marijuana .................................................................................................................. 34 

State Medical Marijuana Laws and Federal Law Enforcement ........................................ 34 

State Medical Marijuana Laws and Federal Health Care Providers ................................. 35 

Consideration of Marijuana as a Schedule I Drug: Maintain or Minimize the Gap ................ 35 
164 


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The Marijuana Policy Gap and the Path ForwauL 

Figures 

Figure 1. Views on Legalization of Marijuana ................................................................................ 3 

Figure 2. Map of State Marijuana Laws ......................................................................................... 11 

Figure 3. Estimates of Current Marijuana Use in Colorado, Washinf,rton, and the United 

States, 20 l 0-2015 ....................................................................................................................... 21 

Appendixes 

Appendix A. Medical Research on Marijuana ............................................................................... 37 

Appendix B. Background on Federal Marijuana Policy ................................................................ 41 

Contacts 

Author Contact Information .......................................................................................................... 44 

Acknowledgments ......................................................................................................................... 44 
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Insert offset folio 106 here 35631.106

The Marijuana Policy GaJ!..l!_nd the Path F()rwarcj_ 

Introduction 

Marijuana is the most commonly used illicit drug in the United States. 1 It is a psychoactive drug 

that generally consists of leaves and flowers of the cannabis sativa plant. Its history dates back 

thousands of years, but in the United States, it became popular as a recreational drug in the early 

20tl• century. 2 The THC3 content of marijuana is dependent on both the variety of the cannabis 

plant and the part used4 Under federal law, cannabis and its derivatives are classified as Schedule 

I controlled substances-thus prohibiting their possession, cultivation, or distribution-under the 

Controlled Substances Act (CSA ), regardless of its THC content, unless specifically exempted or 

listed in another schedule (see "Controlled Substances Act"). 

The percentage of the population 12 and older currently using (past month use of) marijuana has 

generally increased over the last several years-from 6.9% in 20 l 0 to 8.3% in 2015.5 The rate of 

past-month marijuana use among youth (aged 12-17), however, has remained relatively 

unchanged over this period (7.0%)6 Youth also generally perceive that obtaining marijuana-if 

they desire it-is relatively easy. 7 Indeed, marijuana is available throughout the United States; 

34% of state and Iocallaw enforcement agencies that were surveyed by the Drug Enforcement 

Administration (DEA) reported an increase in availability over the last year, and 62% reported 

that availability had remained the same. 8 

This report provides a background on federal marijuana policy and an overview of state trends 

with respect to marijuana decriminalization and legalization-for both medical and recreational 

1 In 2015, an estimated 22.2 million individuals in the United States aged 12 or older (8.3% of this population) were 

current (past month) users of marijuana. See Department of Health and Human Services, Substance Abuse and Mental 

Health Services Administration, Results from the 2015 National Survey on Drug Use and Health: Detailed Tables, 

September 2016, Tables 1.1 A and 1.1 B, http:l/"v.w.samhsa.gov/data/sites/default/filesiNSDUH-DetTabs-2015/ 

NSDUll-DetTabs-20 15/NSDlJH-DetTabs-20 15 .htm. Hereinafter, Results from 2015 NSDUH 

2 David F. Musto, 171e American Disease: Origins a_( Narcotic Contra{, 3rd ed (New York: Oxford University Press, 

!999), p. 219. 

3 THC stands for delta-9-tetrahydrocannabinol, the primary psychoactive chemical compound, or cannabinoid, in 

marijuana. 

4 lndustria1 hemp is a variety of the cannabis plant that has low Tf!C content and is cultivated for use in the production 

of a wide range of products. THC levels for hemp are generally less than l %. For further information about hemp. see 

CRS Report IU32725, Hemp as an Agricultural Commodity. by Renee Johnson. While hemp is mentioned in this 

report, it largely focuses on marijuana. 

5 For each year from 2010 to 2014. the estimated percentage ofthe population currently using marijuana was 6.9%. 

7.0o/o, 7.3o/o, 7.5%, and 8.4% respectively. The difference between each year's estimate (2010 2013) and the 2014 

estimate (8.4%) is statistically signiticant at the .05 level. For 2014to 2015, however, the percentage dropped from 

8.4% to 8.3%; this change is not statistically significant at the .05 level. See Department of Health and Human 

Services, Substance Abuse and Mental Health Services Administration. Results from 2015 NSDU!f; and Results from 

the 2014 National Survey on Drug Use and I {ealth: Summary ~f National Findings, Septemhcr 2015, p. 6 (hereinafter, 

Results/rom 2014 NSDUH). Of note, some warn of potential bias in dmg usage survey data because ofmisreporting by 

respondents. See Beau Kilmer, Jonathan P. Caulkins, and Gregory Midgette, et al.. Before the Grand Opening: 

}.!easuring Washington State's Marijuana Market in the Last Year Before Legali:ed Commercial Sales. RAND Dmg 

Policy Research Center. 2013. 

6 Results from 2015 NSDUH, Table 1.2B; and Results/rom 2014 NSDUH. 

7 Nearly half of surveyed youth indicated that marijuana would be "fairly easy" or "very easy" to obtain if desired. 

Results from the 2015 NSDUH, Table 3.lB. 

8 Based on assessments from 1,444 local, state, and tribal law enforcement agencies that responded to the DEA's 2016 

National Drug Threat Survey. U.S. Drug Enforcement Administration, 2016 National Drug Threat Assessment 

Summary, DEA-DCT-DIR-00 1-17, November 2016 (hereinafter. 2016 National Drug Threat Assessment Summary). 

VERSION 4 ·UPDATED 
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The M_q_rjj_uana Policy Gap and the Path Forwarr;L 

uses. It then analyzes relevant issues for federal law enforcement and the implications of state 

marijuana legalization. The report also outlines a number of related policy questions that 

Congress may confront, including legalization in the District of Columbia, financial services for 

marijuana businesses, the medical nature of marijuana, oversight of federal law enforcement, and 

evaluation of marijuana as a Schedule I drug. 

Controlled Substances Act 

Marijuana is currently listed as a Schedule I controlled substance under the CSA.9 This indicates 

that the federal government has determined that 

(A) The drug or other substance has a high potential for abuse. 

(B) The drug or other substance has no currently accepted medical use in treatment in the 

United States. 

(C) There is a lack of accepted safety for use of the drug or other substance under medical 

supervision. 10 

Controlled Substances Act (CSA) 

The CSA was enacted as Title II of the Comprehensive Drug Abuse Prevention and Control Act of 1970." It 

regulates the manufacture, possession, use, importation, and distribution of certain drugs, substances, and 

precursor chemicals. Under the CSA, there are five schedules under which substances may be classified-Schedule 

I being the most restrictive. Substances placed onto one of the five schedules are evaluated on 

actual or relative potential for abuse; 

known scientific evidence of phannacological effects; 

current scientific knowledge of the substance; 

history and current pattern of abuse; 

scope. duration, and significance of abuse; 

risk to public health; 

psychic or physiological dependence liability; and 

whether the substance is an immediate precursor of an already scheduled substance. 

U.S. federal drug control policies-specifically those positions relating to marijuana-continue to 

generate debates among policymakcrs, law enforcement officials, scholars, and the public. Even 

before the federal government's move in 1970 to criminalize the manufacture, distribution, 

dispensation, and possession ofmarijuana, 12 there were significant discussions over marijuana's 

place in American society. 

Evolution of Public Opinion 

Changes in state and local marijuana laws are coupled with a general shift in public attitudes 

toward the substance. In 1969, 12% of the surveyed population supported legalizing marijuana; 

9 for more information on the CSA. see the text box, "Controlled Substances Act (CSA)." 

10 21 u.s.c. §812(h)(l). 

11 P.L. 91-513; 21 U.S.C. §801 ct. seq. For additional information on the CSA, see CRS Report RL34635, The 

Controlled Substances Act: Regulatory Requirements, by BrianT. Ych; and CRS Report RL30722, Drug Offenses: 

.Maximum Fines and Terms of lmprisonmentfor Violation of the F'ederal Controlled Substances Act and Related Laws, 

by Brian T. Yeh. 

12 21 U.S.C. §§812 and 841. 

·VERSION 4 ·UPDATED 
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Insert offset folio 108 here 35631.108

today, 60% of surveyed adults feel that marijuana should be legalized. 13 Support for legalization 

has more than doubled over the last 20 years. In addition, nearly 60% of respondents indicate that 

the federal government should not enforce federal marijuana prohibition laws in those states that 

allow for its use. 14 

Figure I. Views on Legalization of Marijuana 

Percentage of Americans who support or are against legalizing marijuana, 1969-2016 

75% 

50% 

25% 

{]% 

~ rl ~ 

~ " m m "' " ~ ~ "' "" :;; ; ~ ~ "' " 8 rl "' :'1 " " ~ 00 "' "' ~ "' ~ 0 rl 

:'1 :'1 "' "' :'1 "' :'1 :'1 :'1 ~ ~ ~ 0 rl rl ~ ~ "' 

Source: CRS presentation of Gallup data. Gallup News Service, Gallup Poll Social Series: Crime, 

http://www.gallup.com. 

Notes: Question: "Do you think marijuana should be made legal or not?" Sample sizes vary from year to year. 

2016 data are based on telephone interviews conducted October 5-9,2016. with a random sample of 1,017 

adults aged 18 and older living in the United States. 

Marijuana as Medicine 

As mentioned, marijuana's placement on Schedule I ofthe CSA means that it has no currently 

accepted medical use according to the federal government. Under federal law, marketing a drug 

as medicine requires approval from the Food and Drug Administration (FDA)Y While most 

states have laws allowing for medicinal use of marijuana, the FDA has not approved marijuana, 

any drug containing marijuana, or any drug containing a plant-derived chemical constituent of 

marijuana for medicinal use. The FDA has, however, approved two drugs containing synthetic 

13 The poll question is "Do you think marijuana should be made legal or not0 " See Art Swift Support for Legal 

Marijuana lise Up to 60% in U.S, Gallup, October 19,2016 (based on poll data from October 2016). For purposes of 

this question. it docs not distinguish between medical and recreational marijuana. Of note, in August 2016. the Pew 

Research Center fOund similar levels of support for mar\juana legalization among American adults. See Abigail Geiger, 

Support/Or marijuana legali::ation continues to rise, Pew Research Center. article based on Aug. 23-Sept. 2 Pew 

Research Center survey, October 12, 2016, http://www.pcwrescarch.org. 

14 Pew Research Center for the People & the Press, In Debate Over Legali::ing ldarijuana, Disagreement Over Drug's 

Dangers, Apri114, 2015 (based on poll data from March 2015). 

"Federal Food, Drug, and Cosmetic Act (FFDCA. 21 U.S.C. §§301 et seq.). For more information CRS Report 

R41983. llow FDA Approves Drugs and Regulates Their S<l(ety and Effectiveness, by Susan 'lbaul. 

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The Marijuana Policy Gap and the Path Forward 

THC. 16 In addition, drugs containing plant-derived THC and/or cannabidiol (CBD, a 

nonpsychoactive chemical component of marijuana) are in the drug development and approval 

process. 17 See Appendix A for fmther discussion of these drugs. 

Individuals use marijuana to treat medical 

issues such as lack of appetite, nausea, chronic 

pain, spasticity, anxiety, and other maladies; 

however, the efficacy of this treatment is 

unclear from available scientific evidence. 19 

While some individuals report (both 

anecdotally and in scientific studies) benefits 

and alleviation of symptoms from use of 

marijuana, reports are inconsistent. Some have 

argued that the scientific field has been unable 

to robustly determine the medicinal value and 

merits of marijuana due to regulatory 

restrictions on quality, quantity, and use of 

marijuana in scientific research. 20 

Scientific Evaluations of Medical 

Marijuana Effects 

Recent evaluations conducted separately by 

the FDA and the National Academies of 

Risks Associated with Marijuana Use 

The FDA's eight-factor analysis includes an assessment 

of risks associated with marijuana use. Marijuana is 

known to affect the central nervous system, the 

cardiovascular system, the respiratory system, and the 

immune system. Its effects may vary according to how 

it is consumed (e.g .• inhaled or ingested), how much of 

it is consumed, how often it is consumed, and over 

what time frame it is consumed. 

Some of marijuana's most widely recognized effects are 

among the reasons people use it recreationally: it can 

reduce inhibition, improve mood. enhance sensory 

perception, and heighten imagination (among other 

effects). Some common effects are more problematic: it 

can cause dizziness, confusion, ataxia (i.e., 

uncoordinated movements), delusions, and agitation 

(among other effects). Marijuana's acute effects can 

impair an individual's ability to perform daily activities, 

such as studying or driving. Chronic use of marijuana 

can lead to abuse or dependence and, in the case of 

heavy chronic use, the potential for withdrawal (with 

symptoms like insomnia, weight loss, and irritability). !a 

Sciences, Engineering, and Medicine (the National Academies) illustrate the challenge of meeting 

the required standard of evidence for demonstrating effective medical use. While taking different. 

approaches to their evaluations, both the FDA and the National Academies have found that the 

current evidence base falls short. According to the FDA, "no published studies conducted with 

marijuana meet the criteria of an adequate and well-controlled efficacy study," and "the criteria 

for adequate safety studies [have] also not been met."21 According to the National Academies, 

10 'l"hese drugs are Nabilone, an antiemetic (to reduce nausea or prevent vomiting) for patients receiving chemotherapy 

for cancer, and DronabinoL both an antiemetic for patients on chemotherapy and an appetite stimulant for patients with 

AIDS-related weight loss. See Appendix A for additional information regarding FDA-approved drugs. 

17 Department of Health and Human Services, Food and Drug Administration, FDA and Marijuana: Questions and 

Answers, http://www.fda.gov/NewsEvents/PublicHealthFocus/ucm421168.hhn#determinations. For an explanation of 

the FDA's drug development and approval process, see http://www. fda.gov/Drugs/DevelopmentApprova!Process/ 

default.htm. 

18 Department of Justice, Drug Enforcement Administration, ""Denial of Petition to Initiate Proceedings to Reschedule 

Marijuana," 81 Federal Register 53687-53766 and 53767-53845, August 12, 2016. 

19 Penny F. Whiting, Robert F. Wolfl; and Sophan Deshpande, et al., ·'Cannabinoids for Medical Use;· Journal of the 

American Medical Association. vol. 313, no. 24 (June 2015), pp. 2456-2473. 

20 See, for example, Chapter 15 ofNational Academies of Sciences, Engineering, and Medicine, 17re Health Effects of 

Cannabis and Ct;mnabinoids: 111e Current State of Evidence and Recommendations/or Research, Washington, DC, 

2017, p. S-1, doi: 10.17226/24625. 

21 Department of Justice. Drug Enforcement Administration, "Denial of Petition to Initiate Proceedings to Reschedule 

Marijuana," 81 Federal Register 53687-53766 and 53767-53845, August 12,2016. The criteria for adequate and wellcontrolled studies arc de lined under 21 C.F.R. §314. 126. 

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The Marijuana PQ/icy Gap and the Path Forward 

"conclusive evidence regarding the short- and long-term health effects (harms and benefits) of 

cannabis use remains elusive.'m These studies are discussed in more detail in Appendix A. 

Federal Regulation of Marijuana Research 

Individuals who seek to conduct research on any controlled substance must do so in accordance 

with the CSA and other fcderallaws. 23 For all controlled substances, individuals must obtain a 

registration issued by the Attorney General, as delegated to the DEA 24 in accordance with 

associated rules and regulations issued by the Attorney General. 25 Also, DEA regulations require 

all registrants to comply with strict storage requirements for controlled substances.26 

Some have argued that federal regulation of marijuana research unnecessarily impedes the 

clinical trials that are required for FDA approval, and the ObamaAdministration simplified some 

small steps within the larger process. In recent years, the federal govermnent has attempted to 

make marijuana research easier. 

• In June 2015, HHS eliminated one step in obtaining research-grade marijuana for 

research that is not funded by the National Institutes of Health. 27 

• ln December 2015, the DEA announced a waiver to make it easier for researchers 

conducting clinical trials with CBD to modifY their research protocols and obtain 

more CBD than wa~ initially approved28 

In August 2016, the DEA announced a new policy intended to increase the 

number of approved sources of research-grade marijuana.29 

Prior to the August 2016 change, some contended that marijuana provided to researchers 

was "both qualitatively and quantitatively inadequate."30 The DEA's recent policy change 

22 National Academics of Sciences, Engineering, and Medicine, The Healih Effects of Cannabis and Cannahinoids: The 

Current State of Evidence and Recommendations for Research, Washington. DC, 2017, p. S-1, doi: I 0.17226124625. 

23 For regulatory requirements under the CSA, see CRS Report RL34635, The Controlled Substances Act: Regulatory 

Requirements, by Brian T. Y eh. 

24 As authorized under 21 U.S.C. §871, the Attorney General may delegate any ofhislher control and enforcement 

functions under the CSA to any officer or employee of the Department of Justice-many of these functions are 

performed by the DEA. 

25 See 21 U.S.C. §822. This requirement is also described under 21 CFR 1301.11 (a): Every person who manut:1ctures, 

distributes, dispenses. imports, or exports any controlled substance or who proposes to engage in the manufacture, 

distribution, dispensing, importation or exportation of any controlled substance shall obtain a registration unless 

exempted by law or pursuant to§§ 1301.22 through 1301.26. 

26 For the purposes of ensuring the secure storage and distribution of all controlled substances, all applicants and 

registrants must generally '"provide effective controls and procedures to guard against theft and diversion of controlled 

substances." See 21 C.F.R. §1301.71. 

27 Department of Health and Human Services, ''Announcement of Revision to the Department of Health and Human 

Services Guidance on Procedures for the Provision ofMarijuana for Medical Research as Published on May 21, 1999;· 

80 Federal Register 35960-35961, June 23, 2015. 

28 Department of Justice. Drug Enforcement Administration. "DEA Eases Requirements for FDA-Approved Clinical 

Trials on Cannabidiol,"' press release, December 23, 2015. 

29 Department of Justice. Drug Enforcement Administration, ''Applications to Become Registered under the Controlled 

Substances Act to Manufacture Marijuana to Supply Researchers in the U.S.," 81 Federal Register 53846-53848, 

August 12,2016. 

30 Marc Kaufman, "Federal Marijuana Monopoly Challenged," Washington Post, December 12, 2005; and Department 

ofJustice, Drug Enforcement Administration. "Lyle E. Craker; Denial of Application." 74 Federal Register 2101, 

January 14, 2009. 

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________________ _I/Je Ma!Jll!ana Policy Gap and the Path Forward 

may appease those researchers seeking better quality and quantity of marijuana_ For 

broader discussion of this issue, see Appendix A. 

Current Federal Status of Marijuana and the Policy 

Gap with States 

While the federal government maintains marijuana's current placement as a Schedule I controlled 

substance, states have established a range oflaws and policies regarding its medical and 

recreational use. These developments have spurred a number of questions regarding potential 

implications for federal drug enforcement activities and for the nation's drug policies as a whole. 

In 1970, the CSA placed the control of marijuana under federal jurisdiction regardless of state 

regulations and laws, and its status has remained unchanged under federal law for nearly 50 

years. For more background on federal marijuana policy and the history of how marijuana came 

to be illegal in the United States, see Appendix B. 

Select Consequences of Marijuana Use Under Federal Law 

Marijuana use may subject an individual to a number of consequences under federal law regardless of whether that 

individual has been convicted of a marijuana-related offense. For example, marijuana users may lose their ability to 

purchase and possess a firearm, or be barred from living in public housing. Under the Gun Control Act. it is 

unlawful to possess, ship, transport, receive, or dispose of any firearm or ammunition to any person .. who is an 

unlawful user of or addicted to any controlled substance" as defined by the CSA.31 In addition, federal law also 

establishes that "illegal drug users" are ineligible for federally assisted housing.32 The law requires public housing 

agencies and owners of federally assisted housing to establish standards that would allow the agency or owner to 

prohibit admission to, or terminate the tenancy or assistance of, any such applicant or tenant.J3 

DEA Rejection of Petitions to Reschedule 

There has been mounting public pressure for the DEA to reevaluate marijuana as a Schedule I 

controlled substance. Over the years, several entities have submitted petitions to reschedule 

marijuana.34 In August 2016, after a five-year evaluation process done in conjunction with the 

Food and Drug Administration (FDA), the DEA rejected two petitions submitted by two state 

governors and a New Mexico health provider, respectively, to move marijuana to a Jess-restrictive 

schedule under the CSA.35 Consistent with past practice/6 the rejections were based on a 

conclusion by both the FDA and DEA that marijuana continues to meet the criteria for inclusion 

31 See 18 US.C. ~~922(g)(3). 924(a)(2) and 27 C.F.R. §478.!!. 

"42 u.s_ c. §§13661-13662. 

33 For a broader discussion of legal consequences of marijuana use, see CRS Report R43435, Aiarijuana: Jvfedical and 

Retail---Selected Legal Issues, by Todd Garvey, Charles Doyle, and David H. Carpenter. 

34 Any interested party may petition the Administrator of the DEA to initiate rulemaking proceedings to reschedule a 

controlled substance. See 21 U.S.C. §8ll(a) and 21 CF.R. §l308.43(a) tor relevant rules and regulations. 

"In 201 I, the govemors of Rhode Island and Washington petitioned the DEA to have marijuana and "'related items' 

removed from Schedule I of the CSA and rescheduled as medical cannabis in Schedule II. In 2009, Bryan Krumm, a 

health provider in New Mexico, petitioned the DEA to have marijuana removed from Schedule I of the CSA and 

rescheduled in any schedule other than Schedule I. 

36 The DEA has previously denied petitions to reschedule marijuana. For example, in 2002 a petition was liled to have 

marijuana removed from Schedule I and rescheduled as cannabis in Schedule Ill, IV, or V_ In 2011, the DEA rejected 

the petition. See Drug EnJbrcement Administration, '·Denial of Petition to Initiate Proceedings to Reschedule 

Marijuana,·· 76 Federal Register 40552-40589, July 8, 2011. 

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The Marijuana Policy Gap and the Path Forwarq_ 

on Schedule 1-namely that it has a high potential for abuse, has no currently accepted medical 

use, and Jacks an accepted level of safety for use under medical supervision37 

It is important to note that both Congress and the Administration have the power to alter 

marijuana's status as a Schedule I substance. Congress could amend the CSA to move marijuana 

to a lower schedule or remove it entirely from control. The Administration could also make such 

changes on its own, though it is bound by the CSA to evaluate a substance prior to altering it~ 

scheduling status 38 

Trends in States 

Over the past few decades, most states have deviated from an across-the-board prohibition of 

marijuana. and as of March 2017, nearly 90% of the states, as well as Puerto Rico and the District 

of Columbia, allowed for the medical use of marijuana in some capacity. 39 Also. eight states and 

the District of Columbia now allow for the recreational use of marijuana40 It is now more so the 

rule than the exception that states have laws and policies allowing for some manufacturing, sale, 

distribution, and possession of marijuana-all of which are contrary to the CSA, except for the 

purposes of sanctioned research. 41 Evolving state-level positions on marijuana include 

decriminalization initiatives, legal exceptions for medical use, and legalization of certain 

quantities for recreational usc. Sec Figure 2 at the end of this section for the various marijuana 

policies of states. 

Decriminalization and legalization initiatives in tl1e states reflect growing public support for the 

legalization of marijuana. As mentioned, just prior to passage of the CSA in 1970. 12% of 

surveyed individuals aged 18 and older felt that marijuana should be made legal. In 2016, more 

than half (60%) of surveyed U.S. adults expressed that marijuana should be legalized.42 

Decriminalization 

Marijuana decriminalization differs markedly from legalization. A state decriminalizes conduct 

by removing the accompanying criminal penalties; however, civil penalties remain. If, for 

instance, a state decriminalizes the possession of marijuana in small amounts, 43 possession of it 

37 See Drug Enforcement Administration. "Denial of Petition to Initiate Proceedings to Reschedule Marijuana," 8 I 

Federal Register 53767-53845, August 12, 2016; and Drug Enforcement Administration, "Denial of Petition to Initiate 

Proceedings to Reschedule Marijmma," 81 Federal Register 53687-53766, August 12, 2016. 

38 Federal rulemaking proceedings to add, delete, or change the schedule of a drug or substance may be initiated by the 

Attorney General (through the DEA), by the Secretary of Health and Human Services, or by petition from any 

interested person; 21 U.S.C. ~8ll(a). Congress may change the scheduling status of a drug or substance through 

legislation. 

39 National Conference of State Legislatures, State Medical Marijuana Laws, November 2016. Some states allow broad 

access to medical marijuana while others have more narrow conditions under which access is granted. For example. in 

Alabama medical marijuana may only be dispensed by the University of Alabama and only to treat a person with an 

epileptic condition under certain conditions. Also, some states allow cannabidiol (CBD)-only medical marijuana. CBD 

is a chemical compound of marijuana. 

40 States have established rules surrounding marijuana use-see "Recreational Legalization'" filf a discussion of state 

regulations. 

41 The notable exception is the distribution of marijuana for research purposes. 

42 Art Swift. Support for Legal Marijuana Use Up to 60% in US., Gallup, October 19, 2016 (based on poll data from 

October 2016). 

43 Typically one ounce or less~ but the amount varies from state to state. 

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still violates state law, but possession of quantities within the specified small amount is 

considered a civil offense and subject to a civil penalty, not criminal prosecution. By 

decriminalizing possession of marijuana in small amounts, states are not legalizing its possession. 

In addition, as these initiatives generally relate to the possession (rather than the manufacture or 

distribution) of small amounts of marijuana, decriminalization initiatives do not impede federal 

law enforcement's priority of targeting high-level drug offenders, or so-called "big fish," rather 

than individual users. 

Decriminalization initiatives by the states do not appear to be at odds with the CSA because both 

maintain that possessing marijuana is in violation of the law. For example, individuals in 

possession of small amounts of marijuana in Nebraska-a state that has decriminalized 

possession of small amounts-are in violation of both the CSA and Nebraska state law. The 

difference lies in the associated penalties for these federal and state violations. Under the CSA, a 

person convicted of simple possession (first offense) of marijuana may be punished with up to 

one year imprisonment and/or fined not more than $1,000.44 Under Nebraska state law, a person 

in possession (first offense) of an ounce or less of mar~juana is subject to a civil penalty of not 

more than $300_45 

In recent years, several states have decriminalized the possession of small amounts of marijuana; 

however, some of these states continue to treat possession of small amounts of marijuana as a 

criminal offense under specific circumstances. In New York, for example, the possession of small 

amounts of marijuana is still considered a crime when it is "open to public view."46 ln 2015,just 

over 21,000 individuals in New York were arrested for criminal possession of marijuana in the 

fifth degree, a misdemeanor. 47 

Decriminalization in Cities 

Several cities have officially or unofficially decriminalized marijuana possession regardless of 

what has occurred at the state level. In November 2014, New York City (NYC) Mayor de Blasia 

and NYC Police Commissioner Bratton announced a change in marijuana enforcement policy; 

individuals found to be in possession of marijuana (25 grams or less)48 may be eligible to receive 

a summons instead of being arrested.'9 The New York City Police Department (NYPD) issues socalled "pot tickets" for those in possession of 25 grams or less. In 2016, however, preliminary 

data indicated that marijuana possession arrests were increasing in NYC compared to 2015-this 

increase could be the result of changes in NYPD arrest policies; this remains unclear. 5° 

44 21 u.s.c. §844. 

45 Also, the judge may order the offender to attend a drug use and abuse education course. See §28-416 of the Nebraska 

Revised Statutes. 

46 NY Pen. Law §221.1 0. 

47 State-level arrest data provided to CRS by the New York State Department of Criminal Justice Services. 

48 Under NY Pen. Law §221.1 0, a person is guilty of criminal possession of marihuana in the fifth degree when he 

knowingly and unlawfully possesses "I. marihuana in a public place ... and such marihuana is burning or open to public 

view; or 2. one or more preparations~ compounds, mixtures or substances containing marihuana and ... are of an 

aggregate weight of more than twenty-five grams.·· 

49 City of New York, Transcript: Mayor de Blasio. Police Commr:'\sioner Bratton Announce Change in Marijuana 

Policy, November 10, 2014. 

5

° City-level arrest data provided to CRS by the New York State Department of Criminal Justice Services. Also see 

Jennifer Fcrrnino, John Annese, and Ginger Adams Otis, "NYPD cracks down on marijuana possession in NYC, sees 

big uptick in arrests for carrying pot;· New York Daily News, June 2, 2016. 

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The Marijuana Policy Gap and the Path Forward 

Just as there are disparities in state and federal laws and policies, some cities' decriminalization 

initiatives run contrary to the laws and policies of the states. In Pennsylvania, the state 

government has not decriminalized marijuana possession, but Pitt~burgh, Philadelphia, State 

College, and Harrisburg have all decriminalized possession in some form. In 2016, Harrisburg's 

city council unanimously voted to make possession of 30 grams or less of marijuana punishable 

by a $75 fine and public use punishable by a $150 fine. 51 

Medical Marijuana Exceptions 

In 1996, California became the first state to amend its drug laws to allow for the medicinal use of 

marijuana. As of March 2017, over half of the states, the District of Columbia, Puerto Rico, and 

Guam have comprehensive policies allowing for the medicinal use ofmarijuanaY Seventeen 

additional states allow for so-called "limited access medical marijuana," which refers to cannabis 

with low THC content or CBD oilY 

As noted, the CSA does not distinguish between the medical and recreational use of marijuana. 

Under the CSA, marijuana has "no currently accepted medical use in treatment in the United 

States,"54 and states' allowance of its use for medical purposes is at odds with the federal position. 

Federal law enforcement has investigated, arrested, and prosecuted individuals for medical 

marijuana-related offenses regardless of whether they are in compliance with state law; however, 

federal law enforcement emphasizes the investigation and prosecution of growers and dispensers 

over individual users of medical marijuana. Federal enforcement priorities are discussed further 

in ''Federal Response to State Divergence." 

Recreational Legalization 

In contrast to marijuana decriminalization initiatives wherein civil penalties remain for violations 

involving marijuana possession, marijuana legalization measures remove all state-imposed 

penalties for specified activities involving marijuana. Until 2012, the recreational use of 

marijuana had not been legal in any U.S. state since prior to the passage of the CSA in 1970. In 

November 2012, citizens of Colorado and Washington voted to legalize, regulate, and tax small 

amounts of marijuana for recreational use.SS In November 2014, legalization initiatives also 

passed in Alaska, Oregon, and the District of Columbia (DC), further expanding the disparities 

between federal and state marijuana laws. Later, in November 2016, recreational legalization 

initiatives pa%ed in Massachusetts, California, Maine, and Nevada. 

These recreational legalization initiatives all legalized the possession of specific quantities of 

marijuana by individuals aged 21 and over and (with the exception of DC) set up stateadministered regulatory schemes for the sale of marijuana; 5

6 however, there are variations among 

51 Christine Vendel, "It's official: Harrisburg council reduces penalties for pot possession;' Penn Live, July 5, 2016; 

and City of Harrisburg, City Council. 

52 Several states are implementing recently enacted laws. National Conference of State Legislatures~ State Medical 

lvfarijuana Laws, November 2016. 

53 As previously mentioned, CBD is a chemical compound in marijuana. Unlike THC, it does not have a psychoactive 

component. 

54 21 U.S.C. §812(b)(l). 

"For more detail regarding both Washington Initiative 502 and Colorado Amendment 64, see CRS Report R43034, 

State Legalization of Recreational Marijuana: Selected Legal Issues, by Todd Garvey and Brian T. Yeh 

56 Regulatory schemes include restrictions and requirements for licensing the production, processing, and retail of 

marijuana, and proc-edures for the issuance of licenses. 

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The Marijuana Po/icv Gap and the Path Forward 

the initiatives. For example, Colorado, Alaska, Oregon, Massachusetts, Nevada, Maine, 

California, and DC allow for individuals to grow their own marijuana plants while Washington 

does not. These legalization initiatives also specify that many actions involving marijuana remain 

crimes. For example, in Washington, as well as other states, the operation of a motor vehicle 

while under the influence of marijuana remains a crime. 57 In some states such as Colorado, 

individuals over the age of 21 may grow small amounts of marijuana for personal use, but 

marijuana may not be consumed "openly and publicly or in a manner that endangers others."58 ln 

an example of city-level initiatives breaking from state-level policies, in November 20 I 6, the city 

of Denver voted to allow designated areas where public consumption of marijuana would be 

allowed 5 9 Figure 2 highlights the status of marijuana laws by state. 

57 Washington Initiative 502, http://sos.wa.gov/_assets/elections/initiatives/i502.pdf. 

58 Colorado Amendment 64. http://www.leg.state.co.us!LCS/Initiative%20Referendum/lll2initrefr.nsll 

c63hddd6b9678de787257799006bd391/cfa3bae60c8b4949872579c7006fa7ee/$FILE/Amendrnento/o2064o/o20-

%20Usc%20&%20Regulation%20ot"/o20Marijuana.pdf. For information on the Colorado regulatory system, see the 

website ofthe Colorado Department of Revenue, Mar\juana Enforcement Division: https://www.colorado.gov/pacific/ 

enforcement/marijuanaenforcement 

59 Denver Initiated Ordinance 300, https://www.denvergov.org/contenVdam/denvergov/Portals/778/documentsl 

Voterlnfo/Sample __ BalloV20!6Genera[ComboSampleBallotWatermark.pdf. 

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The Marijuana Policv Gap and the Path Forward 

Figure 2. Map of State Marijuana Laws 

March 2017 

Source: CRS presentation of data from the National Conference of State Legislatures and the Drug 

Enforcement Administration. 

Notes: Limited-access medical marijuana refers to cannabis with low THC content or cannabidiol (CBD) oil. 

"State-approved" refers to either state laws that (I) allow for recreational and/or medical marijuana and/or (2) 

decriminalize the possession of marijuana in small amounts. 

Federal Response to State Divergence 

Enforcement Focused on Traffickers 

Rather than targeting individuals for drug use and possession, federal law enforcement has 

generally focused its counterdrug efforts on criminal networks involved in the drug trade. 

Notably, federal policing efforts on marijuana enforcement appear consistent with this position. 

Federal marijuana enforcement efforts have largely been focused on traffickers and distributors 

of illicit drugs, rather than the low-level users; rather, arrests for marijuana possession offenses 

are largely made by state and local police.60 President Obama once noted that "[it] would not 

60 For a discussion of drug enlorccment in the United States. see CRS Report R43749, Drug Enforcement in the United 

Service ·UPDATED 11 
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The Marijuana Policv Gap and the Pat!J Forward 

make sense from a prioritization point of view for us to focus on recreational drug users in a state 

that has already said that under state law that's legal."6 ' While it is not yet clear how the Trump 

Administration will proceed with drug enforcement priorities, the White House press secretary 

indicated there may be increased enforcement against recreational marijuana, and stated that there 

is a "big difference" between medical and recreational marijuana.62 

Department of Justice Guidance Memos for U.S. Attorneys 

After some states began to legalize the medical use of marijuana, the Department of Justice (DOJ) 

reaffirmed that marijuana growth, possession, and trafficking remain crimes under federal law 

irrespective of how individual states may change their laws and positions on marijuana. 63 DOJ 

has clarified federal marijuana policy through several memos providing direction for U.S. 

Attorneys in states that allow the medical use of marijuana. In the so-called "Ogden Memo" of 

2009, former Deputy Attorney General David Ogden reiterated that combating major drug 

traffickers remains a central priority and stated: 

[t]he 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 [Justice! 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. 64 

In a follow-up memorandum to U.S. Attorneys, former Deputy Attorney General Jan1es Cole 

restated that enforcing the CSA remained a core priority of DOJ, even in states that had legalized 

medical marijuana. He clarified that "[t]he Ogden Memorandum was never intended to shield 

such activities from federal enforcement action and prosecution, even where those activities 

purport to comply with state law."65 

In his memo, Deputy Attorney General Cole warned those who might assist medical marijuana 

dispensaries in any way. He stated that "[p]ersons who are in the business of cultivating, selling 

or distributing marijuana, and !hose who knowingly facilitate such activities [emphasis added], 

are in violation of the Controlled Substances Act, regardless of state law. "66 This has been 

interpreted by some to mean, tor exan1plc, that building owners and managers are in violation of 

the CSA by allowing medical marijuana dispensaries to operate in their buildings. 67 Deputy 

.S'tates: History. Policy. and Trends. by Lisa N. Sacco. 

61 "Marijuana Not High Obarna Priority;· ABC Nightline, December 14,2012. 

62 The White House, Oflicc of the Press Secretary, Press Briefing by Press Secretary Sean Spicer. 2123!2017. #15, 

February 22, 2017, https://www. whitehouse.gov/the-press-office/20 17/02/23/prcss-briefing-press-secretary-seanspicer-2232017-15. 

63 United States Attorney's Office, "Statement From U.S. Attorney's Office on Initiative 502," press release, December 

5, 2012. 

64 Deputy Attorney General David W. Ogden, Memorandum for Selected United States Allorneys, U.S. Department of 

Justice, Investigations and Prosecutions in States Authorizing the Medical Use of Marijuan"' Washington, DC, October 

19,2009, pp. 1-2. 

65 Deputy Attorney General James M. Cole. Memorandum for United States Allorneys, U.S. Department ofJustice, 

Guidance Regarding the Ogden Memo in Jurisdictions Seeking to Authorize Marijuana for Medical Use, Washington, 

DC, June 29,2011, p. 2. 

66 Ibid. 

67 Jennifer Medin"' ·'U.S. Attorneys in Califomia Set Crackdown on Marijuana," New York Times, October 8, 2011, p. 

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Attorney General Cole fwther warned that '"[t]hose who engage in transactions involving the 

proceeds of such activity [cultivating, selling, or distributing of marijuana] may be in violation of 

federal money laundering statutes and other federal financial laws. "68 This warning may be one 

reason why medical marijuana dispensaries have had difficulty accessing bank services 69 In an 

August 2013 memorandum, Deputy Attorney General Cole stated that while marijuana remains 

an illegal substance under the CSA, DOJ would focus its resources on the "most significant 

threats in the most effective, consistent, and rational way."70 The memo outlined eight 

enforcement priorities for DOJ: 

• Preventing the distribution of marijuana to minors; 

• Preventing revenue from the sale of marijuana from going to criminal enterprises, 

gangs, and cartels; 

• Preventing the diversion of marijuana from states where it is legal under state law 

in some form to other states; 

Preventing state-authorized marijuana activity from being used as a cover or 

pretext for the trafficking of other illegal drugs or other illegal activity; 

Preventing violence and the use of firearms in the cultivation and distribution of 

marijuana; 

• Preventing drugged driving and the exacerbation of other adverse public health 

consequences associated with marijuana use; 

• Preventing the growing of marijuana on public lands and the attendant public 

safety and environmental dangers posed by marijuana production on public 

lands; and 

Preventing marijuana possession or use on federal property. 71 

In a February 2014 memorandum, Deputy Attorney General Cole further reinforced these 

enforcement priorities, specifically as they relate to the prosecution of marijuana-related financial 

crimes. The memo directed the U.S. Attorneys that "in determining whether to charge individuals 

or institutions with ... [certain financial] offenses based on marijuana-related violations of the 

CSA, prosecutors should apply the eight enforcement priorities described in the August 29 

guidance.'m 

In October 2014, DOJ released another memo to the U.S. Attorneys that reiterated the 

applicability of the eight enforcement priorities to their marijuana efforts in Indian country. 73 It 

responded to the American Indian tribes' requests for guidance on CSA enforcement on tribal 

10. 

68 Deputy Attorney General James M. Cole, Memorandum for United States Attorneys, U.S. Department of Justice, 

Guidance Regarding the Ogden Memo in Jurisdictions Seeking to Authorize Marijuana fi>r Medical Use. Washington, 

DC, June 29,2011, p. 2. 

69 John Ingold, "Last Bank Shuts Doors on Colorado Pot Dispensaries,'' The Denver Post, October 1, 2011: Jonathan 

Martin, "Medical-Marijuana Dispensaries Run Into Trouble at the Bank," The Seattle Times, April29, 2012. 

70 Deputy Attorney General James M. Cole, Memorandum for all United States Attorneys, U.S. Department of Justice. 

Guidance Regarding Marijuana Enforcement, Washington, DC, August 29, 2013, p. I. 

71 Ibid., pp. 1-2. 

72 Deputy Attorney General James M. Cole, Memorandum for All United States Allorneys, U.S. Department of Justice, 

Guidance Regarding Marijuana Related Financial Crimes, Washington, DC, February 14, 2014, p. 2. 

73 Executive Office for United States Attorneys, Policy Statement Regarding Marijuana Issues in Indian Country, 

October 28. 2014. 

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---------------------------'-~,_he"-"M"'a,_r:citu,_,ana Policv Gap and the Path Forwq[Q 

lands. DOJ reiterated that the August 2013 Cole memo docs not prohibit the federal government 

from enforcing federal law in Indian Country, and adds the following: 

The eight priorities in the Cole Memorandum will guide United States Attorneys' 

marijuana enforcement efforts in Indian Country, including in the event that sovereign 

Indian Nations seek to legalize the cultivation or use of marijuana in Indian Country 

[emphasis added]. 74 

Unlike the Cole memo, DOJ did not specifically refer to distribution and regulation of marijuana. 

It was unclear whether distribution of marijuana would be tolerated on tribal lands should tribal 

governments seek to legalize and distribute marijuana. Despite the lack of clarity, some tribes 

moved forward with plans to grow and sell marijuana at tribe-owned stores on tribal lands. 75 

Since the memo was released, the DEA has led marijuana enforcement actions on triballands,76 

but it remains unclear whether legal marijuana will be tolerated on tribal land as it has been 

tolerated in states. 

Monitoring Enforcement Priorities 

In a review of the DOJ memoranda, the Government Accountability Office (GAO) concluded that 

"DOJ has not historically devoted resources to prosecuting individuals whose conduct is limited 

to possession of small amounts of marijuana for personal use on private property. Rather, DOJ 

has left such lower-level or localized marijuana activity to state and local law enforcement 

authorities through enforcement of their own drug laws."77 GAO has recommended that DOJ 

monitor the effects of state-level marijuana legalization initiatives relative to the eight DOJ 

enforcement priorities. This evaluation noted that DOJ has used a number of tools to help assess 

these effects. For instance, DOJ indicated to GAO that U.S. Attorneys were in contact with 

officials in states such as Colorado and Washington that had legalized marijuana. In addition, 

DOJ reported that it relies upon infonnation from sources such as "federal surveys on drug use; 

state and local research; and feedback from federal, state, and local law enforcement."78 Notably, 

DOJ has reportedly not been documenting its specific monitoring process, and GAO has 

recommended that DOJ develop a "clear plan" for how it will monitor and document the effects 

of state marijuana legalization on federal enforcement priorities.79 

74 Monty Wilkinson. Memorandum, U.S. Department of Justice, Policy Statement Regarding Marijuana Issues in 

Indian Country, Washington, DC. October 28.2014. 

75 "Native American Tribes Approve Plan to Grow and Sell Marijuana in Oregon," The New York Times, December 19, 

2015: Noelle Crombie. "Warm Springs Tribes Launch Ambitious Pot Venture, Hope for Economic Windfall," The 

Oregonian Oregon Live, April 29, 2016; John Gillie, "Two Marijuana Retailers Opening Soon in City that Still Bans 

Cannabis Sales.'' The News Trib~me. January 28, 2017; and Jackie Valley, "Las Vegas Paiutes' Newest Venture: 

Medical Marijuana." Las Vegas Sun, March I, 2016. 

76 Steven Nelson, "DEA Raid on Tribe's Cannabis Crop Infuriates and Confuses Reformers," U.S News & World 

Report, October 26, 2015; and Cary Spivak, ·'Milwaukee Joumal Sentinel," November I 8, 2015. 

77 U.S. Government Accountability Oflice, State Marijuana Legalization: DOJ Should Document Its Approach to 

Monitoring the Effects of Legalization. GA0-16-1, December 2015, p. 9. 

78 Ibid., p. 27. 

79 1bid. 

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Th~J'J_!J_[ijuani! Policy Gap and .the Path Forward 

Federal Enforcement in States: Directives through Federal 

Appropriationsso 

Over the past several years, Congress has included provisions in appropriations acts that prohibit 

DOJ from using appropriated funds to prevent certain states and the District of Columbia81 from 

"implementing their own State laws that authorize the use, distribution, possession, or cultivation 

of medical marijuana."82 The current appropriations provision is in effect until April28, 2017.83 

Courts have interpreted the appropriation provision to restrict DOJ from using appropriated funds 

( 1) to take legal action directly against states and (2) to initiate criminal prosecutions of state 

officials for any action related to the implementation of a state medical marijuana law. 84 Several 

federal courts also have interpreted the provision as prohibiting DOJ from prosecuting individuals 

who, while strictly complying with the laws of one of the states covered by the appropriations 

provisions, have allegedly distributed, possessed, or cultivated medical marijuana in violation of 

federallaw. 85 Although the appropriations provision restricts DOJ's ability to expend funds to 

enforce federal law, at least one court has made clear that the provision "does not provide 

immunity from prosecution for federal marijuana offenses."86 

80 This section was contributed by Todd Garvey, Legislative Attorney, Congressional Research Service. For a more 

detailed analysis of this issue, see CRS Legal Sidebar WSLG 1451, District Court Ilolds Appropriations Language 

Limits Enforcement of Federal Marijuana Prohibition, by Todd Garvey. 

81 The provision specifically lists 43 jurisdictions: Alabama, Alaska. Arizona, California, Colorado, Connecticut, 

Delaware, Florida, Georgia. Hawaii, Illinois, Iowa, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, 

Minnesota. Mississippi, Missouri, Montana. Nevada, New I Iampshire, New Jersey, New Mexico, New York, North 

Carolina, Oklahoma, Oregon, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, Virginia, Washington. 

Wisconsin. Wyoming, the District of Columbia, Guam, and Puerto Rico. 

82 Sec, for example, P.L. 113-235. ~538 (2014) and P.L. 114-113, §542 (2015). 

83 P.L. 114-254, §101(1). 

84 See, lor example. United States v. Marin All. forMed. Marijuana. 139 F. Supp. 3d 1039, 1044 (E. D. Cal. 2015) 

(citing the DOJ's interpretation that the appropriation provision prohibits "federal actions that interfere with a state's 

promulgation of regulations implementing its statutory provisions, or with its establishment of a state licensing 

scheme."'). 

"Sec, for example, United States v. Mcintosh. 833 F.3d 1163, 1177 (9'h Cir. 2016) (holding that the 2015 

appropriations restriction ··prohibits DOJ from spending funds from relevant appropriations for the prosecution of 

individuals who engaged in conduct permitted by the State Medical Marijuana Laws [of California, Oregon, and 

Washington] and who fully comply with such laws): United States v. Dalcman, No. 1:11-CR-00385-DAD-BAM. 2017 

U.S. Dist. LEXIS 23213 (E. D. Cal. Feb. 17, 2017) (denying defendant's motion to enjoin the Department ofJustiee 

from using funds for his prosecution hecause detCndant failed to establish that he .. strictly complied with all re]evant 

conditions imposed by state law on the usc, distribution, possession, and cultivation of medical marijuana.") (emphasis 

in original); Marin All.for !vfed. Marijuana, 139 F. Supp. at 1040 (holding that the 2015 appropriations provision bars 

DOJ from using appropriated funds to enforce an injunction prohibiting a medical marijuana dispensary from engaging 

in activities that are compliant with California's medical marijuana law). 

86 Mcintosh. 833 F.3d at 1179. n. 5 (""The CSA prohibit' the manufacture, distribution, and possession of marijuana. 

Anyone in any state who possesses, distributes, or manufactures marijuana for medical or recreational purposes (or 

attempts or conspires to do so) is committing a federal crime. The federal government can prosecute such offenses for 

up to five years after they occur .... Congress could restore funding tomorrow~ a year ffom now. or four years from now, 

and the government could then prosecute individuals who committed offenses while the government lacked funding. 

Moreover, a new president will be elected soon. and a new administration could shift enforcement priorities to place 

greater emphasis on prosecuting marijuana offenses."). See also United States v. Nixon, 839 F.3d 885, 886 (91h Cir. 

2016) (per curiam) (holding tl1at the appropriations provision does not "impact[] the ability of a federal district court to 

restrict the use of a medical marijuana as a condition of probation.!'). 

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Financial Services for Marijuana Businesses87 

As explained below, so long as marijuana remains classified as a Schedule I controlled substance 

under federal law, financial institutions and their directors, officers, employees, and owners could 

be subject to severe criminal and administrative sanctions88 for providing financial services to 

marijuana businesses, even if those businesses are operating in compliance with state Iaw. 89 A 

consequence of these legal risks is that many financial institutions reportedly have been unwilling 

to provide financial services to state-authorized marijuana businesses.90 

Bank Secrecy Act91 and Federal Anti-Money Laundering Laws 

Federal law classifies marijuana as a Schedule I controlled substance.92 As a result, it is a federal 

crime to grow, sell, or merely possess the drug. 93 In addition to facing the prospect of a federal 

criminal prosecution, imprisonment, and criminal fines, those who violate the federal CSA may 

suffer a number of additional adverse consequences under federallaw. 94 For example, federal 

authorities may confiscate any property used to grow marijuana or facilitate its sale or use, as 

well as all proceeds derived from the sale of marijuana.95 When financial institutions provide 

financial services to business CLL<;tomers, they generally are not directly involved in the sale, 

possession, or distribution of their customers' products. However, financial institutions commonly 

acquire the proceeds from the sale of their customers' products. To the extent that a bank acquires 

such proceeds with the knowledge that they are derived from the sale of marijuana in violation of 

federal law, the proceeds potentially could be confiscated by federal authorities,96 even when the 

underlying actions are permissible under state law.97 For example, if a bank originates a loan to a 

87 This section was contributed by David H. Carpenter, Legislative Attorney, Congressional Research Service. 

88 Sec, for example, United States v. HSBC Bank USA, N.A., No. 12-CR-763, 2013 U.S. Dist. LEXIS 92438,31-38 

(E.D. N.Y. July I, 2013) (approving a deferred prosecution agreement with a financial institution for, an10ng other 

things, ··tail[ing] to implement an effective [anti-money laundering] program to monitor suspicions transactions ... 

[which] permitted Mexican and Colombian drug traffickers to launder at least $881 million in drug trafficking proceeds 

through HSBC Bank USA undetected"; the agreement '"imposes upon HSBC significant, and in some respect 

extraordinary, measures;' including the forfeiture of$1.256 billion, remedial measures~ and the admission of criminal 

violations). 

"Mcintosh, 833 F. 3d at 1179. n. 5. 

90 Steve Leblanc, '·Can Sen. Elizabeth Warren help fix banking issues tbr the cannabis industry?," Associated Press, 

January 3, 2017, available at http://www.thecannabist.co/20 17/0 1/03/elizabeth-warren-marijuana-banking/70517/; Lisa 

Lambert, '·Got bank? Election could create flood of marijuana cash with no place to go:' Reuters, October 31, 2016, 

available at http://\-vww.reuters.com/article/us-usa-marijuana~banks-idUSKBN12VOD5. 

91 The ·'Bank Secrecy Act" is commonly used to refer to Titles I and II of the Act of October 26, 1970, P.L. 91-508,84 

Stat. 1114-24 (1970). 

92 21 U.S.C. §812(c), Sch.l(c)(IO). 

93 Ibid. §§841-890. 

94 Ibid. For a detailed description of the CSA's civil and criminal provisions, sec CRS Report RL30722, Dwg Offenses: 

.A1a.ximum Fines and Terms of Imprisonment for Violation of the Federal Controlled Substances Act and Related Laws, 

by BrianT. Yeh, 

95 18 U.S.C. §§981 (a)(l )(A), 982(a)(l). for information on the procedural requirements and potential defenses 

associated with asset forfeiture, see CRS Report 97-139. Crime and Forfeiture, by Charles Doyle. 

96 Ibid. §98J(a)(I)(C) ("Tiw following property is subject to forfeiture to the United States ... (C) Any property, real or 

personal, which constitutes or is derived from proceeds traceable to .. any offense constituting "specified unlawful 

activity' (as defined in section 1956(c)(7) of this title) [i.e., the list of predicate offenses for money laundering (18 

U.S.C. § 1956)], or a conspiracy to commit such offense."). 

97 Mcintosh. 833 F.3d at 1179, n. 5. 

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business openly operating as a state-authorized medical marijuana dispensary, then the principal 

and interest payments earned by the bank on that loan could be subject to forfeiture, if the bank 

knew that those payments derived from the sale of marijuana in violation of federal law98 

In addition to the risk of asset forfeiture, federal anti-money laundering laws (i.e., Sections I 956 

and 1957 of the criminal code) criminalize the handling of proceeds that are known to be derived 

from certain unlawful activities,99 including the sale and distribution of marijuana. 100 Violators of 

these anti-money laundering laws may be su~ject to fines and imprisonment, 101 and any real or 

personal property involved in or traceable to prohibited transactions is subject to criminal or civil 

forfeiture. 102 For example, a bank employee could be subject to a 20-year prison sentence and 

criminal money penalties under Section 1956 for knowingly engaging in a financial transaction 

involving marijuana-related proceeds that is conducted with the intent to promote a further 

offense (e.g., withdrawing marijuana-generated funds in order to pay the salaries of medical 

marijuana dispensary employees). 103 Similarly, a bank officer could face a 1 0-year prison term 

and criminal money penalties under Section 1957 for knowingly depositing or withdrawing 

$10,000 or more in cash that is derived from the distribution and sale of marijuana. 104 

Furthermore, Congress has crafted laws that affim1atively enlist financial institutions 105 to aid in 

the investigation and prosecution of those who violate federal laws, including the CSA. 106 For 

example, financial institutions generally must file suspicious activity reports (SARs) 107 with the 

98 See. tor example, United States v. Funds Held ex rei. Wettercr, 210 F.3d 96, 104 (2d Cir. 2000) ("In this Circuit. the 

government's burden is to show a nexus between the illegal conduct and the seized property. Once the government 

establishes that there is probable cause to believe that a nexus exists between the seized property and the predicate 

illegal activity, the burden shifts to the claimant to show by a preponderance of the evidence (1) that the defendant 

property was not in fact used unlawfully, or (2) that the predicate illegal activity was committed without the knowledge 

of the owner-claimant. 18 U.S.C. § 981(a)(2), that is, that the claimant is an 'innocent owner.'") (internal citations and 

quotations omitted). 

99 18 U.S. C. §§1956(c)(7), 1957(f)(3). For a lull list of predicate offenses, see the "Specified Unlawful Activities" 

section of CRS Report RL33315. Money Laundering: An Overview of I 8 U.S. C. 1956 and Related Federal Criminal 

Law, by Charles Doyle. 

100 18 U.S.C. §§1956, 1957. For a detailed analysis offederal anti-money laundering laws, see CRS Report RL33315, 

Money Laundering: An Overview of 18 U.S. C. 1956 and Related Federal Criminal Law, by Charles Doyle. 

101 Section 1956 violations are punishable by imprisonment for not more than 20 years and fines of up to $500,000 or 

twice the value of the property involved. whichever is greater. 18 U.S. C. § l956(a)(l ). Section 1957 violations arc 

punishable by imprisonment tor not more than 10 years and fines of up $250,000 (or $500,000 for organizations) or 

twice the value of the property involved in the transaction, whichever is greater. Ibid. §§1957(b), 1957(h), 3571,3559. 

Conspiracy to violate either section carries the same maximum penalties, as does aiding and abetting the commission of 

either offense. !bid. §§2, 1956(h). See, for example, United States v. Lyons, 740 F.3d 702, 715 (I" Cir. 2014). For a 

detailed description of the penalties for violating these laws, see CRS Report RL30722, Drug Offenses: Maximum 

Fines and Terms oflmprisonmentfor Violation of the Federal Controlled Substances Act and Related Laws, by Brian 

T. Yeh. 

102 18 U.S.C. §§981(a)(I)(A), 982(a)(l). 

103 Ibid. §1956(a)(I)(A)(i). See for example. Department ofJustice, ''Man Sentenced to 35 Months Imprisonment for 

Bank Fraud and Money Laundering." Press Release, July 19. 2013, available at hltps:llwww.justice.gov/usao-edwi/prl 

man~sentenced-35-months-imprisonment-bank-fraud-and-money~laundering (announcing the sentence of an individual 

who pled guilty to violating 18 U.S.C. §1956 and other criminal laws while working as a bank officer). 

104 Ibid. § l957(a), (d). 

105 For the purposes of the Bank Secrecy Act and anti-money laundering laws~ the temt "'financial institution'' is defined 

broadly to include banks, savings associations, credit unions, broker dealers, insurance companies, pa\\nbrokers, 

automobile dealers, casinos, cash checkers, travel agencies, and precious metal dealers, among others. 3 J U.S.C. 

~5312(a)(2). 

Ill£ See, for example, 12 U.S.C. §~ 1951-59: 31 U.S.C. §§5311-32. 

107 Filing SARs are mandatory under certain circumstances, but financial institutions may file SARs even when not 

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The Marijuana Policy Gap and the Path Forward 

Treasury Department's Financial Crimes Enforcement Network (FinCEN) regarding financial 

transactions 108 suspected to be derived from specified illegal activities, 109 including the sale of 

marijuana. 110 Depository institutions 111 and certain other financial institutions 112 also must 

establish and maintain anti-money laundering programs, designed to ensure that the institutions' 

officers and employees will have sufficient knowledge of their customers and of the businesses of 

those customers to identify the circumstances under which filing SARs is appropriate. 113 Even in 

the absence of suspicion, financial institutions must file currency transaction reports (CTRs) with 

FinCEN relating to transactions involving $10,000 or more in cash or other "currency."' 14 The 

failure to comply with these repo1iing requirements can result in fines and imprisonment. " 5 

Additionally, financial institutions, their employees, and certain other affiliated parties could be 

subject to administrative enforcement actions by federal regulators for violating the Bank Secrecy 

Act or anti-money laundering laws. 116 For example, the federal banking regulators 117 may utilize 

mandated by Jaw. See, for example, 12 C.F.R. §§1020.320(a) (banks); 1022.320(a) (money services businesses). 

108 "Transaction": 

means a purchase, sale, loan, pledge~ gift, transfer, delivery~ or other disposition, and with respect 

to a financial institution includes a dcposiL withdrawal, transfer between accounts, exchange of 

currency, loan, extension of credit purchase or sale of any stock, bond, certificate of deposit. or 

other monetary instrument, security, contract of sale of a commodit:y for future delivery~ option on 

any contract of sale of a commodity for future delivery, option on a commodity, purchase or 

redemption of any money order, payment or order for any money remittance or transfer, purchase 

or redemption of casino chips or tokens, or other gaming instruments or any other payment, 

transfer, or delivery by, through, or to a financial institution, by whatever means effected. 

31 C.F.R. §IOIO.IOO(bbb). 

109 18 U.S.C. §§ !956(c)(7). 1957(!)(3). For a full list of predicate offenses, see the "Specified Unlawful Activities" 

section ofCRS Report RL33315, Money Laundering: An Overview of 18 USC 1956 and Related Federal Criminal 

Law, by Charles Doyle. 

" 0 21 U.S. C. §§841-890; 31 U.S.C. §53!8(g); 31 C.F.R. §1020.320. 11 1 There are several difierent types of depository institutions, including banks~ savings associations~ and credit unions. 

A depository charter can be issued by either a state or federal chartering authority. 

112 Some financial institutions are exempt from establishing anti-money laundering programs. 31 U.S.C. §53!8(h)(2); 

31 C.F.R. §1010.205. 

113 Sec generally 31 U.S.C. §5318(h)(l ); 31 C.F.R. §§1020.200-1 020.220. See also 12 U.S.C. §1786(q)(l) (credit 

unions); 12ll.S.C. §1818(s) (banks and savings associations). See also CRS Legal Sidebar WSLG1515, Wake Up Call 

for Financial Institution Management: Anti-A4oneJ' Laundering Program Is Your Personal Responsibility, by M. 

Maureen Murphy. 

114 31 U.S.C. §5313; 31 C.F.R. subpt.IOZOC; 31 C.F.R. subpt.JOIOC. "Currency" is defined as: 

The coin and paper money of the United States or of any other country that is designated as legal 

tender and that circulates and is customarily used and accepted as a medium of exchange in the 

country of issuance. Currency includes U.S. silver certificates, U.S. notes and Federal Reserve 

notes. Currency also includes official t()reign bank notes that are customarily used and accepted as 

a medium of exchange in a fOreign country. 

31 C.F.R. §!OlO.lOO(m). 

"' 31 U.S. C. §5322. The v.illful failure to file SARs and CTRs is punishable by imprisonment for not more than five 

years or not more than I 0 years in cases of a substantial pattern of violations or transactions involving other illegal 

activity. Ibid. Structuring a transaction to avoid the reporting requirement exposes the offender to the same maximum 

terms of imprisonment. Ibid. §5324(d). For a detailed description of penalties for violations of Bank Secrecy Act 

reporting and monitoring requirements, see CRS Report RL33315, Money Laundering: An Overview of 18 U.S. C. 1956 

and Related Federal Criminal Law, by Charles Doyle. 

116 See, for example, 12 U.S. C. §~1786, 18!8, 183lo. 

117 For these purposes. the federal banking regulators are: the Office of the Comptroller of the Currency (OCC) for 

national banks and federal savings associations; the Board of Governors of the Federal Reserve System for domestic 

operations of foreign banks and state-chartered banks that are members of the Federal Reserve System; the Federal 

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The Marijuana Pof'!cJ!...(jii!£ and the Path Forward 

administrative enforcement powers against depository institutions and their directors, ollicers, 

controlling shareholders, employees, agents, and affiliates that engage in unlawful, marijuanarelated activities. 118 The banking regulators have the legal authority, for instance, to issue cease 

and desist orders, impose civil money penalties, and issue removal and prohibition orders that 

temporarily or permanently ban individuals from working for any depository institution. 119 The 

banking regulators also have the authority, under certain circumstances, to revoke an institution's 

federal deposit insurance coverage and to take control of and liquidate a depository institution. 120 

In fact, a criminal conviction for violating the Bank Secrecy Act or anti-money laundering laws is 

an explicit ground for the appointment of the Federal Deposit Insurance Corporation •·as receiver 

[to] place the insured depository institution in liquidation."121 

FinCEN and DOJ Guidance to Financial Institutions 

In response to state marijuana legalization efforts, FinCEN issued guidance with respect to 

marijuana-related financial crimes on February 14,2014. 122 This guidance appears to provide a 

roadmap for financial institutions seeking to comply with suspicious activity reporting 

requirements when providing financial services to state-authorized marijuana businesses, while 

also alerting FinCEN to transactions that might trigger federal enforcement priorities. 123 

The guidance notes that: 

[b]ecause federal law prohibits the distribution and sale of marijuana, financial transactions 

involving a marijuana-related business would generally involve funds derived from illegal 

activity. Therefore, a financial institution is required to file a SAR on activity involving a 

marijuana-related business (including those duly licensed under state law) in accordance 

with this guidance and [FinCEN regulations]. 124 

FinCEN advised financial institutions that, in providing services to a marijuana business, they 

must file one of three types of special SA Rs: 

I. A marijuana limited SAR: The marijuana limited SAR is seen to be appropriate 

when the bank determines, after the exercise of due dil igcnce, that a customer is 

not engaged in any activities that violate state law or implicate the investigation 

Deposit Insurance Corporation (FDIC) for state savings associations and state-chartered banks that are not members of 

the Federal Reserve System; and the National Credit Union Administration (NCUA) for federally insured credit unions. 

Ibid. §§1766. !813(q). 

'"See, for example, ibid. § 1786 (credit unions); ibid. §§ 1818, l83lo (banks and savings associations). See also Office 

of the Comptroller oflhe Currency. ·'OCC Assesses $2.5 Million Civil Money Penalty Against Gibraltar Private Bank 

and Trust Company for Bank Secrecy Act Violations. Press Release, February 25, 2016. available at 

https;//www.occ.gov/news-issuances/ncws-releases/20 16/nr-occ-20 !6-20.html (ordering the payment of a civil money 

penalty and remedial actions for allegedly "'fail[ing] to maintain an etTcctive Bank Secrecy Act/Anti-Money 

Laundering (BSNAML) compliance program."). 

119 lbid. 

120 See, lor example, ibid. §§!786. !787 (credit unions); ibid. §§ 1818, !821, J 83lo (banks and savings associations). 

121 12 U.S.C. §l82l(e)(5)(M), (d)(2)(E). 

122 Department of the Treasury, Financial Crimes Enforcement Network, BSA Expectations Regarding lt1arijuanaRe/ated Business. FIN-2014-GOOI, February 14. 2014, available at https://W\1ew.finccn.gov/resources/statutesrcgulations/guidance/bsa-expectations-regarding-marijuana-related-businesscs. The Administration could reverse or 

otherwise make significant changes to its enforcement priorities and policies. Sec generally CRS Report R43708, The 

Take Care Clause and E.Xecutive Discretion in the f'n[orcement of Law~ by Todd Garvey. 

123 Ibid. 

124 lbid .. p. 3. 

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_______________________ Ihe M_q!Jit!i'na Policy Gap and the Path Forward 

and prosecution priorities in the 2014 Cole Memorandum (see "Department of 

Justice Guidance Memos for U.S. Attorneys"); 125 

2. A marijuana priority SAR: A marijuana priority SAR must be filed when the 

financial institution believes a customer is engaged in activities that implicate 

DOJ's investigation and prosecution priorities; 126 and 

3. A marijuana termination SAR: A financial institution is instructed to file a 

marijuana termination SAR when it finds it necessary to sever its relationship 

with a customer to maintain an effective anti-money laundering program. 127 

FinCEN also provides examples of"red flags" that may indicate that a marijuana priority SARis 

appropriate. 128 The FinCEN guidance does not impact financial institutions' obligations to file 

currency transaction reports. 129 

Select Implications of State Marijuana Legalization 

While the majority of the American public supports marijuana legalization, some have voiced 

concern over possible negative implications, pmiicularly with respect to recreational legalization. 

Some concerns were outlined as enforcement priorities by DOJ in monitoring state legalization. 130 

These implications include, but are not limited to, the potential impact oflegalization on (1) use 

of marijuana, particularly among youth; (2) traffic-related incidents involving marijuana-impaired 

drivers; (3) trafficking of marijuana from states that have legalized it into neighboring states that 

have not; and ( 4) U.S. compliance with international treaties. On the other hand, some have been 

encouraged by the potential outcomes from marijuana legalization, including new tax revenue for 

states and a potential decrease in marijuana-related arrests. 

Not all potential implications are discussed in this report, and some are yet to be fully measured. 

Of note, data on potential effects of marijuana legalization should be interpreted with caution, a> 

they are fairly limited, and not all factors are presented when reporting changes in statistics since 

state legalization. Further, conclusions about the impact of marijuana legalization would be 

premature without broader inclusion of both historical data and additional years of postlegalization data, as well as consideration of other factors aside from legali?.ation. 

U.S. Demand for Marijuana 

As discussed, marijuana is the most commonly used illicit drug in the United States. fn 2015, an 

estimated 22.2 million individuals aged 12 or older were current (past month) users of marijuana. 

The percentage of users has gradually increased over the la~t several years-from 6.9% in 2010 

"'!hid., pp. 3-4. 

126 lbid .• p. 4. 

127 Ibid., pp. 4-5. 

128 Ibid .. pp. 5-7. Some examples of"red fiags" noted in the guidance are: "ft)he business is unable to produce 

satisfactory documentation or evidence to demonstrate that it is duly licensed and operating consistently with state 

law"; and ··[a) customer seeks to conceal or disguise involvement in marijuana-related business activity." Jbid. 

129 Ibid., p. 7. For a discussion of currency transaction re}X)rting requirements, see supra notes 114~ 115 and surrounding 

text. 

130 See James M. Cole. Memorandum for ail United States Attorneys, U.S. Department of Justice, Guidance Regarding 

Marijuana Enforcement. Washington. DC. August29. 2013, pp. 1-2. 

·UPDATED 20 
185 


Insert offset folio 126 here 35631.126

to 8.3% in 2015 131 The rate of past-month marijuana use among youth (aged 12 to 17), however, 

has remained fairly unchanged over this period (7.0%). 132 

Figure 3. Estimates of Current Marijuana Use in Colorado, Washington, and the 

United States, 20 I 0-20 15 

Percentages Among Youth (Ages 12-17) and Adults ( 18 and Older) 

2010/2011 2011/2012 lil 2012/2013 II! 2013/2014 2014/2015 

20"A, 

Youth 12-17 Adults 18+ 

16% 

:12% 

8% 

4% 

0% 

Colorado Washington U.S. Colorado Washington U.S. 

Source: Created by the Congressional Research Service (CRS) based on available population data from the 

Substance Abuse and Mental Health Services Administration (SAMHSA). National Survey on Drug Use and Heahh 

(NSDUH). State Data, 2010/2011,2011/2012,2012/2013.201312014, and 2014/2015, http:l/www.samhsa.govl 

datal. 

Notes: This figure presents yearly estimates of marijuana use in Colorado, Washington, and the United States 

and does not show statistical changes in these data. To review year-to-year, statistically significant changes, if any, 

see the NSDUH state data reports. The 201512016 state data are not yet available from SAMHSA Annual statelevel estimates are based on 2 calendar years of pooled NSDUH data, so two consecutive sets of estimates have 

a one-year overlap. For more information on the NSDUH methodology, see 2014-2015 National Survey on 

Drug Use and Health: Guide to State T abies and Summary of Small Area Estimation Methodology. Current use 

of marijuana is defined as use in the past 30 days. 

In the states that legalized recreational marijuana in November 2012 (Washington and Colorado), 

the percentages of youth (aged 12-17) and adults (aged 18 and older) who are current users have 

changed in various ways over the 2010-2015 period according to survey data. For adults, the 

changes generally match national trends over the same time period (see Figure 3). Colorado and 

Washington have higher percentages of usc for adults and youth compared to national estimatesboth before and after recreational legalization began. Of note, the 2014/20 !5 percentages of 

marijuaua use among youth are fairly similar to the percentages reported in 2010/2011, while 

adult percentages are higher than those reported in 20 I 0/20 II. 133 Rates of drug use may be 

131 Results.from 2015 NSJJU!l. Tables LlA and !.lB. 

m Results from 2015 NSDUH, Table l.2B and Results/rom the 2014 National Survey on Drug Use and llea/th.' 

Summary of National Findings. 

m Substance Abuse and Mental Health Services Administration (SAMHSA), National Survey on Dn1g Use and Health 

(NSDU!li, State Data, 2010/2011,2011/2012,2012/2013,201312014, and 201412015. http://www.samhsa.gov/data/. 

lbe observed differences between estimates were not evaluated in tcm1s of statistical significance--the probahihty that 

an observed ditlCrence in the population estimates \vould occur due to random variability if there was no ditTcrencc in 

Service ·VERSION 4 • UPDATED 
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Insert offset folio 127 here 35631.127

___ . _ _}]]f]._Marijuan_a Po!icv Gap and the Path Forward 

influenced by many possible factors including availability of the drug, family, peers, school, 

economic status, and community variables.U4 

Of note, some state government officials in states that have legalized marijuana have monitored 

changes in drug use patterns and emerging research on the health effects of marijuana. For 

example, the Colorado Department of Public Health and Environment (CDPHE) was given the 

responsibility to "monitor changes in drug use patterns, broken down by county and race and 

ethnicity, and the emerging science and medical information relevant to the health effects 

associated with marijuana use.''135 

Marijuana-Related Traffic Incidents 

The recent use of marijuana has been shown to impair driving ability. 136 According to the 

National Highway Traffic Safety Administration (NHTSA), "(!]ow doses ofTHC moderately 

impair cognitive and psychomotor tasks associated with driving, while severe driving impairment 

is observed with high doses, chronic use and in combination with low doses of alcohol." 137 Some 

may be concerned that recreational marijuana legalization could be associated with an increase in 

marijuana-related traffic incidents. In Colorado, despite limited traffic data, the Department of 

Public Safety reports the following: 

[T]he number of summons issued for Driving Under the Influence [DUI] in which 

marijuana or marijuana-in-combination[ 138] with other drugs [was recorded] decreased I% 

between 2014 and 2015 (674 to 665). 

The prevalence of marijuana or marijuana-in-combination identified by CSP [Colorado 

State Patrol] as the impairing substance increased from 12% of all DUis in 20 14 to 15% in 

2015. 

The Denver Police Department found summons where marijuana or marijuana-incombination was recorded increased from 33 to 73 between 2013 and 2015. Citations for 

marijuana or marijuana-in-combination account for about 3% of all DUis in Denver. 

Toxicology results from Chematox Laboratory showed an increase in positive cannabinoid 

screens for drivers, from 57% in 2012 to 65% in 2014. Of those that tested positive on the 

initial screen, the percent testing positive for delta-9 Tetrahydrocannabinol (THC) at 2 

nanograms/millileter rose from 52% in 2012 to 67% in 2014. 

Fatalities with THC-only or THC-in-combination positive drivers increased 44%, from 55 

in 2013 to 79 in 2014. Note that the detection of any THC in [the] blood is not an indicator 

the estimates being compared, To review year~to~year, statistically significant changes, see the NSDUH state data 

reports. 

134 National Institute on Drug Abuse, Preventing Drug Use among Children and Adolescents (In Brief), October 2003, 

https://www.drugabuse.gov/publications/preventingwdrug-abuse-among-children-adolescents/chapter-l-risk-factorsprotcctive-f3ctors/what-arc-risk-factors. 

"' See Colorado Revised Statutes, Title 25, § 1.5-110. See the most recent report. CDPHE, Retail Marijuana Public 

Health Advisory Conunittee, Monitoring Health Concerns Related to Marijuana in Colorado: 2016,2016. 

n• Blood Tl!C concentrations drop quickly after individuals smoke marijuana. See Rebecca L. Hartman and Marilyn 

A. Huestis, ··Cannabis effects on driving skills," Clinical Chemislly, vol. 59, no. 3 (March 2013), pp. 478-492; and 

Rebecca L. Hartman, Timothy L. Brown, and Gary Milavetz, et al., "Cannabis eftects on driving lateral control with 

and without alcohol." Drug and Alcohol Dependence, vol. 154 (September I, 20!5), pp. 25-37. 

137 National Highway Traffic Safety Administr-ation, Drug and Human Performance Fact Sheets: Cannabis/Marijuana 

( Ll 9 -Tetrahydrocannabinol. THC), https://one.nhtsa.gov/pcople/injury/research/jobl85drugslcannabis.htm. 

D& ln this report, the concept of marijuana ··in combination'' references marijuana in combination with other drugs. 

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___________________ T_h_f3_!':1_a_[ij_uana Policy Gap and the Path Forward 

of impairment but only indicates presence in the system_ Detection of delta-9 THC, one of 

the psychoactive properties of marijuana, may be an indicator ofimpairment 139 

In monitoring the impacts of recreational marijuana legalization in Washington State, government 

researchers report that there wa~ no trend identified in the percentage of drivers testing positive 

for marijuana (either marijuana only or marijuana in combination with other drugs/alcohol) for 

those involved in traflic fatalities and who were tested for drugs or alcohoL 140 They also report 

that "marijuana incidents" 141 on the highways and roads decreased from 2,462 in 2012 to 625 in 

2014. Changes in these data may be influenced by many possible factors including changes in 

enforcement practices and priorities. It is possible that the sharp drop in marijuana incidents may 

be explained by the legalization of marijuana possession142 after 2012. For example, many traffic 

stops involving the smell of marijuana would no longer require further law enforcement 

investigation unless the individual in question is under the age of 21, there is suspicion of drug 

trafficking, or other reasons. 

Marijuana Arrests 

After the legalization of the possession, sale, manufacturing, and distribution of certain quantities 

of marijuana for recreational purposes, one might expect the number of marijuana arrests to go 

down in jurisdictions that have done so. Indeed, Washington State reports that "all criminal 

activities involving marijuana decreased between 2012 and 2014." 143 Possession wa~ cited as the 

most common criminal activity, and the number of marijuana possession arrests decreased from 

5,133 in 2012 to 2,091 in 2013, and then to 1,918 in 2014. 144 Additionally, the number of 

marijuana incidents decreased from 6,336 in 2012 to 2,326 in 2014. 145 

In Colorado, the number of marijuana arrests decreased by nearly half from 12,894 in 2012 to 

6,502 in 2013, and then increased to 7,004 in 2014. Of note, the number of marijuana arrests for 

youth (aged 10-17) increased by 6%, from 3,235 in 2012 to 3,400 in2014, after a slight decline in 

2013. 146 

139 Jack Reed, Mari;uana Legalication in Colorado: Early Findings: A Report Pursuant to Senate Bi/113-283, 

Colorado Department of Public Safety, March 2016, p. 6, (hereinafter, Marijuana Legali=ation in Colorado: EOr(v 

Findings: A Report Pursuant to Senate Bi/113-283)_ 

140 Washington State Office of Financial Management, Forecasting and Rest:arch Division, Monitoring the Impacts (?f 

Recreational Mari;uana Legali=ation. 2015 Update Report, January 2016, p. 3, (hereinafter, Monitoring the Impacts of 

Recreational Afarijuana Legalization). 

141 OFM relies on the FBI's definition ofthe tenn ··incidcnC and states the following: '·an ·incident' occurs when any 

law enforcement officer investigates a scene or situation. whether that investigation results in an arrest or not Incidents 

involving multiple illicit drugs or other criminal activities are counted only once, and are included in whichever 

category is listed tlrst by the local law enforcement agency." Ibid., p. 4. 

142 Washington State legalized the possession of marijuana in limited amounts by adults. 

143 .Honitoring the Impacts of Recreational Marijuana Legali=ation, pp. 3 and 17. 

144 Ibid, p. 17. 

145 Of notel over this same period, the number of incidents increased each year tOr amphetarnines/methamphetamines 

and heroin, and decreased each year for incident data in which no drug type was provided and drug type was unknown. 

See Monitoring the Impacts of Recreational Mari;uana Legalication, P- 14. 

146 Mari;uana Legalioation in Colorado: Early Findings: A Report Pursuant to Senate Bi1113-283. p. 22. 

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Marijuana Trafficking 

Transnational Trafficking 

Mexican transnational criminal organizations have historically been the primary foreign suppliers 

of marijuana to the United States, with small amounts also coming from Canada and the 

Caribbean. While anecdotal reports about the impact of domestic legalization initiatives on the 

domestic marijuana black market exist, officials have noted that there is an "intelligence gap" 

with respect to data on exactly how domestic legalization has impacted the amount of Mexicanproduced marijuana entering the United States. 147 For one, estimates on domestic marijuana 

consumption cannot speak to the source of this marijuana. In addition, drug seizure data from the 

various federal, state, and local law enforcement agencies do not give a sense of the origin of the 

marijuana. Further, there is no marijuana "signature program," like there is for cocaine and 

heroin, that can help determine the geographic origin of cannabis plants used to produce the 

seized marijuana. 148 

Marijuana cultivation in Mexico has decreased, though it is unclear precisely how this affects or 

is driven by U.S. demand for Mexican marijuana. One of the tradeoffs has been an increase in 

production of other drugs. Reportedly, the trafficking organizations have shifted production to 

more profitable drugs such as heroin and mcthamphetamine. 149 Consistent with a decline in 

Mexican marijuana cultivation, there has been a general decline in marijuana seizures along the 

Southwest border between 2010 and 2015. However, the DEA's outlook on marijuana trafficking 

is that "Mexico-produced marijuana will continue to be trafficked into the United States in bulk 

quantities and will likely increase in quality to compete with domestically-produced 

marijuana.'' 150 

One notable statistic is that since the first states began legalizing marijuana for recreational use in 

2012, there ha~ been a "sharp decline" in the number of individuals prosecuted and sentenced for 

federal marijuana trafficking offenses. 151 As experts have noted, however, this decline could be 

driven by a number, or combination, of factors such as federal efforts to prosecute marijuanarelated drug offenders, efforts by drug traffickers to conceal their illegal contraband entering the 

United States, and the amount of illegal marijuana being shipped into the United States. 152 

Trafficking from States that Have Legalized into Other States 

Some states have alleged that there has been increased marijuana trafficking from nearby states 

that have legalized marijuana possession or sale for medical or recreational purposes. For 

instance, according to DEA testimony, there has been increased marijuana trafficking in states 

surrounding Colorado since the state legalized recreational use. 153 The Rocky Mountain High 

147 U.S. Drug Enforcement Administration, 2015 National Drug Threat Assessment Summary. DEA-DCT-DlR-008-16, 

October 2015, p. 71 (hereinafter. 2015 National Drur; Threat Assessment Summary). 

148 National Drug nweat Assessment Summary 2016, p. 116. 

140 Nick Miroff, '·Losing Marijuana Business, Mexican Cartels Push Heroin and Meth,., J11e Washington Post, January 

II. 2015. 

150 National Drug lhreat Assessment Summary 2016, p. 125. 

151 U.S. Sentencing Commission. Quick Facts: Drug Trafficking Offenses, May 2016. 

152 Christopher Ingraham, "Federal Marijuana Smuggling is Declining in the Era of Legal Weed," The Washington 

Post, May 26,2016. referencing statements by Beau Kilmer, a drug policy researcher at RAND Corp. 

153 U.S. Congress, Senate Committee on the Judiciary, Hearing on Oversight of the Drug Enforcement Administration, 

Testimony of Administrator Michele M. Leonhart [transcript], IJ3'h Cong., 2"' sess., April 30, 2014. Administrator 

·VERSION 4 ·UPDATED 
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---------------- The Marijuana Po/icy~j'JJld the Path Forward 

Intensity Drug Trafficking Area (HIDTA) reported 394 instances of interdiction of Colorado 

marijuana destined for 36 other states in 2015-' 54 Additionally, the HIDTA's report indicates that 

interdiction experts estimate these seizures represent about I 0% or less of the total amount that is 

moved across the border undetected. 155 

In December 2014, Nebraska and Oklahoma filed a lawsuit in the U.S. Supreme Court 156 against 

Colorado claiming that their law enforcement and criminal justice systems had been adversely 

impacted by Colorado's laws legalizing marijuana. 157 The complaint included claims that 

Colorado's "statutes and regulations are devoid of safeguards to ensure marijuana cultivated and 

sold in Colorado is not trafficked to other states." 158 ln March 2016, however, the Supreme Court 

declined to hear the case challenging Colorado's marijuana law. 159 

The Changing Domestic Black Market 

There have been reports of changes in the domestic black market for marijuana as states have 

moved to legalize it for medical and recreational purposes. For instance, the market in Denver, 

CO, has been described as smaller and less violent than it previously was. In addition, buyers 

there are said to be purcha~ing more from "mom-and-pop operations" rather than from entities 

affiliated with larger cartels. 160 Most of the domestically produced marijuana (other than that 

which is produced in accordance with various state laws) is cultivated in California. 161 This 

cultivation is carried out not only by U.S. persons, but also by foreign criminal networks. For 

instance, Mexican traffickers run large outdoor grow sites in California, which are sometimes 

established on public lands. 

The DEA has indicated that marijuana concentrates-such as hashish, hash oil, and keif-are a 

growing concern for federal law enforcement. These substances have "potency levels far 

exceeding those ofleafmarijuana."162 The DEA has also stated that one effect of state marijuana 

legalization initiatives has been an increase in seizures of marijuana concentrates and an increase 

in the number ofTHC extraction laboratories in the United States. 16' 

Broadly, there has been a shifting demand for higher-quality marijuana. The marijuana produced 

in the United States and Canada is generally thought to be of superior quality to the marijuana 

produced in Mexico. To be responsive to the U.S. demand for high-quality marijuana, Mexican 

Leonhart further stated, .. Take fOr instance, Kansas, and we've talked to our partners in Kansas and they've already been 

seeing a 61 percent increase in marijuana seizures coming from Colorado.'' 

154 Rocky Mountain High Intensity Drug Trafficking Area. 77te l.egalization of Marijuana in Colorado: The Impact. 

September 2016. p. 4. 

115 Ibid., p. 110. 

ts6 The Constitution provides the Supreme Court with original jurisdiction over ''Controversies between two or more 

States," meaning such claims can be filed directly with the Supreme Court without tirst being litigated in the lower 

federal courts. U.S. CONST., art. Ill, §2. cl. I. 

157 Jack Healy, "Nebraska and OklaJ1oma Sue Colorado Over Marijuana Law," The Ne111 York Times, December 18, 

2014. 

158 States ofNebraska and Oklahoma v. State of Colorado, S. Ct.. Complaint, p. 3. 

'"Nebraska, et al. v. Colorado, 577 U.S._, 136 S. Ct. 1034 (2016): see also David G. Savage, "Supreme Court 

Rejects Challenge to Colorado Marijuana Law From Other States,'· The Los Angeles Times, March 21, 2016. 

160 Torn James. ·-The Failed Promise of Legal Pot," The Atlantic, May 9, 2016. 

161 National Drug 77treat Assessment Summary 2015, p. 72. 

162 National Drug Threat Assessment Summary 2015, p. v. 

163 National Drug 171reat Assessment S'ummary 2016, p. 105. 

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The Mari7uana Policy Gap and the Pat!J Forwa[Sf_ 

drug traffickers have tried to improve their product. 164 However, it is not just U.S. consumers who 

demand higher-quality marijuana. The demand exists in Mexico as well; there have even been 

anecdotal reports of traffickers moving high-quality marijuana produced in the United States 

across the Southwest border for sale and distribution in Mexico. 165 U.S. officials have not yet 

reported data on the quantity or frequency of this southbound smuggling. 

The Marijuana Gray Market 

In Colorado, state law allows the cultivation of up to 99 marijuana plants for patients and 

caregivers and up to 6 plants per individual for recreational purposes. In what has been dubbed 

"the gray market," marijuana is sometimes being grown legally but then sold illega!Zv. 166 In 

addition to federal and local enforcement actions against gray market actors, Colorado Governor 

Hickenlooper reportedly is seeking to establish new limits on residential plants and give law 

enforcement additional resources to combat unlicensed marijuana growers. 167 

Legalization Impact on Criminal Networks 

A number of criminal networks rely on profits generated from the sale of illegal drugs-including 

marijuana-in the United States. Mexican drug trafficking organizations control more of the 

wholesale distribution of marijuana than other major drug trafficking organizations in the United 

States. 168 One estimate has placed the proportion ofU.S.-consumed marijuana that was imported 

from Mexico at somewhere between 40% and 67%. 169 While the Mexican criminal networks 

control the wholesale distribution of illicit drugs in the United States, they "are not generally 

directly involved in retail distribution of illicit drugs. " 170 In order to facilitate the retail 

distribution and sale of drugs in the United States, Mexican drug traffickers have formed 

relationships with U.S. street, prison, and outlaw motorcycle gangs. 171 Although these gangs have 

historically been involved with retail-level drug distribution, their ties to the Mexican criminal 

networks have allowed them to become increasingly involved at the wholesale level as well. 

Trafficking and distribution of illicit drugs is a primary source of revenue for these gangs. 172 

A number of organizations have assessed the potential profits generated from illicit drug sales, 

both worldwide and in the United States, but "[ e ]stimates of marijuana ... revenues suffer 

particularly high rates of uncertainty. " 173 The former National Drug Intelligence Center (NO! C), 

164 Ibid., p. 116. 

165 John Burnett, ·'Legal Pot In the U.S. May He Undercutting Mexican Marijuana," NPR All Things Considered. 

December I, 2014. 

166 John Frank, ··colorado governor calls marijuana gray market ·a clear and present danger'," 7he Denver Post, 

November 15,2016. 

167 Brian Eason "The top 10 issues f3.cing Colorado lawmakers Eason and John Frank, in the 2017 session,'' 111e 

Denver Post, January 9, 2017. 

168 Natimw/ Drug 71Jreat Assessment Summary 2016. 

169 Beau Kilmer, Jonathan P. Caulkins, and Brittany M. Bond, ct at., Reducing Drug Trafficking Revenues and Violence 

in .Uexico: Would Legalizing Marijuana in California Help?, R.t\.ND International Programs and Drug Policy Research 

Center, 2010. 

170 Organization of American States, The Drug Problem in the Americas: Studies: The Economics ufDrug Trafficking, 

p. 18. 

171 National Drug Threat Assessment Summary 2016. 

172 Ibid. See also National Drug 17Jreat Assessment Summary 2015. 

173 Organization of American States. The Drug Problem in the Americas: Studies: The Economics of Drug Trafficking, 

2013, p. 7. 

• VERSION 4 • UPDATED 26 
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The Mari[uana Policy Gap and the Path Forward 

for instance, estimated that the sale of illicit drugs in the United States generates between $18 

billion and $39 billion in U.S. wholesale drug proceeds for the Colombian and Mexican drug 

trafficking organizations annually. 174 The proportion that is attributable to marijuana sales, 

however, is unknown. 175 Without a clear understanding of (I) actual proceeds generated by the 

sale of illicit drugs in the United States, (2) the proportion of total proceeds attributable to the sale 

of marijuana, and (3) the proportion of marijuana sales controlled by criminal organizations and 

affiliated gangs, any estimates of how marijuana legalization might impact the drug trafficking 

organizations are purely speculative. 

Marijuana proceeds are generated at many points along the supply chain, including production, 

transportation, and distribution. Experts have debated which aspects of this chain-and the 

related proceeds-would be most heavily impacted by marijuana legalization. In addition, the 

potential impact of marijuana legalization in some subset of the states (complicated by varying 

legal frameworks and regulatory regimes) may be more difficult to model than the impact of 

federal marijuana legalization. For instance, in evaluating the potential fiscal impact from the 

2012 Washington and Colorado legalization initiatives on the protits of Mexican drug trafficking 

organizations, the Organization of American States (OAS) hypothesized that "[a]t the extreme, 

Mexican drug trafficking organizations could lose some 20 to 25 percent of their drug export 

income, and a smaller, though difficult to estimate, percentage oftheir total revenues.'' 176 

Other scholars have based their estimates on a hypothetical federal legalization of marijuana 

when estimating the potential financial impact of marijuana legalization. Under this scenario, 

small-scale growers at the start of the marijuana production-to-consumption chain might be put 

out of business by professional farmers, a few dozen of which "could produce enough marijuana 

to meet U.S. consumption at prices small-scale producers couldn't possibly match." 177 Large drug 

trafficking organizations generate a majority of their marijuana-related income (which some 

estimates place at between $1.1 billion to $2.0 billion) from exporting the drug to the United 

States and selling it to wholesalers on the U.S. side of the border. 178 This revenue could be 

jeopardized if the United States were to legalize the production and consumption of 

recreational marijuana. Of note, the Tax Foundation has estimated that the annual U.S. marijuana 

market is $45 billion-0.28% of GDP. 179 Under a legalization regime, some portion of the 

174 U.S. Department of Justice, National Drug Intelligence Center, National Drug Threat Assessment 2009, December 

2008, p. 49. 

175 A 2006 Ofiice of National Drug Control Policy figure estimated that over 60% ofMexican drug trafficking 

organizations' revenue could be attributed to marijuana sales. However, a number of researchers and experts have 

questioned the accuracy of this number and provided other estimates of marijuana proceeds. See, for example, Beau 

Kilmer, Debunking the A(ythical Numbers about Marijuana Production in Mexico and the United States, RAND Drug 

Policy Research Center. Sec also U.S. Government Accountability Office, Drug Control: US Assistance has Helped 

Mexican Counternarcotics Ffforts, but Tons of 11/icit Drugs Continue to Flow into the United States, GA0-07-1 018. 

August 2007. Another estimate has placed the proportion of Mexican DTO export revenues attributable to marijuana at 

between 15% and 26% oftoial drug revenues. See Beau Kilmer, Jonathan P. Caulkins, and Brittany M. Bond, et al., 

Reducing Drug Trafficking Revenues and Violence in Mexico: Would Legalizing Marijuana in California Help?, 

RAND International Programs and Drug Policy Research Center, 20!0. 

176 Organization of American States, The Drug Problem in the Americas: Studies: The Economics of Drog Trafficking, 

p. 41. 

177 Jonathan P. Caulkins, Angela llowken, and Beau Kilmer. "How Would Marijuana Legalization Affect Me 

PersonallyT' in Marijuana Legalization: What Everyone Needs to Know (Oxford Universily Press. 2012). 

178 Beau Kilmer, Jonathan P. Caulkins, and Brittany M. Bond, et al., Reducing Drug Trafficking Revenues and Violence 

in Mexico: Would Legalizing Marijuana in California lfefp?. RAND International Programs and Drug Policy Research 

Center, 2010. 

179 Gavin Ekins and Joseph Henchman, Marijuana Legali::ation and Taxes: Federal Revenue impact, Tax Foundation. 

· VERSION 4 • UPDA TEO 27 
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______ ,T_,_h"'e-'M_,_aecr_,;z=·uana Policv Gap and the Path Forward 

revenue that might have previously been generated by traffickers could be lost to authorized 

sellers (in tbe form of profits) and governments (in the form of taxes). 

International Response1so 

Developments in state marijuana laws and policies, particularly those that relate to recreational 

marijuana activities, have raised some concerns about the United States' compliance with three 

United Nations (U.N.) drug control treaties that impose certain international obligations relating 

to marijuana. These treaties generally seek to curb the use of controlled substances while carving 

out exceptions for medicinal and scientific uses. The United States is a party to tbe following 

drug treaties: 

• The Single Convention on Narcotic Drugs (Single ConventionY8 ' requires parties 

to the convention to "take such legislative and administrative measures as may be 

necessary ... to limit exclusively to medical and scientific purposes" the 

manufacture, distribution, trade, use, and possession of"cannabis." 182 

• The 1971 Convention on Psychotropic Substances requires that specific controls 

be placed upon THC. 183 

The 1988 U.N. Convention Against Ulicit Traffic in Narcotic Drugs and 

Psychotropic Substances requires parties to establish criminal penalties for the 

possession, purchase, or cultivation of marijuana for nonmedicinal consumption, 

but only to the extent that such action is consistent with the "constitutional 

principles and basic concepts of[ the country's]legal system." 184 

The International Narcotics Control Board (!NCB or Board) and the Commission on Narcotic 

Drugs ofthe Economic and Social Council (Commission) are responsible for monitoring parties' 

compliance with these treaties, 185 though they appear to have limited ability to enforce such 

compliance. For example, the Single Convention provides that tbe Commission may "call the 

attention of the Board to any matters which may be relevant to the functions of the Board," 186 

while the Board may take measures that are "most consistent with the intent to further the cooperation of Governments with the Board and to provide tbe mechanism for a continuing 

dialogue between Governments and the Board which will lend assistance to and facilitate 

etTective national action to attain the aims of this Convention." 187 

May 12,2016. 

180 This section wa" authored by BrianT. Yeh, Legislative Artorney, Congressional Research Service. 

181 Single Convention on Narcotic Drugs, March 30. 1961, 18 U.S.T. 1407, https:llwww.unodc.org/unodc/en/treaties! 

single-convention.html (last visited January 6, 20 17). The Single Convention was amended by the 1972 Protocol 

amending the Single Convention on Narcotic Drugs. 

" 2 Ibid. at art. 2. 4, 21, 28. 

183 Convention on Psychotropic Substances, February 21, 1971, 32 U.S.T. 543. The convention directs parties to 

"prohibit all use except for scientific and very limited medical purposes by duly authorized persons, in medical or 

scientific establishments which are directly under the control of their Governments or specifically approved by them." 

184 December 20, 1988, S. Treaty Doc. No. 101-4 (1989). 

'"Single Convention on Narcotic Drugs, art. 5, March 30, 1961,18 U.S.T. 1407; Convention on Psychotropic 

Substances, art. 17, 19, February 21, 1971, 32 U.S.T. 543; Convention Against Illicit Traffic in Narcotic Drugs and 

Psychotropic Substances. art. 21, 22, December 20, 1988, S. Treaty Doc. No. 101-4 (1989). 

186 Single Convention on Narcotic Drugs, art. 8, 

"'Ibid, at art. 9(5). 

· VERSION 4 • UPDATED 28 
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·------------~Tcch.,e'-'-'M"'a.c-nocW"'a"n"'a'-'-Po=::.:lii:JI. Gap and the Path Forward 

It is unclear whether, or to what extent, the enactment of state laws authorizing the use of 

marijuana for recreational purposes affects the United States' compliance with the drug treaties. 

Some assert that state-level recreational marijuana legalization (and the federal government 

response to those state laws) does not conform with the international obligations regarding 

marijuana, while others disagree with this interpretation. For example, the then-President of the 

INCB stated in 2013 that recreational marijuana legalization in states is inconsistent with the 

Single Convention's requirement that parties limit lawful uses of cannabis to medical and 

scientific purposes. 188 On the other hand, in 2014, the then-Assistant Secretary of State for 

International Narcotics and Law Enforcement Affairs appeared to express a contrary view when 

he urged the international community to "accept flexible interpretation of' the U.N. Drug Control 

Conventions. 189 He appealed to countries "to tolerate different national drug policies, to accept 

the fact that some countries will have very strict drug approaches; other countries will legalize 

entire categories of drugs." 190 A Stanford University professor has also opined that the United 

States is not in violation of the drug control conventions on account of state-level laws, 191 

although a Brookings Institution fellow has argued otherwise. 192 

Some observers have raised doubts about claims that the drug treaties contain the "tlexibilities" 

that can accommodate state recreational marijuana Jaws; they have instead argued for reforms of 

the treaties to expressly permit them. 193 Yet in September 2014, President Obama disagreed that 

the international drug control regime needs revision in light of marijuana policy developments. 194 

The Trump Administration's stance on this issue has not yet been articulated. 

188 Raymond Yans. !NCB President, Report of the International Narcotics Control Board. March I 1-15, 2013. at 7, 

https://www.incb.org/documents/Speeches/Speeches20 13/CND _ 20 I 3 _Speech _FINAL_ ENGLISH_ I 20313 _ cl.pdf: 

"!NCB has to underline, it is our mandate, the central role ofthe 1961 Convention which needs to be implemented 

worldwide, on the national level, but also on the sub-national leveL'' 

189 U.S. Department of State. William R. Brown field. Trends in Global Dn1g Policy. New York Foreign Press Center 

Briefing, October 9, 2014. 

190 Ibid. 

191 Keith Humphreys. "Can the United Nations Block U.S. Marijuana Legalization?," lfujfington Post. September 25. 

2013 (updated November 25, 2013); "Countries with Jederated systems of government like the U.S. and Germany can 

only make international commitments regarding their national-level policies. Constitutionally, U.S. states are simply 

not required to make marijuana Hlegal as it is in federal law. Hence, the U.S. made no such commitment on behalf of 

the 50 states in signing the UN drug control treaties." 

192 Jonathan Rauch~ "Marijuana Legalization Poses a Dilemma for International Drug Treaties," Brookings, October 14, 

2014: quoting Brookings fellow Wells Bennett as saying that "if 10. 15, 20 states enact and operate responsible regimes 

for the regulation of marijuana--we will be enfOrcing the Controlled Substances Act less and less in jurisdictions that 

have regulated, legal marijuana markets. And that will create more and more tension with our international 

commitments to suppress marijuana. At that point, it will be extraordinarily difficult for the U.S. to maintain that it 

complies with its obligations.'' 

193 See, tOr example, Wells Bennett and John Walsh. --Marijuana Legalization Is an Opportunity to Modernize 

International Drug Treaties.'' October 2014, Brookings. 

194 The White House, Presidential Determination-- Afajor Drug Transit or lvfajor Illicit Drug Producing Countries for 

Fiscal Year 2015, September 15. 2014. "The U.N. drug conventions ... allow sovereign nations the flexibility to 

develop and adapt new policies and programs in keeping with their own national circumstances while retaining their 

focus on achieving the conventions' aim of ensuring the availability of controlled substances for medical and scientific 

purposes~ preventing abuse and addiction, and suppressing drug trafficking and related criminal activities .... [R]evising 

the U.N. drug conventions is not a prerequisite to advancing the common and shared responsibility of international 

cooperation designed to enhance the positive goals we have set to counter iHegal dmgs and crime." 

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Tax Revenue 

All eight of the states that have legalized marijuana for recreational purposes levy some 

combination of taxes and business licensing fees at the level of marijuana cultivation or retail 

sales (in addition to general state sales taxes). 195 Tax rates on the cultivation and retail sales are 

more commonly levied on an ad valorem ba~is, or as a percentage of price. 196 The tax treatment 

of medical marijuana varies by state. In some states, medical marijuana is indirectly taxed further 

back the distribution chain at the cultivator leveL In addition, states tax the retail sales of medical 

marijuana differently. In Colorado, for example, medical marijuana sales are exempt from a 10% 

special excise tax that applies to recreational marijuana sales, but they are still subject to the 2.9% 

general state sales tax. 197 In Washington, medical marijuana sales are subject to the same 37% 

excise tax that applies to recreational sales, but they are exempt from the state's 6.5% general 

sales tax. 198 

While some states utilize marijuana-related revenue streams for general spending purposes, others 

have approved measures to dedicate a portion of this revenue for spending on education 

(Colorado and Oregon), criminal justice programs (Alaska), or public health and substance abuse 

progran1s (Washington). 199 

Overall, though, these tax and spending regimes have been subject to change, as govermnent 

officials and voters respond to changes in revenue collections and budget priorities. 

Selected Issues Before Congress-The Path Forward 

Given the current federal marijuana policy gap with certain states, there are a number of issues 

that Congress may address. These include, but are not limited to, issues surrounding financial 

services for marijuana businesses, federal tax issues for iliese businesses, oversight of federal law 

enforcement, allowance of states to implement medical marijuana laws and involvement of 

federal healili care workers, and consideration of marijuana's designation as a Schedule l drug. 

Provision of Financial Services to the Marijuana Industry 

In spite of the guidance issued by FinCEN and DOJ, many financial institutions remain reluctant 

to openly enter relationships with state-authorized marijuana businesses. 200 Some marijuana 

businesses and marijuana industry proponents have complained that even when marijuana 

195 As mentioned in the --Recreational Legalization·• section of this report. Washington. DC, has not legalized the 

commercial sale of recreational marijuana. 

196 Alaska is the only state that lmposes a flat dollar tax rate on marijuana: $50 per ounce is imposed when marijuana is 

sold or transferred from a marijuana cultivation facility loa retail marijuana store or marijuana product manufacturing 

facility. See Alaska Department of Revenue, ·'Marijuana Ta:<," accessed January II, 20!7, http://www.tax.alaska.gov/ 

programs/programs/index.aspx?60000. 

197 See Colorado Department of Revenue. ·'Marijuana T,L,cs:· accessed January 11, 2017, https://www.colorado.gov/ 

pacific/tax/marijuana-taxes-quick-answers. 

198 See Washington Department of Revenue. ·•Taxes Due on Marijuana." accessed January 1 I, 2017, http://dor.wa.gov/ 

Content/FindTaxesAndRates/marijuana!Default.aspx. 

199 See Office of Governor Hill Walker, '·Govemor Walker Signs Historic Criminal Justice Reform Bill," press release, 

July I L 2016, at; Laurel Andrews. ··Here"s Where llalfofthe Revenue from Alaska's Legal Pol Will Go,'' Alaska 

Dispatch News, July 14,2016. 

200 Sophie Quinton, Why Marijuana Businesses Still Can't Get Bank Accounts, The PEW Charitable Trusts, March 22. 

2016. 

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businesses are able to open bank accounts or secure other financial services, those customer 

relationships are fi·equently terminated in relatively short order, especially when the existence of 

the relationship between the financial institution and the marijuana business becomes public 201 

Over the years, several legislative proposals have been designed to jump-start financial 

relationships with state-authorized marijuana businesses. Some of these proposals would attempt 

to alleviate BSA reporting burdens beyond the measures detailed in the 2014 FinCEN 

guidance.202 These proposals also would amend banking laws to prevent banking regulators from 

"prohibit[ing], penaliz[ing], or otherwise discourag[ing] a depository institution from providing 

financial services to a marijuana-related legitimate business" (i.e., one that is in compliance with 

a state or local marijuana regulatory regime). 203 

While such measures, if enacted, might help around the edges, many financial institutions and 

their federal regulators may remain apprehensive about ties to the marijuana industry while 

marijuana is listed as a Schedule I controlled substance under the CSA. In the absence of 

legislative change to the CSA, financial institutions must proceed with the knowledge that the 

Administration could reverse or otherwise make significant changes to its enforcement priorities 

and policies 204 In other words, while these financial institutions may not be the subject of law 

enforcement investigations currently, the option remains. 

Other legislative proposals205 would reclassify marijuana as a Schedule II substance-this would 

legalize marijuana for medical purposes. This would likely do more to ease bank concerns with 

providing financial services to medical marijuana businesses but would not entirely eliminate a 

financial institution's legal risks, particularly if it associates with medical marijuana businesses 

that operate in states or localities lacking strong regulatory oversight and enforcement standards. 

Additionally, the reclassification of marijuana to Schedule II probably would have little impact on 

the provision of financial services to recreational marijuana businesses because they would still 

be operating in violation of the CSA. 

Federal Tax Treatment 

Marijuana producers and retailers may not deduct the costs of selling their product (e.g., payroll, 

rent, or advertising) for the purposes of the federal income tax filings. 206 The Internal Revenue 

Code (IRC) Section 280E states that 

No deduction or credit shall be allowed for any amount paid or incurred during the taxable 

year in carrying on any trade or business if such trade or business (or the activities which 

comprise such trade or business) consists of trafficking in controlled substances (within the 

meaning of schedule I and II of the Controlled Substances Act) which is prohibited by 

Federal law or the law of any State in which such trade or business is conducted. 

201 Ibid. Sec also David Migoya, "'Oregon bank opens doors to Colorado marijuana businesses,7

' The Denver Post, 

January 20, 2015, 

202 Sec, for example, S. 683, ll4'h Cong.; S. 1726, ll4'h Cong.; H.R. 1538. 114'h Cong.; and H.R. 2076, 114"' Cong. 

203 Ibid. 

204 See generally CRS Report R43708, The Take Care Clause and Executive Discretion in the Enforcement of Law, by 

Todd Garvey. 

205 See, for example. S. 683, ll4'h Cong.: H.R. 1538, 114'h Cong. 

206 For more legal analysis, see CRS Report R44056. Marijuana and Federal Tax Lmv: In Brief, by Erika K. Lunder. 

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The Marijuana Policy Gap and the Path .Forward 

Media reports indicate that the Internal Revenue Service (IRS) ha~ enforced Section 280E in 

audits of marijuana-related businesses by refusing to accept these businesses' dcductions. 207 IRC 

Section 280E does not prohibit a marijuana business from deducting the costs of cultivating or 

acquiring marijuana as a "cost of goods sold," though. 208 Effectively this constitutes an implicit 

tax on marijuana-related businesses equal to the value of the tax benefit of such deductions if 

these firms had engaged in an industry that was legal under federal law. One such public case 

involves the Sacramento-based Canna Care marijuana dispensary. The IRS disallowed $2.6 

million in deductions for employee salaries, rent, and other costs over a three-year period, which 

resulted in the business owing $875,000 in additional taxes. Canna Care challenged the IRS in 

U.S. Tax Court, but ultimately the court upheld the IRS ruling209 

The discrepancies between federal, state, and loeal tax treatments of marijuana-related businesses 

may create economic incentives to engage in the underground economy. In addition to the 

uncertainty offederal tax enforcement procedures (and costs of any related legal assistance), the 

inability of marijuana businesses to deduct their business expenses is effectively an implicit tax 

up to 39.6% (if organized as sole-proprietor or partnership) or 35% (if organi7.ed as a C 

corporation) of the cost of these expenses.210 These implicit taxes are paid in addition to state and 

local sales and special excise taxes. 211 The status quo administration of federal tax laws creates an 

economic advantage for illicit marijuana sellers, who are not subject to direct taxation of their 

sales. 

Past marijuana-related tax proposals have varied in scope.212 Some would have exempted a 

business (that conducts marijuana sales in compliance with state law) from the Section 280E 

prohibition against allowing business-related tax credits or deductions for expenditures in 

connection with trafficking in controlled substances.213 In contrast, one bill would have removed 

marijuana from all lists of controlled substances (and, indirectly, IRC §280E restrictions on 

marijuana),2f4 and another would have imposed a federal excise tax on domestic recreational 

marijuana retail sales that would begin at 10% of the price and phase in a tax rate of25% over 

four years. 215 

207 For example, see Jeff Daniels, ··IRS Said to be Auditing Colorado Marijuana Businesses," CNBC, July I2, 2016. 

http://'-'-ww.cnbc.com/20 16/07/12/irs-said-to-be-auditing-colorado-marijuana-businesses.htrn I; and Wi II Y ankowicz. 

'·Marijuana Companies' Biggest Battle Might Be Against the IRS," Slate, July 1, 2016, http://www.slate.com/blogsl 

money box/20 16/07/0 illegal __ cannabis~ businesses -~pay~ taxes_ under_ a_ code _reserved __ for_ illegal_ drug,html. 

208 See CRS Report R44056. Marijuana and Federal Tax Law: In Brief by Erika K. Lunder. 

209 See Canna Care, Inc. v. Commissioner, T.C. Memo 2015-206, October 22,2015. http://ustaxcourt.gov/UstclnOp/ 

OpinionViewer.aspx'1ID=1 0586. 

210 With 35% being the top, marginal tax bracket for corporations and 39.6% being the top. marginal tax bracket for 

individuals under the federal income tax code. 

211 Colorado imposes a sales tax of I 0% and an excise tax of 15% on retail marijuana sales, in addition to a general 

2.9% state sales tax and any local sales taxes. See State of Colorado Department of Revenue, ·'Retail Marijuana Return 

Filing Overview:· January 29-31,2014, http://www.colorado.gov/cmslformsldor-tax/ 

Retai1MarijuanaReturnFilingOverviewJan20 l4.pd( The state of Washington, which began allowing recreational 

marijuana sales in 2014, win impose an excise tax of 25o/o on the sales price of marijuana within an established, statedistribution system. 

212 For more general analysis of federal proposals to tax marijuana, sec CRS Report R43785, Federal Proposals to Tax 

Marijuana: An Economic Analysis, by Jane G. Gravelle and Scan Lmvry. 

m See the Small Business Tax Equity Act of 2015 (H.R. 1855; S. 987) from the 114'h Congress. 

214 See the Regulate Marijuana Like Alcohol Act (H.R. 1013) from the ll4'h Congress. 

215 See the Marijuana Tax Revenue Act of2015 (H.R. 1014) from the ll4'h Congress. 

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The 1'1arizuana Policy Gap and the Path Forward 

Oversight of Federal Law Enforcement 

Review of Agency Missions 

In exercising its oversight authorities, Congress may choose to examine the extent to which (if at 

all) federal law enforcement missions-in particular the DEA 's mission-are impacted by state 

legalization of marijuana. For instance, policymakers may elect to review the mission of each 

federal law enforcement agency involved in enforcing the CSA and examine how its drug-related 

investigations may be influenced by the varying state-level policies regarding marijuana. As 

noted, federal law enforcement has generally prioritized the investigation of drug traffickers and 

dealers over that of low-level drug users. Policymakers may question whether these policies and 

priorities are implemented consistently across states with different drug policies regarding 

marijuana. 

Cooperation with State and Local Law Enforcement 

One issue policymakers may debate is whether or how to incentivize task forces, fusion centers, 

and other coordinating bodies charged with com hating drug-related crimes. Before determining 

whether to increase, decrease, or maintain funding for coordinated efforts such a~ task forces, 

policymakers may consider whether state and local counterparts are able to effectively achieve 

task force goals if the respective state marijuana policy is not in agreement with federal marijuana 

policy. Policymakers may choose to evaluate whether certain drug task forces are sustainable in 

states that have established policies that are either inconsistent-such as in states that have 

decriminalized small amounts of marijuana possession--or are in direct conflict-including states 

that have legalized either medical or recreational marijuana-with federal drug policy. For 

instance, might there be any internal conflicts that prevent task force partners from collaborating 

effectively to carry out their investigations? 

Of note, the Arizona Court of Appeals ruled that patients who possess marijuana in compliance 

with the Arizona Medical Marijuana Act are entitled to the return of their marijuana that law 

enforcement may have seized during a traffic stop.216 In states such as Colorado, media reports 

indicate that some local law enforcement officers avoid seizing marijuana in certain cases because 

they do not want to have to return the marijuana to its owner-an act that is tantamount to 

distribution of a Schedule I controlled substance, a violation of federallaw.217 

Oversight and Continuation of Federal Enforcement Priorities 

As noted, in responding to states with recreationallegalintion initiatives, DOJ issued federal 

enforcement priorities for states with legal marijuana. According to DOJ, it monitors the effects 

of state legalization by 

• collaborating with other DOJ components and other federal agencies in 

assessment of marijuana enforcement-related data; 

• prosecuting cases that threaten federal enforcement priorities; and 

• consulting with state officials about areas of federal concern.218 

216 State v. Okun, 231 Ariz. 462 (Ariz. Ct. App. 2013). The U.S. Supreme Court denied certiorari in 2014. Arizona v. 

Oktm, 572 U.S.~ 134 S. Ct. 1759 (2014). 

217 Jessica Maher, "Law enforcement conflicts still exist with legal pot," Reporter· Herald, January 2, 2014. 

218 U.S. Government Accountability Office, DO.J Should Document Its Approach to Monitoring the Effects of 

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-----------------------------'The M?!!JjE_ana Po/icy___GiP_ and the Path Forward 

As of December 2015, however, DOJ has not documented its efforts to monitor the effects of 

state legalization and ensure that these priorities are being emphasized. It is unclear how the 

metrics to evaluate these priorities will be used to determine whether federal intervention is 

needed in states that have legalized.219 For example, one of the eight enforcement priorities listed 

by Deputy Attorney General Cole was to prevent the diversion of marijuana to other states. While 

it seems the DEA is aware of increased marijuana trafficking from Colorado to Kansas, it is 

unclear what level of increased trafficking might trigger action by the federal government against 

state marijuana laws. Congress may choose to exercise oversight over DOJ's enforcement 

priorities and metrics for tracking illicit activity in the states. Congress may also request research 

on or an investigation of this issue outside of actions by the Administration. 

The Administration may alter or reverse its enforcement priorities at any time. As mentioned, in a 

February 2017 White House press statement, the Trump Administration indicated there may be 

increased enforcement against recreational marijuana, and stated that there is a "big difference" 

between medical and recreational marijuana. 220 

Medical Marijuana 

State Medical Marijuana Laws and Federal Law Enforcement 

State medical marijuana laws have raised questions for federal policymakers about enforcing 

federal law related to marijuana in situations where individuals or organizations are acting in 

compliance with state law. In previous Congresses, Members of both the House and the Senate 

have introduced legislation that would amend the CSA such that provisions relating to marijuana 

would not apply to a person who is acting in compliance with relevant state law.221 

As discussed, in recent years, Congress has included policy riders in appropriations acts to 

prohibit DOJ from using funds to prevent states from implementing their medical marijuana 

laws.222 Congress may decide to alter, maintain, or reverse this provision. Notably, in a February 

2017 White House press statement, the Trump Administration signaled some acceptance of the 

medicinal use of marijuana: "[t]he President understands the pain and suffering that many people 

go through who are facing especially terminal diseases and the comfort that some of these drugs, 

including medical marijuana, can bring to thcm."223 

Legalization. GA0-16-1, December 30,2015. 

219 lbid, pp. 30-31. 

220 The White House, Oflice of the Press Secretary, Press Briefing by Press Secretary Sean Spicer, 212312017. #15, 

February 22, 2017, https:l/w~>.w. whitehouse.gov/the-press-oflice/20 17/02/23/prcss-bricfmg-press-secrctary-seanspicer-2232017-15. 

221 See, for example, the Compassionate Access, Research Expansion, and Respect States (CARERS) Act of20 15 

(H.R. 1538/S. 683 in the ll4'h Congress). 

222 See the Consolidated Appropriations Act, 2016 (P.L. 114-113), §542; and the Consolidated and Further Continuing 

Appropriations Act, 2015 (P.L. 113-235), §538 from the ll4'h Congress. Of note, the medical marijuana provision 

remains in ellect during the FY2017 continuing resolution ("lbe Further Continuing Appropriations Act, 2017 (P.L 

114-254).) that continues appropriations for the bureaus and agencies funded through the annual Commerce, Justice. 

Science, and Related Agencies appropriations until April 28. 2017 

223 The White !louse. Oflice of the Press Secretary, Press Briefing by Press Secretary Sean Spicer, 212312017. # 15, 

February 22, 2017, https://www. whitehouse.gov/the-press-office/20 I 7/02/23/press-briefing-press-secretary-seanspicer-223201 7-15. 

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The Marizuana Policy Gap and the Path Forward 

State Medical Marijuana Laws and Federal Health Care Providers 

A topic of particular interest to federal policymakers has been how federal health care 

providers-especially those in the Department of Veterans Affairs (VA)-<leal with state medical 

marijuana laws. VA policy does not deny health care services to veterans who participate in state 

marijuana programs; however, it docs prohibit VA providers from completing the forms that 

effectively take the place of prescriptions in state medical marijuana programs. 224 Members in 

both chambers have introduced legislation that would allow VA providers to complete such 

fonns. 225 Similar provisions passed the Senate as part of an FY2016 appropriations bill, and 

passed the Senate Committee on Appropriations as part of an FY20 17 appropriations bill; 

however, neither were included in an enacted appropriations law. 226 

Consideration of Marijuana as a Schedule I Dmg: Maintain or 

Minimize the Gap 

As the gap between federal and state policies on marijuana widens each year, policymakers might 

decide to reevaluate federal marijuana policy. It has only been a few years since states began to 

legalize recreational marijuana, but over 20 years since they began to legalize medical marijuana. 

A large majority of states now have marijuana policies that contradict the CSA. 

In addressing state-level legalization efforts, Congress could take one of several routes. It could 

elect to take no action, thereby upholding the federal government's current marijuana policy and 

enforcement priorities. It may also decide that the CSA must be enforced in states and direct 

federal law enforcement to strictly enforce the CSA, even when individuals may be in compliance 

with state laws. Alternatively, Congress could choose to reevaluate marijuana's placement as a 

Schedule I controlled substance. Given the history of its scheduling, Congress may consider 

establishing a committee of experts to evaluate the efficacy of marijuana laws in the United States 

and address other issues such as the medicinal value and harm of marijuana use. 227 

Upon reevaluation, should Congress determine that marijuana no longer meets the criteria to be a 

Schedule I substance, it could take legislative action to remove it from the Jist of substances on 

that schedule. In doing so, Congress may (I) place marijuana on one of the other schedules (Il, 

Ill, IV, or V) of controlled substances or (2) remove marijuana as a controlled substance 

altogether. If Congress chooses to remove marijuana as a controlled substance, it could 

alternatively seek to regulate and tax commercial marijuana activities. If marijuana remains a 

controlled substance under the CSA under any schedule, this would not eliminate the existing 

conflict with states that have legalized recreational marijuana. If the conflict remains, Congress 

may choose to continue to allow states to carry on with implementation of recreational marijuana 

224 Department ofVcterans Affairs, Veterans Health Administration (VHA)~ Access to Clinical Programs for Veterans 

Participating In State- Approved Marijuana Programs, VIlA Directive 2011-004, Washington, DC, January 31, 2011, 

http://www.va.gov/vhapublications/viewpublieation.asp?pubid~2362. This directive expired on January 31, 2016; 

however, it is cited in VHA Directive 1134 (published on November 28, 2016) and thus appears to remain in effect 

225 Sec the Veterans Equal Access Act (H.R. 667 in the 114'' Congress); and the Compassionate Access, Research 

Expansion, and Respect States (CARERS) Act of2015 (H.R. 1538/S. 683 in the 114'' Congress). 

226 See §246 ofH.R. 2029 (in the 114'' Congress) as engrossed in the Senate on November 10, 2015, and §249 ofS. 

2806 (in the 114'' Congress) as reported to the Senate on Aprill8, 2016. 

227 These would be similar to the efforts of the National Commission on Marihuana and Drug Abuse, also known as the 

Shafer Commission, which was established under the CSA to study marijuana in the United States. See Appendix B 

fOr further discussion of the Shafer Commission. 

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The Marizuana Po!icv Gap and the Path Forward 

laws, or it may choose to press for increa~ed enforcement action against or within the states to 

attempt to stop state-sanctioned, recreational marijuana. 

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Appendix A. Medical Research on Marijuana 

Approved Drugs and Ongoing Research 

The Food and Drug Administration (FDA) has approved two drugs containing synthetic THC: 

nabilone and dronabinol. Nabilone is FDA-approved as an antiemetic (to reduce nausea or 

prevent vomiting) for patients receiving chemotherapy for cancer.228 Dronabinol is FDAapproved as both an antiemetic for patients on chemotherapy and an appetite stimulant for 

patients with AIDS-related weight loss. 229 ln addition, drugs containing plant-derived THC and/or 

cannabidiol (CBD, a nonpsychoactive chemical component of marijuana) are in the drug 

development and approval processY" 

The UK-based GW Pharmaceuticals has plant-derived cannabinoid drug products in trials with 

the goal of FDA approval.231 Its drug Sativex®, which is composed primarily of plant-derived 

THC and CBD, has already gained approval in 30 other countries for the treatment of spasticity232 

due to multiple sclerosis.233 In 2014, the company announced that the FDA had granted '·Fast 

Track" designation to Sativex as a potential pain reliever for patients with advanced cancer;234 

however, in 2015, three trials ofSativex failed to show superiority over a placebo.235 The 

company continues to seek approval of Sativex and other plant-derived cannabinoid products for 

treatment of various conditions (e.g., childhood epilepsy).236 

Scientific Evaluations of Marijuana 

Recent evaluations conducted separately by the FDA and the National Academies of Sciences, 

Engineering, and Medicine (the National Academies) illustrate the challenge of meeting the 

required standard of evidence. While taking different approaches to their evaluations, both the 

FDA and the National Academies have found that the current evidence base falls short. 

228 FDA first approved nabilonc in 1985 under the trade name Ccsamet®, which is registered to Meda Pharmaceuticals 

Inc. See http://www.accessdata. fda.gov/scripts/cder/ob/results_product.cfm? Appl_ Type-N&Appl_ No=O 18677. 

229 FDA first approved dronabinol in 1985 under the trade name Marino!®, which is registered to AbbVic Inc. See 

http://www.accessdata. fda.gov/scripts/cder/ ob/results _product.cfm? Appl_ Typc=N &Appi_No=O 1865 J . 

230 Department of Health and Human Services, Food and Drug Administration, flJA and ,Har{juana.· Queslions and 

Answers, http://W\VW,fda.gov/NewsEvents/PublicHealthFocus/ucm421168.htm#deterrninations. For an explanation of 

the FDA's drug development and approval process. see http://www. fda.gov/Drugs/DevelopmentApprovalProcess/ 

dc!lmlt.htm. 

231 GW Pharmaceuticals. ··ow Pharmaceuticals pic Reports Fourth Quarter and Year-End 2016 financial Results and 

Operational Progress,'" press release, December 5, 2016, http://ir.gwpharm.com/releasedetail.cfm?Release!D=I002545. 

232 Spa">ticity refers to problems with muscle control. It is a disorder often found in people with multiple sclerosis, 

cerebral palsy, and other conditions. 

233 Ibid. 

234 GW Pharmaceuticals, .. GW Pharmaceuticals Announces that Sativex Receives Fast Track Designation from FDA in 

Cancer Pain," press release, April28, 2014. http://ir.gwphann.com/releasedetail.cfm?Rclease!D~842890. For an 

explanation of FDA's '"Fast Track"' designation, see http://www.fda.gov/forpatients/approvals/fast/ucm20041766.htm. 

235 GW Pharmaceuticals. "GW Phannaccuticals and Otsuka Announce Results From Two Remaining Sativex(R) Phase 

3 Cancer Pain Trials,'' press release, Octo her 27, 2015. 

216 GW Pharmaceuticals, '·Gw Phannaceutieals pic Reports Fourth Quarter and Year-End 2016 financial Results and 

Operational Progress," press release, December 5, 2016. Of note. the FDA does not release this kind of information, 

which is proprietary: this information is publicly available because the company released it. 

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The Mari1uana Policy Gap and the Path Forward 

FDA Evaluation. The FDA evaluated only marijuana, not drugs containing a plant-derived 

chemical constituent of marijuana or drugs containing synthetic THC. Its analysis of marijuana's 

potential therapeutic effects is limited to II published studies that met criteria for inclusion in the 

review (e.g., that the study must be a randomized controlled trial). 237 The studies examined 

marijuana's use to treat neuropathic pain (five studies), stimulate appetite in patients with HIV 

(two studies), treat glaucoma (two studies), treat spasticity in multiple sclerosis (one study), and 

treat asthma (one study). 238 The evaluation also assessed potential risks of marijuana use (see text 

box, "Risks Associated with Marijuana Use''). The evaluation, called an eight-factor analysis, was 

conducted by the FDA pursuant to a request by the DEA.239 The DEA requests such scientific and 

medical evaluations from the Secretary of Health and Human Services (BHS) in response to 

petitions asking the DEA to reschedule marijuana administratively. 240 

National Academies Evaluation. The National Academies evaluated cannabis, its constituents, 

and drugs containing synthetic THC. For each of I J health topics, the report assessed "fair- and 

good-quality" research, relying on systematic reviews published since 20 II (where available) and 

primary research puhlished after the systematic review (or since 1999, if no systematic review 

exists)241 The I J health topics are (I) therapeutic effects; (2) cancer; (3) cardiometabolic risk; ( 4) 

respiratory disease; (5) immunity; (6) injury and death; (7) prenatal, perinatal, and postnatal 

exposure to cannabis; (8) psychosocial effects; (9) mental health; (I 0) problem cannabis use; and 

(II) cannabis use and abuse of other substances. 242 The report presents nearly I 00 conclusions, 

including some related to the challenges in conducting research with cannabis and cannabinoids. 

Federal Research Requirements for Marijuana 

Many federal research requirements are standard across all schedules of controlled substances; 

however, some requirements vary according to the assigned schedule of the particular substance. 

Federal regulations are more stringent for Schedule I substances-including marijuana. Examples 

of this include the following: 

For Schedule I substances, such as marijuana, even if practitioners have a DEA 

registration for a substance in Schedules II-V, they must obtain a separate DEA 

registration for Schedule I substances. 

• Individuals who seek to register to manufacture a controlled substance in 

Schedule I or II are subject to production quota limitations as determined by the 

DEA.243 but registrants for substances in Schedules lfl-V are not subject to such 

quotas. 

237 Department of Justice, Dmg Enforcement Administration, "Denial of Petition to Initiate Proceedings to Reschedule 

Marijuana," 81 Federal Register 53687-53766 and 53767-53845, August 12. 2016. 

218 1bid. 

239 The term ·'eight-factor analysis" refers to the eight fl1ctors to be included pursuant to 21 U.S.C. §811 (c). 

240 The request for a scientific and medical evaluation is required by 21 U.S.C. §811 (b). The results of the most recent 

eight-factor analysis prior to August 2016 are available at Department of Justice, Drug EnfOrcement Administration~ 

"Denial of Petition to Initiate Proceedings to Reschedule Marijuana," 76 Federal Register 40551-40589. July 8, 2011. 

241 National Academies of Sciences, Engineering, and Medicine. The Health t.ffects of Cannabis and CGnnabinoids: 

The Current State ~/Evidence and Recommendations for Research, Wa.,hington, DC. 2017, p. S-3. doi: 

I 0.17226/24625. 

242 lbid. 

243 See 21 U.S.C. §826. 

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Researchers are required to store Schedule I and II substances in electronically 

monitored safes, steel cabinets, or vaults that meet or exceed certain 

specifications244 They are required to store Schedule Ill-V substances by secure 

standards but the requirements are less stringent than those required for Schedule 

I and II substances. 

• When researchers apply for a DEA registration to conduct research involving 

Schedule I controlled substances, they must comply with federal regulations 

specifying the form and content of the research protocols.245 The DEA 

Administrator must forward a copy of the application and research protocol to 

Jll{S, which is responsible for determining "the qualifications and competency of 

the applicant, as well as the merits of the protocol."246 The HHS Secretary 

delegates that responsibility to the FDA. No equivalent process is requiredfor 

Schedule II- V controlled substances. 

Marijuana Supply for Researchers 

Under the CSA, the Attorney General is required to register an applicant to manufacture Schedule 

I or II controlled substances "if he determines that such registration is consistent with the public 

interest and with United States obligations under international treaties, conventions, or protocols 

in effect on May 1, 1971."247 In the case of marijuana, the National Center for Natural Products 

Research at the University of Mississippi has been the only registered manufacturer, operating 

under a contract administered by the National Institute on Drug Abuse (NIDA) within HJ-IS's 

National Institutes of Health. For nearly 50 years, it has been the only official source through 

which researchers may obtain marijuana for research purposes-and which some have referred to 

as a •'federal research monopoly."248 Some have contended that marijuana provided by NIDA to 

researchers is "both qualitatively and quantitatively inadequate."249 Marijuana's status as a 

Schedule I drug has reportedly created difficulty for researchers who seek to study the substance 

but are potentially unable to meet the strict requirements of the CSA, or perhaps they seek to 

utilize a different quality of marijuana than what is available through NIDA. 

In August 2016, the DEA announced a policy change "designed to foster research by expanding 

the number ofDEA-registered marijuana manufacturers."250 Under the new policy, the DEA is 

willing to license additional growers to "operate independently, provided the grower agrees 

(through a written memorandum of agreement with DEA) that it will only distribute marijuana 

244 21 C.F.R. §§130L72(a)(l)(i)-(iii) (specifications required for safes and steel cabinets storing Schedule I and II drugs 

or substances); see also 21 C.F.R. §§1301.72(a)(2) and 130L72(a)(3)(i)-(vi) (specifications required for vaults storing 

Schedule I and II drugs or substances). 

'" 21 C.F.R. §130l.l8(a). 

" 6 21 U.S.C. §823(1); 21 C.F.R. §1301.32(a). 

247 21 USC §823(a). 

248 See N!DA 's Role in Providing Marijuana for Research, available at http://v.ww.drugabuse.gov/drugs·abuscl 

marijuana/nidas-rolc~in-providing-marijuana-research: and Marc Kaufman, "Federal Marijuana Monopoly 

Challenged," Washington Post, December 12, 2005. 

249 Marc Kaufman, "Federal Marijuana Monopoly Challenged," Washington Post. December 12, 2005; and Department 

of Justice, Drug Enforcement Administration. "Lyle F. Craker: Denial of Application.'' 74 Federal Register 2101, 

January 14, 2009. 

250 Department of Justice, Drug Enforcement Administration, DEA Announces Actions Related to Mariiuana aJUI 

industrial Hemp, August I I, 2016. 

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The Marijuana Policy Gap and the Path Forward 

with prior, written approval from DEA''251 In addition, under the new policy, these growers will 

only be pennitted to supply marijuana to DEA-registered researchers whose "protocols have been 

determined by [HHS) to be scientifically meritorious." This new approach, DEA states, will allow 

individuals to obtain a DEA cultivation registration "not only to supply federally funded or other 

academic researchers, but also for strictly commercial endeavors funded by the private sector and 

aimed at drug product development." Given that both the FDA and the DEA identified the lack of 

research as a significant factor in denying the rescheduling petitions in 20!6, and to the extent 

that this policy may increase the amount of marijuana research conducted, the change could 

contribute to future debate on rescheduling. 

251 Department of Justice~ Drug Enforcement Administration, ''Applications To Become Registered Under the 

Controlled Substances Act To Manufacture Marijuana To Supply Researchers in the United States.'' 81 Federal 

Register 53846-53848, August 12, 2016. 

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Appendix B. Background on Federal Marijuana 

Policy 

Early 201h Century 

Prior to 193 7, the growth and use of marijuana Anti-marijuana Propaganda 

was legal under federal law. 255 During the 

course of promoting federal legislation to 

control marijuana, Henry Anslinger, the first 

commissioner of the Federal Bureau of 

Narcotics (FBN), 256 and others submitted 

testimony to Congress regarding the evils of 

marijuana use, claiming that it incited violent 

and insane behavior.257 Of note, Commissioner 

Anslinger had informed Congress that "the 

major criminal in the United States is the drug 

addict; that of all the offenses committed 

against the laws of this country, the narcotic 

addict is the most frequent offender."258 The 

In the early 20th century, enforcement of drug laws was 

primarily the responsibility of local police, and the FBN 

occasionally assisted.252 Due to limited and reduced 

appropriations during the Great Depression, the FBN 

budget and the number of narcotic agents declined and 

remained low for years. Publicity and warnings of the 

dangers of narcotics. in particular marijuana, became 

methods of drug control for the FBN.253 In seeking 

federal control of marijuana and uniform narcotic laws, 

Commissioner Anslinger made personal appeals to civic 

groups and legislators and pushed for, and received, 

editorial support in newspapers; many newspapers 

maintained a steady stream of anti-marijuana 

propaganda in the 1930s.m 

federal government unofficially banned marijuana under the Marihuana Tax Act of 1937 (MTA; 

P.L. 75-238).259 The MTA imposed a strict regulation requiring a high-cost transfer tax stamp on 

marijuana sales, and these stamps were rarely issued by the federal goverrunent260 Shortly after 

passage ofthe MTA, all states made the possession of marijuana illegal. 261 

Mid-201

h Century 

In the decades after enactment of the MTA, Congress continued to pass drug control legislation 

and further criminalized drug abuse. For example, the J3oggs Act (P.L. 82-255), passed in 1951, 

252 David F. Musto, lhe American Disease: Origins of Narcotic Control, 3rd ed. (New York: Oxford University Press, 

1999), pp. 183-200, p. 228. 

253 Ibid., p. 214. 

254 Richard J. Bonnie and Charles IL Whitebread H, The AJarffuana Conviction: A History o/.Afarijuana Conviction in 

the United States (New York: The Lindesmith Center, 1999), pp. 94-95. 

255 States regulated marijuana but did not begin to ban it until after 1937. 

256 ln 1930,the Federal Bureau ofNareoties (FBN) was established within the Treasury to handle narcotic enforcement. 

257 See statements hy H. J. Anslingcr, Commissioner of Narcotics, Bureau ofNarcotics, Department of the Treasury 

ond Dr. James C. Munch, befiJre the U.S. Congress. House Committee on Ways and Means, Taxation ofA1arihuana. 

75'' Cong., I" sess., April27-30, May 4, 1937, HRG-1837-WAM-0002. 

258 U.S. Congress, I louse Committee on Ways and Means. Taxation of Marihuana, 75'h Cong., I st sess., April 27-30. 

May 4, 1937, HRG-1837-WAM-0002, p. 7. 

25'1 Congressional testimony indicated that marijuana, while it was a problem in the Southwest United States starting in 

the mid-1 920s, became a ··national menace" in the mid-1930s (1935-1937). See statement by H. J. Anslinger, 

Commissioner of Narcotics, Bureau of Narcotics, Department of the Treasury, before the U.S. Congress_ House 

Committee on Ways and Means, Taxation of Marihuana, 75'' Cong., I" sess., April27, 1937. 

26° Charles F. Levinthal, Drugs, Society, and Criminal Justice, 3"' ed. (New York: Prentice Hall, 2012), p. 58. 

261 In Leary v. United States (395 U.S. 6 (1968)), the MTA was overturned by the U.S. Supreme Court as a violation of 

the Fifth Amendment's privilege against compelled self-incrimination. 

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established mandatory prison sentences for some drug offenses, while the 1956 Narcotic Control 

Act (P.L. 84-728) further increased penalties for drug offenses. In conjunction with growing 

supp01i for a medical approach to addressing drug abuse, there was a strong emphasis on law 

enforcement control of narcotics. Congress shifted the constitutional basis for drug control from 

its taxing authority to its power to regulate interstate commerce, 262 and in 1968 the FBN merged 

with the Bureau of Drug Abuse Control and was transferred from Treasury to the Department of 

Justice. 263 Several years later, President Nixon would declare a war on drugs. 264 

Congress and President Nixon enhanced federal control of drugs in the enactment of 

comprehensive federal drug laws-including the Controlled Substances Act (CSA), enacted as 

Title ll of the Comprehensive Drug Abuse Prevention and Control Act of 1970 (P.L. 91-513). The 

CSA placed the control of marijuana and other plant, drug, and chemical substances under federal 

jurisdiction regardless of state regulations and laws. In designating marijuana as a Schedule I 

controlled substance, this legislation officially prohibited the manufacture, distribution, 

dispensation, and possession of marijuana. 265 

The Shafer Commission 

As part of the CSA, the National Commission on Marihuana and Drug Abuse, also known as the 

Shafer Commission, was established to study marijuana in the United States. 266 Specifically, this 

commission was charged with examining issues such as 

(A) the extent of use of marihuana in the United States to include its various sources of 

users, number of arrests, number of convictions, amount of marihuana seized, type of user, 

nature of use; 

(B) an evaluation of the efficacy of existing marihuana laws; 

(C) a study of the pharmacology of marihuana and its immediate and long-term effects, 

both physiological and psychological; 

(D) the relationship of marihuana use to aggressive behavior and crime; 

(E) the relationship between marihuana and the use of other drugs; and 

(F) the international control of marihuana267 

The Shafer Commission, in concluding its review, produced two reports; (I) Marihuana: A Signal 

of Misunderstanding, and (2) Drug Use in America: Problem in Perspective.268 

262 As stated in Article I, §8. cl. 3 of the U.S. Constitution, ··Congress shall have the Power ... To regulate Commerce 

with foreign Nations, and among the several States, and with the Indian Tribes.'' For more iniOrrnation about the 

commerce clause, sec CRS Report R43023, Congressional Authority to Enact Criminal Law: An Er:amination of 

Selected Recent Cases. by Charles Doyle. 

263 David F. Musto, 771e American Disease: Origins of Narcotic C'ontrol, 3rd ed. (New York: Oxford University Press. 

1999), p. 239. The shift in constitutional authority was part of the Drug Abuse Control Amendments of 1965 (P .L. 89-

74). 

164 For a broader discussion of the tCderal government's drug enforcement history~ see CRS Report R43749, Drug 

Enforcement in the United States: JHstOf)J, Policy. and Trends, by Lisa N. Sacco. 

26 ~ 21 U.S. C. *812 and ~841. Of note, growing a marijuana plant is considered manz{{acturing marijuana. 

166 The commission was composed of two Members of the Senate. two Members of the House, and nine members 

appointed by the President of the United States. President Nixon appointed Raymond Shater as the commissioner. 

"' P.L. 91-513, §60l(d). 

268 National Commission on Marihuana and Drug Abuse, Marihuana: A Signal o.f.Misunderstanding, First Report of 

the National Commission on Marihuana aud Drug Abuse, Washington. DC, March 1972 (hereinafter, First Report of 

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The Marizuana Policy Gap and the Path Forward 

In its first report, the Shafer Commission discussed the perception of marijuana as a major social 

problem and how it came to be viewed as such.269 lt made a number of recommendations, 

including the development of a "social control policy seeking to discourage marihuana use, while 

concentrating primarily on the prevention of heavy and ve1y heavy use:mo In this first report, the 

commission also called the application of criminal law in cases of personal use of marijuana 

'·constitutionally suspect" and declared that "total prohibition is functionally inappropriatc.''271 Of 

note, federal criminalization and prohibition of marijuana was never altered, either 

administratively or legislatively, to comply with the recommendations of the Shafer Commission. 

In its second report, the Shafer Commission reviewed the use of all drugs in the United States, not 

solely marijuana. It examined the origins of the country's drug problem, including the social costs 

of drug use, and once again made specific recommendations regarding social policy. Among other 

conclusions regarding marijuana, the commission indicated that aggressive behavior generally 

cannot be attributed to its use.272 The commission also reaftlrmed its previous findings and 

recommendations regarding marijuana and added the following statement: 

The risk potential of marihuana is quite low compared to the potent psychoactive 

substances, and even its widespread consumption does not involve social cost now 

associated with most of the stimulants and depressants (Jones, 1973; Tinklenberg, 1971 ). 

Nonetheless. the Commission remains persuaded that availability of this drug should not 

be institutionalized at this time 273 

At the conclusion of the second report, the Shafer Commission recommended that Congress 

launch a subsequent commission to reexamine the broad issues surrounding drug use and societal 

response. 274 While a number of congressionally directed commissions regarding drugs have since 

been established,275 no such commission has been directed to review the comprehensive issues of 

drug use, abuse, and response in the United States. 

the Shafer Commission); and National Commission on Marihuana and Drug Abuse, Drug Use in America: Problem in 

Perspective, Second Report of the National Commission on Marihuana and Drug Abuse) Washington~ DC, March 1973 

(hereinafter, Second Report of the Shafer Commission). 

269 The commission stated that three factors contributed to the perception of marijuana as a major national problem. 

including"[ I] the illegal behavior is highly visible to all segments of our society. !2] use of the drug is perceived to 

threaten the health and morality not only of the individual but of society itself, and [3] most important, the drug has 

evolved in the tate sixties and early seventies as a symbol of wider social conflicts and public issues.'' First Report of 

the Shafer Commission. p. 6. 

27° First Report of the Shafer Commission. p. 134. 

271 Ibid., pp. 142·143. 

272 Second Report of the Shater Commission, p. 158. 

273 Ibid, p. 224. Jn this statement the Shafer Commission cites the following studies: R.T. Jones, A4entallllness and 

Drugs: Pre-Existing P,ychopalhology and Response to P.1ychoaclive Drugs. Paper Prepared for the National 

Commission on Marihuana and Drug Abuse, 1973; and J.R. Tinklenberg. Marihuana and Crime. Paper Prepared for 

the National Commission on Marihuana and Dmg Abuse. Unpublished, October 1971. 

274 Second Report of the Shafer Commission. pp. 410-41 I. 

275 See, for example. the President's Media Commission on Alcohol and Dmg Abuse Prevention and the National 

Commission on Drug-Free Schools. 

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________________________________________ T,_,h-'"'e. Marijuana Policy Gap and the Path Forward 

Author Contact Information 

Lisa N. Sacco, Coordinator 

Analyst in Illicit Drugs and Crime Policy 

lsacco@crs.loc.gov, 7-7359 

Erin Bagalman 

Analyst in Health Policy 

ebagalman@crsJoc.gov, 7-5345 

Acknowledgments 

Kristin Finklea 

Specialist in Domestic Security 

kfinklea@crsJoc.gov, 7-6259 

Sean Lowry 

Analyst in Public Finance 

slowry@crs.loc.gov, 7-9154 

Amber Wilhelm and Calvin DeSouza contributed to the graphics used in this report. 

Congressional Research Service R44782 ·VERSION 4 ·UPDATED 44 
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Wednesday, February 13, 2019 

The Honorable David Scott 

2129 Rayburn House Office Building 

Washington, DC 20515 

The Honorable Blaine leutkemeyer 

4340 O'Neill House Office Building 

Washington, DC 20515 

Re: House Financial Service Committee Subcommittee on Consumer Protection and Financial 

Institutions "Challenges and Solutions: Access to Banking Services for Cannabis-Related 

Businesses" 

Chairman Scott, Ranking Member leutkemeyer, and distinguished Members of the 

Subcommittee-thank you for convening this hearing on this important topic and for 

welcoming our letter into the the record. 

My name is laurent Crenshaw and I am the Senior Director of Government Affairs for Eaze 

Solutions, Inc (Eaze). Eaze is an technology platform that connects adult consumers with 

licensed cannabis retailers in states that have legalized the commercial sale of cannabis. Eaze 

provides technology solutions only to licensed brands and retailers. 

Eaze recently published original research on consumer trends in the California market. You will 

find a copy of that research report attached to this letter. We hope the information will assist 

your work and demonstrate that a broad cross-section of Americans will benefit from a 

commonsense approach to cannabis banking. 

We strongly support legislative efforts in the committee that will allow legal cannabis 

businesses to operate responsibly and transparently with the support of traditional financial 

services providers. Thank you for your thoughtful, bipartisan leadership. We look forward to 

working with you on this critically important issue. 

Sincerely, 

laurent Crenshaw 

Senior Director, Government Affairs. 
210 


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Appendix: 

EAZE INSIGHTS I State of Cannabis: 

Consumers Diversified in 2018 

Jan 15,2019 

2018: The dawn of cannabis wellness. 

2018 was a monumental year for the cannabis industry. California, the 

largest cannabis market in the country, officially transitioned from 

medical to adult use, and new consumer markets emerged across the 

u.s. 

Throughout the transition, Eaze has kept a finger on the pulse of 

industry trends as well as consumer purchasing and wellness habits, 

which we've outlined here in our fourth annual State of Cannabis data 

report. 

Executive summary 

Baby Boomers and women continue to demonstrate remarkable market 

share growth and consumers are increasingly turning to cannabis as a 

wellness tool, with the breakout star of the year. 

This latest report in the Eaze Insights series reveals the cannabis 

customer base is growing and diversifying, demonstrating a rise in 

popularity across all adult groups, regardless of gender or age. 

Consumers are also turning to cannabis to curb unhealthy habits. A 

majority with Millennials showing 

the most significant decrease, while many reduced or eliminated their 

need for over-the-counter and prescription i&!J!!lll!~~Ql!'VJl. 

Here are some of the key findings from the report, based on the 

anonymized consumer behavior data from Eaze's database of 450,000 
211 


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cannabis consumers as well as attitudes and usage data based on 

survey 

• The cannabis customer base is across age 

groups: First-time cannabis consumers grew 140% thanks to 

adult use Boomers were one of the fastest 

25% over the year. 

• Year of the female cannabis consumer: With female consumers 

the of women the market 

trn:~l"<>•ri men and continued the trend of female 

with women now38% of cannabis consumers. 

of cannabis users: CBO 

doubled in 201 8, from 2.6% in 2017 to 

Boomers are the most common CBD 

enthusiasts of all age groups in 2018), and female Boomers 

are the most likely CBD users. 

.. Cannabis are used for a of wellness 

71% of consumers reduced 

or stopped (18%) their over-the-counter (OTC) 

60% of consumers have reduced 

their alcohol 
212 


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California's cannabis industry took a wild ride in 2018. Shifting 

regulations, a and supply constraints due to 

new testing standards created an ever-changing environment. Despite 

these challenges, the legal market grew in significant ways, thanks to a 

huge uptick in new consumers and higher individual spending. 

New buyers are powering the wellness trend. 

Thanks to a new legal market, first-time adult consumers flocked to 

Eaze in 2018, more than double from the previous year. Even after 

adjusting for new cannabis taxes and fees, consumers average order 

volumes are higher across the board. 

The Boom boom. 

Baby Boomers are one of the fastest-growing groups of cannabis 

consumers. They're also the biggest spenders by a fairly wide margin -
213 


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a trend that follows closely along generational lines. On average, 

Boomers spend 53% more than Gen Z consumers. 

Women are catching up. 

The gender balance is steadily shifting: the number of female 

consumers nearly doubled year-over-year between 2017 and 2018, and 

market share of women rose 3% for the third consecutive year. if the 

pace continues, we will see equal gender representation among 

cannabis consumers by 2022. 
214 


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Veterans and people with disabilities benefit from cannabis. 

Millennials still dominate. 

Millennials are still the biggest group on Eaze, reflected in the average 

age of our customers. 
215 


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'Cannabis culture' is becoming mainstream culture. 

For the first time ever, (the day before Thanksgiving) 

beat the classic cannabis holiday April 20th (4/20) in one-day sales. As 

cannabis normalizes, consumer e-commerce trends, such as Black 

Friday shopping, are reflected in cannabis purchases. Legalization also 

brought an with many consumers 

likely sharing their experiences and cannabis education with friends and 

family around the holidays. 

~-~~ 

Cti~!M.Y., 

:tt ttt~tHt.OS:U.TH 
216 


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Consumers order cannabis more frequently than ever. 

With a widened customer base, cannabis orders have 

faster. 

come in 

Northern and Southern California have unique buying patterns. 

As cities enhance cannabis access by allowing delivery services, 

nuanced neighborhood trends are beginning to emerge in the Bay Area 

and Los Angeles. 
217 


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LOW 

MEO 

Ill HIGH 

~ow 

.M£0 

Ill HIGH 

Not only are consumers nuanced in their respective regions, there are 

also subtle differences in how those in Northern California versus 
218 


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Southern California consume though perhaps the biggest insight here 

is that our commonalities are greater than our differences. 

As new consumers navigate the complex world of cannabis brands, 

easy-to-use products gain popularity. Products that don't require 

paraphernalia, such as ready to use prerolls, edibles, and vaporizers, 

are gaining momentum over traditional flower purchases. 
219 


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EAZE INSIGHT: Convenient consumption is on the rise. 

Across all cannabis product one thing is clear: is the 

breakout star of 2018. The cannabinoid that reportedly brings an array 

of wellness benefits without the high saw its consumers double 

year-over-year, with women and Baby Boomers driving growth by using 

CBD for and $;!?5i!C!L!_,_~"'-'-~· 
220 


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Data represents consumers who primarily purchase products with high 

CBD content. 

There are subtle differences in product preference 

among cannabis consumers. 
221 


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As the cannabis consumer diversifies, subtle segment preferences are 

beginning to emerge. For instance, as women grow as a segment, their 

preferred products appear to be more "beginner" friendly. 

Data represents consumers who primarily purchase products with high 

CBD content. 
222 


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The most popular cannabis products cater to 

beginners. 

The most popular vaporizers are those designed for newcomers. Vapes 

named based on intended effects - Calm, Happy, or Relief for example 

- outperformed vapes named after any particular cannabis strain. 

Consumers continue to prefer hybrid flowers over Sativa and Indica 

strains. Edibles continue to grow in popularity, likely due to the 

new and gummies are the preferred 

delivery method. 

C:00Kfli5 lin'£$ C.QM.MU:S UIOC#t..A'tll .MlliT$ 

.... 

Eaze Insight: Consumers are taking 

control of their wellness. 

Wellness is a major factor in the increased popularity and consumption 

of cannabis. While there are subtle nuances regarding how different 

groups consume, across gender and generation, the overwhelming 

commonality is wellness. 
223 


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---
224 


Insert offset folio 165 here 35631.165

Veterans differ from non-veterans 
225 


Insert offset folio 166 here 35631.166

CBD ==-=~~~::....:..::.:~· but it definitely makes you 

feel something. 

CBD-only consumers reported feeling a variety of effects underscoring 

the expanding role of CBD in the wellness space. 
226 


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AIO:ii!TY II!LIEF 

Consumers are reducing unhealthy habits thanks to 

cannabis. 

Cannabis consumers are leaving harmful substances and medications 

behind. All generations report drinking less due to cannabis, with 

Mi!lennials most likely to reduce their consumption. 
227 


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Passing on pills • 

.Ei'l!lilirnllli~!m~ continues to be a popular application for cannabis. 

From minor aches and pains to more serious, chronic pain, consumers 

have historically only had access to over-the-counter or prescription 

medications. That has changed with the introduction of tested, 

regulated legal cannabis. Across demographics, Eaze customers report 

needing fewer pills: 71% reduced reliance on over-the-counter drugs 

and 35% reduced reliance on prescription medications. 
228 


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More cannabis, fewer meds. 

Baby Boomers and women are finding the most relief with cannabis. 

* "High Dose"= more than 40mg, "Medium Dose"= 11 mg to 40mg, 

"Low Dose"= 1 Omg or less 

Passing on prescriptions, too. 

Similar to over-the-counter drugs, prescription pain medications are 

falling to the wayside as consumers increasingly turn to cannabis for 

their more serious or chronic pain. 
229 


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A copy of this full report can be found: 

https://www.eaze.com/article/insights-2018-state-of-cannabis-report-marijuana-consumer-div 

ID[f¥ 
230 


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STATEMENT BEFORE 

THE UNITED STATES HOUSE OF REPRESENTATIVES 

FINANCIAL SERVICES COMMITTEE 

CONSUMER PROTECTION AND FINANCIAL INSTITUTIONS SUBCOMMITTEE 

HEARING ENTITLED "CHALLENGES AND SOLUTIONS: 

ACCESS TO BANKING SERVICES FOR CANNABIS-RELATED BUSINESSES" 

February 13, 2019 

The Independent Insurance Agents and Brokers of America (Big "I") respectfully submits the following 

statement regarding the role of insurance agents and brokers in placing insurance products for cannabisrelated businesses.' Currently most states and the District of Columbia have enacted laws allowing for 

either medical or adult-use marijuana. However, marijuana remains illegal under the federal Controlled 

Substances Act meaning those who do business with cannabis-related businesses, such as a marijuana 

dispensary, are subject to potential federal legal and criminal liability, as well as other professional liability 

risks. 

The Big "I" is concerned that the current dichotomy between state and federal laws regarding legalization 

of different aspects of the cannabis industry, as well as conflicting court rulings regarding insurer 

obligations to provide coverage, put insurance agents and brokers who procure coverages for this industry 

at great risk. Conflicting state and federal laws, as well as emerging standardization of insurance business 

practices and rapidly evolving regulations, have largely discouraged many insurers from actively 

participating in this market. This has resulted in businesses seeking out the advice of insurance agents and 

1 The Big 'T' is the nation's oldest and largest trade association of independent insurance agencies, representing a 

nationwide network of approximately a quarter of a million agents, brokers and employees. Big "I" members sell all 

lines of insurance-property/casualty, life, health, employee benefit plans and retirement products to business, 

individuals and non-profit clients. 

1 
231 


Insert offset folio 173 here 35631.173

brokers to place tailored insurance products, such as self-insurance mechanisms, and navigate the 

complexities related to this emerging line of business. As such, the Big "I" supports clarifying federal laws 

that create potential legal and criminal liability for insurance agents and brokers who choose to provide 

state-regulated insurance products to state-sanctioned cannabis businesses. 

The focus of today's hearing is on access to banking services for cannabis-related businesses, but as noted 

above, another critical service that falls under the jurisdiction oft he Financial Services Committee is facing 

the same challenges in servicing the state-sanctioned cannabis industry: Insurance. like any other 

business, marijuana growers and distributors need insurance coverage for their assets and potential 

liabilities. Furthermore, these businesses face legal and regulatory requirements at the state and federal 

level to obtain insurance if they wish to undertake any number of basic functions such as obtain a loan or 

mortgage or hire employees. Consequently, the Big "I" respectfully recommends that as the Committee 

considers solutions to address challenges related to access to banking services for cannabis businesses, 

continued consideration be given to these same issues as they relate to the business of insurance. 

The insurance industry faces many of the same challenges as the banking industry in servicing cannabisrelated businesses, including public safety concerns. Insurance is generally thought of as protection 

against a financial loss, but insurance, like banking, is also pivotal to the overall economy. Put simply, 

insurance is a necessary precondition for many economic activities that would not or could not take place 

otherwise. Making sure that businesses in states across the country can obtain insurance is important to 

the safety and resiliency of communities across the U.S. 

Prior to today's hearing a discussion draft of the "Safe and Fair Enforcement Banking Act of 2019" (SAFE 

Banking Act) by Reps. Ed Perlmutter (D-Colorado), Denny Heck (D-Washington), Steve Stivers {R-Ohio) and 

Warren Davidson {R-Ohio) was made public. The Big "I" appreciates this draft legislation and believes it is 

a positive step in the right direction to ensure that insurance agents and brokers can provide insu"rance 

products to cannabis-related businesses where permitted by state law. 

The Big "I" looks forward to continuing to work with the Committee and Congress to consider further 

challenges that the business of insurance, including insurance agents and brokers, face in seeking to 

service state-sanctioned cannabis-related businesses. The Big "I" thanks the Committee for considering 

the views of independent insurance agents and brokers. 

2 
232 


Insert offset folio 174 here 35631.174

Banking & Cannabis: Urgency Grows to Close the Industry's 

Financial Services Gap 2/12/2019 

U.S. HOUSE COMMITTEE ON FINANCIAL SERVICES 

CHALLENGES AND SOLUTIONS: ACCESS TO BANKING SERVICES FOR CANNABISRELATED BUSINESSES 

Banking & Cannabis: Urgency Grows to Close the Industry's 

Financial Services Gap 

Testimony Submitted by: 

John Kagia, Chief Knowledge Officer, New Frontier Data 

2/12/2018 

The cannabis industry's limited access to financial institutions presents a 

threat to public safety and obfuscates financial accountability, 

undermining the efforts of state regulators to establish efficient and 

compliant cannabis industries. 

There are currently approximately 10,000 licensed cannabis businesses in the U.S., with 

that number expected to rise as more states pass medical and adult use laws. These 

"plant touching" businesses, which are involved in the cultivation, processing, 

distribution and retail sales of cannabis have very limited access to the financial services 

that are integral to the efficient operation of every other sector of the economy. 

Federal cannabis prohibition is at the heart of the cannabis industry's banking 

challenges. Under federal law, cannabis is classified under Schedule 1 of the Controlled 

Substances Act, which means it has a "high potential for abuse" and "no currently 

accepted medical use in treatment in the United States." Despite this classification, 33 

states have legalized the use of cannabis for medical purposes, of which 10 states have 

also legalized full adult use. 

The disconnect between state and federal law has led financial institutions to decline 

to serve the cannabis industry for fear of federal prosecution. As the American Bankers 

Association notes, "contact with money that can be traced back to state marijuana 

operations could be considered money laundering and expose a bank to significant legal, 

operational and regulatory risk." The ABA further notes that "the rift between federal 

and state law has left banks trapped between their mission to serve the financial needs 

of their local communities and the threat of federal enforcement action". 

Without access to banks, many businesses in the cannabis industry operate exclusively 

in cash. The high volume of retail sales drives large numbers of small-dollar 

transactions. New Frontier Data's analysis revealed that the average consumer spends 

New Frontier Data 1 
233 


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Banking & Cannabis: Urgency Grows to Close the Industry's 

Financial Services Gap 2/12/2019 

$74 per transaction and $163 per month on cannabis. With some dispensaries serving 

over 500 customers per day, the volume of cash generated from these transactions 

creates significant security and operational challenges. 

Challenges exist in the wholesale market as well. With a pound of cannabis in Colorado 

now averaging just under $1,000, it is not uncommon for growers to be dealing with 

$100,000 transactions or more for farge wholesale purchases. The number of 

transactions for wholesalers may be much lower than for retailers, but the effect is the 

same- plant-touching businesses are left holding extremely farge volumes of cash as 

part of their day to day operations. 

Storing and transporting such large volumes of cash presents not only a daunting 

logistical challenge for businesses, but an increased risk to public safety. There have 

been enough robbery and theft attempts targeting the cash of cannabis businesses to 

affirm the heightened risk of a cash-based industry. As noted by Don Childers, President 

& CEO of Colorado Bankers Association in January 2019, "We've had some security guards 

killed. We have not had the level or violence we've feared [in Colorado]. But we still have the 

public at risk because we have [so] much cash moving around by people inexperienced with 

handling that much cash". 

There are some limited existing financial services for the industry as state-chartered 

banks and credit unions increasingly serve the cannabis industry. According to the U.S. 

Treasury's Financial Crimes Enforcement Network (FINCEN) there were 444 financial 

institutions serving the cannabis industry as of September 2018, up from 318 in October 

2018. Most of these are state-chartered banks and credit unions. While these chartered 

banks and credit unions have offered businesses in the industry basic business accounts 

and, in some cases, lines of credit, many cannabis businesses do not have access to 

merchant services, such as credit card processing and loans, which are essential for the 

efficient operation of most businesses. Even state-chartered banks and credit unions are 

often hesitant to offer the full complement of financial services to the cannabis industry 

because most are federally insured. 

Alternative payment processors and cash management solutions have emerged to 

address the services gap, but few have the ability to match the scale and service of 

established financial institutions. Many of these solutions, which have been custombuilt for the cannabis industry, are very new and not well positioned to scale with the 

industry's rapid expansion. 

Even businesses with bank accounts are at constant risk of having their bank accounts 

cancelled. The 444 financial institutions serving the industry collectively terminated 

15,363 bank accounts as of September 2018. The loss of a bank account is a highly 

disruptive event for the affected businesses. It creates significant operational, logistical 

and security issues associated with identifying and migrating over to a new provider. In 

the instances where the business is not quickly able to find a new bank, it is forced to 

New Frontier Data 2 
234 


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Banking & Cannabis: Urgency Grows to Close the Industry's 

Financial Services Gap 2/12/2019 

accumulate the cash until such a time as it has secured an alternate provider. The fact 

that there have been more account terminations than there are businesses in the 

industry underscores the disruptive impact of the current approach to banking in the 

industry. 

Bank account terminations impact non-plant-touching businesses too. It is not only 

plant-touching businesses that that are affected by bank closures. Many non-plant 

touching ancillary companies have also had their accounts terminated simply due to 

their affiliation with the cannabis industry. As a research and analytics company focused 

on the cannabis industry, New Frontier Data does not touch the plant, nor is the 

company an advocacy organization. However, even New Frontier Data has had three 

banks terminate the company's business accounts because of the prominence of the 

term 'cannabis' in the company's business documents. 

The frequency with which account terminations continue to occur across the cannabis 

industry is often driven by financial institutions taking an abundance of caution to 

serving cannabis businesses. Such a highly conservative approach to serving the industry 

would not be needed if the federal government codified the rules governing federallychartered and insured financial institutions, and enabled the industry to fully access the 

country's financial system. 

Strong Growth is Exacerbating the Industry's Banking Challenges 

The impact of lack of access to banking services has become more acute as the cannabis 

industry has grown. New Frontier Data estimates that in 2019, the U.S. legal cannabis 

industry will generate $12.9 billion in retail sales (i.e., purchases made by medical and 

adult use consumers), with sales forecast to grow to $26.3 billion by 2025. This estimate 

is only for currently legal states and does not assume the addition of any new legal 

markets in that time. With large states including New York, New Jersey, and 

Pennsylvania actively considering full legalization, and others including Texas, and 

Virginia considering medical use, the legal markets in the U.S. will likely grow beyond 

current forecasts in the years to come. 

The continued expansion of the legal market will only exacerbate the challenges caused 

by the lack of access of the full financial services market. 

Only congress can comprehensively address the cannabis industry's banking issues. 

At the heart of this issue is not just access to banking services, but the desire among 

cannabis businesses for the stability and protections afforded to every other legal sector 

of the economy. Until the cannabis industry's banking issues are resolved the industry's 

growth will be constrained, businesses will incur higher than necessary operational 

costs, state and local governments will face challenges with ensuring regulatory 

compliance, and the public will be placed at higher risk. 

New Frontier Data 3 
235 


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Banking & Cannabis: Urgency Grows to Close the Industry's 

Financial Services Gap 2/12/2019 

If the intent of legalization is to bring cannabis out of the shadows and establish a wellregulated industry that is integrated into the rest of the U.S. economy, access to the 

country's unrivaled financial markets will be key to that objective. The laws being 

discussed by the U.S. House Committee on Financial Services will be key to addressing 

this systemic issue and will lay the foundation for the full integration of the regulated 

cannabis industry into the U.S. economy. 

ABOUT NEW FRONTIER 

New Frontier Data provides objective, rigorous and comprehensive analysis and 

reporting about the nascent and underserved cannabis industry worldwide. New 

Frontier Data's analytics and reports have been cited in over 69 countries around the 

world to inform industry leaders, investors, policymakers and others. New Frontier Data, 

the premiere and only Big Data shop in the sector, looks beyond plant cultivation and 

distribution to raise the industry bar and improve visibility into what will inevitably soon 

be a mature and more complex global market. Founded in 2.014, New Frontier Data is 

headquartered in Washington, D.C. and has additional offices in Denver, Colorado. 

New Frontier Data does not take a position on the merits of cannabis legalization. 

Rather, its mission and mandate are to inform cannabis-related policy and business 

decisions through rigorous, issue-neutral and comprehensive analysis of the legal 

cannabis industry. 

John M. Kagia 

Chief Knowledge Officer 

New Frontier Data 

jkagia@Newfrontierdata.com 

703.97S.143S 

www.newfrontierdata.com 

New Frontier Data 4 
236 


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Banking & Cannabis: Urgency Grows to Close the Industry's 

Financial Services Gap 

APPENDIX 

Appendix 1: U.S. legal Cannabis Industry Growth Projections. 

2/12/2019 

New Fontier Data: legal Cannabis Industry Growth Projections 

(2018- 2025) 

c: 

0 

$30 

$25 

$20 

~ $15 

<J1. 

$10 

$5 

$0 

2018 

Source: New Frontier Data 

2019 2020 2021 2022 2023 2024 2025 

Medical Use :lR Adult Use Total Market 

Appendix 2: The number of depository institutions serving the industry is rising but 

account terminations remains a persistent concern 

Number of Depository Institutions Working with Cannabis 

Business in the U.S. 

{Oct 2016- Sept 2018) 460 

440 

420 

400 

380 

360 

340 

320 

300 

::1 ::1 ::1 " " " " " "' "' ;::; ;::; ;::; ;::; " ;s ;s ;s <-< <-< <-< rl rl rl '""' ,.., ~ > ~ c -"' ~ ~ ~ ~ ~ "' a. ~ ~ ~ ~ ~ ~ 

0 0 "' "' i ~ 

z 0 ~ Ji i ""' 2 <( z 0 

Source: U.S. Financial Crimes Enforcement Network 

New Frontier Data 

444 

;s ;s ;s 

<( 

~ 2 

~ ~ 

Total Number of 

Suspicious Activil;'j 

Reports {SARs) Filed 

tl!Z,Ol2!4i 

NUmber ofeannabis 

Businesses Accounts 

Terminated 

!1!5,363 

5 
237 


Insert offset folio 179 here 35631.179

Banking & Cannabis: Urgency Grows to Close the Industry's 

Financial Services Gap 2/12/2019 

Appendix 3: Investments into the legal cannabis industry are surging 

$14.0 

$12.0 

$10.0 

~ 

" 

~ $8.0 

ii'i 

$6.0 

$4.0 

$2.0 

S· 

Investments into the legal Cannabis Industry Have Surged as legal 

Markets Have Grown 

(2015 - 2018) 

$3.49 

$0.91 $1.29 

2015 2016 2017 

$13.80 

2018* 

~~S.i Billion 

!1"01'At: U.~t VALUE 

2Gl'S·2G18 

Source: New Frontier Data; Viridian Capital Advisors 

Appendix 4: Cannabis tax revenues in adult use states climb as the market matures 

~ $300 

" 

~ 

~ $250 

$200 

$150 

$100 

$68 

$50 

$0 

2014 

New Frontier Data 

Colorado Cannabis Tax Revenues by Year 

(2014- 2018) 

$267 

$247 

$194 

$130 

2015 2016 2017 2018 

1996 mlillian ltOT:.IX~ T:.!XX RE~NUE 

2014-2018 

6 
238 


Insert offset folio 180 here 35631.180

Testimony or 

Lauren R. Kohr, CAMS-FCI, CAMS, CFIRS 

Senior Vice President and Chief Risk Officer 

Old Dominion National Bank 

Before 

House Subcommittee on Financial Institutions and Consumer Credit 

on 

"Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses." 

February 13,2019 
239 


Insert offset folio 181 here 35631.181

Chairwoman Waters and members of the subcommittee, I am Lauren Kohr, Chief Risk Officer of 

Old Dominion National Bank, headquartered in Virginia. Old Dominion National Bank is a 

small community Bank regulated by the Office of the Comptroller of the Currency (OCC) and 

services communities throughout Washington D.C .. Virginia and Pennsylvania. The opinions 

and recommendations I express arc my own and do not necessarily reflect the views of Old 

Dominion National Bank. 

As l present my thoughts and recommendations on the SAFE Banking Act of2019, it is 

impmiant to note that as a practitioner in the Anti-Money Laundering (:\tv!L) and Bank Secrecy 

Act (BSA) compliance space ior nearly fifteen years, I haw a strong desir~ to ensun; that the 

integrity of the financial system is not exploited by illicit actors such as those aligned \vith transnational organized crime, terrorism and other heinous crimes. I also maintain a strong belief in 

assisting law enforcement in any capacity legally possible. 

My testimony is not intended to address the positives and negatives of the legalization of 

cannabis but rather address the challenges faced by Fls. and the need for clarity around the legal 

uncertainty both the Fls and the cannabis industry face. I believe there is an opportunity for the 

legitimate cannabis industry to appropriately gain access to the financial system in the states 

where it has been legalized, provided reasonable safeguards are in place. My position on 

executing this process while addressing the potential risk is through collaborative and transparent 

discussions with all stakeholders including law enforcement, regulatory partners, and 

practitioners. It is critical to ensure appropriate outreach and clarification exists by our 

regulatory partners. This will assist in safeguarding against unclear and inconsistent 

understanding of the operational and practical regulatory expectations. 

One of the challenges the financial industry, including community banks and credit unions, arc 

currently facing is offering financial services to cannabis related legitimate businesses (CRLB). 

Because such CRLB activity violates the Controlled Substance Act (CSA), which in tum creates 

the potential for a violation of the money laundering statues, the directors, oft1ccrs and 

employees oft he institution may be subject to potential prosecution for participating in or 

"aiding and abetting" a federal crime. such as money laundering. As mentioned above. I believe 

the legitimate cannabis industry should have the ability to appropriately gain access to the 

financial system. This would assist in preventing larger scale problems. such as a multi-billiondollar industry turning to underground markets, and alternative banking methods that provide for 

I imited transparency that are not subject to adequate oversight by governing authorities. 

The conflicting state. federal and now international laws sutTotmding the cannabis industry have 

created a complex legal. repulational and compliance landscape lor fls. This draft bilL 

particularly the proposal to remove the proceeds oflegal marijuana activity from the money 

laundering activities. should address the major concerns by Fls and deserves widespread support. 

I have a few recommendations and comments for the subcommittee's consideration. 

Guidance and Examination Procedures (Section 7) 

While we continue to work through the complicated legal status of the cannabis industry and the 

resultant implications Fls face. I am in full support of the delivery ofuniH.1rm guidance and 
240 


Insert offset folio 182 here 35631.182

examination procedures for depository institutions that provide financial services to CRLBs, and 

strongly commend the subcommittee for this inclusion of this section. I would like to be clear 

that I am not advocating for additional regulatory guidelines, but rather clarification on existing 

guidance issued. The previous guidance was issued nearly 5 years ago when the industry was in 

its infancy, and has not been updated follmving the rescission oftbe Cole Memorandum. That 

said, it would be extremely useful to Fls that choose to bank CRLBs, ifregulatory guidance and 

examination procedures addressed at least the following: 

• Filing of''Marijuana Limited'' Suspicious Activity Reports (SARs) on businesses or 

individuals that fall within a tiered cannabis-related business and/or indirectly deal with 

or derive a portion of their revenue from the cam1abis-related industry. 

• Filing of'"Marijuana Limited" SARs and Know Your Customer Expectations for funds 

that are intended to be used for or in support of the direct cultivation, possession, and 

distribution of cannabis (an example would be investors and venture capitalists investing 

in a medical cmmabis license). 

• Filing of "Marijuana Limited'' Suspicious Activity Reports on individuals who receive 

compensation from directly working at/or with CRLB or a portion of the individual's 

revenue or compensation is derived from working with or at a CRLB. 

• Suspicious Activity Reporting requirements on brokered deposits purchased, that would 

include CRLB funds. 

Ongoing obligation to refile on "Marijuana Limited" SARs. 

• CRLB Due Diligence and Enhanced Due Diligence Expectations. 

• Risk Assessment factors and mitigation considerations for Medical cannabis, legalized 

recreational cannabis, industrial hemp and CBD as they all present different levels of 

risk. 

Expectations on handling foreign businesses that operate in or have connection to the 

U.S. or operate in a jurisdiction, such as Canada where cannabis is legal. 

Red Flags and potential suspicious activity identifiers and typologies for direct and 

indirect and domestic and international CRLB risk. 

• Currency Transaction Reporting and CTR Exemptions, specifically if a CRLB is 

considered an ineligible business identified under (31 CFR l 03.22(d)(f)(viii). 

• Information sharing ability and reporting requirements under the 314(a) and 3l4(b). 

• Address several of the legal, reputation, compliance, financial, geographical, and market 

risks. 

• Clear and concise definition around what defines the following generally accepted 

legitimate CRLBs: 

o Direct CRLB 

o Indirect or Tiered CRLB 

o Legal Hemp and CBD Related Businesses 

Without the relief that is intended from this proposed legislation, the risk of potential money 

laundering violations to Fls, still exists and these risks are not limited to direct transactions with 

medical CRLBs. These risks expand far beyond medical CRLBs, especially when you consider 
241 


Insert offset folio 183 here 35631.183

recreational cannabis. indirect businesses that support or derive revenue from CRLBs, and crossborder transactions involving jurisdictions that have legalized cannabis. 

With additional interpretative and updated guidance, Fls who have made, or will make the 

decision to offer financial services to CRLBs will have a stronger platform to ensure they are 

offering financial services to a high-risk industry in a safe and sound manner and in compliance 

with their BSA obligations. 

Action Items 

During collaborative discussions sunounding the challenges of banking CRLB with a number of 

professional colleagues, a clear theme emerges from both small community banks to global Fls, 

that the most straight-forward action besides your proposal to change the money laundering 

statutes v;ould be to reschedule and/or decriminalize cannabis by removing it from the 

Controlled Substance Act. Fls would no longer be in direct violation of the Controlled 

Substance Act or "aiding and abetting'' a federal crime such as money laundering. In addition. 

our bank regulatory authorities should issue subsequent guidance to assist Fls in properly 

managing the risks of an industry that will source legal proceeds but can easily source or be 

infiltrated by illicit monies. 

Several years ago, [ wrote a white paper for the Association of Certified Anti-Money Laundering 

Specialists (ACAMS) addressing a number of challenges Fls face when banking the cannabis 

industry and proposed solutions and considerations. I have attached the paper to my testimony. 

While I am not advocating one or the other, l \vould like to highlight opportunities for state and 

federal representatives to consider when addressing the issues, outside of de-scheduling, that 

would assist in Fls' ability to better meet their requirements under FinCEN guidance, the BSA 

and to the extent considered, the Cole Memorandum: 

• Develop a clear, transparent and secure avenue for Fls to verify with state authorities that 

the business is legitimate, and, as applicable, duly licensed and/or registered 

appropriately as a Fl-related business. Specific to medical cannabis, this should include 

providing copies of documents or an attestation of compliance with license and 

registrations. Fls will need the ability to request the information on a periodic basis to 

ensure the FI maintains the most current information regarding state licenses in 

cmmcction with the customer. 

• Make available through an appropriate and secure channeL the ability for Fls to review as 

requested the medical cannabis license application and other related documents used by 

the state in determining the appropriateness of granting licenses. Fls may compare these 

documents to those provided by the Fl dispensaries during account opening. This will 

assist theFT in meeting obligations under the USA PATRIOT Act and the handling of 

circumstances where the Fl would potentially need to file a SARin accordance with 

applicable law and regulation. 

• Provide the FTs with available infonnation, as applicable. about the business and related 

parties such as results of inspections and monitoring compliance with provisions and 

regulations under state law. 
242 


Insert offset folio 184 here 35631.184

Provide financial intuitions within the state through a secure po1ial a listing of the number 

of businesses and/or licenses granted to businesses and whether they are in good standing 

and the list should include name of business, address, tax ID number, beneficial owners 

and controllers and their related identifying information. The bank should be able to use 

this listing to veritY the accuracy of the information they have on file for the Fl-related 

businesses as well as scrub their existing database to assist in identifying accounts that 

may not be identified as Fl-rclated businesses. This ;viii assist a Fl in meeting their 

requirements under the BSA. including the new requirements under the Customer Due 

Diligence rule (51

h pillar). 

Ability f(x Fls to be made mvare, at their inquiry, if an investigation has been initiated on 

the Fl-related business by state or federal authorities. 

Capability to verify the medicinal cannabis identification card for individuals. Fls will 

need a channel to verify the authentication of the card if they choose to allow the card as 

an acceptable form of identification at account opening. 

Consider requiring cannabis-related businesses to have a written and effective AMLIBSA 

program that contains at least the designation of a compliance oflicer, internal policies, 

procedures and controls, ongoing relevant training of employees, independent testing and 

review and to the extent possible and applicable, the Customer Due Diligence rule. 

However, this may be extremely challenging as it is impractical to have those entities be 

assessing who purchases legal marijuana. 

Conclusion 

In conclusion, the proposed legislative provisions dealing with the federal money laundering 

laws is the only way to ensure that changes are sustainable for both Fls as well as, CRLBs. The 

current lack of regulatory and legal clarity requires comprehensive action. Furthermore, actions 

and decisions cannot be made in silos. Addressing these challenges and setting expectations 

should be developed through enhanced public and private partnerships that involve not just our 

legislative bodies and practitioners, but law enforcement and regulatory authorities. This will 

allow for effective, direct and clear guidelines for both the Fls and industry. Fl's can be 

successful with ofiering financial services to high risk lines of businesses by adequately 

establishing an effective coq)orate governance framework. Clear and consistent execution of 

guidance by FinCEN and/or regulatory authorities would assist in removing the regulatory 

uncertainty financial institutions face, and allow for an effective risk management process for an 

additional high-risk industry. 

I \\Ould like to thank the subcommittee for the opportunity to testify. I would be happy to address 

any questions or concems. 
243 


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Subcommittee of the House 

Financial Services Committee 

Public Comments 

Submitted by: 

Nick Kovacevich, Chairman and Chief Executive Officer, KushCo Holdings, Inc. 

Dear Esteemed Members of Congress, 

February 11, 2019 Kush Co Holdings, Inc. (OTCOB: KSHB) the parent company of innovative 

cannabis industry leaders such as Kush Supply Co., Kush Energy, The Hybrid Creative, and Koleto 

Innovations, appreciates the opportunity to provide comments to the subcommittee of the House 

Financial Services Committee concerning cannabis banking reform. 

Founded in 2010, KushCo has now sold more than 1 billion units and regularly sells to more than 

5,000 legally operated medical and adult-use dispensaries, growers, and producers across North 

America, South America, and Europe. KushCo's subsidiaries maintain facilities in the five largest 

U.S. cannabis markets as well as having a local sales presence in every major U.S. cannabis market. 

KushCo strives to be the industry leader for responsible and compliant products and services in 

the legal cannabis and CBD industry. While KushCo provides products and solutions to customers 

in the cannabis and CBD industries, it has no direct involvement with the cannabis plant or any 

products that contain THC or CBD. 

Although cannabis is legal in two-thirds of the country and despite the fact that 95 percent of the 

U.S. population lives in a state where cannabis, in some form, is legal, cannabis is still considered 

a Schedule 1 drug at the federal level. This makes it nearly impossible for banking and financial 

institutions to conduct business with companies involved in the cannabis industry, especially 

given the current administration's rescindment of the Cole Memorandum, without risking criminal 

prosecution under federal law for, among other things, money laundering, conspiracy and "aiding 

and abetting." Even if such banks can get comfortable with operating in the industry, banks are 

required, at great time and expense, to file suspicious-activity reports (SARs) for virtually every 

transaction involving a cannabis company. To illustrate this challenge, one Colorado credit union 

was required to file 7,000 reports for 220 cannabusinesses, as opposed to 226 reports for its other 

33,000 customers combined. 

Such onerous regulations make working with companies in the cannabis industry extremely 

unprofitable for banks, regardless of the financial health of their potential customers. Moreover, 

the current banking laws severely restrict access to traditional forms of credit given that major 

credit card companies themselves also prohibit using their cards for cannabis purchases. That's 

led to an estimated 70% of cannabusinesses being unbanked, resulting in an untenable situation: 

financially solvent companies are left operating exclusively in cash. Not only are dispensaries (and 

all cannabis businesses, for that matter) at a higher risk of robbery and other violent crimes given 

the large sums of money that they are forced to carry to transact their businesses, . 
244 


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Subcommittee of the House 

Financial Services Committee 

Public Comments 

... performing basic business functions such as payroll, paying vendors and auditing can be extremely 

challenging. Cash transactions also make it more difficult forfederal and state regulatory bodies to 

track payments in the industry, ironically, making it harder to enforce the laws against "bad" actors. 

Many politicians and regulators acknowledge this problem. The challenge is to create a safe, legal 

mechanism to allow businesses to make deposits and write checks to pay taxes, fees, vendors 

and landlords and employees. Without this ability, legally compliant cannabis companies cannot 

secure access to traditional capital markets and much needed debt financing, typically leading to 

more "black" and "gray" market activity. And those companies that have a dire need to access 

the capital markets have been heading to friendlier, international markets such as Canada. Given 

that projected cannabis market sales are expected to exceed $24 billion by 2025, according to 

New Frontier Data, the United States undoubtedly will lose its competitive market advantage in 

this burgeoning industry. 

What the cannabis industry is asking is simple: we would like (a) to protect the public welfare and 

safety by reducing the extremely high number of cash transactions in the industry, (b) to allow 

cannabis companies to more easily access traditional capital markets and debt financing, and (c) 

to implement banking regulations which work hand in hand with law enforcement's efforts to track 

payments in the industry, all in an effort to help facilitate the growth of this explosive industry. 

We would welcome any opportunity to assist the subcommittee as the members advance their 

review of cannabis banking reform and other related cannabis issues in the near future. 

Sincerely, 

Nick Kovacevich 

Chairman & Chief Executive Officer, KushCo Holdings, Inc. 

~ KUSHCOHOLDINGS-
245 


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A I 

:J13810th Street North 

Arlington, VA 22201-2149 

703.522.4770 1800.336.4644 

NAFCU f: 703.524.1082 

nafcu@natcu.org 1 nafcu.org 

National Association of Federally-Insured Credit Unions 

February 12, 2019 

The Honorable Greg Meeks 

Chairman 

Subcommittee on Consumer Protection and 

Financial Institutions 

Committee on Financial Services 

United States House of Representatives 

Washington, DC 20515 

The Honorable Blaine Luetkemeyer 

Ranking Member 

Subcommittee on Consumer Protection and 

Financial Institutions 

Committee on Financial Services 

United States House of Representatives 

Washington, DC 20515 

Re: Tomorrow's Hearing: "Challenges and Solutions: Access to Banking Services for 

Cannabis-Related Businesses" 

Dear Chairman Meeks and Ranking Member Luetkemeyer: 

I write to you today on behalf of the National Association of Federally-Insured Credit Unions 

(NAFCU) in conjunction with tomorrow's Subcommittee hearing on access to banking services 

for cannabis-related businesses, also known as marijuana-related businesses (MRBs). NAFCU 

advocates for all federally-insured not-for-profit credit unions that, in tnm, serve over 115 million 

consumers with personal and small business financial service products. NAFCU and our members 

appreciate the Subcommittee's focus on this important and challenging topic. 

As the Subcommittee is aware, the vast majority of states have authorized varying degrees of 

marijuana use, ranging from limited medical use to decriminalization and recreational use at the 

state level. NAFCU has heard from a number of our member credit unions in these states that they 

are being approached by their members, or potential members, that have small businesses that are 

in, or that serve, the legal cannabis industry in their state in order to obtain banking services for 

those businesses. 

As the cultivation, sale, distribution and possession of marijuana remains illegal at the federal level 

under Schedule I of the Controlled Substances Act, almost all credit unions remain hesitant to 

provide financial services to these members and their small businesses. While the 2013 memo 

from U.S. Deputy Attorney General James M. Cole ("Cole Memo") and the 2014 guidance from 

the Financial Crimes Enforcement Network (FinCEN) have attempted to provide clarity to 

financial institutions, uncertainty remains for financial institutions in this area. Guidance can be 

rescinded at any time, and in fact, former Attorney General Jeff Sessions took action in 2018 to 

essentially rescind the "Cole Memo." For financial institutions, such as credit unions, there are 

additional regulatory challenges that compound the uncertainty of providing financial services to 

state-authorized MRBs. These go beyond just concerns about criminal or civil penalties, but also 

extend to requirements related to proper Suspicious Activity Report (SAR) and Anti-Money 

Laundering (AML) filings as required under the Bank Secrecy Act, access to federal deposit 

NAFCU I Your Direct Connection to Federal Advocacy, Education & Compliance 
246 


Insert offset folio 188 here 35631.188

insurance and a Federal Reserve master account, and even potential issues with the Internal 

Revenue Service (IRS). Missteps in these areas could prove devastating to an institution. It should 

be noted that these risks also exist when providing financial services to ancillary businesses that 

provide producL~ and services to MRBs and fall within the credit union's field of membership, 

even if the state-authorized MRB does not. 

NAFCU does not have, and is not taking, a position on the broader question of the legalization or 

decriminalization of marijuana at any degree at the federal or state level. However, we do support 

Congress examining what legislative steps can be taken to provide greater clarity and legal 

certainty at the federal level for credit unions that choose to provide financial services to stateauthorized MRBs and ancillary businesses that may serve those businesses in states where such 

activity is legal. While not a total soiution, a strong safe harbor for financial institutions that wish 

to serve such businesses would be one step towards improving clarity and addressing what is often 

perceived as misalignment between federal and state laws. While the discussion draft of the SAFE 

Banking Act of2019, which is before the Subcommittee at this hearing, is an important step toward 

this goal, NAFCU believes that there are additional issues that the legislation may not address and 

should be examined. 

Thank you for your attention to this important issue. We look forward to continuing to work with 

the Subcommittee on this and other issues of importance to credit unions. Should you have any 

questions or require any additional information, please contact me or Alex Gleason, NAFCU's 

Associate Director of Legislative Affairs, at 703-842-2237 or agleason@nafcu.org. 

Brad Thaler 

Vice President of Legislative Affairs 

cc: Members of the House Financial Services Committee 
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TESTIMONY OF AARON SMITH 

OF THE 

NATIONAL CANNABIS INDUSTRY ASSOCIATION 

BEFORE THE 

UNITED STATES HOUSE OF REPRESENTATIVES COMMITTEE ON FINANCIAL SERVICES 

SUBCOMMITTEE ON CONSUMER PROTECTION AND FINANCIAL INSTITUTIONS 

"CHALLENGES AND SOLUTIONS: ACCESS TO BANKING SERVICES FOR CANNABIS-RELATED 

BUSINESSES" 

FEBRUARY 13, 2019 
248 


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TESTIMONY OF AARON SMITH 

OF THE 

NATIONAL CANNABIS INDUSTRY ASSOCIATION 

BEFORE THE UNITED STATES HOUSE OF REPRESENTATIVES 

COMMITTEE ON FINANCIAL SERVICES 

SUBCOMMITTEE ON CONSUMER PROTECTION AND FINANCIAL INSTITUTIONS 

"CHALLENGES AND SOLUTIONS: ACCESS TO BANKING SERVICES FOR CANNABIS-RELATED 

BUSINESSES" 

FEBRUARY 13, 2019 

Introduction: 

Chairman Meeks, Ranking Member Luetkemeyer, and members of the Subcommittee, I am Aaron Smith, 

Executive Director and Co-Founder of the National Cannabis Industry Association (NCIA), the largest 

national trade association dedicated to protecting state-legal cannabis businesses, defending state laws, 

and advancing federal policy reforms. On behalf of our members, we thank you for the opportunity to 

discuss our support for providing fair access to banking and financial services for state-licensed cannabis 

cultivators, processors, and retailers throughout the country. 

Founded in 2010, NCIA represents nearly 2,000 member-businesses and tens of thousands of cannabis 

professionals committed to replacing criminal marijuana markets with a responsible and regulated 

cannabis industry. 

Currently, our industry supports hundreds of thousands of jobs, tens of millions in tax revenue, and billions 

in economic activity. In 2017, the five states that had taxed and regulated adult-use sales (Alaska, Colorado, 

Nevada, Oregon, and Washington) collected more than $790 million in state tax revenue that year. 

However, per current federal law, cannabis remains a Schedule I drug under the Controlled Substances 

Act. This blocks state-licensed cannabis business and firms providing ancillary products or services to the 

industry from accessing banking services, forcing them to operate in an all-cash environment. This situation 

not only creates an unnecessary public safety risk, it poses an undue burden on state and local tax and 

licensing authorities, which are forced to take large cash payments. These taxes and licensing fees fund 

the enforcement of state marijuana laws as well as school construction, drug education activities, and 

infrastructure programs. 

After nearly a decade of significant regulatory changes at the state level. now is the time to conduct a 

universal review of this federal framework and make changes that would foster greater productivity and 

transparency. Ending the confiict between state and federal cannabis laws will promote a sound and robust 

financial system that best supports the economic growth and job creation driven by the growing number of 

state-licensed cannabis businesses across the country. 

The Current Cannabis Banking Situation: 

To date, forty-six states, the District of Columbia, as well as Guam and Puerto Rico have passed legislation 

auihorizing some form of cannabis for regulated medical or adult-use purposes and thirty-three states have 
249 


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enacted laws regulating the commercial production and sale of medical or adult-use marijuana. Ten of 

those states, which include 80 million people, or nearly 25% of the United States' population, have passed 

laws allowing for the responsible use of cannabis for adults over 21. 

Despite significant legal changes and advancement of the status of medical and adult-use cannabis across 

the country, most banks, credit unions, and financial institutions do not provide traditional banking services 

to cannabis-related businesses. These denied services include access to standard checking or savings 

accounts, the ability to receive loans and lines of credit, and the capability to accept common debit and 

credit cards. As a result, business owners often have no choice but to pay their employees, their federal 

and state taxes, and process every consumer purchase in cash, in addition to paying for armored trucks to 

transport the money. 

In order to operate safely and successfully, businesses must have access to traditional financial services. 

For the cannabis industry, which conducts hundreds of millions of dollars in transactions across the majority 

of U.S. states, the lack of access to financial services creates public safety hazards. including an increased 

chance of becoming a target for robberies, loss of economic opportunity, and inability to retain workforce 

talent. Restricting financial services to licensed cannabis businesses also prevents the elimination of illicit 

businesses currently operating in the grey and black markets. The absence of clarity and direction by the 

federal government for financial institutions about how to provide banking services for state-legal, licensed 

cannabis businesses has undoubtedly created undue hardship for cannabis-related entities. 

In 2014, to elevate some of the banking challenges associated with the cannabis industry, the U.S. 

Department of the Treasury's Financial Crime Enforcement Network (FinCEN) issued guidance regarding 

the conditions under which financial institutions may work with cannabis-related businesses. As a result, 

some credit unions and regional banks have been providing limited financial services to some cannabis 

industry businesses. However. the number of banks working with cannabis-related businesses remains 

marginal in the current context of an emerging global industry. In addition, before the House Financial 

Services Committee early last year, Treasury Secretary Steve Mnuchin confirmed that the department is 

reviewing the existing FinCEN guidance and does not want to rescind current guidance without having a 

replacement policy to address public safety concerns. 

NCIA commends the Secretary for keeping the FinCEN guidance in place, especially as more states have 

passed cannabis-related legislation. However, the FinCEN guidance does not solve the fundamental need 

for financial institutions to facilitate ordinary banking access and services at standard costs for licensed 

businesses operating in compliance with state laws. Currently, a cannabis business attempting to open a 

bank account might be charged $10,000 to $1,000,000 in fees per year for excessive compliance and 

regulatory costs required for a financial institution to successfully follow obligations under federal 

anti-money-laundering laws. Moreover, many cannabis companies pay initial and annual state and local 

licensing fees necessary to operate, as well as tax rates of 60% or more because of an arcane provision in 

the federal tax code. Because of these excessive fees and taxes, the average cannabis-related business 

often does not have the resources necessary to pursue traditional financial products common to other 

state-licensed industries. 

looking Ahead: 

The U.S. legal medical and adult-use cannabis market is currently estimated to be valued between $10 and 

$11 billion and is expected to grow to $56 billion by 2025 with the possibility of employing one million 

individuals. However, the U.S. illicit cannabis market is currently estimated to be near $30 billion. This 
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adverse ratio between the legal and illegal cannabis marketplace is a direct result of outdated federal 

policy toward a responsible industry operating at the state and local level. 

Last month, before the Senate Judiciary Committee, Attorney General nominee, William Barr, said he would 

not go after cannabis-related business in compliance with state law and urged Congress that the legislative 

process. rather than administrative guidance, is ultimately the right way to resolve whether and how to 

legalize marijuana. However, until the United States establishes a permanent solution, most-state permitted 

cannabis-related businesses will continue to operate in a cash-only environment and this will allow the illicit 

market to exist at unreasonable levels. 

As we have seen in states with full adult-use legalization, removing restrictions on cannabis 

leads to greater financial accountability and transparency, which naturally combats the illicit marketplace. 

Addressing the challenges associated with a regulatory maze of conflicting federal and state laws will allow 

state-compliant entities to operate in a fully regulated environment and encourage the expansion of 

regulated markets. increase consumer safety standards, reduce access to minors and combat illegal 

trafficking throughout the country. 

Conclusion: 

In conclusion, the cannabis industry has thoroughly evolved into a national commercial enterprise and 

NCIA expects to see more states enact and expand cannabis laws in the coming year and beyond. State 

laws that have replaced the criminal markets with systems that provide for the tightly regulated production 

and sale of cannabis to patients and adults over 21 are working to improve public safety overall but. the 

unnecessary hazards caused by outdated federal banking policies must be resolved in order for our 

communities to fully realize the public safety benefits of regulation. 

I want to thank the Chair, Ranking Member, and the Subcommittee for your time to discuss access to 

banking services for cannabis-related businesses. This topic is important to all the members of NCIA and 

the entire legal cannabis industry. On behalf of NCIA, I encourage Congress to update and develop federal 

policies that will provide clarity and enable reasonable access to banking and financial services for 

state-licensed cannabis businesses. I again thank the committee for the opportunity to submit testimony 

today. 
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TESTIMONY SUBMITTED ON BEHALF OF THE 

NATIONAL CANNABIS INDUSTRY ASSOCIATION 

BEFORE THE 

UNITED STATES HOUSE OF REPRESENTATIVES COMMITTEE ON FINANCIAL SERVICES 

SUBCOMMITTEE ON CONSUMER PROTECTION AND FINANCIAL INSTITUTIONS 

"CHALLENGES AND SOLUTIONS: ACCESS TO BANKING SERVICES FOR CANNABIS-RELATED 

BUSINESSES" 

FEBRUARY 13, 2019 
252 


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Robert Martin 

CWAL, Inc. 

robert@cwanalytical.com 

851 81st Ave Suite D 

Oakland, CA 94621 

Please find a way for banks to accept our industry! Cash sales remain a constant and this process creates 

a great deal of security risk for our employees. Further, we have no credit building functions, loan 

capabilities, or investment opportunities being banned from traditional banking. We want to be legitimate 

and bank the same way! The current situation demands that we seek banking support using all sorts of 

nefarious routines and slight of hand with banks and isn't that the reason banking laws were established in 

the first place? A full service bank is something we all dream. Please hear our cry for help before 

someone gets killed! 

Mara Meyers 

The Beleaf Company 

mitch@beleafco.com 

13378 Lakefront Drive 

M0,63045 

I have been participating in Illinois and Missouri for several years in the medical cannabis space. It has 

been extremely difficult expecting our customers to bring cash in for their medication. It also has been 

very expensive to have our cash transported to a bank by a security company several days a week. All of 

this adds unnecessary and additional costs to medicine that is already not covered by insurance. Medical 

cannabis is a great option to harsh Pharmaceutical drugs. Please help us make it safe by providing 

banking. 

Phil Gibson 

AEssenseGrows 

pgibson@aessensegrows.com 

1281 Reamwood Ave. 

CA, 94089 

We make the equivalent of picks and shovels for the indoor farming business. We do not touch the 

cannabis plant but many of our customers in the USA are in the cannabis business. As a result of this 

relationship, our banker at the time Silicon Valley Bank, cancelled our account. 

This created many complications for our business and a scramble to find a new bank that was willing to do 

business with us. This is silly. We run a real business making capital equipment and we need to be able to 

work with banks on routine payment processing, pay our taxes, and pay our employees. 

Please correct this situation. 

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Colum Tinley 

Discovery Garden 

cpt409@ymail.com 

409 Lane de Chantal 

WA, 98368 

I have owned and operated a legal cannabis cultivation and processing business for about 5 years. We do 

not have a bank account since the only banks in Washington offering services to cannabis businesses are 

credit unions that are a 1-2 hour drive away. Also those credit unions charge outrageous fees that prohibit 

small businesses like mine from being able to afford a bank account. $750 just to apply for an account, 

$250/month service charge, plus a percentage of every dollar deposited is simply robbery that no other 

business would put up with. As a legal business we need access to bank accounts with the same fees that 

apply to any other legal business otherwise we will continue operate as a cash business. It seems to me 

that many people believe everyone in the cannabis industry is stinking filthy rich but sadly this is not the 

case. In Washington State businesses are closing at a staggering pace because they simply cannot 

generate profits. As far as I can tell the only one getting rich from WA cannabis is WA State. With our 

greedy 37% excise tax plus 10% sales tax that's almost 50% tax which unfortunately leaves no room for 

small businesses to generate profits. We badly need access to affordable banking. 

David Faulk 

The Green Vault 

greenvault1@gmail.com 

365 NW State Ave 

Chehalis, WA 98532 

Three of our bank accounts have closed down. We end up dealing in cash, which is very scary when 

walking out of a delivery with large amounts of cash. We are easy targets. In addition, I can't get a 

business loan and have to resort to investors who want to take unreasonable large amounts of equity 

stakes in our businesses. We should have better banking laws and protections. 

Phil Lord 

Black Sands Ranch 

plord519@hushmail.com 

5985 Rd. H NW 

Ephrata, WA 98823 

In Washington state there are only about 5 or 6 options when it comes to "green" banking. We banked with 

Timberland Bank. At first they charged $150 per month for a checking account. All deposits had to be 

through Pay-Quick. They charged $600 per year and a handling fee of .5% of every deposit. This changed 

about 3 months ago when Timberland started to accept deposits. They then increased the monthly fee for 

a checking account to $400 per month. We are a small mom and pop tier 1 grow with no employees. This 

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expense is a huge burden on our business. I would urge the House to change the laws regarding funds 

from legal marijuana business. 

MARIO CERETTO 

New Era CPAs LLP 

mario@neweracpas.com 

3033 Fifth Ave #230 

San Diego. CA 92103 

Due to lack of banking available to my tax clients, I opened an escrow account at Wells Fargo to enable 

clients to deposit funds so that we can make tax payments on their behalf. Millions of dollars in taxes were 

paid to the IRS and state agencies to fulfill tax obligations of my clients ranging from income tax to payroll 

taxes. My account was flagged for suspicious activity and the Department of Homeland Security started an 

investigation. I was charged with structuring and spent 90 days in federal prison. The lack of banking 

outlets prevents taxes from being paid ... as I tried to assist with tax compliance, a technical violation of the 

bank secrecy act was committed and became a life changing matter for me. Congress needs to address 

this NOW. 

David Ward 

NCI LLC 

davew@olypen.com 

P.O.Box130 

Quilcene, WA 98376 

Access to Banking Services for Cannabis-Related Businesses is a must in America, There are billions of 

dollars in cash that is not being allowed to be put in banks, and there forth the IRS is not receiving taxes. In 

states where the sale of cannabis is legal not being able to use a bank poses an unsafe situation for the 

owners of said businesses. I strongly urge you to pass forward the recommendation to legalize banking for 

cannabis businesses .. 

Jeffrey Oberfelder 

Oberfelder Holdings 

ochelan@aol.com 

120 Rolling Rock Road 

WA, 98816 

My wife and I own a 15.78 acre farm in Chelan, WA. We have been farming for 20 years on our family farm. 

We have been growing apples, pears, cherries, etc. 6 years ago we got a cannabis license to grow and 

process cannabis from WA state 502 initiative. We have 5 sons and a daughter that all reply on our income 

from our new cannabis business. We grow marijuana for the WA state LEGAL retail market. We love our 

new business venture, and are now going into our 6th year supplying the state compliant retail stores. We 

need action IMMEDIATELY to resolve the ridiculous banking constraints. My family has been suffering for 6 

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years because of the banking issues. There is no difference between cannabis and hemp, hops, grapes or 

any other agriculture plant. This needs to change . Please , please support the cannabis farmers that follow 

the rules and supply the WA state legal market. 

Jenny Carbon 

The Grass Is Always Greener 

iennv<dlthegrassisalways com 

7505 West Lake Sammamish 

WA, 98052 

Lack of banking aka "normal business" has limited me from even being able to open my business. I have 

assumed personal debt in order to keep the opportunity alive and cannot take out a personal loan due to 

debt and/or owning a cannabis business. It's the single limiting factor for success in our industry. We are 

normal retail and need to be treated as such. 

Bethany McMartin 

bethanymcmartin@gmail.com 

Olympus Horticulture LLC 

123 Elwha Rd 

Port Angeles, WA 98362 

I am currently paying a fee of $480 a month to have limited banking services with the only bank that is 

willing to bank for where my business is located. It's excessively higher than I pay for my other 

non-cannabis businesses. I would like better options for banking. 

Shawn Wagenseller 

Washington Bud Company 

shawn©wabudco.com 

28308 15th Ave NE, Ste B 

Arlington, WA 98223 

Our company is a self-funded mom and pop with family & friends working together to create products that 

result in over $1.1 million of taxes paid to Washington State. We are at capacity and need to expand to 

meet demand and our business model. 

We are at a stand still until we get business capital at common business rates. Hard money lending or 

investment that demands ownership are our only avenues and that does not pencil out. Our highly 

competitive markets allow for only so many slices of the pie. 

Currently, we pay $350 per month to a private bank for the privilege of depositing our checks and utilizing 

the bill payer system. All our other business paid <$20/mo for the same common services. This money 

could be utilized in better ways. 

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We are responsible, hard working, entrepreneurial Americans striving for middle class status. We would 

love to be able to meet our demand, increase our bottom line and be able to provide health care for our 

employees. But we must grow to do so and need capital. Please reform the US banking laws on cannabis 

companies that are legal and licensed within their states. 

Kirsten Curry 

Leading Retirement Solutions 

kirsten.currv@leadingretirement.com 

200 W. Mercer St., Suite 504 

WA,98119 

I administer 401(k) Plans (we are the compliance and government reporting folks). Cannabis companies 

can't sponsor 401(k) Plans because the banking institutions that custody employee contributions won't 

touch cannabis companies. This results in thousands of employees of cannabis companies being denied 

the opportunity to save for their own retirement. They should have the same opportunity to save to an 

employer 401(k) or other plan as any other employee does. 

Ammon Ford 

Gleam Law, PLLC 

ammon,6lgleamlaw.com 

613 19th Avenue E, STE 202 

WA,98112 

I am a business attorney, and many of my clients are state law-compliant Cannabis businesses. Simply 

because we work with these businesses, my law firm recently had our bank accounts closed, including our 

firm trust accounts holding Washington State Bar Association regulated client funds. Unlike some of our 

clients, we were able to find another bank quickly without disrupting our services. However. our 

experience as an ancillary business is a glaring example of how pervasive and widespread the lack of 

access to banking is for these entrepreneurs-many of them have it much worse than us and that is not fair. 

Congress must do its job and enact the pro-Cannabis will of the people. Giving me and my clients reliable 

access to modern banking is an obvious and tremendous first step. 

Sheldon Norberg 

Trichometry 

sheldonnorberg@gmail.com 

420 Fair Haven Road 

CA. 94501 

I have worked in California's Medical Cannabis industry for over a decade, beginning with managing 

Harborside Health Center in 2006. By 2008 I was responsible for cash management which had me 

counting 50-100,000 dollars a day, but at least as we had a fortified location. 

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Leaving to enter the manufacturing space. which has had little if any legal protection, I am largely forced to 

operate in cash, and surrounded by businesses doing the same. Imagine the burden to maintaining a 

million dollar annual business in cash· all payments to vendors. payroll, etc counted and recounted, and 

delivered personally, putting myself, my staff, and my associates at constant risk. This is no way to run a 

business, or protect the interests of government entities as they try to partner in the legitimization of the 

industry. I hope you will do what is in your power to remove the impediments to our creating a robust and 

socially beneficial industry. 

Philip Davis 

Parahealth Inc 

ohilip.Ldavis@utah.edu 

PO Box 581142 

UT,84158 

In November, we launched a non-toxic, food grade solution for mold and fungus. In our marketing we 

mentioned that this would be effective in cannabis cultivation, but also a huge adjunctive to mitigate these 

problems in general agriculture. After two weeks. US Bank closed all our accounts without any warning, 

and confiscated our assets. We are still trying to recover from this precipitous and fraudulent action by US 

Bank, Again, note that we are not in any way related to cannabis production or marketing, but simply 

mentioned in our advertising that the product would also help in cannabis production. 

Tina Morelli 

Morelli Enterprises 

tinampda@gmail.com 

81 Oneil Road 

WA, 98055 

I am the owner of Morelli Enterprise's producer processor for legal cannabis in the state of Washington. 

The problem with the banking system is broken. Not only was I denied by Salal Credit Union (after they 

had kept my 26K check for over 30 days-- they claim not to take tier 1's ), my bank account was closed 

down for 30 to 60 days. They withheld the funds making all of my bills late payments. overdraft fees and 

headache trying to correct it all. My Bank of America account was shut down without my knowledge. I 

received a letter in the mail after it already been done- again with holding the funds longer than 30 days. 

am trying to follow the law by the book. I listed it as agricultural because that's what it is! Chase bank as 

well shut me down (stating that they do not back businesses that are not federally legal). I am currently 

using pay qwick. A bank that comes without a debit card or checks and can only be used for bills related 

to the business and payroll. As I am the owner, I cannot even pay myself! This is a huge problem and has 

been from the start. All it is doing is hurting the companies that are following the law! 

Steven Cinelli 

Growth Group 

steve@qrowthgro.com 

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P.O. Box 2025 

CA, 94948 

Legislation without thoughtful regulation lays the foundation for continued stasis. Note that many states 

have advanced the legalization of marijuana, but development and execution of respective state regulatory 

frameworks. such as in California, has been vacuous and ineffectual. While recreational legalization was 

approved in California during 2016, the following year was devoted to establishing a regulated 

marketplace. including implementing a tax regime. As seen, the anticipated transition out of the grey/black 

market into the "light" was completely overestimated, as were expected tax revenues. Certainly, good 

intentions. but the deployment was less than adequate, overly burdensome. and economically unfeasible. 

Reflecting further. California has enjoyed legal medicinal cannabis since 1996, itself a multi-billion-dollar 

market. and yet. nothing has been done to support this segment's needs for an economic infrastructure. 

The issue of banking has surely been part of the ongoing narrative. and earlier "reliance" on core 

memoranda. has still failed to open the floodgates of financial service provision. While many view that this 

massive industry should be intoxicating for the banks, the cash-intensive nature. inconsistent monitoring 

requirements as an agricultural product. and the compliance rubric has stunted what is generally required 

for a growing economy, namely a financial system. There are other legal cash-intensive sectors. such as 

convenience and liquor stores. private ATM purveyors. even farmer's markets. which too have been 

limitedly received well by the banks, given the AML protocols. So. this is not just about moving darkness 

into the light. but really creating a model that addresses the needs and desires of many constituenciescannabis industry participants. law enforcement, and regulators- and do so in an efficient. transparent and 

informed way, thereby affording the exigent support this economy requires. Passing legislation to allow 

the banks to do what they currently do. without fear of regulatory reprisal. won't necessarily become the 

panacea, given existing banking conventions. Like cannabis, banking is highly regulated, and the 

conflation of two heavily administered structures can be challenging, even further constricting. 

But as the cannabis industry is developing. so too are financial services. with the flourishing of digital 

technologies, open banking and shifts in how customers are interacting with institutions. banks and others. 

There is a unique opportunity ahead to not only formulate a "fix" for the palpable pain due to the absence 

of cannabis banking. but to create a next-generation fin-services model to propel both these industries 

concurrently. negating many legacy and analog practices. Both industries are data-intensive. whether for 

compliance, safety or analytical reasons. Why not envisage a novel schema to support. even accelerate. 

the growth and value creation of the cannabis space, domestically and soon globally, with an informed 

"smart" financial platform? Beneficiaries are broad. and insights would be invaluable. This can be and 

should be a time to reassess old models and give rise to what could be. 

As background, Growth Group has been organized to create a smart financial ecosystem for critical 

underbanked segments. particularly cannabis. so that such industries may evolve it to achieve their fullest 

potential. We would welcome an opportunity to discuss our vision and model. Thank you. 

Patricia Dean 

Wadsworth Control Systems Inc 

patricia.dean@wadsworthcontrols.com 

5541 Marshall Street 

C0,80002 

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This year we had to frantically search for a new bank because ours dropped us. We are a third generation 

family-owned business. We build environmental controls and curtains for greenhouses. My 86 year old 

father is in the fiora culture hall of fame for changing the industry. Some of our customers grow cannabis 

for either recreational or medical use. We never touch the plants we simply provide the controls or 

curtains. If we are being dropped from our bank I think that's a sign of how far off base this system has 

become. Because of the increase in business, largely due to cannabis, we have doubled the size of our 

staff, many of the jobs are for our engineering team. I thought you'd like to hear this story. If you'd like to 

discuss this please call me at 303.424.4461. 

Ryan McQueeney 

Midway Dispensary 

rmcqueeney3434@qmail.com 

5648 S. Archer Ave. 

IL, 60631 

Midway Dispensary has been in operation since April 2016, serving medical cannabis patients in Chicago 

and the suburbs. We have operated as a cash only business without access to the financial system during 

the entire time we have been in operation. Aside from the unfairness of being a legal business while being 

shut out from the financial system, operating a cash-only business present obstacles not just to the 

business, but also our employees, vendors and patients. In order to pay taxes we must travel to the state 

offices to pay in cash. In order to pay vendors we have to obtain money orders. We pay employees in cash 

and our patients can only use cash. This presents issues that force us to expend funds on security no other 

businesses are required to expend. 

Additionally, we have no access to financing like any other small business. We cannot access financing for 

things like increasing employee pay and benefits, improving our physical space, updating IT, research and 

development. investing in additional business opportunities, or contributing to the community. 

Midway Dispensary is a retail store that provides a valuable service and product to patients who are trying 

to avoid opioids and other pharmaceuticals, who seek relieffrom everyday aches and pains, who want help 

sleeping without using addictive sleep aids, and who want to be able to purchase cannabis that is tested, 

labeled, and safe. Other than the product we sell having a stigma from 90 years of prohibition, we are no 

different than the retail establishments on the same block, except we cannot get access to the greatest 

financial system in the world. There is no reason to treat us this way. 

Mark Passerini 

mark@omofmedicine.org 

Om of Medicine 

111 S. Main Street 

Ml,48104 

We have served over 18,000 medical cannabis patients since 2010 and are now licensed by the State of 

Michigan. Over the past 8 1/2 years we have gone through 9 different bank accounts- this policy needs to 

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change on the federal level! Being an all cash business puts us at an unnecessary risk and there's a public 

safety concern for the employees that have to make deposits. Simple things like employee benefits and 

payroll become extremely difficult to navigate. All we are asking is to be treated like any other industry, 

especially considering this substance is one of the least toxic substances known to man!! Please support 

banking access for the legal cannabis industry!! 

Manndie Tingler 

Khemia 

manndie@khemiamfg.com 

4370 24th Street Suite H 

CA, 95822 

Our company is all female founded and run. When we are unable to utilize banks to store our money it puts 

us at significant risk for break in, theft, or being targeted by attackers. We regularly struggle with large 

quantities of cash management. It doesn't work well for us to carry suitcases of cash to our local tax office 

to pay taxes, or collect page sum cash payments from our customers. Our businesses are already forced 

into the less desirable parts of town because of the type of business we have. This leaves us as sitting 

ducks to be attacked or worse for what we have in our possession. Please allow us access to banking. 

Thank you. 

Andre Robinson 

The Robinson Group 

arob55<1llqmail.com 

1725 Druid Hill Avenue 

21217,MD 

My city has been devastated by marginalization and criminalization of its black and poor population. The 

emergence of this new industry offers an extraordinary opportunity to right the wrongs of the past. Now is 

the time to support its development by providing policies in banking, proper tax collection and sensible 

regulations. Do the right thing! 

Kim Claxton 

KC Financial Services 

kim@kcfinancialsvcs.com 

3385 Airways Blvd # 115 

TN, 38116-3830 

I provide full accounting services to the industry. One if my clients' biggest challenge is obtaining funding, 

as well as safe-keeping of their funds. They are concerned for their safety as well as that of their 

employees due to the large amounts of cash they have in hand due to the lack of banking services for 

cannabis businesses. I would really love to see this issue resolved across the nation. 

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Benjamin Fonseca 

Allied Access Foundation Inc. 

bfonseca78@yahoo.com 

6157 N. Sheridan Rd. Suite 20K 

IL, 60660 

As cannabis legalization progresses. Many profits have been made off of the sick and elderly. We at Allied 

Access Foundation, owned and operated by patients and people with disabilities, was developed to ensure 

and securing entry into this very newly lucrative industry. 

Ryan Kendall 

Savage Venture Group 

rvan@savageventure.com 

806 Bayview Drive 

Hermosa Beach, CA 90254 

I am a consultant regarding compliance. operations, and CSR for permit writing within the cannabis industry 

due to the lack of banking options available to the industry there are several risks and costs that cannabis 

businesses have the burden of paying for that no other industry in the US has. A lack of banking available 

to legal businesses allows for black market activity to continue, endangers employees by having large 

amounts of cash on site, puts the business at risk of having its revenue stolen, and several other issues. 

Allowing legal businesses to bank in the US will be a major step towards reducing crime, increasing 

legitimacy, and making accounting and bookkeeping easier which in turn means more taxes collected by 

states and eventually the federal government. This also protects the consumer who usually has to enter 

shops with large sums of cash on them and puts them at risk of being robbed or worse. It is time for the 

federal government to support this movement and move into a new era which will benefit the nation, our 

economy, and the people. 

Joshua Eisenberg 

Universal Herbal Center, Inc d/b/a Pineapple Express 

joshua@skyislandconsulting.com 

5200 E 60th St 

CA, 90270 

Having been in the cannabis industry for over 7 years, I have seen first-hand the challenge that cannabis 

operators have had consistently over time. They WANT to pay their taxes but working in cash causes hours 

of extra time spent in accounting and the companies need to spend money on additional layers of security. 

This would be cumbersome to any business, let alone cannabis startups. 

Now that California has reached a mature licensing and regulation structure, we are still fighting to get 

proper banking. I have encountered several businesses that are either maliciously or idiotically pitching 

their financial services to cannabis businesses that are clearly not legal. The industry needs clear places to 

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bank. The banks need clear authority, regulations and frameworks so that more can expand their services 

to cannabis businesses. 

Metrik Feurtado 

Big Petes Treats 

metrik@bigpetestreats.com 

1560 Mansfield St #A 

95062,CA 

Hello. Our drivers deliver product and can collect as much as $80,000 in a day. We do not have an 

armored delivery van so our drivers face significant risk from criminals who may find them an easy target. 

Banking would allow our drivers to deliver product and not touch cash. Safe banking is common sense. 

Donna Gardner 

Back porch 

donna98801@yahoo.com 

Wenatchee Ave 

WA, 98801 

My son is employed here. They have been broken into once. I worry about the amount of cash they have in 

the store all the time and that he has to be paid in cash. Make it legal for them to use banks ! 

Carol Roye 

Jamaican Imports 

Hghealing@gmail.com 

2305 Campbell Circle 

CA. 94534 

To avoid breaking banking laws for hemp and MJ income should be allowed to help Patients, veterans and 

anyone else who would like help through Herbal medication. 

Erin Rulli 

Alice & Fran LLC 

emrulli@aliceandfran.com 

222 N Rose St #308 

CA. 91505 

With the majority of US states having some sort of marijuana legalization it is imperative that the industry 

have access to legal, federally insured financial institutions. The significant personal and property safety 

issues related with all-cash transactions must be eliminated. Allowing cannabis businesses to participate in 

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the banking system will create stability and investment opportunities while reducing the risk of fraud and 

tax evasion. I intend to serve the cannabis industry as a finance professional; knowing my clients have 

banking options is one of my first priorities. There is tremendous opportunity for growth in the industry, 

from adult-use cannabis consumables and cbd for pets to cannabis derived, life-saving cancer drugs and 

non-opioid pain management options. That being able to open a bank account would delay/derail any of 

this, in 2019!, seems irresponsible and unproductive. 

Victoria W 

Materia Medica Laboratories, Inc. 

info@materiamedicagroup.com 

3017 Halladay St 

CA, 92705 

I moved from food safety testing into cannabis testing. I did not expect that we would have such a hard 

time simply opening a checking account in order to do basic things like paying vendors and receiving 

payments from customers. In food testing there is no way we could have told our customers that we 

strongly prefer cash over check or card, but that's what many cannabis labs have to do. Testing labs are 

highly academic businesses and have no trafficking risk whatsoever, yet we are still treated as if we are 

illegal operations. It cannot be overemphasized that healthy and clean cannabis requires testing labs to 

exist, but testing labs are very expensive to operate, and that's especially true in the start-up phase. 

Testing lab owners need the ability to finance loans and lease expensive lab equipment, but when no 

banks want to work with the cannabis industry, the start-up costs become enormous obstacles. In the state 

of California, there are already too few testing labs open to support how many products need to be tested. 

This will continue to be a problem and a challenge for many reasons, but financial transparency should not 

be one of them. As far as cannabis businesses are concerned, testing labs should be the safest risk for the 

financial institutions to work with. If the testing labs are having this much trouble, everyone else is going to 

have an incredibly difficult time. 

Michael Bird 

Valentine Ventures, LLC 

michael@valentine401k.com 

550 SW Industrial Way, Suite 201 

OR. 97702 

Our current lack of banking for cannabis companies is dangerous, inconvenient, and illogical for everyone. 

While it hurts the cannabis industry directly, it also has significant negative ripple effects in all of our 

communities. It costs companies money. It puts people in danger. It incubates fear. It keeps Americans 

from retirement savings. Please strongly consider making a historical change for the better by providing 

access to safe banking to the cannabis industry. Thank you. 

Ali Taghavi 

Elevate Shasta 

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aztecfarming@gmail.com 

401 Berry St 

Mount Shasta 

CA. 96067 

Please help us with this huge safety concerns, we have done everything we can to insure a safe product 

and safe environment for our customers, however handling cash for our expenses, Taxes and collecting 

taxes from other producers through our distribution obligation has become a huge liability and safety 

concerns for us. Please help with a solution and allow us to operate just like any other business services. 

Thank you again. 

Leah Heise 

4front Ventures 

leah.heise@4frontventures.com 

234 RIDGEWAY RD 

MD, 21228 

Not only has the lack of banking resulted in multiple issues for our employees (having the sheriff called on 

them in Massachusetts when attempting to cash an out of state check from a cannabis company, having to 

pay some employees in cash, not able to have immediate access to payroll), but I have also had my 

personal bank account shut down just for being employed by a cannabis company. Additionally, as a 

business operating in the plant touching part of the industry, we are subject to very costly checking 

account fees ($2,000 plus/month/account). We are unable to take credit cards and can only take debit 

cards through an outside system with additional higher costs. This is a business issue and a health and 

safety issue for our employees and customers. It just isn't tenable. 

Todd DeWitt 

Leven 

todd@levencbd.com 

68A Washington St 

CT, 06854 

We strongly believe in the benefits of a natural product. From counteracting an opioid epidemic to relief 

from epilepsy to reforming our criminal system, it is a must for common sense reform. Our federal banking 

legislation will lead to a regulated system for states to implement and properly grow taxable revenue. It will 

allow the US to raise capital at a pace much greater than Canada and will help industries from farming to 

security to technology. We implore you to work towards a set of rules each state can implement and fine 

tune if they choose. 

Robert Martin 

CWAL,Inc 

robert@cwanalvtical.com 

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851 81st Ave Suite D 

CA. 94621 

Please find a way for banks to accept our industry! Cash sales remain a constant and this process creates 

a great deal of security risk for our employees. Further, we have no credit building functions, loan 

capabilities, or investment opportunities being banned from traditional banking. We want to be legitimate 

and bank the same way! The current situation demands that we seek banking support using all sorts of 

nefarious routines and slight of hand with banks and isn't that the reason banking laws were established in 

the first place? A full service bank is something we all dream. Please hear our cry for help before 

someone gets killed! 

Marvin Otsuji 

Aloha Aina 

marvin.otsuii@qmail.com 

1954 Piner Rd. 

Santa Rosa. CA 95403 

I can't believe that the process is so painful. Everyone in line wants more of paperwork, permit, rent, 

product, insurance. Well I'm ok with all of this but to pay all these fee and want to conduct banking and be 

forced into a cash only The allowance of credit cards would take a security element out of the entire 

industry. It's a changing culture why don't the banks change with it 

CHRISTOPHER HURTADO 

nature contained, LLC 

info.naturecontained@gmail.com 

6306 Jefferson St 

7903,NJ 

Let's make it safer for the people conducting legal business in this industry. No need to put them in harm's 

way and make it difficult for them. 

KATHLEEN KNUTSON 

Cannabis Industry Journal/Kathy Knutson Food Safety Consulting LLC 

drkathyknutson@qmail.com 

1421 Argonne Drive 

WI, 54304 

Coming from the food industry, I am shocked that the cannabis industry is not supported in banking. I have 

heard stories of people delivering $800,000 in cash to pay state taxes. Companies have to decide if they 

arm their employees. I saw first hand the service industries of vaults and armored vehicles being sold to 

cannabis companies. It is time to bring the business of cannabis to the banks and credit unions under 

federal jurisdiction. 

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George Lynch 

Green Stem LLC 

qlynch@greenstemmi.com 

23938 Fairview Ct. 

Farmington, Ml 48335 

I am the owner of a Medical Cannabis Grow and Processing Company in Michigan. Our company has been 

pre-qualified by the State and we are just awaiting our full operating license once our facility is complete. 

Thus far, trying to navigate the murky waters of our national banking system has been ominous to say the 

least. I have been turned down/away from so many banking and credit union institutions in Michigan that I 

have lost count. Alii am trying to do is establish a legal/legitimate business in my home State. However, 

with zero access to proper banking/financial institutions, it means that I am running a rogue operation. It 

also means that not only business but my family could be put in harm's way with large quantities of cash on 

our premises. Please make sure Washington remedies this terrible situation. Isn't about time that our 

government wakes up and realizes that cannabis has been unjustly demonized and unfairly regulated by 

old time corrupt politicians with a specific agenda of persecution. Cannabis is medicine, it is legitimate (in 

Michigan) please use your power to erase this stigma and wrongheaded thinking in DC by supporting the 

upcoming hearing (and hopefully a Bill) for Banking Access to the Legal Cannabis Community. 

Melinda Kadinger 

Smokey's 

admin@smokeys420.com 

2515 7th Ave 

CO, 80631 

The banking issue is a major health and safety concern for employees of this industry as well as the local 

community. 

Stephen Madigan 

Kidder Mathews 

smadigan@kiddermathews.com 

1 Park Plaza Suite 500 

CA, 92614 

I am a commercial real estate broker with 20 years of experience in Southern California. Over the last 2 

years I have represented both landlords, tenants, buyers and sellers in commercial real estate. The total 

value of transactions to all parties are estimated to be worth $50M which a small piece of the larger 

Orange County/LA Market. The banking problem for all parties is far-reaching and is positioned to be 

either the largest hurdle or the strongest facilitator of growth for the cannabis industry. Here are a few of 

the problems these parties face when trying to lease or purchase real estate in the cannabis industry. 

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Tenants cannot provide banking history or credit history when trying to lease, therefore they are treated as 

a high credit risks and must provide hundreds of thousands of dollars in security deposit and prepaid rent. 

This money which could be used to the grow the business is tied-up by landlords because of the lack of 

banking. 

Buyers of commercial real estate cannot secure "market" loans or even SBA loans which their pier 

industries enjoy. Instead of securing a 4.1% loan with a 10% down payment amortized over 20 years, they 

have to borrow at 9%-15% rates, interest only, due in 3 years. This is one step above predatory lending 

terms. 

Tenants often have to pay rent with cash and therefore cannot find a landlord to accept cash.landlord will 

sign a lease and later find out their tenant must pay rent with cash and after several months, the landlord's 

bank not accept the cash. Both parties are fearful, both parties do not have real banking solutions and the 

lack of banking has been the single biggest hurdle to growth, second only to the removal of cannabis as a 

Schedule 1 drug. 

David Hopkins 

Bad Kitty Clones 

omykiss1953@gmail.com 

P.O.Box 3107 

CA, 93613 

NOT securing safe banking for Cannabis Businesses does not promote public safety and provides 

circumstances for theft and assault. As a consultant and T.C. lab, I am at risk whenever at the facility or on 

location with clients. 

Maureen Nolan 

Akule Street LLC 

akulestreet@gmail.com 

2000 Roza St. 

WA, 98953 

Operating in the legal cannabis business in Washington state is very difficult due to the many regulations 

the State requires us to operate within. Those of us in the legal cannabis business work hard to follow the 

rules and meet all of the requirements demanded of us. To that end, we invest our efforts to build 

legitimate businesses that contribute liveable wages to the communities we operate in and without legal 

banking, the cannabis business is susceptible to a black market that we would all like to see gone. Please 

allow banking access to legal cannabis businesses. 

Tara Nielsen 

Clandestine Gardens 

tara@clandestinegardens.com 

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5410 Saxon Rd 

Acme, WA 98220 

For our small farm to remain profitable and employ people the help of banking without having to jump 

through every loophole would be beneficial. The IRS wants to be paid, but from a bank account that either 

costs us tens of thousands of dollars a year to have or penalties because they don't want cash, and so on. 

Let's get right on this issue so we also aren't being taken by other banking systems who do let us bank 

there. We pay enough in taxes, just give us a bank to use to do so. 

Sam Tracy 

4Front Ventures 

sam.tracy@4frontventures.com 

5060 N 40th St Suite 120 

Phoenix, AZ 85018 

Thank you for the opportunity to comment on the SAFE Banking Act, which would allow state-regulated 

cannabis businesses to access financial setvices like countless other businesses in the country. As an 

experienced consultancy and multi-state operator of cannabis businesses, we at 4Front believe this bill 

would be a major benefit to state governments, cannabis businesses, and most importantly, the medical 

marijuana patients we serve. 

As of this writing, 32 states have passed laws allowing for the production, sale, and consumption of 

marijuana for medical purposes. Nine of those states also allow for the sale of cannabis to all adults over 21 

years of age. While the federal government has allowed these states to regulate cannabis within their 

borders, federal prohibition has led to a great deal of confusion and inconsistency, which has slowed down 

or even halted some of these programs. 

For example, while West Virginia adopted a medical cannabis law in 2017, the state has still not licensed 

any businesses to produce or sell cannabis because of the lack of banking services available for such 

businesses. West Virginia Treasurer John D. Perdue is working with the state legislature to create a 

workable system so that the state's program can become operational, but these significant delays have 

caused incalculable harm to patients who are unable to obtain the medicine they need. This has also 

prevented a great deal of investment. job creation, and other forms of economic growth that would benefit 

the entire state. 

Even when states can get their systems up and running, patients are still harmed by the federal prohibition 

on banking services. While most dispensaries can obtain local banking services that allow them to accept 

debit card transactions, all major credit card processors operate nationally and have therefore refused to 

work with the cannabis industry. This prevents medical marijuana patients from using credit cards to 

purchase their medicine, despite being able to use credit cards to purchase any prescription medication at 

any pharmacy. 

This lack of banking access has harmed businesses ability to raise much needed capital to build out their 

cannabis cultivation, production, and retail businesses. In any other industry, the owner of a business 

granted a license with limited competition, as is the case in most legal cannabis states, would be able to 

access bank loans and other institutional lending to fund their start-up costs. With that not available in the 

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cannabis industry, license owners are forced to take investment from individuals that is usually highly 

dilutive and potentially leads to loss of operating control, or if they can find lending, it comes at usurious 

interest rates. This disproportionately impacts smaller mom-and-pop operators, who typically do not have 

access to high-net-worth individuals capable of cutting checks for hundreds of thousands or millions of 

dollars, which is what it often costs to get a cannabis business off the ground. 

Finally, this Jack of federal clarity hurts cannabis businesses and their employees. In most states with active 

medical marijuana programs, there are very few banks that are willing to work with the industry, making it 

difficult to start a new business. Because there is such little competition, banks often charge exorbitant 

fees for basic services, sometimes charging thousands of dollars per month just for a simple checking 

account Similar businesses. such as pharmacies (for medical marijuana programs) or liquor stores (for 

adult-use programs), do not face such steep costs for the same services. This makes it very difficult to 

successfully operate a state-regulated cannabis business. 

Even employees of cannabis companies are often impacted by the lack of guidance from the federal 

government on banking. Just last year, shortly after then-Attorney General Jeff Sessions rescinded the 

Cole Memo, one of our employees was rejected for a mortgage specifically because he worked for a 

cannabis-related company. While the bank eventually allowed him to be listed on the title of his home, they 

would not consider his income towards qualifYing for the mortgage out of an abundance of caution. If he 

was supporting his family alone rather than with a spouse who also worked full-time, he would not have 

been able to become a first-time home-buyer, which the federal government otherwise encourages. 

The SAFE Banking Act would fix these problems by providing absolute clarity from the federal government 

on banking cannabis businesses. States will be able to proceed with implementing their programs, medical 

marijuana patients will have more flexibility in paying for their medicine, cannabis companies will have 

fewer hurdles for operating in a safe and compliant manner, and their employees will not face any undue 

burdens for buying a home or obtaining other financial services. We urge you to pass the SAFE Banking 

Act as soon as possible. Thank you. 

About 4Front: 

4Front Ventures is a retail and brand development company in the U.S. cannabis industry. It has developed 

a national platform that consists of a multi-state footprint, including its network of Mission-branded retail 

operations and associated production facilities, and a far-reaching network of relationships developed 

during its long history in the industry, beginning with its founding in 2011 as one of the first professional 

consulting firms in the sector. 

Lloyd Stiassny 

Eden Management Group, LLC 

lloyd<&edenalaska.com 

6511 Arctic Spur Road 

AK, 99518 

Honorable Chairman and Members of the U.S. House Committee on Financial Services. My name is Lloyd 

H Stiassny and I am the owner and operator of a legal Cannabis business in the State of Alaska for the 

past 18 months. I own and operate two (2) State licensed retail stores and a licensed cultivation facility to 

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support them. We currently employ over twenty (20) full time employees in living wage jobs. Our 

customers are broad based and mainstream Alaskans who thank us every day for the ability to purchase 

cannabis in a legal and well regulated environment. The cannabis industry is in the early stages of growth 

at a State level as well as Nationally. The economic value is measurable today and projected growth in the 

coming years is significant. Global sales are expected to exceed 16.9 billion in 2019, a 38% increase. The 

industry is creating and supporting job growth in numerous industries including, agricultural, manufacturing, 

and retail. The private sector investment is and will continue to be a long term investment in our economy 

and infrastructure. Tax revenue will continue to grow as additional legal markets open throughout the 

Country. 

Current Federal regulation(s) limit and constrain the industries growth. Banking, access to capital markets, 

elimination of 280e provisions of the tax code, will allow the industry to continue to achieve economic 

growth with vital reinvestment in jobs, communities, public safety and education. Access to banking is 

fundamental for any business and cannabis is no exception. By allowing business owners access to 

banking and tax reform the industry will have an opportunity to operate more efficiently, support long term 

employment and continued community investment. 

The Cannabis industry is committed to being a contributing member of a vibrant national economy. We 

thank you for your consideration toward implementing important industry changes that will help all of us 

achieve this goal. 

Sabrina Fendrick 

Berkeley Patients Group 

sabrina@mybpq.com 

1440 4th St, ste D 

CA, 94710 

Berkeley Patients Group is a Berkeley-based, California state-licensed, locally authorized dispensary as 

well as the oldest, continuously operating cannabis dispensary in the country. We pride ourselves on 

having set the standard for responsible, compliant cannabis operations around the country. 

Since our founding in 1999. we have prioritized maintaining a safe operation following standard business 

practices, especially when it comes to cash handling. Federal laws have created an inconsistent, unstable, 

and at times dangerous situation. Regardless of our state compliance, we have been removed from well 

over 30 banking institutions. 

We seek and request to be treated like any other business with the rights and privileges that come with 

being recognized as a legitimate industry. It is the federal prohibition and financial roadblocks against 

cannabis that have kept us from achieving this goal. We encourage the committee to consider relief that 

will rid us and all legitimate cannabis businesses of these handcuffs so that we can ensure the industry has 

access to safe, sustainable banking solutions. 

Dottie Lulick 

MJIC 

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dlulick@gmail.com 

5800 S. Eastern Avenue #300 

CA. 90292-5953 

Opening up the legal banking industry will strengthen public safety. Most violent burglaries, 

embezzlements, and even kidnappings are happening due to large amounts of cash exchanged. Also, 

these legal businesses are paying taxes yet have no access to loans or credit card payments. Please pass 

this bill to help our industry come out of the darkness and establish legitimate, legal cannabis companies. 

Jessica Billingsley 

jessica@mjfreeway.com 

MJ Freeway 

1601 Arapahoe St Suite 900 

C0,80202 

The SAFE Banking Act of 2019 would provide businesses ancillary to the cannabis industry, like MJ 

Freeway, a safe financial space to operate in. We are a company that ensures cannabis regulatory 

compliance and this would be the first time we would be afforded banking protections. As the memo 

clearly points out. legal cannabis operations exist in most states. This is the norm, and our industry should 

be operating within the proper financial infrastructure just as any other regulated industry. I applaud the 

committee, Chairwoman Waters and Colorado's own Rep. Perlmutter for their leadership for sound and 

anti-discriminatory business practices. 

The current banking issues faced by the Cannabis Industry in the U.S. are forcing major restrictions on one 

of the fastest growing industries in the country. MJ Freeway's clients cultivate, manufacture and dispense 

cannabis products and are forced to operate mostly with cash which has huge security concerns along with 

major inefficiencies in completing all transactions relating to their businesses. In what other legal industry 

are you forced to pay your taxes, rent. payroll, utilities in cash? 

From an international perspective, the US is the only country in the world that is regulating legal cannabis 

and does not provide a framework for traditional business banking. For our country to become a world 

leader in this industry, it is imperative that we provide our local businesses the opportunities to compete on 

an international stage. 

The Safe Banking Act of 2019 would not only allow existing legal cannabis businesses to operate as any 

other business from any other industry in the U.S., but it will provide the opportunity for American 

businesses to expand and become world class leaders in this industry. 

Dan Hentschke 

dan@cltcbd.com 

Charlotte CBO 

2419 Central Ave 

NC, 28205 

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The current situation with banking and cannabis. or should I say the lack of banks doing business with 

cannabis related businesses is a huge problem. Like any other industry, at the end of the day we are simply 

selling a product. My company and I have already been through three different banks, we have had 4 

different credit card processors. 2 of the 4 processors shut us down with absolutely no warning, even 

though we were told when we signed up for services that this would not be an issue. We were transparent 

with everyone of these companies, and later found out some of the representatives from these banks had 

not been so honest. They covered up what we do, they didn't want the underwriters to be aware of the 

type of business we were running. It behooves me to think that albeit we run a legitimate business, right on 

a main road in Charlotte. pay LOADS of taxes into our city, but banks didn't want to or weren't allowed to 

handle our money. Alcohol companies have no problem with taking payments or being accepted by banks, 

because it's "legal". What we are doing is also legal, yet I have had to run around with 10s of thousands of 

dollars on my person to get money moved from one bank to the next Like I'm some sort of criminal who is 

required to put myself into a dangerous position. People in this business from cultivation to retail sale 

should not have to incur these types of risk. It's ignorant, and quite frankly just not ok. Hopefully this 

testimony is in with a large stack of the same pleas for help and regulation in fixing this situation. I ask that 

if anyone's eyes cross this short read to make changes. Ask yourself: "Why Not?" And let's make moves for 

a better future in banking and the cannabis industry. 

Lynn Wubbels 

lynnG>askmycoa.com 

Wubbels & Duffy, Certified Public Accountants. RLLP 

999 West Taylor Street,Ste C 

CA, 95126 

We are a CPA firm service provider to various cannabis business in Northern California. I can advise you 

from years of practical experience that the legal Cannabis sector is severely challenged by the lack of 

banking capability. It is difficult to operate a business in today's economy without a bank account as many 

transactions such payroll; income. sales, and cannabis excise taxes; certain vendors, utilities, licensing, and 

a host of other transactions require a bank ACH paper check or electronic funds transmission. Bringing a 

briefcase full of paper currency to pay a tax, fee, or vendor is not a practice to be furthered by 

discriminatory banking rules. Even with those briefcase currency payment practices, cannabis businesses 

typically must play musical banks when a bank compliance officer makes the decision to close an account. 

I can cite a personal example of banking's aversion to currency deposits. As an accommodation to the 

cannabis sector and it's banking challenges, our CPA firm accepts fee payments in currency. As a result of 

our currency deposits, we had our bank account closed because in one 12 month period we deposited 

less than 5% of fees received in the form of currency and had to find another bank. It is ironic that we 

routinely arrange for clients to make appointments with IRS to pay taxes with currency. So on the one 

hand, federal agencies will accept and deposit currency with impunity, while non-cannabis touching 

businesses do so at the risk of losing their banking capacity. 

A great deal of challenge and chaos ensues around this lack of banking. Frankly, I fail to understand the 

reasoning for continuing to force this disability on the nascent legal cannabis sector now operating in some 

33 states. That 2/3 majority statistic alone argues for recognition of what is arguably an organically 

growing national public policy. It is therefore incumbent to reset many of the archaic challenges to this 

sector that the federal government continues to pursue. 

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As a practical matter, having to retain large currency balances as a medium of exchange results in 

diminished accountability and internal control which invites risk for armed robbery, theft, conversion, and 

skimming. It is in the national interest to legalize and regularize this industry and bring it out of the 

shadows. To provide banking for state sanctioned legal cannabis touching enterprises is smart 

government and a step in the right direction toward a total legal cannabis federal franchise. Alcohol 

Prohibition, while well-intended, did not work as we learned from the criminal repercussions and societal 

damage from the Volstead Act. 

While the world may be better off without alcohol is is very possible that it will be a better world with fully 

legal cannabis. That is to say that the the many benefits of cannabis may outweigh its detrimental effects. 

This cannot be said for other drugs, alcohol, and tobacco. 

Laurie Danzuka 

laurie.danzuka@wstribes.org 

Warm Springs CP Enterprise 

OR, 97761 

A tribally owned business in Oregon needs fair banking access to provide revenue and jobs to the tribal 

membership. The Confederated Tribes of Warm Springs announced that they would be developing a 

cannabis project and subsequently current bank accounts (US Bank) were closed for the tribal government 

and its affiliated enterprises. At the mere mention of entering the market and not yet operational. Now the 

tribal enterprise has decided to produce hemp since the Farm Bill passed and the enterprise is still being 

denied banking services from "cannabis friendly" credit unions and our local bank. This is due to the fact 

that the federal regulations are unclear on banking with cannabis companies. Since the tribe's are a 

sovereign nation and not subject to state law we have developed an agreement with the state and 

incorporated a tribal regulatory commission (Warm Springs Cannabis Commission) with legal codes and 

requirements as strict or more strict than the state. The state does not license our project through OLCC or 

ODA and now we are being denied banking because we are not licensed through the state. The Warm 

Springs Cannabis Commission would issue all licenses and permits for the cannabis operations. If tribe's 

were included in negotiations and language surround the cannabis industry we could address this policy 

gap. So now we are at a further disadvantage because our production facility will be located on tribally 

owned property. In our due diligence we negotiated an intergovernmental agreement with the state and 

negotiated a state tax rebate. The State of Oregon U.S. Attorney Billy Williams (the federal authority) has 

also been in communication with our legal counsel and does not have any concerns with our regulatory 

oversight. Even with all the work for the past three years to get our cannabis project started our access to 

banking has not improved. The other banks that I have contacted that specialize in cannabis banking 

demand two years in business and credit checks on any person in management and high maintenance 

fees for each separate service (checking, deposits, wire transfers, money orders). It is imperative that the 

enterprise go operational to capitalize on the hemp market and provide jobs for the tribal membership. If 

we have to be a cash only enterprise that will cause other issues such as security and theft. Offer fair and 

safe banking to the cannabis industry because it is causing undue burden to get our project started. As a 

tribal entity we already have to negotiate with the state and now have further hurdles in dealing with 

banking due to us being located on a tribal reservation. This limits fair access to us as a minority owned 

business based on our status as a sovereign nation with the Oregon borders. Oregon legislators are 

attempting to close the policy gap, but this banking issue needs to be addressed/corrected immediately. 

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Kristen Klawitter 

kristen@humboldtcannaco.com 

Humboldt Canna Co 

799 H. Street, PO Box 4242 

95521, CA 

I'm begging you to change the laws surrounding cannabis banking. We have a small farm in northern 

Humboldt County, California. We bought the farm and grow legal, medical grade cannabis so that we can 

make medicine for people who need it most. We have lost so many family members to cancer over the 

years and having discovered that cannabis can fight cancer, as well as it's horrible side effects, we bought 

this farm to grow and make that medicine. We've successfully treated family members and friends with a 

full spectrum whole plant extract called "RSO", made from our cannabis plants. This oil has literally saved 

lives, and put 3 family members/friend's cancer into REMISSION, with no other treatment, only the RSO we 

made. We want to provide this medicine to more than just our family and friends, we want to get this RSO 

out to the entire country- hopefully the entire world. We can't do that successfully until many issues/laws 

are cleared up or changed. One of the biggest problems we face is our banking. We have had our bank 

account shut down 5 times now, because we are in the cannabis industry. We are 100% legal and 

compliant with the county of Humboldt, and the State of California- which was no easy feat due to the 

excessively stringent laws, fees and processes required to do so. We have made it this far though, and 

need to continue to make it, so that we can help so many of the people out there fighting cancer and other 

diseases. We can't do it successfully or easily unless the banking laws are changed. Cannabis is just a 

plant, but it's a very powerful, magical one. It is quite literally harmless, just the opposite in fact. It has 

helped so many people, and we need to continue to help get this plant out there. The banking laws 

surrounding cannabis need to be fixed, it's just a plant. Alcohol isn't regulated to the extent of cannabis, 

and alcohol kills people on a daily basis. Cannabis has never killed a single person ever. We beg you to 

make it easier to pay for cannabis and cannabis products, please help us to get our medicine out there to 

people who desperately need it. Thank you for taking the time to read this! 

Khurshid Khoja 

khurshid>1ilgreenbridgelaw.com 

Green bridge Corporate Counsel 

1215 K Street, Suite 1700 

CA, 95814 

My name is Khurshid Khoja, and I serve as the Vice Chair of the NCIA Board, and have previously served 

on California State Treasurer John Chiang's Cannabis Banking Working Group. While I operate a law firm, 

my bank account has been shut down previously for refusing to disclose my client's information without 

their consent. A full account of this incident was first published by Law.com, and reprinted elsewhere as 

well. See "Cannabis-Industry Lawyer Raises Questions After His Bank Terminates Account" at 

httos:/!finance.yahoo.com/news/cannabis-industrv-lawyer-raises-guestions-110520186.html which I've also 

pasted below. Thank you for considering my written testimony. 

Cannabis-Industry Lawyer Raises Questions After His Bank Terminates Account 

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ALM Media December 28, 2017 

Khurshid Khoja says he tries to play by the rules. The Green bridge Corporate Counsel founder advises 

state-legal marijuana-related businesses. He knows the sector they all work in is legally murky. While 

California will roll out a licensed recreational market just days from now, the federal government still 

considers marijuana an illegal drug. Khoja said he operates by certain business principles. His clients do 

not pay in cash. Deposits into the law firm's state bar-required trust account are identified by their source 

and visible to the bank. Every client must comply with Obama-era federal guidance designed to minimize 

any federal scrutiny. Khoja said he was surprised when his bank, Umpqua Bank, this fall started demanding 

information about clients. Were they in direct contact with marijuana plants? What were their names? How 

much business did Green bridge do with them? 

After Khoja asked for more time to get his clients' consent to release that information-he said the bank 

gave him two business days to do so-Umpqua said it was closing his firm's accounts in 30 days. "Our first 

duty as attorneys is to our clients and the ethical rules that apply to us," he told The Recorder in an 

interview. "We are licensed by the state and it's our duty to protect confidentiality and to keep our clients 

safe." He added: "We can't have banks interfering with that." As California's green rush is set to begin next 

year, Khoja's experience offers some perspective for lawyers who are in the industry-and those who want 

to take part. Marijuana dispensaries and growers have historically struggled to find banks willing to open 

and maintain accounts for them. That struggle can extend to companies providing services to those 

businesses, including attorneys. Calls and emails by The Recorder to Umpqua Bank's media office were 

not returned. Despite projections of a $7 billion state marijuana industry, major banks and credit unions are 

still wary of attracting the scrutiny of federal regulators if they accept deposits tied to cannabis-related 

businesses-even those that never touch a plant. That puts lawyers in a quandary. Abide by professional 

requirements with escrow accounts and banks may start asking questions about clients and their money. 

Maintain ethical duties to protect client information and banks may dump your account. Large firms that 

have big-dollar, long-term relationships with banks may not have a problem if their "regulated industries" 

practices constitute a tiny fraction of their work. Smaller shops that openly cater to marijuana clients are 

taking a much bigger risk, according to lawyers who have clients in the cannabis industry. "Marijuana 

attorneys finding themselves excommunicated from their banks are incapable of paying staff, taxes and 

utilities," said Steven Schain, chair of Hoban Law Group's financial service and banking practice. And iftheir 

banks drop them, they could be stuck with only a cashier's check representing their clients' escrow 

account deposits-with no other bank willing to accept them-in violation of their fiduciary duty, he said. 

The U.S. Department of the Treasury's Financial Crimes Enforcement Network in 2014 advised financial 

institutions they can serve marijuana-related businesses and still comply with federal Bank Secrecy Act 

obligations if they follow certain compliance guidelines. As of June 30, 390 banks and credit unions across 

the country reported providing services to marijuana-related businesses, according to federal records. The 

number has risen steadily since 2014 but still represents just a small fraction of the total number of financial 

institutions in the U.S. Many of those banks act only as a depository for marijuana clients, charging 

thousands of dollars in fees each month while offering only a few additional services, such as lending, that 

are provided to other businesses. 

California explores banking options. 

California regulators have explored options to bank the industry, from creating a public institution to 

setting up a network of depositories that are willing to accept marijuana funds. The ideas have yet to catch 

fire with major banking institutions .. "We hear all these proposed solutions being offered up" by state 

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officials, said Beth Mills, spokeswoman for the California Bankers Association. "Really, the solution is at the 

federal level." 

The State Bar of California offers little specific guidance to attorneys in the cannabis field. Regional bar 

associations in Los Angeles County and San Francisco in 2015 issued opinions that attorneys may ethically 

represent state-legal medical marijuana enterprises within certain parameters. A paragraph in the 

proposed rules of professional conduct, now awaiting state Supreme Court approval, offers similar ethical 

guidelines for attorneys. But the bar has offered no advice for lawyers trying to hang on to professionally 

mandated bank accounts. Chief Justice Tani Cantii-Sakauye recently told reporters that a Judicial Council 

committee will likely handle any complaints about marijuana-related litigation, licensure and business 

issues. The council could then consider policy changes or possibly supporting legislation "to help clear up 

this area." "It's going to be a quagmire where we are and to what extent the federal [government] seeks to 

enforce its laws in California," Cantii-Sakauye said. 

'Your business isn't welcome.' 

How often banks boot lawyers like Khoja who provide legal services to marijuana clients is difficult to say. 

The names of banks willing to do the federally mandated work to vet cannabis customers-or simply not 

ask probing questions-circulate quietly among those in the industry. "It's definitely frequent that they kick 

marijuana businesses out." said Brian Vicente, a partner in Vicente Sederberg in Colorado and a veteran of 

marijuana legalization efforts in that state. "And it's definitely not uncommon for them to kick out lawyers 

who work with marijuana businesses." Vicente said he's been dumped by three banks since he started 

practicing exclusively in the cannabis sector. 'It's honestly humiliating,' he said. 'You're told your business 

isn't welcome there.' Khoja first suspected trouble when employees at his Umpqua Bank branch in San 

Francisco started asking this fall about his volunteer service on the state treasurer's Cannabis Banking 

Working Group. For a year, the group, which included cannabis industry representatives, government 

officials and bankers, studied the problem of marijuana businesses' lack of access to banking. The group 

issued a report in November seeking more research into several issues. Not long after the questions 

started, Khoja said he got a questionnaire from Umpqua Bank's Sacramento office. Executives wanted to 

know detailed information about his marijuana clients, including their names, addresses and activities. In a 

letter to Umpqua, a copy of which was provided to The Recorder, Khoja said he could not reveal some of 

the information sought by the bank without client consent-something he said he may never be able to 

obtain from them and certainly something he could not obtain in two days. Khoja instead asked bank 

officials to identify any specific deposits that troubled them so he could try to get information from those 

clients. He noted the rules he requires his clients to comply with, his work with the National Cannabis 

Industry Association and his efforts to change federal laws that scare banks away from the state-legal 

marijuana industry. "I hope you agree that Greenbridge is the type of client that Umpqua should welcome 

and support, rather than subjecting to unreasonable scrutiny and disclosure demands," he wrote. Days 

letter Khoja received another letter from his bank. 'Umpqua Bank has determined that maintaining your 

deposit account relationship is no longer mutually beneficial and has decided to exercise our right to 

terminate your banking relationship," according to the letter, also provided to The Recorder. The letter 

offered no explanation. Umpqua gave Khoja 30 days to find a new bank before it closed his two accounts. 

Khoja said he managed to find another financial institution, which he declined to identify, to take his 

business before the one-month deadline arrived. He said he does not see a solution-no lasting one 

anyway-to his and other professionals' banking challenges until Congress acts to ease banks' fears. "The 

salient point here is attorneys need to be able to do their jobs and still protect attorney-client privilege," he 

said. 

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Heather Whiles 

heatherw@maconhaservices.com 

Maconha 

1001 Bridgeway #520 

CA, 94965 

I currently advise manufacturers in the California cannabis industry. I have 12 years of experience in 

banking and know for a fact that the current banking system allows businesses that have a far greater 

negative impact on society to safely bank, for example, the pornography industry or the weapons industry. 

I also believe that if Congress is concerned about how the cannabis industry will irnpact society isn't it more 

beneficial to have more data points to monitor that impact, as in oversight of the flow of funds in the 

industry. The amount of cash that is currently outside of the banking system will become a breeding 

ground for crime and violence. Please allow business owners in this industry the chance to create and 

manage businesses with the resources given to other industries. 

Susan Griffith 

susan.griffith1@yahoo.com 

Certified Alternative Medicine Providers, LLC 

244 Fairway Green Drive 

M0,63368 

Banking is a fundamental and necessary facet of any industry and any business. 32 States have now 

legalized some form of Cannabis, yet it remains illegal for Federally Regulated banks to have ANY 

involvement, and State regulated banks are extremely reluctant. As with any other new and developing 

business, that needs to hold cash from business generated revenue, pay employees, pay taxes, pay 

service providers. it is ESSENTIAL to have the support of a bank for safety, security and success. To 

exclude Cannabis based businesses. who are attempting to form and grow economically, is unjust and 

entirely unfair, and puts them in a very disadvantaged position. As the owner of a medical cannabis based 

business, seeking licensure, it is essential to our progress to be able to accept money from investors. pay 

our service providers, pay our taxes, our governmental operating fees and our employees, without 

discrimination that is derived by current regulation. Banking must open up to Cannabis based businesseswho are putting thousands of citizens to work- and developing a highly sustainable economy, that has a 

tremendous growth potential on the horizon. 

Barbara Finch 

barbfinch1275@yahoo.com 

BAF Farms 

101 Blue Water Lane; Grants Pass 

OR, 97527 

State Licensed farmer of a crop that the banking industry automatically denies access to an account that 

could, would, and SHOULD be utilized to make payroll withholding deposits, {quarterly deposits for federal 

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and state business purposes) corporate taxes both federal and state, employee garnishments, etc. 

Without this passing, we are crippled without proof of payment, or hindered by having to obtain $200.00 

maximum each money orders (which have been stolen by individuals receiving them). We are a legal 

business entity being crippled by banks denying us access because of the burden of federal regulation. I 

have found one bank that would accommodate my business but the monthly cost of $750.00 a month to 

have it would cripple my business. I employ up to 14 people at my height of season. 

Mandolin Kadera-Redmond 

mandolinkr@gmail.com 

Town Apothecary 

2555 International Blvd, 315 

CA, 94601 

We are a African American woman owned cannabis manufacturing company offering a topical for pain 

relief to seniors, musicians, bodywork professionals and athletes. One of our owner's background in 

accounting knows that access to banking opens up opportunities for us to be full compliant businesses that 

can build financial histories. When we can track our credit worthiness we can access capital that will not 

only move our business we can make positive impacts to our communities. Please take the information 

available to the real financial impact this industry will make when we are able to fully engage in good 

business practices through banking. 

Tim Spencer 

timspe98@gmail.com 

The Green Solution 

4100 E Arkansas Ave, Denver, CO 

CO, 80222 

I joined the legal Cannabis industry in 2017 after 20 years as a commercial production greenhouse grower; 

I'm married with 2 kids, a senior in high school and a college sophomore. For the first couple of months, we 

enjoyed payroll direct deposit and everything seemed fine. All of this changed when our bank 'discovered' 

that we were a Cannabis company. For a year I was paid in cash; walking through downtown Denver with 

$thousands until! could get to my bank. This is not safe. In addition, I can't get a home loan, so I'll be 

renting until things change. The banking situation is inhibiting the validity of the industry and restricting 

access to basic economic functionality. 

Katie Brandt 

tkt8120@gmail.com 

Self-Employed 

210 Donald Drive 

CA, 95023 

I work for several different cannabis companies consisting of cultivators, manufacturers, distributors, etc. I 

assist them with various aspects with their businesses i.e. licensing, books and keeping bills paid. Without 

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the ability to keep the business's money in banks, that leaves me personally transporting exorbitant 

amounts of cash at times. In my opinion, this leaves me personally at risk for attack. While I don't advertise 

or publicly discuss the fact that I carry large amounts of cash on me, anyone who knows that I work in the 

industry is aware of the fact that there is a probability that I likely have cash on me at all times. 

I have two children, a 2 year old son and a soon-to-be-1 year old daughter.! fear for their safety. It is widely 

known that there is no banking for the cannabis business and that it is still a cash-based business. Anyone 

who works in the industry is at risk for an attack/robbery, etc. Therefore, I fear not only for my safety but 

even more so for the safety of my children. 

In summary, it is putting everyone in the industry at risk by not allowing a secure and insured way to store 

their business money. 

Alan Heroux 

alan@washingtonpotgrower.com 

Hydrofarmer, LLC 

P.O. Box 1372 

WA, 98837 

Marijuana businesses are currently unable to have "normal" banking services because of federal 

regulations. We handle cash on a regular basis which is unsafe for both sides of the transaction. Paying 

bills in a digital world when using cash is to say the least difficult and time consuming. From a regulatory 

point of view it would be far easier to track bad actors in the industry if there were a digital trail of money to 

follow. There are many reasons why we should have normalized banking services with the only negative 

being how the industry is viewed at a federal level. Simply allowing federal chartered financial institutions 

to treat those in the marijuana industry as regular customers would be beneficial for everyone that has the 

potential to benefit from the products sale. 

Luke Sauser 

lukei&ncqvi.com 

GVI 

2286 Del Monte St. 

CA, 95691 

Paying taxes, paying employees, paying vendors, receiving payments, securing investments, and all other 

standard business practices, which has become much easier for all industries other than cannabis, are still 

extremely difficult and sometimes dangerous. 

Many cannabis employees are either lying or avoiding paying taxes because of their cash payments. They 

also are forced to make extra trips to their banks to deposit large sums of cash -which similar to people in 

all other normal industries, they don't have time for. 

THC has been proven time and time again to be safer than alcohol and many other legal substances. 

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It's time we fix one of the largest mistakes/issues in the history of government regulation. We certainly 

don't need a wall on the border, although further security technology would be nice, although 

re-scheduling THC and regulating as a psychoactive substance (less dangerous than alcohol) would 

eliminate much of the cartels' financing and ability to illegally import cannabis. 

It just makes sense. And please don't make the mistake of over-taxing such as California did. 

Patricia Woods 

pattiw@aznaturalselections.com 

8180 N Hayden Rd Suite D-107 

AZ,85258 

I am not an owner of a Cannabis Related Business. I am an employee. I have worked for this company for 

over 3 years and a different company in the same industry for a year before that. The current situation puts 

an element of danger where there shouldn't be one. As a mother and grandmother, I don't like having to 

be afraid of someone knowing (or simply assuming) that I am in possession of cash. This industry has 

grown so much in the last 4 years. It is really time that we embrace it and remove the danger surrounding 

a very normal business environment. I encourage you to search our company on the internet. You'll see 

that we are a very professional business employing regular, hardworking people. We would appreciate 

being able to conduct business in a safe manner. 

Marissa Rodriguez 

marissa@sweetlifedistro.com 

TSL Distribution 

2801 SE 9th Ave 

OR, 97202 

Greetings from Oregon! 

The lack of access to banking negatively affects nearly 2000 small business owners in Oregon. 

Handling cash is dangerous and time consuming. We spend 6 labor hours a day counting cash and have 

many costly security measures in order to feel safe. 

Please provide safe banking for legal cannabis businesses. 

Jeanie O'Laughlin 

jeanieo2@yahoo.com 

9650 Denhart AVe 

CA. 93505 

I am a CPA and PhD. I consult with a dispensary. Not having access to the banking industry puts all of us at 

risk; I have to pay vendors with cash; employees are paying bills and then getting reimbursed with cash; my 

consulting fee is paid in cash. This is now becoming even more of an issue as my personal bank is now 

questioning all the cash deposits I make. Cannabis is legal in California and for businesses that have all the 

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property local and state licensing permits, we should have access to the banking industry. We even 

struggle getting our payroll taxes, sales tax, and local taxes paid. I recently had to carry almost $50,000 in 

cash to downtown Los Angeles to pay the local tax. We are a legal business and should have access to 

the banking industry and the safeguards it provides. Thank you. 

Simon Menkes CPA 

simon@menkescpa.com 

Menkes Accounting & Mediation 

11280 La Maida St. #201 

CA, 91601 

I have several clients in the cannabis industry. These are good people who are doing their best to run a 

regulation-compliant and tax-compliant business. Without access to the banking system, they have to 

handle large amounts of cash. As their CPA, I WORRY ABOUT THEIR PHYSICAL SAFETY EVERY DAY! They 

are at constant risk of armed robbery and must take home cash every night to leave their business less 

vulnerable to theft. When they go to pay their taxes, they take large amounts of cash with them. Criminals 

would find them easy targets, and their lives would be a cheap cost to these people to steal their funds! 

Please do the right thing and allow accessible banking for the legal cannabis industry. This is not a matter 

of economics. IT'S A MATTER OF DECENCY AND PROTECTION OF HUMAN LIFE AND SAFETY! Thank 

you, Simon Menkes CPA 

Christopher Jennings 

jenninqsc971@qmail.com 

Norml national care givers 

161 North 7th Street, Apt. A, A 

CA, 92220 

Hello my fellow Americans I'm glad that we could connect and forge the future of Cannabis in America this 

action is critical to the safety of employees and also patients in America and across the globe. So Congress 

let's make history this is legendary status may God bless the future of humanity. 

Sincerely yours truly believe that Mr. Christopher Daniel Jennings. 

Tracy O'Connor 

tracyo@tgmgrow.com 

TG Facilities 

4002 N. 36th Avenue 

AZ, 85019 

Banking for the cannabis community needs to be made safer and easier to access. We are a legitimate 

business with legitimate business banking needs that should be recognized. 

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Heather Hughes 

raisedplain@qmail.com 

Hillside Growers 

43430 E. Florida Ave 

CA. 92544 

My husband and I grow grapefruit. I work in healthcare and can see the benefit of cannabis to patients. 

Those who grow cannabis need a safe environment with access to banking and credit -to avoid the 

cash-based-business that encourages theft. Please help those growers to get access to legitimate banking 

businesses in which to continue their industry. 

Matt Mooney 

mooney900@gmail.com 

Matt Mooney Real Estate Group. 

806 Tremont Dr 

PA,19335 

I don't own a cannabis business, but I am a patient in Chester County, PA. We need to be able pay for 

these medications and the companies need to be able to run their business using our banking system. It is 

time!! Marijuana is helping me get off opioid Medication and Benzodiazepine medication safely and 

effectively. Since April 2018, I have cut the daily dosage of these medications by two thirds and moving 

towards getting off them completely. ONLY reason, I am able to do this is my use of cannabis medication 

that began last April. Changed my life!! 

Robert Finkle 

robert@finklelawoffice.com 

Finkle Law Office 

11501 Dublin Blvd, Unit 200 

CA, 94568 

I have represented compliant commercial cannabis businesses exclusively for the past 3+ years. There are 

three principal reasons cannabis businesses should be given access to safe banking services: (1) the large 

amounts of cash generated are being actively targeted by criminals creating a public safety risk, (2) as with 

all businesses, cannabis businesses require banking services to conduct everyday transactions, (3) there is 

no better way for government to ensure regulatory compliance, including the payment of taxes. 

Nathaniel Gurien 

nathaniel@fincann.com 

Fincann 

157 Columbus Avenue, 4FL 

NY,10023 

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This is not a marijuana issue. It is not about the pros and cons of legalization, potential medical 

applications, and the myriad challenges faced by an industry struggling to transition from the black market 

to mainstream acceptance. 

The most critical and essential issue arising from the lack of banking for the cannabis and hemp industries 

is actually one of a community safety crisis and not one of the albeit considerable inconveniences and 

expenses plaguing the industry. The crisis is real, it is severe and it is bearing down upon us now. 

The circumstances of communities now awash in millions or billions of dollars of poorly accounted for new 

cash is wreaking havoc now with frightening short and long-term potential consequences. Forcing legal, 

well-regulated and supervised innovative new enterprises to operate in cash: 

1. Attracts violent robbery attempts frequently involving innocent bystanders, enormously increases 

security costs both internal and external, and 

2. Encourages licensed operators (many of whom are making a sincere effort to shed ingrained black 

market business practices) to cut corners and under report results and taxes, sell product into the black 

market, and engage in otherwise questionable business practices. 

3. Represents a systemic risk to the safety and soundness of our financial system. 

4. Perhaps worst of all, organized crime is attracted to opportunities related to billions of dollars of poorly 

accounted for cash and metastasizes over time into a generational unwanted presence in the community. 

This looming crisis demands immediate and decisive action. And the simple solution is to provide a safe 

harbor for our financial institutions to provide business checking accounts for all transparent, responsible, 

compliant state-licensed cannabis operators and the enterprises that provide them goods and services. 

It's quite true that the lack of access to traditional banking and institutional financial services suffocates the 

cannabis and hemp industries in other important ways, particularly in access to capital to fuel the industry's 

explosive growth, but addressing that whole ecosphere is accessorial to quenching the firestorm 

threatening to engulf our communities. 

An attempt at this point in the political calendar to adequately address the many nuanced issues of full 

access to banking and financial services for these industries will substantially dim any hope of timely 

success. And without having to get into the weeds (pun intended), the ultimate and simple solution to all 

the rest of it lies with an end to federal prohibition of cannabis. 

However, I'm sure many here today recognize the importance of not making the perfect become the 

enemy of the good. 

Our advisory firm educates and guides financial institutions around the country on the true risks and 

opportunities of servicing these industries. We work directly or indirectly with about 75 banks that provide 

compliant, transparent depository accounts to state licensees, professionals and vendors providing 

licensees goods and services, hemp and CBD companies, investment funds, and so on. 

I can report from direct experience that the interest level on the part of banks is growing rapidly. One need 

only look to the over 100 NJ bankers who attended our recent presentation on marijuana banking to their 

local chapter of the Association of Certified Anti-Money Laundering Specialists (ACAMS- the leading 

international banking industry AML compliance trade association) representing more than twice the usual 

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attendance at such chapter meetings. Many institutions are giving serious consideration to venturing into 

some or all industry sectors this year, perhaps resolving the crisis by years end. 

But they need your help. They cannot and will not adequately address this crisis and take advantage of this 

opportunity without your help. 

And the help they need from you is very simple, the precedent for which was already established last year: 

On August 21, 2018, the US District Court for the District of Massachusetts in RICO litigation brought against 

cannabis-friendly Century Bank found "that providing ordinary banking services to marijuana-related 

businesses, in compliance with Treasury Department guidance aimed at enabling banks to provide such 

services insufficiently demonstrates the joining and intention to further a RICO conspiracy". 

In other words, a federal judge has already decided that simply providing ordinary banking services to 

marijuana-related businesses is not a federal crime. Nobody's asking anyone to walk a plank here- now 

there's authoritative judicial review to rely upon. All that's required of Congress is a simple statute 

confirming this decision that plainly states: 

"In and of itself providing ordinary banking services to marijuana-related businesses, in compliance with 

Treasury Department guidance aimed at enabling banks to provide such services is not a violation of 

federal law". 

Section 3 (a)(1)(2) & Section 3(b) of both HR2215 & S1152 fulfill this requirement and is therefore the 

essential safe harbor protection our financial institutions require to fulfill their responsibility as essential 

stewards of commerce. 

Step number one is to bank, track and account for all the cash but a close second in importance is to 

dramatically reduce the amount of cash transactions themselves by providing the same safe harbor for 

MasterCard, Visa, American Express and Discover to reverse their current prohibition against cannabis 

transactions on their networks. Via the above referenced Sections, this legislation serves that additional 

vital purpose by providing these card networks the assurance they require to safely serve the cannabis 

industry. 

Once again this is not a cannabis issue. Certainly everyone across the political spectrum can easily support 

nipping in the bud violent and organized crime, tax evasion, questionable and illegal business practices 

and injury to the safety and soundness of our financial system. This one is easy, universally justified and 

widely acceptable. 

The issues of cannabis legalization are complex and worthy of measured debate and thoughtful 

deliberation. This not about that and the time for that debate is not yet upon us. 

This is about the safety of our communities; this is something everyone can get behind. Think about it: 

None of us would like to be called to account for not having acted sooner if heaven-forbid an innocent 

child is struck by a stray bullet in a cash robbery gone wrong. The clock is ticking and time is of the 

essence. 

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Sean McAllister 

sean@mcallistergarfield.com 

McAllister Garfield, PC 

501 S Cherry St. 480 

CO, 80246 

The lack of banking is a major public safety concern for the cannabis industry. Due to the lack of banking, 

companies have to store large amounts of cash on hand, which makes them targets for theft (although 

studies show they are not robbed more often than convenience stores and banks, but it is still a problem). 

Also, the inability to get loans from banks makes it very difficult for small businesses to grow and comply 

with the complex regulatory regimes in cannabis. Please make it clear that banks should be able to work 

with the cannabis industry, just like any other industry. I have personally lost a bank account as a lawyer 

because I service the cannabis industry, so this reform impacts more than just direct cannabis businesses. 

Heather McElravy 

heather.kanopli@qmail.com 

Kanopli 

5940 Chief Buffalo Horn Trail 

MT, 59044 

As a female I am uncomfortable and vulnerable when handling large amounts of cash without the ability to 

carry a firearm. Banking would allow us to accept electronic funds. 

Roopal Patel 

roopal@lilufinancials.com 

Lilu Financials, LLC 

4110 SE Hawthorne Blvd. #134 

OR, 97214 

My clients face incredible hardship and extreme business costs in trying to manage without sensible, 

accessible banking solutions. It is already challenging to be a start up in any industry, but to have limited to 

no banking facilities is debilitating when a company is trying to grow and maintain compliance (e.g., 

payroll). Please work to provide a easy and safe way for my clients to manage their businesses by 

providing safe banking services to legal cannabis businesses at a national level. Thank you. 

Adrian Moore 

adrian.moore@reason.org 

Reason Foundation 

5737 Mesmer Ave Los Angeles, CA 

Congress should always pay attention when federal and state policies conflict in ways that create public 

safety problems. That is certainly the case with banking for cannabis businesses. 

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For a number of historical reasons banks are subject to federal regulations intended to protect the public. 

As states legalize cannabis, medical or adult recreational use, an industry has arisen that involves 

considerable flows of money and need for banking services. This puts banks between conflicting state and 

federal rules vis a vis cannabis. Banks have mostly chosen not to defy federal rules and so have not served 

the cannabis industry. Which has created significant problems with safe operation of cannabis businesses, 

paying taxes, and crime. Problems which have been extensively documented. 

Only a change in federal rules governing cannabis or a change in federal rules governing banking can end 

this conflict of rules and the public safety hazards it creates. 

States are regulating cannabis businesses to prevent interstate movement of the products and keep the 

market within their state. Banks are heavily regulated to prevent the flow of illegal funds. Surely Congress 

and federal agencies can craft a pathway to allow cannabis industries to bank within their states and 

ensure that those funds do not create any potential external harms. Addressing those problems represents 

much less risk to public safety than does the current situation in which banking services are denied a multi 

billion dollar industry that is growing fast. 

The longer we wait to solve this problem the greater the risk and the more disruptive it is. 

Gina Elko 

houseofhemp252@gmail.com 

House of Hemp OBX 

P.O. Box 1131 

NC,27948 

We opened a retail location offering CBD products. Our community welcomed us and we are doing well. 

CBD is helping a lot of people with their ailments. We did have a credit card service in the beginning, but 

we're canceled, due to selling CBD. We now have to take cash only. It inconveniences ourcustmers and 

creates a risk for my staff. Smaller banks will provide CC service, but the rates are to high for business 

sustainability 

Matthew Friedlander 

skagitorganics@gmail.com 

Skagit Organics 

16915 State Route 20 Unit B 

WA, 98273 

We have less than five credit unions in Washington state that will open accounts for our business and they 

charge $1000 to open the account and $350 a month to maintain the account. lam unable to use banks to 

access a loan that would allow our business to purchase the real estate we are currently leasing and I am 

also unable to use the income from my business to qualify for a FHA loan or refinance loan for a personal 

residence. Please change the laws to allow business in the cannabis industry to have parity with all other 

legal businesses. 

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Michael Anderson 

nwgrownllc@gmail.com 

NWGROWN LLC 

8531 Postma Rd 

WA, 98936 

There are so many challenges of traceability, farming, weather, pests, transport. record keeping etc that go 

into this business. 

Having Federally legal banking for licensed businesses would be a great boost for all cannabis businesses. 

Monica Martinez 

monica@thecalyxco.com 

The Calyx Company 

484 Alderdale Rd Ste. B 

WA, 99350 

The banking system, where do I start? We have endure quite a bit because of this. The first thing to 

happen was to have the banks for our farm and my in-laws home (also owners) mortgage loans announce 

that we were in default on both loans be we are now owners in an i502 business. We had to figure out 

how to pay the loans or go into default and possibly lose their home and the farm!! Luckily, we were able 

to get the loans paid with in two years. It took EVERYTHING we had to get them paid off and have been 

left trying to catch up ever since. Especially when this industries market is continuing to go down every 

year, it has not been easy. Next would be our inability to get a loan for a new home. Our family has grown 

and we started looking at selling and moving, but we cannot be we cannot get a bank to lend to us. We 

are a family of 5 in a 1000 sq ft home. I pride myself on having excellent credit, but you wouldn't know it 

because it feels like we have the worst credit or are even criminals when it comes to trying to bank like 

"normal" people. Another one of our owners banks dropped her when they found out she was an i502 

owner and this same bank refused to cash our employees paychecks. Luckily we do now have a bank for 

our business. It is an hour from the farm, has a fee of $150/month to use it and is very limited. No ATM use 

or online app functions and they will not lend ANY money. But it is much better than no bank at all like 

when we first started. This is just what I can think of off the top of my head, I am quit sure there have been 

more negative situations that I cannot think of right now ... Thank you! 

AC Braddock 

acbraddock@edenlabs.com 

Eden labs 

Seattle, WA 98108 

Eden Labs is a 24 year old botanical extraction and distillation company that has worked in a multitude of 

industries such as; bio-fuels, flavorings, perfumes, natural products and liquor to name but a few. However, 

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because we also supply extraction equipment to the cannabis industry we have been labeled a "cannabis 

company" by financial institutions. This has caused Eden to lose a bank account and has caused 3 of our 

employees to go through a far more rigorous qualification process when applying for their home loans this 

past year. These are loyal hard working people and it pained me to hear of the added stress that had to 

endure by simply being employed by Eden Labs. 

To be clear, Eden Labs does not produce concentrates, yet our growth has been significantly inhibited by 

the inability to acquire the basic financial support any other small business requires from time to time 

including Lines of Credit and Short Term loans simply because of our arms length association with 

cannabis. Our business is in a state that has supported medical cannabis since 1996 and has had Adult 

Use legalization since 2012. At this point, the majority of states nationally have legalization primarily to find 

alternatives to opiates and other serious medical illnesses. 

On a national scale. It is a travesty that billions of US investment dollars are supporting a worldwide 

legalization movement for medical use while American businesses wallow unsupported, not by the 

populace, but by those who have taken an oath to represent them. The short term solution is 

congressional action on banking to provide the US industry a modicum of support to compete globally and 

to remove the regulatory burdens placed on the banking industry. This is the most bipartisan win-win 

Congress can act on this year. The polls are clear. 

The US should have been the global scientific and business leaders, but we are losing out to other 

countries on an issue being resolved at a snail's pace state by state. The scales have tipped. Please 

support our countries innovation and entrepreneurship now. 

Sean Caffrey 

sean.caffrey@pharmacannis.com 

PharmaCann 

Located in multiple states (IL, NY, MA) 

I was part of a small startup in CO from 2010-2015. When we first got our bank account shut down it was 

just about the same time that we actually started making money, so the cash started to pile up. On one 

occasion we were stalked and singled out by some predatory con artists. They somehow determined our 

excel energy account number, and knew that we were behind on our bills. They asked us to head to an 

address to take care of payment to avoid service interruption. I didn't check the address, I just went there 

with $20.000 in my 1999 Ford Windstar. I got to the address, and didn't see the excel office. Just as I am 

realizing the naive mistake I had just made, I saw four guys rolling up on the windstar, two on each side. I 

sped away as fast as that minivan could take me. 

All of the cash was stored on site, we paid employees in cash and took the withholdings down to denver 

ourselves, in cash. One budtender. stole another's paycheck, but we couldn't prove it so we cleaned 

house. 

One time the mechanic across the street from the dispensary asked me one morning, "What were you 

doing on the roof last night?" I wasn't on the roof. 

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In 2013 our cultivation was broken into by kids armed with handguns, they got in through the ventilation. 

They looked around for cash and didn't find any, so they just wrecked a bunch plants and left. If I had been 

in the building at the time, that story would have ended differently. 

Hope this helps, 

Sean Caffrey 

Etienne Fontan 

etienne@mybpg.com 

1440 4th St, ste D 

CA, 94710 

Berkeley Patients Group is a Berkeley-based, California state-licensed, locally authorized dispensary as 

well as the oldest, continuously operating cannabis dispensary in the country. We pride ourselves on 

having set the standard for responsible, compliant cannabis operations around the country. 

Since our founding in 1999, we have prioritized maintaining a safe operation following standard business 

practices, especially when it comes to cash handling. Federal laws have created an inconsistent, unstable, 

and at times dangerous situation. Regardless of our state compliance, we have been removed from well 

over 30 banking institutions. 

We seek and request to be treated like any other business with the rights and privileges that come with 

being recognized as a legitimate industry. It is the federal prohibition and financial roadblocks against 

cannabis that have kept us from achieving this goal. We encourage the committee to consider relief that 

will rid us and all legitimate cannabis businesses of these handcuffs so that we can ensure the industry has 

access to safe, sustainable banking solutions. 

Keith Cich 

keitchc<dlsunderstorm.com 

Sunderstorm LLC 

1146 N Central Ave 

Glendale, CA 91352 

I am a Stanford grad and former fixed income derivatives trader on Wall Street, now heading up finance for 

a licensed manufacturer in California. Our biggest security risk is cash: our delivery drivers are followed by 

thugs and vans broken into. and this problem is escalating. Lack of banking in a highly regulated state legal 

industry is a major cause of unwanted crime. Let's allow federal banking and turn this into a professional 

industry without crime, and reduce the risk that cannabis employees are robbed with significant exposure 

to physical harm. Also, this will improve the federal and states ability to monitor cannabis companies and 

collect taxes due them. Its a win-win. Do it now. 

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National Organization for the Reform of Marijuana Laws 

Contact: 

Paul Armentano 

Deputy Director 

NORML 

Paul@NORML.org 

Submitted to: 

1100 H Street, NW, Su,!e B30 

Washlrgton. D.C. 20005 

T ~02.483.5500 · F 2:}2.483.0057 

http ifr.mmt&g norml@rwrnl org 

The Consumer Protection and Financial Institutions Subcommittee 

Washington, DC 

February 13, 2019 

Testimony of Paul Armentano, Deputy Director: 

National Organization for the Reform of Marijuana Laws 

In Regard to: 

Challenges and Solutions: Access to Banking Services 

for Cannabis-Related Businesses 

My name is Paul Armentano and for the past two-and-one-half decades I 

have worked professionally in the field of marijuana policy. I have authored 

various books specific to the issue of cannabis policy, and my writing has 

been featured in over two dozen academic anthologies. I have testified on 

matters of cannabis policy before numerous state legislatures and federal 

agencies, as well as at various academic and legal symposiums. 

I hold a faculty position with The Lambert Center for the Study of Medicinal 

Marijuana and Hemp at Thomas Jefferson University in Philadelphia, and I 

currently serve as the Deputy Director for the National Organization for the 

Reform ofMarijuana Laws (NORML). Since its founding in 1970, NORML 

has served as an advocate for those who believe that the use of cannabis by 

responsible adults should not be subject to criminalization. NORML further 

believes that a regulated, above-ground marijuana market -- rather than the 

perpetuation of a criminal underground market -- best mitigates potential 

risks associated with cannabis use and sales. 

1 
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to legalize responsible adult use ... 

National Organization for the Reform of Marijuana Laws 1iCO H Street, NVV, Su.:e 830 

Wastnr-gton. D.C. 20005 

T 202.4835500 F 2J2 483.0057 

Ntp ilrorrntorg norrnl@norml.org 

I wish to thank the members of this Subcommittee for holding this hearing to 

discuss strategies to facilitate greater financial transparency in the legal 

cannabis industry and retail market. 

To date, nine states1 - Alaska, California, Colorado, Maine2

, Massachusetts, 

Michigan3, Nevada, Oregon, and Washington- permit retail sales of 

recreational marijuana to adults. According to data4 compiled by the Institute 

on Taxation and Economic Policy, tax revenues in 2018 derived from statesanctioned recreational sales surpassed $1 billion a 57 percent increase 

over 2017levels. Annual excise tax revenues on adult-use cannabis sales in 

these states ($1.04 billion) rivaled those for all forms of alcohol ($1.16 

billion). 

These tax revenues indicate the significant and exponentially growing size 

of the legal, retail recreational cannabis market in the United States. In 

coming years, this legal market is only going to increase in size, as 

additional states enact similar cannabis regulatory and taxation schemes 

governing the adult use marijuana market. 

Yet there remains one significant hurdle facing players and consumers who 

participate in this market. Almost none of these licensed businesses 

operating in this increasingly lucrative space can legally obtain a bank 

account, process credit cards, or take standard business deductions on their 

federal taxes. This is because federal law continues to inappropriately define 

all marijuana-related endeavors as criminal enterprises, including those 

commercial activities that are licensed and legally regulated under state 

laws. 

1 Although both Vermont and the District of Columbia permit adults to legally possess 

marijuana, neither jurisdiction regulates retail cannabis sales. 2 Retail adult use sales have yet to begin in Maine. 3 Retail adult usc sales have yet to begin in Michigan. 4 Institute on Taxation and Economic Policy, 2019. Taxing Cannabis: 

https:! /itep.org/taxing-cannabisl?fbclid= I w ARODU f48AoHQ9J7y8l EDxjiA XdzssOXJSvJmjn!Y_cl_E:8UR9BE3zuN-SOsM 

2 
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National Organization for the Reform of Marijuana Laws 1~GD H Stree-:, NW, Su.te 830 

wasnir..gton. D.C. 20005 

T 202.483.5500 F 2J2.4a2.0057 

http·/fnormL.org -norml@norml org 

In short, federal lawmakers are mandating that this rapidly growing multibillion dollar industry operate on a cash-only basis- an environment that 

makes businesses more susceptible to theft and more dit1icult to audit. It also 

places the safety and welfare of these businesses' customers at risk, as they 

must carry significant amounts of cash on their persons in order to make 

legal purchases at retail facilities. Similarly, it needlessly jeopardizes the 

safety of retail staffers, who are susceptible to robbery. 

Good faith efforts taken by the Obama administration to address this 

situation have thus far failed to adequately do so. Specifically, in 2014, the 

US Department of Treasury issued guidelines5 for financial institutions 

seeking to provide services to state-licensed cannabis businesses. Yet, 

according to the latest data compiled by the US Treasury Department's 

Financial Crimes Enforcement Network (FinCEN), fewer than 500 financial 

institutions nationwide are actively providing services to the thousands of 

existing cannabis-related businesses.6 

For an industry seeking legitimacy and requiring transparency, the inability 

to obtain banking and credit access remains a primary, but unnecessary, 

roadblock. In order to truly bring the marijuana industry out of the shadows, 

actions need to be taken by Congress to amend these outdated and 

discriminatory practices. Legislation seeking to address this issue in the 

115th Congress garnered 95 House co-sponsors. Yet it failed to receive 

either a committee hearing or a vote. This federal inertia must end. 

In short, no industry can operate safely, transparently, or effectively without 

access to banks or other financial institutions and it is self-evident that this 

industry, and those consumers that are served by it, will remain severely 

hampered without better access to credit and financing. Ultimately, Congress 

must amend federal policy so that these growing numbers of state-compliant 

5 https://wVvw.scribd.com/document/207174093/Marijuana-Business-Guidance 

6 FinCEN. 2018. Marijuana Banking Update; 

bttps://wVvw.fincen.gov/sites/default/files/sharcd/Marijuana Ban)dng Update September 

2018.pdf 

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National Organization for the Reform of Marijuana Laws 1i00 H Strae:, NW, Su :e 830 

Washirgton, D.C. 20005 

T 202.483.5500 F 2::12 483.0057 

hltp./!~orml.org norml@norml erg 

businesses, and those millions of Americans who patronize them, are no 

longer subject to policies that needlessly place them in harm's way. 

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REINSURANCE 

ASSOCIATION 

OF AMERICA 

1445 New York Avenue. NW 

7th Roor 

Washington, D.C. 20005 

202/63&3690 

www.reinsurance.org 

STATEMENT FOR THE RECORD 

U.S. House of Representatives 

Committee on Financial Services 

Subcommittee on Consumer Protection and Financial Institutions 

Hearing on "Challenges and Solutions: Access to Banking Services 

for Cannabis-Related Businesses" 

Wednesday, February 13,2019 

The Reinsurance Association of America (RAA) submits the following 

comments relating to today's hearing. The RAA is a national trade 

association representing reinsurance companies doing business in the 

United States. RAA membership is diverse, including reinsurance 

underwriters and intermediaries licensed in the U.S. and those that conduct 

business on a cross border basis. The RAA also has life reinsurance 

company affiliates. 

The RAA appreciates the Committee's interest in legislation that would 

create protections for depository institutions that provide financial services 

to cannabis-related legitimate businesses. The use of medicinal marijuana 

has been approved in 33 states and the District of Columbia, and eleven of 

those states have also approved recreational use. Given this growing trend, 

the RAA believes that the Committee's review of the extent to which 

services to legitimate cannabis-related businesses should be permitted is 

timely and appropriate. 

The Committee's consideration should not be focused solely on banking 

services, however. The RAA requests that the Committee include in the 

legislation similar protections (see attached) for persons engaged in the 

business of insurance, including reinsurance. As with any business, 

cannabis-related legitimate businesses require insurance products and 
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services to protect their business. Given the changes in state law in this area, demand for insurance 

products and services for cannabis-related activities and losses has increased. Legitimate 

cannabis-related business includes medical/recreational dispensaries, manufacturers, growers, 

delivery, transportation, landlords, laboratories/testing, as well an ancillary business that support 

such activities. Like federal depository institutions, insurers today are limited in their ability to 

engage in the business of insurance in connection with a cannabis-related legitimate business given 

federal laws designating cannabis as a Schedule I drug under the Controlled Substances Act and 

making its possession, distribution, and sale a punishable offense under federal law. 

Interest in this market is not driven solely by perceived business opportunities. Federal depository 

institutions, federal programs, and federal law require borrowers to secure property casualty 

insurance, like flood insurance offered by the National Flood Insurance Program, for a business 

and its property. Many states also require employers to have workers compensation and other 

kinds of insurance. In at least one state where medicinal marijuana use has been approved, a court 

has ruled that insurers are obligated to provide medical marijuana under workers' compensation 

policies. In addition, states are beginning to consider (and, in California, implement) regulatory 

requirements that increase the demand for insurance products in this area. 

For these reasons, the RAA appreciates the Committee's consideration of this request and looks 

forward to working with the Committee on legislation that also would create protections for 

entities engaged in the business of insurance in connection with a cannabis-related legitimate 

business. 

2 
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Safe and Responsible Banking Alliance 

Becky Dansky, Executive Director 

Testimony for the Hearing Record 

House Financial Services Subcommittee on Consumer Protections and Financial Institutions 

"Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses" 

February 13, 2019 

Chairman Meeks, Ranking Member Luetkemeyer, and members of the Committee: 

Thank you for the opportunity to provide testimony on access to banking services in the 

cannabis industry. I represent the Safe and Responsible Banking Alliance (SARBA), a coalition 

of financial institutions, associations, governments, and business groups advocating for a 

solution to federal cannabis banking prohibitions. We advocate for legislation to eliminate civil 

and criminal risk for financial institutions and businesses involved in the lawful sale of cannabis 

and related products in states and tribal lands where sales are legal. 

Today, we are proud to speak in support of the Secure and Fair Enforcement (SAFE) Banking 

Act, a bipartisan, bicameral bill that would rightfully protect financial institutions, ancillary 

business, and consumers engaged in legal cannabis-related transactions. The SAFE Banking 

Act would address many of the key problems associated with the cannabis industry's lack of 

access to financial institutions, and would help bridge the disconnect between state and federal 

law. 

Public Safety 

When cannabis-related businesses cannot utilize traditional banking services, major public 

safety issues arise. Because those involved in the cannabis industry are denied access to 
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financial institutions, they are forced to operate and purchase using cash alone, making the 

businesses and individuals involved in the industry attractive targets for criminals. An industry 

that banks almost exclusively in cash poses obvious public safety dangers, including an 

increase in violent crimes. 

Communities will be safer if cannabis-related funds can be electronically-transferred and 

deposited in regulated financial institutions. Yet our current laws make this nearly impossible. 

The SAFE Banking Act would change this by allowing financial institutions to engage the 

cannabis industry and give those involved secure alternatives to cash operations. This will mean 

less unregulated cash in the streets and fewer associated crimes. 

Institutional Risk 

The SAFE Banking Act will improve conditions not only for the public, but for financial 

institutions as well. Even in jurisdictions where cannabis is legal, financial institutions face the 

potential for risk because funds involved in cannabis transactions are considered illegallygained by federal regulators and law enforcement officers. This makes it far less likely that 

banks will engage in the industry, provide loans to cannabis and ancillary businesses, and to 

provide accounts for individuals who are paid from cannabis-derived funds- everyone from the 

horticulturist that tends the plants to the plumber who runs the water lines. 

Financial institutions are further disincentivized by the lack of clarity surrounding cannabis laws. 

Federal law paints any dollar that flows through the cannabis industry as tainted, but such broad 

brush strokes provide little certainty to financial institutions. Financial institutions may feel 

compelled to cancel the account of someone who works in the cannabis industry. All depository 

institutions have to consider how to handle an individual's cash deposits that may have at some 

time been involved in a legitimate cannabis related transaction. Such dilemmas reveal the 

- 2-
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broad reach of the cannabis industry'. Under current federal law, banks interacting with these 

customers are at risk. Financial institutions cannot help but be exposed to potential 

consequences, because the cannabis industry is intertwined with so many other legitimate 

businesses that support the burgeoning marijuana industry. 

The SAFE Banking Act is critical to addressing a significant area of the risk owed to the 

inescapable coming ling of cannabis related funds with ancillary business and individual 

accounts. By clarifying federal cannabis regulations, including money laundering issues and 

Suspicious Activity Reports (SARs), the SAFE Banking Act would make it much safer for 

financial institutions to process cannabis-related transactions. 

Small Business & Minority Access 

The SAFE Banking Act would do more than simply destigmatize the industry-it would increase 

access to capital among demographics that have been disproportionately disadvantaged by the 

federal prohibition of cannabis. The bill would allow financial institutions to provide small 

business loans for cannabis-related business- loans which could be considered illegal under 

current law. In effect, this ban has barred those with the least access to capital, often minorities, 

from becoming involved in and profiting from the industry. 

Furthermore, many states prohibit anyone with even a minor marijuana arrest on record from 

participating in the regulated legal marijuana business. Minorities are disproportionally 

represented in marijuana arrests; despite equal drug use rates, African Americans are· almost 

1 In Washington state, the legal marijuana industry is responsible for 15,600 jobs, with related jobs 

estimated at an additional 6,100 according to Arcview Market Research. 

- 3-
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four times more likely to be arrested for marijuana than their white counterparts2 . This economic 

disadvantage, compounded with disproportionate arrests, puts minorities at a significant 

disadvantage in this emerging industry. The SAFE Banking Act would address this by allowing 

banks to give out small business loans legally, thereby somewhat leveling the playing field and 

increasing opportunities for minority representation in the industry. 

The SAFE Banking Act would a·lso help create space for more women in leadership roles in the 

cannabis industry. The percentage of women holding executive positions in cannabis 

businesses is higher than the average across larger U.S. businesses: 36% in the cannabis 

industry versus 23% overall 3 . Because this is a new, rapidly-expanding industry4 , there is 

promise that a broader range of individuals can be successful in this field. The SAFE Banking 

Act will expand this access by crediting women and minorities with small business loans, 

presenting financial institutions with a unique opportunity to lift up communities that are 

historically disadvantaged. 

Patient Access 

A final problem addressed by the SAFE Banking Act is that of patient access. There is no 

insurance plan that covers medical marijuana, forcing patients and caregivers to pay out of 

pocket. Compounding this significant financial strain is the fact that these are almost exclusively 

cash transactions, because credit or debit cards-including HSNFSA cards and accountscannot be used in cannabis-related transactions. Families are thus forced to choose between 

2 ACLU: Marijuana Arrests By The Numbers 

3 Marijuana Business Daily: Women and Minorities in the Marijuana Industry 

4 From July 2017to July 2018, marijuana retail sales totaled $972,527,246 according to the Washington 

State Liquor and Cannabis Board. 

-4-
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coming up with large sums of cash each month and forgoing other basic needs, or going without 

necessary medication. The SAFE Banking Act would help eliminate this impossible choice by 

opening up financial services to the cannabis industry and reducing the price of medical 

marijuana, which is disproportionately high due in part to a lack of banking access. 

Conclusion 

The SAFE Banking Act is not proposing mass legalization, nor does it make any normative 

statements about cannabis use. It would not even require financial institutions to work with 

cannabis related businesses. Rather, it follows the laws already set by states- 33 of which 

already allow legal marijuana sales for medical or personal use. The SAFE Banking Act will 

increase the ability of financial institutions and services to legally operate in this space, with 

positive impacts on public safety, institutional risk, small business and minority access, and 

patient access. In jurisdictions where cannabis transactions are in compliance with state laws, it 

only makes sense for federal financial regulations to follow suit. 

Thank you for the opportunity to provide this testimony. For additional information on our work, 

please visit www.banksafe.org. 

Becky Dansky 

Executive Director 

Safe and Responsible Banking Alliance 

bdansky@banksafe. org 

-5-
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THFScottsMiracle·Gro COMPANY 

CorporatP Aff,1irs 

Officer 

February 12, 2019 

The Honorable Gregory W. Meeks 

Chair- Subcommittee on Consumer Protections & Financial Institutions 

U.S. House Committee on Financial Services 

2129 Rayburn House Office Building 

Washington, DC 20515 

14111 Scottslawn Road 

Marysville, OH 43041 

p 937.644,0011 

RE: Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses Hearing 

Dear Chairman Meeks, 

I am writing regarding the upcoming hearing of the Subcommittee on Consumer Protection and 

Financial Institutions titled "Challenges and Solutions: Access to Banking Services for CannabisRelated Businesses." 

The ScottsMiracle-Gro Company is the quintessential American business. Established in 1868 in 

Marysville, Ohio, the ScottsMiracle-Gro name is synonymous with America's love for lawns and 

gardens. We are also a leader in the evolution and emergence of indoor and greenhouse gardening 

through our subsidiary, The Hawthorne Gardening Company. 

With approximately 6,000 associates at more than 65 U.S. locations in 26 states, ScottsMiracle-Gro 

has small and large manufacturing plants that create products for American consumers. The vast 

majority of our business is based on a wide range of products for lawn and garden care. However, 

we are also the country's largest manufacturer of hydroponic growing systems, nutrients, lights, 

filters and components for indoor growing. These products can be used to nurture a wide variety of 

plants, including cannabis. Our hydroponic division is expected to generate revenue this year of 

approximately $600 million, or about 20 percent of company-wide revenue. 

While ScottsMiracle-Gro does not directly participate in the U.S. cannabis industry, this rapidly 

growing and critical business unit is nonetheless impacted by the existing conflict between federal 

and state laws. Our concern is particularly acute when it comes to our relationships with our 

banking partners. We know that state-law-authorized cannabis cultivators are among those who 

use our products to grow their crop. However, we are unable to sell equipment to them directly 

because of the current banking rules. In order to satisfy our banks' compliance requirements and 

maintain our banking relationships, we are required to use a costly two-step distribution process to 

serve these end customers. 
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ScottsMiracle-Gro 

Page 2 

We share these experiences to help the committee understand the vast implications and 

challenges to the current system. While the committee may hear from many cannabis companies, 

we also want to highlight the inefficiencies ScottsMiracle-Gro faces as a provider to this industry. 

We applaud the Committee for taking the time to learn more about the challenges of this current 

arrangement and encourage you to examine the many different aspects of this banking issue 

during your evaluation of the topic, including the needs of ancillary companies like ScottsMiracleGro. We also thank Congressmen Perlmutter, Heck, Stivers and Davidson for their leadership on 

this important issue through their work on the SAFE Banking Act and look forward to additional 

discussion on this measure as a means to address concerns raised in this letter. 

As an American company with over 150 years of business experience, we have many unique 

insights about this emerging industry and would be happy to share those perspectives as the 

Committee continues to learn more and develops solutions to address this issue. 

Thank you for your attention to this matter. 

Cc: The Honorable Ed Perlmutter, US House of Representatives 

The Honorable Denny Heck, US House of Representatives 

The Honorable Steve Stivers, US House of Representatives 

The Honorable Warren Davidson, US House of Representatives 

Established In 1868, M<lrysville, OH 
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January 16, 2018 

Hon. Paul Ryan 

Speaker of the House 

H-232, The Capitol 

Washington, DC 20515 

Hon. Mitch McConnell 

Majority Leader 

317 Russell Bldg 

Washington, DC 20510 

Bon. Kevin McCarthy 

Majority Leader 

H-107, The Capitol 

Washington, DC 20515 

Hon. John Cornyn 

Majority Whip 

517 Hart Bldg. 

Washington, DC 20510 

Hon. Mike Crapo 

Chair 

Senate Committee on Banking, 

Housing & Urban Affairs 

534 Dirksen Senate Building 

Washington, DC 20510 

Dear Congressional Leaders: 

Hon. Nancy Pelosi 

Minority Leader 

H-204, The Capitol 

Washington, DC 20515 

Bon. Charles E. Schumer 

Minority Leader 

322 Hart Bldg. 

Washington, DC 20510 

Hon. Steny Hoyer 

Minority Whip 

1705 Longworth Office Building 

Washington, DC 20515 

Hon. Richard J. Durbin 

Minority Whip 

711 Hart Bldg. 

Washington, DC 20510 

Hon. Sherrod Brown 

Ranking Member 

Senate Committee on Banking, 

Housing & Urban Affairs 

534 Dirksen Senate Building 

Washington, DC 20510 

We are a bipartisan group of state attorneys general who recognize that the states and federal 

government share a strong interest in protecting public safety and bringing grey market activities 

into the regulated banking sector. To address these goals, we urge Congress to advance 

legislation that would allow states that have legalized medical or recreational use of marijuana to 

bring that commerce into the banking system. 

Twenty-nine states and several U.S. territories have legalized the medical use of marijuana. 

Among those, eight states and the District of Columbia, also allow recreational use by adults 

over 21 years of age. However, because the federal government classifies marijuana as an illegal 

substance, banks providing services to state-licensed cannabis businesses could find themselves 

subject to criminal and civil liability under the Controlled Substances Act and certain federal 

banking statutes. This risk has significantly inhibited the willingness of financial institutions to 

provide services to these businesses. 
304 


Insert offset folio 246 here 35631.246

Despite the contradictions between federal and state law, the marijuana industry continues to 

grow rapidly. Industry analysts report that sales grew by 30% to $6.7 billion in 2016 and expect 

those totals to exceed $20 billion by 2021. Yet those revenues often exist outside of the regulated 

banking space. Businesses are forced to operate on a cash basis. The grey market makes it more 

difficult to track revenues for taxation purposes, contributes to a public safety threat as cash 

intensive businesses are often targets for criminal activity, and prevents proper tracking of large 

swaths of finances across the nation. 

To address these challenges, we are requesting legislation that would provide a safe harbor for 

depository institutions that provide a financial product or service to a covered business in a state 

that has implemented laws and regulations that ensure accountability in the marijuana industry 

such as the SAFE Banking Act (S. l 152 and H.R. 2215) or similar legislation. This would bring 

billions of dollars into the banking sector, and give law enforcement the ability to monitor these 

transactions. Moreover, compliance with tax requirements would be simpler and easier to 

enforce with a better-defined tracking of funds. This would, in tum, result in higher tax revenue. 

Prior Department of Justice guidance outlined how financial institutions could provide services 

to state-licensed marijuana businesses consistent with their obligations under federal law and 

created some space for the banking industry to work with those businesses, though challenges 

remained in many areas. The recent rescission of that guidance has made the need for 

Congressional action to get the cash generated by this industry into a regulated banking sector 

even more urgent. 

Our banking system must be flexible enough to address the needs of businesses in the various 

states, with state input, while protecting the interests of the federal government. This includes a 

banking system for marijuana-related businesses that is both responsive and effective in meeting 

the demands of our economy. We look forward to working with you as you move forward in this 

process and lending our voice and expertise as you develop legislation. 

Sincerely, 

a Lindemuth 

Alaska Attorney General 

D@YLL 

Hawaii Attorney General 

£¥ 

California Attorney General 

~ ~'~t:'~~:X:'m'' Grn&,, 

~'iJn: Ste~~ PLfM 

North Dakota Attorney General 
305 


Insert offset folio 247 here 35631.247

George Jepsen 

Tli:~ Illinois Attorney General 

2~~~ 

Maine Attorney General 

M,~fj Massachusetts Attorney General 

Eric 

~1~ T. Schneiderman 

New York Attorney General 

Josh 

~~ Shapiro 

Pennsylvania Attorney General 

M-tw.F~-

Robert W. Ferguson 

Washington Attorney General 

Elizabeth Barrett-Anderson 

Guam Attorney General 

~~ 

Tom Miller 

Iowa Attorney General 

~;;;;f~ Brian Frosh 

Maryland Attorney General 

~~ Hector Balderas 

New Mexico Attorney General 

~'-?,--;:___~ 

knen F. Rosenblum 

Oregon Attorney General 

/i/;fYJ { (1-

T.J. Donbva~/ V crrnont Attorney General 
306 


Insert offset folio 248 here 35631.248

The I Ionorahk Edwin Perlmutter 

U.S. House of Representatives 

1226 Longworth !louse O!tice Building 

Washington, DC 20515-0607 

rhe Honomhle Dennis Heck 

U.S. House of Representatives 

2452 Rayburn House Oflicc Building 

Washington. DC 20515-4 710 

February 12,2019 

Dear Congressman Perlmutter and Congressman Heck, 

s 

On behalf of Surterra Wellness. T am writing to express our strong supp01t l\H· legislation you have 

introduced to enable tederally insured depositories to bank with legitimate cannabis businesses. as 

defined by your bilL 

Surterra is among the largest cannabis operators in the country. We han~ licenses in Florida and T~Cxas 

and expect to have an established retail presence in Nevada and Massachmetts by the close of Ql. 

pending ceria in regulatory appro\als. Curremly, we employ 600 indi\ iduals. lf Pur growth continues 

on a year-mer-year basis and our estimates are accurate. we will employ over 2.000 indi\ iduals by the 

close of2019. 

Access 10 banking services is the heart of any successful and legitimate US business. We must have 

reliable banking relationships to safeguard the cash thai comes in the door. to enable our employees to 

get direct to contract ;;ith payroll service providers, to secure real cstalc. to get 11 bank loan to 

grow our and to contract with any other basic servict:" p!"t..1viders (snow removal, cleaning 

crews. etc.). These relationships must be grounded in the dependability and certain!~ that an; other 

Li .S. business 

-'-"'-""-"''L~"-"'-"-'-""'""'"''-"'"-''''""""''" lmpm1antly. the bill doc,; not mandate that any bank take deposits 

legitimate business or provide an~ other services. The bill 

financinl institutions the that if they do choose to rake money Ji·om such businesses. arc 

not at risk of n:gulatory or eu!(xcemcnt actions simplv fiJr undcrtakin!-! the relationship. 

of I he bill have intimated that there arc hanks willing to do business with Surtcrra 

our competitors. Opponents oft he bill hm e that the number of banl-.s willing tG engage 

us is growing. However. this is not our experience. In c\ur experience. bankin!-! relationships are 

uncenain and subject to f(xces outside of our performance as client. Our last relationship was 

terminated on short notice because our bank had submitted a merger applicalion and heard from their 

regulator that they \\Ould hme to terminate all cannabis customers bcJ(,re the application could be 

considered. Indeed. in Florida last year we sal\ a large hank terminate relationship \Yith a state-wide\ 

candidate because she had accepted contributions ti·om cannabis operntors. All of this despite the fact 

that with 71% of the 
307 


Insert offset folio 249 here 35631.249

in 2016. We suspect those who contend that a number of banks arc working with the cannabis 

industry are misinterpreting raw data from \\ hich shows not only Suspicious Activity RepOJis 

(SAR)s liled by banks who work with operators, but also SARs related to proceeds activity. individual 

who du not "touch the plant'' 

Smierra strongly suppotis the legislation which you have introduced. We believe the bill is improved 

oYer the previous version by addressing the critical issue " This language will glve not 

only c1ur bank partners certainty. but also om service-providers and their bank partners. 

We look l(Jlward to the Committee's consideration of this bill and encourag'e both the Committee and 

the House of Representatives to pass it expeditiously. 

Sincerely, 
308 


Insert offset folio 250 here 35631.250

The Honorable Maxine Waters 

lJ.S. House ofRcpresentatives 

2221 Rayburn House Of!ice Building 

Washington. DC 20515-0543 

The Honorable Patrick McHenry 

U.S. House of Representatives 

2004 Rayburn House Office Building 

Washington. DC20515-33!0 

Felwuary 12, 2019 

The llonorablc Gregory f'v'lceks 

U.S. H.ouse of Representatives 

2310 Raybum House Otllcc Building 

Washington. DC 20515-3205 

The Honorable \V. Blaine Luetkemeyer 

U.S. House of Representatives 

2230 Rayburn I louse Oftlce Building 

Washington. DC 20515-2503 

Dear Chairman \Vater:;. Chainnan iVkcks. Ranking Member McHenry. and Ranking Member 

Luetkemeyer: 

'"The 

for how banks can permissibly services the cannabis industry."··~ John 

Vardamau. Exccutirc Vice President and Genera! Cowzse! (~( !fypur. 

Inc .. andfimner Justice Department Official 

.. -Julie 

Robinson. S'enior Vic<' Preside/11 and Compliance Risk Jfanager. Rirer 

Citv Dank 

On behalf of SurteiTa Wcllness (Surtc'rTa). I appreciate the te:;tinwny for the 

record of the hearing: Snluti,ms: Access to Banking l(lr Cannabis-Related 

!VIy name is James vVhitcomb. and I am the Chief Financial OHiccr ofSurtcrra \Vellness. 

Surtcrra is among the largest cannabi> operators in the country We have licenses in Florida and Texas 

and expect to have an established retail presence in Nc\·ada and Massadm:;etts by the close of Ql. 

pending certain regulatory approvals. Currently. we employ 600 individuals. !four grmvth continues 

on a vear-over-year basis and our estimates are accurate. we will employ 0\ er 2.000 individuals the 

close of20l9. Kuowing ofthe Committccos ofthc of 

of our workforce is female: 40.5% of our workforce arc non-gender specitlc minorities: and 

additionally. 8.2% of our workforce are military veteraus. 

Surterra is pleased to see the Committee examining this important issue of nccess to banking service~ 

f(1r the cannabi:; industry. The two quotes at the top of my statement. the tcusion in our currclll 

regulatory environment and why. in our opinion, we and the "hom V\e secure basic 

business services nre in nn untenable situation. 
309 


Insert offset folio 251 here 35631.251

s 

Cannabis is fblly legalized in 10 states.' Medical cannabis programs exist in 23 srates2 CBD-only 

products arc legal in 13 states3 and Nchraska has decriminalized cannabis vvithout a 

program. Only Idaho. Kansas. Nebraska aud South Dakota do not have cannabis programs. Until 

recently. the United States (US) Department of Justice (DOJ) altered their policy around the Cole 

Memorandum putting at risk our patients, our employees, and our business-services providers. It this 

last point that is at the heart of this hearing and the legislation that we hope the Committee will 

considered and approYe in the near future. 

Access to banking services is the heatt of any successful and legitimate US business. We must have 

reliable banking relationships to safeguard the cash that comes in the door. to enable onr employees to 

get direct deposit. to contract with payroll service providers. to sccnre real estate. to get a bank loan to 

grow our business. and to contract \\ ith any other basic service providers (sno" removal. cleaning 

cr-e\\s. etc.). These relationships must be grounded in the and ce1iainty that any other US 

business 

""''-''"'''"'''''legitimate business or provide any other services. The bill simply 

giYes tinancial instillltions the certainty that if they do choose to take money from such businesses. 

they are not at risk of regulatory or criminal enJ(}rcement actions simply for undertaking the 

relationship. 

FinCE~ has issued guidance related to banking cannabis-related legitimate businesses and they should 

be commended for not altering (or eliminating) their guidauce in the face rescission of the Cole 

lVlcmorandum. but the mere fact that a change of heart (or personnel) at the DOJ could undo the will 

of mill ions of voters and thousands of state legislators high! ights the need f()r a federal solution. Indeed. 

a federal solution and clarity surTmmding banking issues is an urgent public safety issue fix (at least) 

three reasons: 

Large amounts pfcash >.:an 1nake cannabis businesses. their employees. and their custmners 

prime targets and victims of violent crime: 

State and local government that collect taxes and fcc payments in cash !!·om the 

cannabis industry incur expenses, demands on staff time. and risks to employee 

safety; and 

Normal access to 

or the shado" s and 

economJ 

services is an essential part of taking I he cannabis industry out 

it as a transparent. regulated, and tax-paying pan t'f tile· 

1 Alaska, California, Colorado, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, and Washington. 

2 Arkansas, Arizona, Connecticut, Delaware, Florida, Hawaii, Illinois, Louisiana, Maryland, Minnesota, Missouri, 

Montana, New Hampshire, New Jersey, New Mexico, New York, North Dakota, Ohio, Oklahoma, Pennsylvania, 

Rhode Island, Utah, and West Virginia. 

3 Alabama, Georgia, Indiana, Iowa, Kentucky, Mississippi, North Carolina, South Carolina, Tennessee, Texas, 

Virginia, Wisconsin, and Wyoming. 4

"State Medical Marijuana Laws." National Conference of State Legislatures. February 11, 2019. Last accessed on 

February 12, 2019: http://www .ncsl.org/ research/hea!th/state-medical-marijuana-laws.aspx. 
310 


Insert offset folio 252 here 35631.252

Banking relationships can help law ent<1rcement officials and regulators distinguish between 

businesses and illegal ones-' According the State of California 

Memorandum and the FinCEN guidance constitute a reasonable roadmap for how banks can 

permissibly service the industry. but they cannot be considered a sate harbor." 

Opponents of the bill have intimated that there arc many banks willing to do business with Smierra 

and our competitors. Opponents of the bill have intimated that the number of banks willing to engage 

us is Ho\\·cvcr. this is not our experience. In our experience. banking relationships arc 

uncertain subject to forces outside of our performance as a client. Our last relationship was 

terminated on short notice because our bank had submitted a merger application and heard from their 

regulator that vvcmld hav·c to terminate all cannabis customers before the application could be 

considered. in Florida last year we saw a large hank tem1inate a relationship with a state-wide 

candidate because she had accepted contributions from cannabis operators. AI! of this despite the !act 

that Florida's Amendment 2. "hich created our medical cannabis regime, passed "ith 71% of the vote 

in 2016. We suspect those who contend that a large number of banks arc working with the cannabis 

industry arc misinterpreting raw data from FinCloN which shows not only Suspicious Activity Repo11s 

(SAR)s filed by banks who work with operators. hut also SARs relmed to proceeds activity. individual 

inYestors \vho do not plane as 

Smierra strongly srrpports the legislation which has been reintroduced by Congressmen Perlmutter and 

Heck. We beliew the bill is improved over the previous version hy addressing the critical issue of 

"""".,,,,.,, .. This language will give nor only our bank partners ce1iainty. but also our service-providers 

and their bank pm1ners. While tlw bill docs not allow us to access capital markets. provide a pathwa~ 

to accessing insurance markets or us access to payment rails. it is a critical step in enhancing 

accessibility tc1r our patients, for our and cenainty for our business. \Vc urge the 

Committee to move expeditiously to report the bill to the full House. Surterra ofters to be a 

resource to any and all VI embers of Congress who have questions about this quickly evolving cannabis 

business in the US. 

We appreciate the opportunity to submit this statement and thank you f(lr your consideration. 

5 "Banking Access Strategies for Cannabis-Related Businesses: A Report from the State Treasurer's Cannabis 

Banking Working Group." Executive Summary. November 7, 2017.last accessed on February 12,2019: 

https:Uwww. treasu rer.ca.gov /cbwg/resou rces/reports/110717 -cannabis-report. pdf. 

6 /bid. Page 7. 
311 


Insert offset folio 253 here 35631.253

February 12,2019 

Chairwoman Maxine Waters 

United States House Committee on Financial Services 

2129 Rayburn House Office 

Washington, D.C. 20515 

House Committee on Financial Services 

House 

Washirtgtoo,D.C. 20515 

Chairwoman Waters: 

Madam Chair, as you are aware, more than two thirds of our states have rec,OgJ1lZl~d 

and the benefits of medical cannabis. Despite the number of states rec·ognize 

use of legal medical cannabis, most companies are from banks to 

deposits, their to the state, local, and federal governments. Often, 

employees no choice of but to carry large sums of cash that could 

make them easy targets for critninals. 

Trulieve, Inc. 

3494 Martin Hurst Road, Tallahassee, Florida 32312 
312 


Insert offset folio 171 here 35631.171

FLORIDA DEPARTMENT OF AGRICULTURE AND CONSUMER SERVICES 

CoMMISSIONER NrcoLE "NrKKl' FRIED 

THE CAPITOL 

February 13,2019 

U.S. House Committee on Financial Services 

2129 Rayburn House Office Building 

Washington, DC 20515 

Dear Chairwoman Maxine Waters and Ranking Member McHenry, 

On behalf of Florida's farmers, our medical marUuana professionals, and consumers, I want to 

thank you for your efforts to provide the cannabis industry access to traditional banking and 

express my strong support for the Secure and Fair Enforcement Banking Act (H.R. 2215). 

Conflicting guidance from the federal government has unnecessarily led to a higher level of risk 

and hurdles for businesses in this emerging market. This is an issue that affected me personally -

while running for this office, our campaign had two bank accounts closed due to my advocacy 

for medical marijuana access and cannabis. The absence of traditional banking services forces 

state-licensed businesses to resort to all cash operations, which is inefficient and a public safety 

concern. Businesses can't operate proficiently with irregularities restricting their growth, 

stability, and the ability to pay bills, rent, and employees, when their accounts are inevitably 

closed. This is an issue impacting our state and national economy. 

One of the important provisions of the recently signed 2018 Farm Bill (the Agriculture 

fmprovement Act of2018) is the relisting of hemp as an agricultural commodity. But without 

congressional action, continued confusion and misinformation regarding hemp could discourage 

financial institutions from partnering with our farmers on this new commodity. 

The Secure and Fair Enforcement Banking Act (H.R. 2215) is a strong first step in providing 

legitimate cannabis related and state-licensed farmers, business, and consumers "1\<ith access to an 

efficient and safe banking system, and traditional loans and capital markets. 

,,,,,... ,.-

~ 

'(;!'~~ Nicole Fried 

Commissioner of Agriculture 

_____ f~~-------------------------------------------- Florlda. 1-800-HELPFLA (850) 617-7700 www.FreshfromFiorida.com 
313 


Insert offset folio 255 here 35631.255

~ 

~ Congressional Research Service 

Informing the legislative debate since 1914 

Statement of 

David H. Carpenter 

Legislative Attorney 

Before 

TESTIMONY 

Committee on Financial Services 

Subcommittee on Consumer Protection and Financial Institutions 

U.S. House of Representatives 

Hearing on 

11Challenges and Solutions: Access to Banking 

Services for Cannabis-Related Businesses" 

February 13,2019 

CRS TESTIMONY 

Congressional Research Service 

7-5700 

www.crs.gov 

Prepared for Congress----------------------------
314 


Insert offset folio 256 here 35631.256

Congressional Research Service 

Introduction 

Chaitman Meeks, Ranking Member Luetkemeyer, and Members of the Subcommittee, my name is David 

Carpenter, and I am a legislative attorney at the Congressional Research Service (CRS). Thank you for 

inviting me to testify on behalf of CRS on access to banking services for marijuana-related businesses. 

My testimony provides a brief overview of how marijuana is currently regulated under the federal 

Controlled Substances Act. It then discusses the legal obligations of financial institutions under the Bank 

Secrecy Act and federal anti-money laundering laws, and the potential legal risks associated with 

providing financial services to entities that manufacture, produce, cultivate, sell, transport, or purchase 

marijuana ("marijuana-related businesses"). It then provides an overview of the discussion draft ofthe 

Secure And Fair Enforcement Banking Act of 2019 (SAFE Banking Act), dated February 6, 2019 (I 0:58 

a.m.) and notes some potential uncertainties regarding how the SAFE Banking Act might apply to 

financial institutions with regard to serving marijuana businesses operating in compliance with state 

marijuana laws. 

In serving the U.S. Congress on a non-partisan and objective basis, CRS takes no position on the efficacy 

of the SAFE Banking Act. 

Brief Summary of the Regulation of Marijuana Under 

the Controlled Substances AcP 

The federal Controlled Substances Act (CSA)2 establishes the legal regime through which the federal 

government: ( l) regulates and facilitates the lawful production, possession, and distribution of controlled 

substances; (2) prevents diversion' of these substances from legitimate purposes; and (3) penalizes 

unauthorized activities involving controlled substances.' The CSA places various plants, drugs, and 

chemicals into one of five schedules based on the substance's medical use, potential for abuse, and safety 

or dependence liability.' The five schedules are progressively ordered with the substances generally 

considered the most dangerous and addictive classified as Schedule I substances and those generally 

regarded as the least dangerous and addictive classified as Schedule V substances. 6 By law, Schedule I 

substances have "a high potential for abuse" with ''no currently accepted medical use in treatment in the 

1 For a detailed discussion and analysiS of federal marijuana law and policy, see CRS Report R44782, The Marijuana Policy Gap 

and the Path Forward, coordinated by Lisa N. Sacco 

2 Comprehensive Drug Abuse Prevention and Control Act of 1970. Pub. L. No. 91-513, Title n. 84 Stat. 1236, 1242 (codified as 

amended at 21 U.S.C. §§ 801-904) (enacting the CSA). 

3 The Drug Enforcement Administration (DEA) of the Department ofJustice (DOJ) has explained thatthe term ''diversion," used 

in the context of the CSA, refers to '1he redirection of controlled substances which may have lawful uses into illicit channels.'' 

Controlled Substances Quotas. 83 Fed. Reg. 32,784,32,784 (July 16, 2018) (codified at 21 C.F.R. pt. 1303). 

4 See CRS Report RL30722, Dmg Offenses: Afaximum Fines and Terms of imprisonment for Violation of the Federal Controlled 

Substances Act and Related Laws, by Brian T. Yeh (listing CSA 's criminal provisions regarding unauthorized trafficking, 

possession, or other prohibited activities involving controlled substances). 

5 21 u.s.c. § 812(b). 

6 When Congress enacted the CSA in 1970, it established ''initial schedules" of controlled substances, id. § 812(c), but specified 

that the schedules "shall be updated'' periodically, id. § 812(a). The current list of controlled substances within their designated 

schedules may be found in 21 C.F.R. §§ 1308.11-15. 

CRS TESTIMONY 

Prepared for Congress----------------------------------
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Insert offset folio 257 here 35631.257

Congressional Research Serv1ce 

United States" and cannot safely be dispensed under a prescription.' Schedule I substances may be 

lawfully used only for bona fide, federal government-approved research studies.' 

Marijuana is currently classified as a Schedule I controlled substance and is, therefore, subject to the most 

severe restrictions and penalties under the CSA.9 As a result, it is a federal crime to grow, sell, or merely 

possess the drug. 10 In addition to facing the prospect of federal criminal prosecution, imprisonment, and 

criminal fines, those who violate the CSA may suffer a number of additional adverse consequences under 

federal law11 For example, federal authorities may confiscate, through civil or criminal forfeiture 

proceedings, any property used to grow marijuana or facilitate its sale or use, as well as all proceeds 

derived from the sale of marijuana." 

In spite of these federal prohibitions, a number of states and localities have established laws and policies 

that permit ce11ain marijuana-related activities." While the Department of Justice (DOJ) and the Treasury 

Department's Financial Crimes Enforcement Network (FinCEN) have previously issued guidance on the 

interplay of federal marijuana laws and cont1icting state legalization efforts, 14 Congress has not passed 

comprehensive legislation to address state and local marijuana legalization laws. Thus, regardless of state 

and local laws purporting to authorize marijuana use, federal law prohibits cultivation, distribution, and 

possession of marijuana, except by those who engage in federally approved research. 15 

Financial Services for Marijuana Businesses 

Bank Secrecy Act16 and Federal Anti-Money Laundering Laws 

When financial institutions provide financial services to business customers, they generally are not 

directly involved in the sale, possession, or distribution of their customers' products. However, financial 

7 21 u.s.c. § 812(b). 

'/d. § 823(1). 

'Jd. § 812(c)(a)(c)(l0); 21 C.F.R § l308.ll(d)(23). 

10 21 U.S.C. §§ 841-890. 

11 Jd. For a detailed description of the CSA 's civil and criminal provisions, see CRS Report RL30722, Drug Offenses: MaJ.:imum 

Fines and Terms of Imprisonment for Violation of the Federal Controlled Substances Act and Related Lm.,•s, by Brian T. Y ch. 

12 18 U.S.C. §§ 98l(a)(1)(A), 982(a)(l). For information on the procedural requirements and potential defenses associated with 

asset forfeiture, see CRS Report 97-139, Crime and Forfeiture, by Charles Doyle. 

n ~Map of Marijuana Legality by State, DISA Global Solutions, https://disa.com/map-of-marijuana-legality-by-state, (last visited 

February 12, 2019). 

14 For example, in 2013, fonner Deputy Attorney General James Cole issued a subsequently rescinded memorandum to U.S. 

attorneys that reiterated the fact that marijuana cultivation, sale, distribution, and possession remain unlav.>ful under federal law 

and outlined eight federal enfOrcement priorities. Memorandum from James M. Cole, Deputy Attorney Gen. to All United States 

Attorneys Regarding Guidance Regarding the Ogden Memo in Jurisdictions Seeking to Authorize Marijuana for Medical Use 

(June 29, 2011) [hereinafter 2013 Cole Memorandum], https://www.justice.gov/sites/default!files/oip/legacy/2014/07/23/dagguidance~2011-for-rnedical-marijuana-use.pdf. Tbe 2013 Cole Memorandum and other DOJ marijuana-related guidance was 

rescinded on January 4, 2018. Memorandum from Jefferson B. Sessions, Attorney Gen. to All United States Attorneys Regarding 

Marijuana Enforcement (Jan. 4, 2018), https://wv."v.justicc.gov/opa/press-relcase/file/1022196/dovmload. FinCEN also .. issu[ed] 

guidance to clarifY Bank Secrecy Act ('BSA ')expectations for financial institutions seeking to provide services to marijuanarelated bu.<;inesses:' which as of the date of this testimony remained in effect. U.S. DEP'TOF THE TREASURY, FIN. CRI\1ES ENF'T 

NETWORK. BSA EXPECTATIONS REGARDING MARIJUANA-RELATED BUSINESS, f!N-2014-GOO! (Feb. 14, 2014) [hereinafter 

FinCEN Marijuana Guidance 2014], https://www.fincen.gov/sites/default!files/sharedlf!N-2014-GOOLpdf; see infra '·FinCEN 

Guidance to Financial Institutions" section of this testimony. 

15 21 U.S.C. § 8!2(c): 21 C.F.R. § 1308.11(d)(23). 

16 The .. Bank Secrecy Act" is commonly used to retCr to Titles l and II of Pub. L. No. 91-508, inc1uding its major component. the 

Currency and Foreign Transactions Reporting Act, Pub. L. No. 91-508, Tille II, 84 Stat 1114, 1118-24 (1970) (as amended and 

CRS TESTIMONY 

Prepared for Congress----------------------------------
316 


Insert offset folio 258 here 35631.258

Congressional Research Service 

institutions commonly acquire the financial proceeds generated from the sale of customer products. To the 

extent that a bank acquires the proceeds derived from sales of marijuana in violation of federal law, 

federal authorities could potentially confiscate such funds through civil or criminal asset forfeiture 

proceedings, 17 even if the marijuana sales are permissible under state law. 18 For example, if a bank lends 

to a state-authorized medical marijuana dispensary, federal authorities might be able to require the bank to 

forfeit any proceeds that the bank generated from the loan on the grounds that such proceeds resulted 

from sales of marijuana in violation of federallaw. 19 

In addition to the risk of asset forfeiture, federal anti-money laundering laws (i.e., Sections 1956 and 1957 

of the criminal code) criminalize certain transac•ions involving property that is known to be derived from 

certain unlawful activities,20 including the sale and distribution ofmarijuana21 Violators of these antimoney laundering laws may be subject to fines and imprisonment," and any real or personal property 

involved in or traceable to prohibited transactions is potentially subject to criminal or civil forfeiture. 23 

For example, a bank employee could be subject to a 20-year prison sentence and criminal money 

penalties under Section 1956 for knowingly engaging in a financial transaction involving marijuanarelated proceeds that is conducted with the intent to promote a further offense, such as withdrawing 

mar\juana-generated funds from a business checking account in order to pay the salaries of medical 

marijuana dispensary employees. 24 Similarly, a bank officer could face a I 0-year prison term and criminal 

money penalties under Section 1957 for knowingly receiving deposits or allowing withdrawals of 

$10,000 or more in cash that is derived from distributing and selling marijuana." 

codified at 12 U.S. C. §§ IS29b. 1951-59; 31 U.S.C. §§ 5311-32). The Bank Secrecy Act requires reports and records of 

transactions involving cash, negotiable instruments, or foreign currency and authorizes the Secretary of the Treasury to prescribe 

regulations to insure that adequate records are maintained of transactions that have a ·'high degree of usefulness in criminal, tax. 

or regulatory investigations or proceedings." Title II, 84 Stat. at IllS. 

17 IS U.S.C. § 98I(a)(I) ("The following prope11y is subject to forfeiture to the United States ___ (C) Any property, real or 

personal, which constitutes or is derived fi·om proceeds traceable to ... any offense constituting "specified unlawful activity' (as 

defined in section 1956(c)(7) of this title) [i.e .. the list of predicate offenses for money laundering (IS U.S.C. § 1956)]. or a 

conspiracy to commit such offense."). 

"United States v. Mcintosh, S33 F.3d 1163. 1179, n.5 (9th Cir. 2016). 

19 IS U.S. C.§ 98I(a). 

20 IS U.S. C. §§ l956(c)(7), 1957(!)(3). For a full list of predicate offenses. see the .. Specified Unlawful Activities'' section of 

CRS Report RL33315. Money Laundering: An Overview of 18 US. C. 1956 and Related Federal Criminal Law, by Charles 

Doyle. 

21 18 U.S.C. §§ 1956, 1957. For a detailed analysis of federal anti-money laundering laws, see CRS Report RL33315, Money 

Laundering: An Overview of 18 U.S. C. 1956 and Related Federal Criminal Law, by Charles Doyle. 

22 Section 1956 violations are punishable by imprisonment for not more than 20 years and fines of up to $500,000 or tv.ricc the 

value of the property involved, whichever is greater. 180.S.C. § 1956(a)(l). Section 1957 violations arc punishable by 

imprisonment for not more than lO years and fines of up $250.000 (or $500,000 tOr organizations) or twice the value of the 

property involved in the transaction. whichever is greater. !d.§§ 1957(b), 1957(h), 3571,3559. Conspiracy to violate either 

section carries the same maximum penalties, as does aiding and abetting the commission of either offense. Jd. §§ 2, 1956(h). See 

e.g., United States v. Lyons. 740 F.3d 702. 715 (1st Cir. 2014). for a detailed description of the penalties for violating these lavv-s, 

see CRS Report RL30722, Drug Offenses: A1aximum Fines and Terms of lmprisonmentfi;r Violation of the federal Controlled 

Substances Act and Related Laws, by BrianT. Yeh. 

23 IS U.S.C. §§ 9SI(a)(l)(A). 982(a)(l). 

"!d.§ 1956(a)(I)(A)(i). 

25 /d. § 1957(a), (d). 

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Under federal law, financial institutions26 must aid law enforcement in investigating and prosecuting those 

who violate federal laws, including the CSA.27 For example, the Secretary of the Treasury has exercised 

authority to require financial institutions to file suspicious activity reports (SARs)28 with FinCEN 

regarding financial transactions29 suspected to be derived from illegal activities,'0 including sales of 

marijuana.31 Depository institutions32 also must establish and maintain anti-money laundering programs 

designed to prevent institutions from facilitating money laundering and financing terrorist activity, as well 

as to ensure that the institutions' officers and employees have sufficient knowledge of their customers and 

their customers' businesses to identify when filing SARs is appropriate33 

Additionally, financial institutions, their employees, and ce11ain other affiliated parties 34 could be subject 

to administrative enforcement actions by federal regulators for violating the Bank Secrecy Act or anti26 for the purposes of the Bank Secrecy Act and anti-money laundering laws, the term "'financial institution~' is defined broadly to 

include banks, savings associations, credit unions, broker dealers, insurance companies, pawnbrokers, automobile dealers. 

casinos, cash checkers. travel agencies, and precious metal dealers. among others. 31l f. S.C. § 5312(a)(2). 

27 12 U.S.C. §§ 1951-59:31 U.S.C. §§ 5311-32. 

28 31 U.S. C.§ 5318(g), Filing suspicious activity reports (SARs) are mandatory under certain circumstances, but financial 

institutions may file SARs even when not mandated by law. See. e.g. 12 C.F.R. §§ 1020.320(a) (banks); 31 CFR § 1022.320(a) 

(money services businesses). 

29 31 C.F.R § lOlO.IOO(bbb), ··Transaction• is defined as: 

means a purchase, sale, loan, pledge, gift, transfer, delivery, or other disposition, and with respect to a 

financial institution includes a deposit, withdrawal, transfer between accounts, exchange of currency, loan, 

extension of credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument, 

security, contract of sale of a commodity tOr future delivery, option on any contn1ct of sale of a commodity 

for future delivery, option on a commodity, purchase or redemption of any money order, payment or order for 

any money remittance or transfer, purchase or redemption of casino chips or tokens, or other gaming 

instruments or any other payment, transfer, or delivery by, through, or to a financial institution. by whatever 

means etTected. 

30 18 U.S. C.§§ 1956(c)(7). 1957(!)(3). For a full list of predicate offenses, see the ·'Specified Unlawful Activities" section of 

CRS Report RL333l5. Money Laundering: An Overview of 18 US. C. 1956 and Related Federal Criminal Law, by Charles 

Doyle. 

31 21 U.S. C.§§ 841-90:31 U.S.C. § 5318(g): 31 C.F.R. § 1020.320. 32 There are several diflerent types of depository institutions, including state~ and federally chartered banks, savings associations, 

and credit unions. 

33 See general(v 31 U.S.C. § 5318(h)(l); 31 C.F.R. §§ 1020.20()-220. See also 12 U.S.C. § 1786(q)(l) (credit unions); 12 U.S.C. 

§ t818(s) (banks and savings associations). Even in the absence of suspicion, financial institutions must file currency transaction 

reports (CTRs) with FinCEN relating to transactions involving $10,000 or more in ca..;h or other ··currency." 31 U.S.C. § 5313: 

31 C.F.R. §1020.300-320; 31 C.F.R. §§1010.300-370. 31 C.F.R. § lOIO.IOO(m), 

.. Currency'' is defined as: 

The coin and paper money of the United States or of any other country that is designated as Jegal tender and 

that circulates and is customarily used and accepted as a medium of exchange in the country of issuance. 

Currency includes U.S. silver certificates, U.S. notes and Federal Reserve notes. Currency also includes 

official foreign bank notes that are customarily used and accepted as a medium of exchange in a foreign 

country. 

lbe willful failure to file SARs and CTRs is punishable by imprisonment for not more than five years or not more than 10 years 

in cases of a substantial pattern of violations or tnmsactions involving other illegal activity. 31 lJ.S.C. § 5322. Structuring a 

transaction to avoid the reporting requirement exposes the offender to the same maximum terms of imprisonment. /d. § 5324(d). 

For a detailed description of penalties for violations of Bank Secrecy Act reporting and monitoring requirements. see CRS Report 

RL33315. Money Laundering: An Overview af 18 US. C.§ 1956 and Related Federal Criminal Law, by Charles Doyle. 

34 See, e.g., 12 U.S.C. §§ 18l3(u) (defining "institution-affiliated party" to include, among others, "any director, officer, 

employee, or controlling stockholder. . of, or agent for an insured depository institution," a.;; well as any independent contractor 

. who knowingly or recklessly participates in any violation of any law or regulation; any breach of fiduciary duty~ or any 

unsafe or unsound practice which caused or is likely to cause more than a minimal financial loss to, or a significant adverse effect 

on, the insured depository institution.''). 

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money laundering laws. 35 For example, federal banking regulators" implement comprehensive 

supervisory regimes that are designed to ensure that depository institutions are managed and operated in a 

safe and sound fa>hion to maintain profitability and in compliance with applicable state and federal law. 

To further this mandate, banking regulators may exercise strong, flexible administrative enforcement 

powers against depository institutions and their directors, officers, controlling shareholders, employees, 

agents, and affiliates that act unlawfully, including by engaging in marijuana-related activities that violate 

the CSA or the anti-money laundering laws. 37 Banking regulators have legal authority, for instance, to 

issue cease and desist orders, impose civil money penalties, and issue removal and prohibition orders that 

temporarily or permanently ban individuals from working for any depository institution. 38 Banking 

regulators also have authority, under certain circumstances, to revoke an institution's federal deposit 

insurance coverage and to take control of and liquidate a depository institution39 A criminal conviction 

for violating the Bank Secrecy Act or anti-money laundering laws is an explicit ground for appointing the 

Federal Deposit Insurance Corporation "as receiver [to] place the insured depository institution in 

liquidation.''40 

Because of these potential legal risks, many financial institutions have reportedly been unwilling to 

provide financial services to the marijuana industry.'' This has often left marijuana businesses without the 

ability to accept debit or credit card payments, to use electronic payroll services, to maintain checking 

accounts, or to avail themselves of other common banking services. Consequently, many marijuana 

businesses are reportedly operating exclusively in cash,'2 raising concerns about tax collection and public 

safety, among other things.<' 

"See. e.g .. 12 U.S.C. §§ 1786, 1818. !83Io. 

36 For these purposes, the federal banking regulators are: the Otlice of the Comptroller of the Currency (OCC) for national banks 

and federal savings associations; the Board of Governors of the Federal Reserve System for domestic operations of foreign banks 

and state-chartered banks that are members of the Federal Reserve System: the Federal Deposit Insurance Corporation (FDIC) tOr 

state savings associations and state-chartered banks that are not members of the Federal Reserve System; and the National Credit 

Union Administration (NCUA) for federally insured credit unions. Id. §§ 1766, l8l3(q). The Bureau of Consumer Financial 

Protection (CFPB) al~o has certain consumer compliance regulatory authority over depository institutions. I d.§§ 5481 5603. 

37 See, e.g, id. § 1786 (credit unions): id. §§ 1818, 183lo (banks and savings associations). See also Press Relea<>e. Off. of the 

Comptroller of the Currency, OCC Assesses $2.5 Million Civil Money Penalty Against Gibraltar Private Bank and Trust 

Company for Bank Secrecy Act J!'iolations (Feb. 25, 2016), https://www.occ.gov/news-issuanceslncws-releases/20 J 6/nr-occ2016-20.html (ordering the payment of a civil money penalty and remedial actions for allegedly .. fail[ing] to maintain an 

effective Bank Secrecy Act/Anti-Money Laundering (BSA/AML) compliance program."). 

38 See. e.g.. 12 U.S.C. § 1786 (credit unions); id §§ 1818, 183lo (banks and savings associations). 

39 See, e.g., id. §§ 1786, 1787 (credit unions): id. §§ 1818, 1821, 1831 o (banks and savings associations). 

40 !d.§ !82l(c)(5)(M), (d)(2)(E). 

41 See, e.g., GUIDANCE ON PROVISION OF FINANCIAL SERVICES TO MEDICAL MARUUANA & INDt:STRIAL HEMP-RELATED BUSINESSES 

IN NEW YORK STATE, N.Y. Dep't of Financial Services, 2, (Jul. 3, 2018) ("Because marijuana currently is still listed on Schedule 

I under the Federal Controlled Substances Act, medical marijuana ... businesses operating in accordance with New York State 

Jaws and regulations continue to have difficulty establishing banking relationships at regulated financial institutions. The ability 

to establish a banking relationship is an urgent issue today f()r the legal cannabis industry. So long as it remains difficult to open 

and maintain bank accounts, the industry will largely rely on cash to conduct business and operate.'') 

42Jd. 

43 See Tom Angell, Trump Treasury Secretary Wants lt4arijuana Money in Banks. FORBES (Feb. 6. 2018), 

https://\\rww.forbes.com/sites/tomangell/2018/02/06/trump·treasury·secretary-wants-mar\juana-money-in-banks/#3c9bc4cd3a53 

(last visited Feb. 12, 2019). 

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FinCEN Guidance to Financial Institutions 

In response to state and local marijuana legalization efforts, FinCEN issued guidance with respect to 

marijuana-related financial crimes on February 14,2014.44 This guidance appears to provide a roadmap 

for financial institutions to comply with suspicious activity reporting requirement~ when providing 

financial services to marijuana businesses operating in compliance with state or local laws, while also 

alerting FinCEN to transactions that might trigger federal enforcement priorities.45 

The guidance notes that: 

[b ]ecause federal law prohibits the distribution and sale of marijuana, financial transactions 

involving a marijuana-related business would generally involve funds derived from illegal activity. 

Therefore, a financial institution is required to file a SAR on activity involving a marijuana-related 

business (including those duly licensed under state law), in accordance with this guidance and 

[FinCEN regulations].46 

FinCEN advised financial institutions that, in providing services to a marijuana business, they must file 

one of three types of special SARs: 

I. A marijuana limited SAR should be filed when a financial institution detennines, after the 

exercise of due diligence, that a marijuana business is not engaged in any activities that 

violate state law or implicate the investigation and prosecution priorities outlined in the 

guidance, including distribution to minors and supporting drug cartels or similar criminal 

enterprises;" 

2. A marijuana priority SAR must be filed when a financial institution believes a marijuana 

business is engaged in activities that implicate prosecution priorities; 48 and 

3. A marijuana termination SAR should be filed when a financial institution finds it 

necessary to sever its relationship with a marijuana business to maintain an effective antimoney laundering program49 

The FinCEN guidance also lists examples of "red flags" that may indicate that a marijuana priority SAR 

is appropriate50 

6 

As of April 30, 2018, FinCEN has reported that it has received more than 50,000 marijuana-related SARs 

and that over 400 depository institutions reported providing some form of financial services to marijuanarelated businesses. 51 However, it is not clear precisely what level of financial services these depository 

44 FinCEN Marijuana Guidance 2014, supra note 14. Although DOJ rescinded several marijuana~rclated guidance documents, 

FinCEN's guidance remains in effect. The Administration could reverse or otherwise make significant changes to its enforcement 

priorities and policies. S'ee generally CRS Report R43708, The Take Care Clau..'ie and Executive Discretion in the Enforcement of 

Law, by Todd Garvey. 

45 FinCEN Marijuana Guidance 2014, supra n. 14. 

46 /d. at3. 

47 /d. at 3-4. 

48 ld at 4. These enforcement priorities were originally outlined in the 2013 Cole Memorandum. 2013 Cole Memorandum, supra 

note 14. 

49 FinCEN Marijuana Guidance 2014~ supra note 14, at 4-5. 

50 I d. at 5-7. Some examples of"red flags" noted in the guidance are: '"[t]he business is unable to produce satisfactory 

documentation or evidence to demonstrate that it is duly licensed and operating consistently with state law"; and "[al custorller 

seeks to conceal or disguise involvement in marijuana~relatcd business activity." I d. at 6. 

51 MARIJUANA BANKING UPDATE, Dep't of Treasury, Financial Crimes Enforcement Network, 

https://www. fincen.gov/sites!default/fileslshared/277157%20EA %202nd'%20Q%20MJ%20Stat,_.Public.pdf. 

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institutions are providing marijuana businesses. 52 Moreover, it remains uncertain whether these depository 

institutions are directly serving businesses that are actually involved in cultivating and selling marijuana, 

or are only serving entities that are indirectly involved in the marijuana business, such as landlords 

renting office space to marijuana businesses." 

Overview of the SAFE Banking Act 

The discussion draft of the SAFE BankingAct54 would not remove marijuana from the CSA schedules or 

move marijuana from Schedule I to a different schedule. As a result, even if the SAFE Banking Act 

became law, it would continue to be a federal crime to grow, sell, or merely possess the drug. 55 Instead, 

the legislation would appear to attempt: 

to constrain federal banking regulator56 authority to penalize depository institutions 57 for 

providing financial services to marijuana businesses operating in compliance with state or 

local laws; 58 and 

to protect depository institutions and their personnel from some legal liability under the 

CSA, anti-money laundering laws, and other federal laws when providing financial 

services to, or investing proceeds derived from serving, marijuana businesses operating in 

compliance with state or local laws. 

More specifically, Section 2 of the draft bill would, among other things, prohibit federal banking 

regulators from "terminat[ing] or limit[ing] the deposit insurance or share insurance ... solely because 

the depository institution provides or has provided financial services to a carmabis-related legitimate 

business" or "prohibit[ing], penalize[ing], or otherwise discourage[ing] a depository institution from 

providing financial services to a cannabis-related legitimate business."59 The draft bill would define 

"cannabis-related legitimate business" generally to mean entities engaged in marijuana-related business 

activities '·pursuant to" state and local laws60 

52 Robert Rowe, Compliance and the Cannabis Cunundrum, ABA BankingJ. Scp. ll, 2018, 

https://bankingjoumal.aba.com/20 18/09/compiiancc-and-the-cannabis-conundrum/ ("According to FinCEN, by the end of the 

third quarter 2017, it had received nearly 40,000 SARs reporting activity associated with a marijuana-related business. The great 

majority of those were marijuana limited SARs, indicating that the industry continues to offer some level of services to the 

cannabis industry. No one knows, though, how extensive those offerings are or what kinds ofbanking relationships do exist. 

Anecdotal reporting suggests it is very limited."). 

53 Jd. 

54 Discussion Draft of the Secure And Fair Enforcement Banking Act of2019, dated February 6, 2019 (1 0:58a.m.) (hereinafter 

SAFE Banking Act). 

"See 21 U.S.C. §§ 841-90. 

56 ]be bill would define "Federal banking regulator'' to be the Federal Reserve Board, OCC, FDIC, CFPB, ··or any other Federal 

agency or department that regulates banking or financial services, as determined by the Secretary of the Treasury." SAFE 

Banking Act § 8(5). 

57 The draft bill would define "depository institution" to mean state and tfderal credit unions and banks, savings associations, and 

any other "depository institution" as defined by 12 U.S.C. § 1813(c). SAFE Banking Act§ 8(4). Although non-depository 

institutions also offer financial services, my testimony, like the SAFE Banking Act, focuses on depository institutions. 

:5& lbe draft bill would also apply to marijuana laws and regulations of Indian tribes. For simplicity, references to the term "state" 

in relation to the SAFE Banking Act in this testimony encompasses an '"Indian Tribe" within "Indian Country" as those terms are 

defined in Section 6 of the SAFE Banking Act. 

"SAFE Banking Act § 2. 

60 !d.§ 8(3). 
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Section 3 of the draft bill appears designed to reduce legal liability under federal anti-money laundering 

laws for financial institutions serving the marijuana industry."' Section 3 would clarify that "the proceeds 

from a transaction conducted by a cannabis-related legitimate business shall not be considered as 

proceeds from an unlawful activity solely because the transaction was conducted by a cannabis-related 

legitimate business" for tbe purposes of federal anti-money laundering laws "and all other provisions of 

Federal law. "62 

Section 4(a) appears designed to protect depository institutions and their '·officers, directors, and 

employees" from liability under federal law or regulation based solely on their providing "financial 

services to cannabis-related legitimate businesses" "[i]n a State, political subdivision of a State, or Indian 

country" that "allows the cultivation, production, manufacture, sale, transportation, display, dispensing, 

distribution, or purchase of cannabis pursuant to tbc law or regulation of' !hal jurisdiction63 

Similarly, Section 4(b) of the draft bill appears designed to encourage depository institutions to prnvide 

loans to marijuana businesses by providing some protection fi·om asset forfeiture laws. 64 Specifically, 

Section 4(b) would generally protect depository institutions from ''criminal, civil, or administrative 

forfeiture of' "a legal interest in the collateral for a loan or another financial service provided to an owner 

or operator of a cannabis-related legitimate business" or to entities that rent or sell property to a cannabisrelated legitimate business65 

The draft bill would not expressly eliminate a financial institution's responsibility to file SARs associated 

with marijuana-related transactions. Instead, Section 6 of the draft bill would require FinCEN to issue 

guidance on marijuana-related suspicious activity reporting requirements !bat "is consistent with tbe 

purpose and intent of the SAFE Banking Act."'"' The draft bill would also require banking regulators to 

"develop uniform guidance and examination procedures for depository institutions that provide financial 

services to cmmabis-related legitimate businesses."67 

Impact the SAFE Banking Act Might Have on 

Depository Institutions Serving Marijuana Businesses 

It is unclear how enactment of the SAFE Banking Act would affect the financial services industry. The 

discussion draft of the SAFE Banking Act, if enacted, might reduce some legal and financial risks that 

financial institutions face when serving tbe marijuana industry, but significant risks likely would remain. 

The remaining risk of providing financial services to marijuana businesses will likely depend on factors 

that are unknowable at this time. 

For example, federal banking regulators have strong and flexible enforcement powers that they may 

exercise to ensure depository institutions comply with state and federallaws,68 and some discretion in 

61 Id. § 3. 

62 /d. The draft bill's liability provisions in Section 3 would appear to extend to marijuana-related transactions generally, 

regardless of whether a depository institution is involved. 

63 SAFE Banking Act§ 4(a). 

64 !d.§ 4(b). 

65Jd. 

66 Id. § 6 (amending 31 U.S.C. § 5318(g)). 

67 !d. § 7. Section 5 of the bill would expressly provide that depository institutions would not be required to provide services to 

marijuana businesses.ld. § 5. 

68 See supra nn.34-40 and surrounding text. 
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how they interpret and entorce the laws within their jurisdictions69 The draft bill also contains a number 

of potentially ambiguous provisions that might be subject to multiple reasonable interpretations. 

Consequently, a depository institution's decision on whether to serve the marijuana industry likely will 

depend on the supervisory and enforcement guidance banking regulators provide for the SAFE Banking 

Act."0 Moreover, there is always the possibility that the SAFE Banking Act could spark litigation between 

financial institutions that serve marijuana businesses and their regulators, meaning that the Act's effect 

may ultimately depend on how courts interpret its language. 

For instance, Section 2 of the draft bill would generally prohibit banking regulators from "penaliz[ing], or 

otherwise discouragfing] a depository institution from providing financial services to a cannabis-related 

legitimate business."71 However, the draft bill does not appear to absolve depository institutions entirely 

from their responsibilities to implement customer due diligence and certain other anti-money laundering 

program compliance standards when serving marijuana-related businesses. Questions remain regarding 

bow banking regulators would resolve the tension between ensuring that depository institutions are 

effectively evaluating money laundering and other compliance risks while also abiding by the bill's 

proscription on penalizing and discouraging institutions from serving the marijuana industry. 

It is also unclear how FinCEN would interpret Section 6 in conjunction with Section 3 for the purpose of 

suspicious activity reporting. As explained above, financial institutions generally must file a SAR 

regarding financial transactions 72 suspected to be derived from "illegal activities."73 The SAFE Banking 

Act does not expressly eliminate a financial institution's suspicious activity reporting requirements 

associated with marijuana-related transactions. Tnstead, Section 6 of the draft bill appears to envision that 

financial institutions would continue to be required to file SARs on marijuana businesses in accordance 

with "appropriate guidance issued by FinCEN," which must be "consistent with the purpose and intent of 

the SAFE Banking Act of2019."74 Additionally, Section 3 of the draft bill provides that the proceeds from 

transactions with "cannabis-related legitimate business'' no longer constitute proceeds of "unlawful 

activity" for purposes of"all ... provisions ofFederallaw."75 lfthe proceeds of such covered transactions 

are no longer unlawful under the SAFE Banking Act, could FinCEN determine tl1at financial institutions 

would no longer have to file SARs associated with marijuana-related transactions? 

It is also unclear how banking regulators would respond to issues that are not explicitly addressed by the 

draft bill. For instance, in order to process customer debit or credit card payments and to transfer funds 

electronically, depository institutions generally need access to the Federal Reserve's payment system 

through a master account at a regional Federal Reserve Bank.76 In the past, at least one Federal Reserve 

6<:J See generanv CRS Report R43 708, The Take Care Clause and Executive Discretion in the E1?(orcement of Law, by Todd 

Garvey and CRS Report R43710, A Primer on the Reviewability ofAgenc.v Delay and Enforcement Discretion, by Todd Garvey. 

7° Financial institutions might also desire guidance from DOJ, FinCEN, and state criminal law enforcement agencies. 

71 SAFE Banking Act § 2. 

72 3 I C.F.R. § IOJO.IOO(bbb), ·Transaction" is defined as: 

means a purcha'>c, sale, loan, pledge, gift, transfer, delivery, or other disposition, and with respect to a 

financial institution includes a deposit, withdrawal., transfer between accounts, exchange of currency, loan, 

extension of credit, purchase or sale of any stock, bond, certificate of deposit, or other monetary instrument, 

security. contract of sale of a commodity for future delivery, option on any contract of sale of a commodity 

for future delivery, option on a commodity, purchase or redemption of any money order, payment or order for 

any money remittance or transfer, purcha<;c or redemption of casino chips or tokens, or other gaming 

instruments or any other payment, transfer, or delivery by, through, or to a financial institution, by whatever 

means effected. 

73 See, e.g, 31 CF.R. § 1020.30 (banks). 

74 SAFE Banking Act § 6. 

7S !d.§ 3. 

76 See general(v RETAIL PAYMENT SYSTEM IT EXAMINATION HANDBOOK, Fed. Financial Institution Examination Council, 

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Bank had refused to approve an application for a master account for a credit union that openly proposed 

to serve marijuana businesses in violation offederallaw. 77 The draft bill does not explicitly address access 

to the Federal Reserve's payment system. Refusing to approve master account applications because a 

depository institution intends to serve marijuana businesses could arguably qualify as an action 

"discourag[ing]" depository institutions from providing financial services to marijuana businesses within 

the meaning of Section 2 of the SAFE Banking Act However, the precise scope of that provision would 

be left to the Federal Reserve and the courts to determine. 

Even if the SAFE Banking Act became law, financial institutions that provide services to the marijuana 

industry would likely continue to have a legal obligation to ensure that the businesses they serve comply 

with a complex and not fully consistent web of relevant state and local marijuana laws78 Furthermore, 

because the draft bill would not decriminalize marijuana under the CSA, marijuana businesses and their 

officers, directors, and employees could still face federal criminal prosecution, criminal fines, and asset 

forfeiture 79 Thus, financial institutions would likely continue to face significant financial risks when 

providing services to marijuana businesses because of the potential legal exposure of such businesses. For 

example, a marijuana business owner might have trouble repaying a bank loan if he is subject to criminal 

prosecution, criminal fines, and asset forfeiture proceedings for violating the CSA. Although Section 4(b) 

of the draft bill might protect against the forfeiture of a depository institution's legal interest in assets 

securing financial transactions, those protections would not necessarily guarantee that a depository would 

not, for example, suffer losses on a defaulted secured loan. As a result, compliance costs associated with 

serving the marijuana industry might be significantly higher than costs associated with more typical 

business industries. 80 In light of these legal and financial risks, banking regulators might consider 

imposing heightened or particularized examination procedures, anti-money laundering due diligence 

standards, or other regulatory measures on depository institutions serving marijuana businesses. However, 

it is unclear to what extent such additional measures would comply with the proscription on "penaliz[ing], 

https://ithandbook.ffiec.govlit-booklets/rctail-payment-systems/payment~instruments,~clearing,-and-settlement.a<>px, (last visited 

Feb. J l, 2019): STATE-BACKED FINANCIAL INSTITUTION (PUBLIC BANK) FOR THE STATE OF CAl.lFORNIA SERVICING THE Cfu~NABIS 

INDUSTRY FEASIBILITY SnJDY 2018, Level 4 Ventures, Inc., JADE Compliance Solutions, and RLR Management Consulting Inc., 

17, Dec. 6, 2018 ( .. To be dear, without a master account issued by the Federal Reserve the bank cannot function. It would have 

no ability to accept and dear customer checks drawn on other banks; no ability to issue checks or otherwise make payments other 

than in cash~ and no ability to transfer funds to other banks.")~ Fourth Comer Credit Union v. Fed. Reserve Bank ofKan. City, 

154 F. Supp. 3d 1185, 1187 (D. Col. 2016) ("The newly minted credit union promptly applied to open a "master account" at the 

Federal Reserve Bank of Kansas City. Despite its name, the Bank ls not a federal agency. Rather, it is a private corporation 

created by an Act of Congress and nm by its own board of directors. Depository institutions can only access the Federal Reserve 

payments system through a master account or through a correspondent bank that has a master account. This access is necessary 

for the electronic transfer of funds. Simply put, without this access The Fourth Comer Credit Union is out of business."), vacated 

and remanded on other grounds, Fourth Corner Credit Union v. Fed. Reserve Bd .. 861 F.3d 1052 (10th Cir. 2017). 

77 Fourth Comer Credit Union v. Fed. Reserve Bd .• 861 F.3d 1052 (10th Cir. 2017). 

78 See supra "FinCEN Guidance to Financial Institutions" section of this testimony. See also REPORT OF THE SPECIAL SENATE 

COMMITrEEON MARIJUANA. Commonwealth of Mass., 75, Mar. 8, 2016 ("In February, 2014, the Department of the Treasury's 

Financial Crimes Enforcement Network is:med guidance concerning how financial institutions can service marijuana businesses 

without violating the federal Bank Secrecy Act. Banks must undertake rigorous due diligence and (;Ompliance efforts to ensure a 

marijuana business is in compliance with all state laws, and to identify any suspicious or criminal activity. Notwithstanding this 

guidance, the large national banks have not participated in the industry to this point, perhaps because dealing with a marijuana 

business requires a higher level of compliance and effort or because they fear future federal policy changes could leave them and 

their customers exposed to risk.'""). 

79 See SAFE Banking Act§ 4(b). 

80 REPORT OF THE SPECIAL SENATE COMMITTEE ON MARUUANA, Commonwealth of Mass., 75, Mar.8. 2016 ("Banks must 

undertake rigorous due diligence and compliance efforts to ensure a marijuana business is in compliance with all state laws, and 

to identify any suspicious or criminal activity ... The banks must comply with daunting requirements for due diligence and 

compliance reporting, which can be time consuming and expensive,"). 
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or otherwise discourag[ing] a depositoty institution from providing financial services to a cannabisrelated legitimate business" under Section 2 of the draft bill. 

11 
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Figure A-1. Photo and Biography 

David H. Carpenter, legislative Attorney, Congressional Research Service 

Biography 

B.A., University of North Carolina at Chapel Hill; J.D., University of North Carolina School of 

Law. Member of the North Carolina Bar. 

12 
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FAITH &FREEDOM COALITION 

December 6, 20 l 7 

The Honorable Paul D. Ryan 

Speaker 

U.S. House of Representatives 

Washington, DC 20515 

Dear Speaker Ryan and Leader McConnell: 

The Honorable Mitch McConnell 

Majority Leader 

U.S. Senate 

Washington, DC 205 l 0 

On behalf of the Faith & Freedom Coalition, a grassroots public policy organization with 1.5 

million members and supporters committed to strengthening the fa.mily and advancing JudeoChristian values, I write to request that you oppose the inclusion of any pro-marijuana riders in 

annual appropriations bills. 

Marijuana use, whether by young people or adults, will not contribute to a shared culture of hard 

work, self-improvement, and care for the least among us. Instead, use of marijuana is connected 

to workplace absenteeism\ impairments in memory and learningi•, and increase in welfare 

dependency111 • In particular, for adolescents and children whose brains are still developing, the 

harms of marijuana are magnitied as the drug causes long-lasting changes in the brainiv. 

The increasing social acceptability of marijuana appears to be increasing the overall rate of 

marijuana use, with 13.9% of Americans now using marijuana, and approximately four million 

Americans with a marijuana use disorder'. Further, marijuana has been shown in animal studies 

to cross-sensitize the brain with opioids"'. Marijuana users are three times more likely to use 

heroin, according to the Centers for Disease Control and Preventions (CDC) vu. 

Our members and friends in the law enforcement community have shared story after story of 

marijuana legalization enabling black market and cartel activityviii_ In the words of the Colorado 

Attorney General, "[Legalization] will not stop crime. You're just making it easier for people 

who want to make money. What we've done is give them coveri'." 

Additionally, drugged driving accidents and fatalities have been rising at a disturbing rate in 

legalized states'. Such concerns have led the American Automobile Association (AAA) to 

oppose legalization measuresxi_ And marijuana gummies and candies are finding their ways into 

schoolsxii and landing children in emergency roomsxili. 

P.O. Box 957736. Duluth, GA 30095 J 404A S. Capitol St.. SE, Washington, DC 20003 J W\\W.FFCoalition.com 
327 


Insert offset folio 269 here 35631.269

We therefore urge you to oppose pro-marijuana policy riders, including those that grant 

marijuana businesses access to the U.S. banking system, for the good of our youth and our 

country. Thank you for your work on this important issue. 

Sincerely, 

Timothy R. Head 

Executive Director 

'Substance Abuse and Mental Health Services Administration (SAMHSA). National Survey on Drug Use and 

Health. Rockville, MD: Office of Applied Studies, SAMHSA. 2014. 

" Meier MH, Caspi A, Ambler A, et al. Persistent cannabis users show neuropsychological decline from childhood 

to midlife. !'roc Nat/ A cad Sci US A. 2012; I 09(40):E2657-E2664. 

"'Fergusson DM, Boden JM. Cannabis use and later life outcomes. Addiction. 2008 Jun; 103(6):977-8. 

~ Batalla A, Bhattacharyya S, Yiicel M, et al. Structural and functional imaging studies in chronic cannabis users: a 

systematic review of adolescent and adult findings. PloS One. 2013;8(2):e55821. 

https://doi.org/1 0.1371/joumal.pone.0055821. 

'Substance Abuse and Mental Health Services Administration (SAMHSA). National Survey on Drug Use and 

Health. Rockville, MD: Office of Applied Studies, SAMHSA. 2017. 

"Cadoni C, Pisanu A, Solinas M, Acquas E, DiChiara G. Behavioral sensitization after repeated exposure to Delta 

9-tetrahydrocannabinol and cross-sensitization with morphine. Psychopharmacology (Ber/). 2001;158(3):259-66. 

I O.l007/s002130 100875. 

"'Centers for Disease Control and Prevention. Today's Heroin Epidemic lnfographics [Web page]. 

https:/lwww.cdc.gov/vitalsigns/heroin/infographic.html. 

""Oregon State Police. A Baseline Evaluation of Cannabis Enforcement Priorities in Oregon. Salem, January 2017. 

Retrievable from http://media.oregonlive.com/today/other/cannabis enforcement oregon%202.pdf; Crombie, 

Noelle. (2017, March 18). Oregon remains a top source for black market pot, state police report says. Retrieved from 

http://www.oregonlive.com/marijuanalindex.ss1720!7103/oregon a top source for black.html; Robles, Yesenia. 

(2017, July 7). Marijuana grow connected to Mexican cartel dismantled south of Pueblo. The Denver Post. 

Retrieved from http://www .denveroost. com/20 16/0 7/07/i llegal-marijuana-grow-mexi can-cartel-confiscated-pueblo/; 

Mamdooh, Sally. (2016, April 7). Mexican drug cartels are taking full advantage of Colorado's marijuana laws. 

Denver ABC 7News. Retrieved from http:/lwww.thedenverchannel.com/news/local-news/marijuanalmexican-drugcartels-are-taking-full-advantage-of-colorados-marijuana-laws. 

"Hughes, Trevor. (2017. July 31). Marijuana's Legalization Fuels Black Market in Other States. USA Today. p. A I. 

July 31, 2017. Retrieved from https:/lwww.usatoday.com/storvlnews/nation/20 17/07131/marijuana-blackmarket/507417001/. 

'AAA Foundation for Traffic Safety. Prevalence of Marijuana Involvement in Fatal Crashes: Washington, 2010-

2014. May 2016. Retrieved from: https://publicaffairsresources.aaa.biz/wp-eontent/uploads/20 16104/Prevalence-ofMarijuana-lnvolvement-Report-FINAL.pdf. 

"AAA Against Marijuana Legalization Legislation. Tire Business. (2017, October 10). Retrieved from 

http://www .tirebusiness.com/article/20 1610 I 0/NEWS/161 0! 9996/aaa-against-marijuana-legalization-legislation. 

"' KGTV (ABC Affiliate). "One arrested after marijuana gummy bears sicken Chula Vista students." Posted April 

27, 2017. Retrieved from Web September 7, 2017. http://www.l Onews.com/news/one-arrested-after-marijuanagummy-bears-siekens-chula-vista-students 

""NBC News. "ER Visits tor Kids Rise Significantly After Pot Legalized in Colorado." Posted May 5. 2017. 

Retrieved from Web September 7, 2017. http://www.nbcnews.com/health/health-news/er-visits-kids-risesignificantly-after-pot -legalized-colorado-n 7 54 7 81 

P.O. Box 957736. Duluth, GA 30095 I 404A S. Capitol St. SE. Washington, DC 20003 I v-~vw.FFCoalition.com 
328 


Insert offset folio 270 here 35631.270

May 16,2018 

The Honorable Rodney Frelinghuysen 

Chainnan 

Committee on Appropriations 

II-305, The Capitol 

Washington, DC 20515 

The Honorable John Culberson 

Chainnan 

Subcommittee on Commerce, Justice, Science, 

and Related Agencies 

H-310, The Capitol 

Washington, DC 20515 

The Honorable Nita Lowey 

Ranking Member 

Committee on Appropriations 

1016 Longworth House Office Building 

Washington, DC 20515 

The Honorable Jose Serrano 

Ranking Member 

Subcommittee on Commerce, Justice, Science, 

and Related Agencies 

1016 Longworth House Office Building 

Washington, DC 20515 

Dear Chainnan Frelinghuysen, Ranking Member Lowey, Chainnan Culberson, and Ranking 

Member Serrano: 

As members of the broader law enforcement community, including narcotics officers, chiefs, 

sheriffs, prosecutors and front line officers, we write to urge you to reject the inclusion of 

marijuana policy amendments in the Fiscal Year 2019 Commerce, Justice, Science 

Appropriations Act. 

We are sworn to protect the safety of our citizens and communities. Unfortunately, the 

legalization of marijuana has made our task much more difficult. The narrative suggests that the 

legalization of marijuana frees up resources allowing our members to focus on more serious 

crimes. Instead, we spend a disproportionate amount of time responding to citizen complaints 

about violations of state marijuana laws, including illegal grows, public use and intoxication, and 

drugged driving. 

Additionally, states that legalized marijuana have been unable to control the black market for the 

drug. The Oregon State Police reported that 70 percent of the marijuana transactions remain 

illegal, despite legalization laws. Such marijuana is sold on the street in legalized states and 

exported in vast quantities to other, non-legalized jurisdictions. There are even reports of foreign 

drug cartels, including Mexican cartels, moving operations to Colorado to take advantage of lax 

marijuana laws. 

Legalization has also triggered disturbing changes in the attitudes and opinions of young people. 

We are responding to increased complaints from schools for illegal use and possession of 

marijuana. We want to be a constructive partner in getting students and citizens back on their 

feet and contributing to their communities. 
329 


Insert offset folio 271 here 35631.271

We ask that you give the Attorney General the full set of tools available to disrupt and prosecute 

illegal networks of organized drug crime. Reject marijuana policy amendments that are allowing 

illegal businesses to flourish and expose our communities and young people to harmful 

substances. 

Sincerely, 

National Sheriffs Association 

Major Cities Chiefs Association 

The Major County Sheriffs of America (MCSA) 

Association of State Criminal Investigative Agencies (ASCIA) 

The National District Attorneys Association 

The National Narcotic Officers' Associations' Coalition (NNOAC) 

National Alliance of State Drug Enforcement Agencies (NASDEA) 

The National HIDTA Directors Association 
330 


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MAJOR CITIES CHIEFS ASSOCIATION 

June 8, 2018 

The Honorable Rodney Frelinghuysen 

2306 Raybnrn House Office Building 

Washington, D.C. 20515 

The Honorable Nita Lowey 

2365 Rayburn House Office Building 

Washington, D.C. 20515 

Dear Chainnan Frelinghuysen and Ranking Member Lowey: 

On behalf of the Major Cities Chiefs Association, representing the largest urban areas in the 

Nation, we are writing to express our strong opposition to inclusion of any proposed 

amendments to the Fiscal Year 20 I 9 Financial Services Appropriations Act that would allow 

marijuana businesses full access to banking privileges. 

The facts are undeniable: The legalization of marijuana has only hindered local law 

enforcement's efforts to keep communities safe. Any amendment that allows baking privileges 

to marijuana businesses creates a dangerous precedent that could allow access for other 

criminal activity and Schedule I drugs, giving money laundering access to drug cartels that are 

already using the cover of legalization. 

We appreciate the opp'!rtunity to add our voice to this vital national discussion, and we 

respectfully urge you to reject any proposed amendments that would have a detrimental impact 

to the health and safety of our communities. 

Sincerely, 

1. Thomas Manger 

Chief of Police 

Montgomery County Police Department 

President, Major Cities Chiefs Association 
331 


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~ 

~ CHUCK CANTERBURY 

NAJIO~Mt PRESID!;,.NT 

l7 May20l8 

The Honorable Rodney P. Frelinghuysen 

Chairman 

Committee on Appropriations 

U.S. House of Representatives 

Washington, D.C. 20515 

Dear Mr. Chairman and Representative Lowey, 

JAMES 0. PASCO, JR. 

EXECUT'VE Dl'lfCTCi'l 

The Honorable Nita M. Lowey 

Ranking Member 

Committee on Appropriations 

U.S. House of Representatives 

Washington, D.C. 20515 

I am writing on behalf of the members of the Fraternal Order of Police to advise you of our 

strong opposition to any amendments offered in Committee markups on any appropriations 

measure that would serve to further efforts to legalize or reschedule marijuana 

Under the Controlled Substances Act, marijuana is a Schedule I drug and is classified as such 

because of the high potential for abuse and because there is no accepted medical use for 

marijuana that is recognized by the Federal government 

In 1998, the National Fraternal Order of Police was among the first national organizations to 

oppose State and local e!Torts to legalize this dangerous drug. Despite consistent and vigorous 

opposition trom the FOP as well as other law enforcement, public safety and public health 

organizations, certain States have legalized the use, sale, production and possession of marijuana 

for recreational and purported medicinal reasons which is at variance with existing Federal law. 

At the FOP National Conference in 2017, our members passed a resolution reamrming our 

support for the prohibition of marijuana 

Public safety is threatened by the grm.ving use of marijuana nationwide with the greatest negative 

impact in States that no longer comport with existing Federal law. Studies have shown that 

persons who use marijuana at age 17 or younger are four times more likely to become addicted 

to opioids, contributing to the national epidemic of opioid-related deaths that now claim more 

lives per year than automobile crashes and firearms combined. Studies have also shown, that 

teens who use marijuana at least once per month are 13 times more likely to use another drug 

like cocaine, heroin, or methamphetamine. 

Researchers from the University of Colorado, Johns Hopkins University, and Harvard Medical 

School who analyzed the impact of legalization in Colorado determined the following: 

Evidence of a persistent black market for marijuana which may increase the presence of 

Mexican drug cartels which are hringing in other drugs like heroin. 

-BUILDING ON A PROUD TRADITION-
332 


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• Some cartels have stopped shipping marijuana into Colorado, but now control growing 

operations and export it to other markets. 

• Higher rates of traffic fatalities while driving under the influence of marijuana. 

• Increase in marijuana-related poisonings and hospital visits. 

• No reduction in crime or significant increase in tax revenues. 

• Use of marijuana by children less than 17 years of age is rising faster than the national 

average and arrests of juveniles for marijuana-related offenses are up 5%. 

Marijuana, like any illegal drug, brings a risk to public safety. lt has been intrinsically linked to 

the violence of drug trafficking and is not "harmless." Driving under the influence of marijuana 

is a growing public safety issue as welL There is no standard or reliable analysis available to law 

enforcement officers to identifY impairment of a driver who has used marijuana. The National 

Highway Traffic Safety Administration's 2013-2014 study of weekend nighttime drivers showed 

that 12.6% of drivers tested positive for THC, an increase of 48% from that number in 2007. 

We urge all members of the Committee and Subcommittees to reject amendments that would 

enable more of our fellow citizens to use drugs like marijuana-the risk to public safety and 

health is just too great On behalf of the more than 335,000 members of the Fraternal Order of 

Police, thank you for considering our views on this issue. If I can be of any further assistance to 

you, please do not hesitate to contact me or my Senior Advisor, Jim Pasco, in my Washington 

office. 

Chuck 

CL,Q~ 

National 

Canterbury 

President 

~ c) 
333 


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State Of Utah OFFICE OF STATE TREASURER 

UTAH STATE CAPITOL COMPLEX 

350 N STATE STREET, SUITE 180 

SALT LAKE CITY, UTAH 84114-2315 

TEL: (801) 538-1042 

KIRT W_ SLAUGH 

CHIEF DEPUTY STATE TREASURER 

DAVID C. DAMSC'IIEN 

STATE TREASURER 

February 11,2019 

Hon. Mike Lee 

U.S. Senate 

361A Russell Senate Office Building 

Washington, DC 20510-7720 

Hon. Rob Bishop 

U.S. House of Representatives 

123 Cannon House Office Building 

Washington, DC 20515-0001 

Hon. Ben McAdams 

U.S. House of Representatives 

130 Cannon House Office Building 

Washington, DC 20515-0001 

Dear Utah Members of Congress: 

Hon. Mitt Romney 

U.S. Senate 

ALLEN ROLLO 

STATE INVESTMENT OFFICER 

B33 Russell Senate Office Building 

Washin&>ton, D.C. 20510-7720 

Hon. John Curtis 

U.S. House of Representatives 

125 Cannon House Office Building 

Washington, DC 20515-000 1 

Bon. Chris Stewart 

U.S. House of Representatives 

2242 Rayburn House Office Building 

Washington, DC 20515-000 I 

We are at a tipping point As you know, in Utah our constituents and Legislature have both made clear 

that patients suffering from certain conditions should have access to medical cannabis. Moreover, to 

date nationally,forty-six states and the District of Columbia have passed laws broadly legalizing 

cannabis in some form. 

Utah voters approved medical cannabis in Utah with the passage of Proposition 2, "The Utah Medical 

Cannabis Act" on November 6, 2018 and on December 3, 2018, the Utah Legislature passed HB 3001 

Sixth Substitute, the "Utah Medical Cannabis Act," enacting a compromise approach to patients' 

access to medical cannahis in Utah. Governor Herbert signed HB 300 I into law on the day it was 

passed by the Legislature. 

As you know, cannabis remains a federally prohibited Schedule I drug, and banking regulations 

prohibit the State, or any other entity in Utah, from using a federally regulated financial institution to 

deposit funds from the production and distribution of cannabis, even if doing so is permitted under 

stale law. 

The inability of insured financial institutions to handle cannabis-related transactions has forced 

businesses and governments throughout the U.S. to resort to cash to settle transactions. This represents 

an enormous public safety issue, increasing risk of violent crime, fraud, and theft. Providing regulated 
334 


Insert offset folio 276 here 35631.276

and insured financial services to cannabis businesses allows law enforcement, and specifically the 

Financial Crimes Enforcement Network (FinCEN) within the U.S. Department of Treasury, the 

transparency needed to distinguish legal cannabis businesses from illegal activity. 

l ask your help in enacting federal legislation that ensures each state has the right to determine for itself 

the best approach to cannabis within its borders and that provides common-sense guardrails to ensure 

that states, territories, and tribes legalizing cannabis do so in a manner that is safe and respectful of tbe 

impacts on their neighbors. 

l know that you share my love for the U.S. Constitution and the framework for federalism that it 

establishes. l believe in the Jeffersonian maxim, "the government closest to the people serves the 

people best." Based on the preponderance of ballot initiatives and legislative actions effecting legalized 

cannabis at the state leveL clearly ·'the people have spoken," and overwhelmingly so. 

States, financial institutions, and legal cannabis businesses now desperately need Congress to advance 

legislation that will bring these legal activities into the safety and scrutiny of the regulated and insured 

financial system. 

I urge you to work with your colleagues in the House and Senate to resolve this critical issue, and 

please let me know of any way in which I can assist you in the effort. 

David Damschen 

Utah State Treasurer 

(801) 538-1042 

ddamschcn@utah.gov 
335 


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FIONAMA,CPA 

TREASURER STATE OF CALIFOIL'IL<\ 

February 20,2019 

The Honorable Alexandria Ocasio-Cortez 

Member of the House Subcommittee on Consumer Protection & Financial Institutions 

229 Cannon HOB 

Washington, DC 20515 

RE: Follow-up from Subcommittee Hearing on "Challenges and Solutions: Access to Banking 

Services for Cannabis-Related Businesses" 

In (ormation 011 Equitv Programs in California's Regulated Cannabis lndustrv 

Dear Representative Ocasio-Cortez, 

Thank you so much for your active participation in the House Subcommittee on Consumer Protection 

& Financial Institutions' heating: "Challenges and Solutions: Access to Bru1king Services for 

Cannabis-Related Businesses." It was truly an honor to be able to testify on behalf of what California 

has learned through the regulation of the largest regulated cannabis industry currently in the United 

States. As mentioned in my statement to the Subcommittee, California has nearly 40 million residents 

and more than a million medical cannabis patients. California's market represents about a third of the 

North American cannabis market. In the first three quarters after legalizing adult-use cannabis in 

November 2016, we collected approximately $228 million in tax revenue; with the cannabis market in 

Califomia alone expected to exceed $5.1 billion in overall revenue in 2020. 

Califomia is one of the states that others are looking to for guidance as regulated cannabis continues to 

gain traction nationally; thus, it is important we not only he leaders on the fiscal level, but also leaders 

for socially necessary programs within the industry. This is why when you mentioned the need for 

equity within the industry, I wanted to Jet you know California has begun working toward that goal at 

the state and local levels. 

At the state level, I supported SB 1294 authored by Senator Steve Bradford and chaptered into law last 

year that created the Cannabis Collaboration & Inclusion Act of 2018. Minorities and people of color 

have been disproportionately affected by the nation's "War on Drugs" and SB 1294 was an important 

step to create oppmtunities and assistance to those entt:..'!ing California's growing catmabis industry and 

who have been negatively impacted by its criminalization. SB 1294 will ensure individuals from 

diverse backgrounds and underserved communities are able to participate in Califomia's recently 

legalized cannabis industry by creating equity and support within the industry, specifically by: 
336 


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FIONA MA, CPA 

TREASURER 

STATE OF CALIFORNIA 

l. Establishing a position within the Bureau of Cannabis Control (State Department of Consumer 

Affairs) to provide technical assistance and training for cannabis equity applicants and local 

cannabis equity programs. 

2. Creating a cannabis equity task force to advise the bureau on the development and 

implementation of a statewide cannabis equity program. 

3. Encouraging localities to document information annually regarding their equity programs and 

applicants, and posting their findings to the bureau's website. 

4. Providing criteria and qualifications for a state equity plan and equity applicants seeking a state 

license. 

It is important to note that this bill was signed into law in 2018 and is currently being put into effect in 

our state, but simultaneously cities and counties within California have also been proactive on the need 

for equity within their respective localized industries. Los Angeles, Oakland, Sacramento, and San 

Francisco have created equity programs that support inclusion of this population by providing 

technical suppmt, giving priority license processing, providing free or reduced rent in some cases, and 

connecting people with larger scale cannabis businesses for support as welL The following are some 

key differences with these counties and others looking to help facilitate and create an inclusive 

cannabis industry: 

• Oakland's equity program was intended to get non-retail (production, etc.) off the ground, 

while San Francisco's program was intended to focus on actually achieving workforce equity. 

• Permit processing has been an issue in several counties: San Francisco and San Jose have seen 

a bottlenecking effect with cities' long list of applicants for permits, but very small Local 

Offices for cannabis that don't have the staff resources or bandwidth to meet the need quickly 

enough. 

San Jose has come up with a unique approach that they're currently working on at the City Council 

level: The first, a minor ditTerence with major implications is San Jose's etTort to eliminate 

bottlenecking for permitting. In most cities, pennitting occurs on a rolling basis. However, in San 

Jose, equity pennits constitute a special, reserved pmtion of all permits. This eliminates an odd 

incentive for existing permit holders to monopolize. 

The second, a major difference with major implications is San Jose's focus on being a true jobs 

program. Other cities just provide permits to existing small businesses. San Jose actually trains 

individuals from equity populations to become business owners. This is accomplished through a 

915Capitl>\'Vbli,Snitt•l!O SJLr;mli"!1W.C\9:'S!l *PO BM .. 9-.12f:O'l Sa..::J~lmc-nw.CA~):'Sl.t • ('>!t>Jf,53-.2<N5 • L1JCI416)65.>-~l::!<i 

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337 


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FIONA MA, CPA 

TREASURER STATE OF CALIFOR!'i!A 

provision in the original catmabis ordinance that directs a percentage of revenue generated from local 

catmabis taxes to fund programs that offer accounting, business planning, and legal services to these 

would-be or new business owners. This is different than Oakland's private-funded model which paired 

investors with equity pennit holders; this was a source of bad press because equity permit holders were 

always getting the short end of the stick. Additionally, there is a program within local community 

colleges to recruit and train individuals to join the workforce; a similar progratn exists for reentry of 

incarcerated individuals. 

Many feel that San Jose's program, and progratns in all California cities for that matter, will become 

truly successful in promoting workforce equity once the plethora of municipal, county, and state 

regulations that indirectly or directly impact cannabis businesses catch up to reflect the reality of Prop 

64's passage (passed in November 2016 with 55.8% of the vote). TI1is is why it is imperative to have 

these conversations at all levels of govemrnent- from San Jose City Council, to the California 

Legislature, to speaking with the leaders in Congress to help enact change on a national scale- we 

must work together to ensure that tile regulated cannabis industry is not only safe, efficient, and 

auditable for tax purposes- we must ensure that it is reflective and inclusive of our constituents that 

need and deserve our support to operate successfully in this emerging industry. 

Thatlk you again for your time and attention to this important matter, and we look forward to 

continuing to work together to affect positive change here in California and at a national leveL Please 

feel free to contact my Legislative Director, Kasey O'Connor, with any questions or concerns at (916) 

653-2995. 

Cc: Hon. Gregol)' W Meeks, Chair of Subcommittee on Consumer Protection and Financial 

Institutions 

Cc: Hon. Afcccine Waters, Chair of House Financial Sen,ices Committee 
338 


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Proposed Amendments to 

Discussion Draft 

H.R.-_, the "SAFE Banking Act of2019" 

(G:\M\16\PERLMU\PERLMU _ 009.XML) 

Page 3, after line 20, insert the following: 

(b) Insurers.- A Federal agency may not -

(I) prohibit, penalize, or otherwise discourage an insurer from engaging in the business 

of insurance in connection with a cannabis-related legitimate business or to a State or 

Indian tribe that exercises jurisdiction over cannabis-related legitimate businesses; 

(2) terminate or limit the policies of an insurer solely because the insurer has engaged 

in the business of insurance in connection with a cannabis-related legitimate business; 

(3) recommend, incentivize, or encourage an insurer not to engaged in the business of 

insurance in connection with the owner, operator, or an individual that is a policyholder 

of a cannabis-related legitimate business, or downgrade or cancel insurance and insurance 

services offered to a policyholder of a cannabis-related legitimate business solely 

because--

(A) the policyholder later becomes a cannabis-related legitimate business; or 

(B) the insurer was not aware that the policyholder is the owner or operator of a 

cannabis-related legitimate business; and 

( 4) take any adverse or corrective supervisory action on a policy to an owner or 

operator of-

( A) a cannabis-related legitimate business solely because the business owner or 

operator is a cannabis-related business without express statutory authority, as in 

effect on the day before the date of enactment of this Act; or 

(B) real estate or equipment that is leased or sold to a cannabis-related legitimate 

business solely because the owner or operator of the real estate or equipment leased 

or sold the equipment or real estate to a cannabis-related legitimate business. 

Page 5, line 7, before "to provide," insert '·or insurer" 

Page 5, line 8, after "business," insert:"; or interfere with the regulation of the business of 

insurance in accordance with the Act of March 9, 1945 (59 Stat. 33, chapter 20; 15 U.S.C. 1011 

et seq.) (commonly known as the "McCarran-Ferguson Act") and the Dodd-Frank Wall Street 

Reform and Consumer Protection Act (12 U.S.C. 5301 et seq.)." 

Page I 0, after line 19, insert: "(9) Insurer- The term insurer means any person engaged in the 

business of insurance, including reinsurance." 

3 
339 


Insert offset folio 281 here 35631.281

Congressman Ed Perlmutter 

1226 Longworth House Office Building 

Washington, DC 2051 

Dear Congressman Perlmutter, 

As an owner of state pem1itted Cannabis grows and retail shops, I am writing you to thank you 

for your introduction of the banking legislation that permits access to traditional banking services 

in states where it has been legalized. Every day, myself and other Cannabis business owners 

worry about the safety of our patients, employees, and the public in general, due to the fact that 

we are forced to hold onto cash in our shops as we are not permitted to bank our money or to use 

bank credit cards. 

My businesses have experienced armed robberies due to lack of banking services. As an 

example, one morning two armed individuals grabbed our security guard, pushed a gun down his 

throat, then took over $20,000.00 in cash and five pounds of Cannabis. Fortunately, our clients 

and employees were not injured or killed. However, the incident could have resulted in severe 

injury or death to people in the shop. Why? Because the criminals knew that we are forced to 

retain cash in the shops due to the inability to bank our money. 

Congressman Perlmutter, your bill which allows for banking for state licensed Cannabis 

businesses goes a long way in eliminating the public safety concerns that result from our 

inability to deposit our cash on a daily basis, or to use credit cards. This is not a partisan issue as 

The industry's customer base includes citizens representing all of our political parties. Thank you 

for helping eliminate the Cannabis industry's greatest fear, which is public safety for our clients, 

employees, and the general public. 

Bruce Nassau 

Partner 

Lit Dispensary 

1630 Federal Blvd 

Denver, CO 80204 
340 


Insert offset folio 282 here 35631.282

Written Statement of A. Marc Perrone 

President, United Food and Commercial Workers International Union 

Submitted to the U.S. House Committee on Financial Services 

Subcommittee on Consumer Protection and Financial Institutions 

Hearing on Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses 

February 13, 2019 

As President of the United Food and Commercial Workers International Union (UFCW), I am proud to 

help build a better life for over 1.3 million hard-working men and women who work in highly regulated 

industries such as grocery and retail stores; manufacturing and chemical plants; health care facilities and 

pharmacies; food processing and meat packing plants; and in the emerging legal cannabis industry. Our 

cannabis members can be found across multiple states in growing and cultivating facilities, 

manufacturing and processing facilities, and in laboratories and dispensaries. 

Wherever cannabis is legalized, the UFCW is committed to building a successful industry with a thriving, 

diverse, and skilled workforce. Union cannabis jobs provide good family-sustaining income and benefits, 

while generating spending in local communities, and supporting a robust economy. 

Cannabis is legal in some form in 33 states and the District of Columbia, it operates in a strong and 

dynamic regulatory landscape. States employ a strict regulatory framework including seed-to-sale 

tracking system to monitor the growth, distribution, and sale of regulated cannabis to prevent diversion 

and create a transparent, accountable market. 

All jobs have challenges, but few industries face the unique challenge of federal prohibition on access to 

legal banking. Without access to banks, cannabis businesses have little choice but to resort to cash. 

Customers pay in cash, workers are paid in cash, and large amounts of cash must be securely stored and 

transported. This creates safety and financial problems for businesses, customers, workers, and the 

communities they serve. 

In order for workers in the legal cannabis industry to have the same opportunities as all other workers, 

Congress must directly address the cannabis banking challenge and align federal and state laws. 

This cash dominated industry puts workers at risk 

When cannabis businesses cannot accept checks, credit cards, or debit cards in their establishments, it 

means that workers, vendors, and tax collectors must change the way they do business. Without access 

to a federally-insured bank, employers must find alternative arrangements to pay their workers, 

including paying them with cash. 

Mitch Bickar is a UFCW cannabis worker from Bothell, Washington where the state worked with local 

banks and credit unions to give workers and employers access to traditional banking. "I take pride in 

working in this growing industry in Washington," he explains. "My job as a Lead Inventory Coordinator 

at Have a Heart provides good wages, and because ofthe union my voice is heard at work. I am grateful 

that unlike other states, Washington provided us with the ability to have access to banking instead of 

being paid in cash. I would not feel safe walking out the door on payday with everyone knowing that 1 

had two week's wages in cash on me." 
341 


Insert offset folio 283 here 35631.283

Outdated laws make it difficult for workers to borrow money 

Imagine this scenario: a cannabis worker applies for a house or car loan, but has difficulty proving they 

have income necessary to pay the loan back since their employer is prohibited from accessing traditional 

banking or payroll systems and cannot provide a paystub. Upon finally proving their income or 

accepting a loan at a significantly higher rate, they are ultimately denied because federal law deems 

their work to be illegal. Sadly, this is the reality for many workers in the cannabis industry'. 

The lack of uniformity and antiquated classification of cannabis at the national level have caused 

workers across the country to find it difficult to get personal loans for homes and cars- even with high 

credit scores. In fact the Federal Housing Authority's (FHA) loan program explicitly denies loans for 

workers in this industry for this reason". 

Worker payroll tax and benefit programs deductions are ambiguous 

The decision to continue to classify cannabis as a Schedule 1 narcotic with all the associated prohibitions 

and limitations, while 33 states have legalized cannabis, has led to confusion and uncertainty for the 

workers who are just trying to do their jobs and support their families. When workers operate in an 

environment without the certainty of a conventional payroll system- even when employers have every 

intention of doing the right thing- it is unclear if benefits such as Social Security, disability, 

unemployment insurance, Medicare, and Medicaid will be there when they are needed. 

When employers gain access to conventional banking, their workers get the economic security of a 

steady paycheck, as well as the peace of mind knowing their payroll taxes and benefits are being 

properly funded. 

The current patchwork of state laws could cost the U.S. economy billions in lost tax revenue 

Cannabis is currently a $9 billion industry, which is equivalent to the entire market for snack foods.'" The 

industry is growing at a rapid rate and industry experts predict there will be $75 billion in cannabis sales 

by 2030.'' The cannabis industry is also the fastest-growing job category in the United States with an 

estimated 125,000-160,000 full-time jobs in 2018, an increase of nearly 45 percent from 2017.' By 

2022, the cannabis industry is expected to grow at a rate of approximately 21 percent per year and 

support up to 340,000 full time jobs.'' 

Local, state, and federal governments are losing out on tax revenue while cannabis remains illegal at the 

federal level. If federal prohibition ended and cannabis were to become legal in all 50 states, it would 

generate $132 billion in tax revenue, with the federal government alone collecting $51.7 billion.'" 

The state of Washington shows that banking works 

States are leading the way in passing legislation and regulations that ensure a safe, legal, and thriving 

cannabis industry. In Washington state, the state government worked with local credit unions and small 

banks to encourage them to accept business from dispensaries.''" This resulted in the state collecting 

$319 million in taxes and fees in the 2017 budget year, 95 percent of which came in forms other than 

cash.'" The state of California, on the other hand, was forced to shift resources in their Department of 

Tax and Fee Administration to accommodate businesses paying their taxes in cash,'' delivered by armed 
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guards in armored trucks.m By giving the industry access to banking in Washington, it became easier for 

business to pay taxes, and cost the state less to collect them -a benefit to both businesses and 

taxpayers. 

UFCW members in Washington have said that they like the state cannabis laws because they provide 

payroll stability. A regular paycheck goes hand in hand with a good wage, quality affordable care, and a 

secure retirement- these are the keys to a better life, and the pillars of the UFCW. 

Congress should support safe, legal banking for cannabis workers 

On behalf of all the workers in the cannabis industry, we urge Congress to act quickly to give the same 

access to the financial systems and federal benefits that all other American workers already enjoy. A 

majority of states have some form of legal cannabis and it is imperative that the federal government 

update our nation's banking laws to include this new and growing industry. Hardworking Americans in 

the cannabis industry do not deserve to be treated as criminals and should not have to struggle with 

financial and legal ambiguity while on the job. 

Chairman Meeks, Ranking Member Luetkemeyer, and members of the Subcommittee on Consumer 

Protection and Financial Institutions, thank you for your consideration. 

'"Workers feel the effects of banking issues in the burgeoning marijuana industry.'' Faith Miller. 3 October 2018. 

Colorado Springs Independent https://www.csindy.com/coloradosprings/workers-feel-the-effects-of-bankingissues-in-the-burgeoning-marijuana-industry/Content?oid=15777766 

;; "Federal Prohibition of Marijuana Restricts Lenders Ability to Issue Loans to Borrowers Employed in the 

Marijuana Industry.'' Hinshaw and Culbertson LLP. JDSupra.com. https://www.jdsupra.com/legalnews/federalprohibition-of-marijuana-43395/ 

"'"Legal Marijuana: The $9 Billion Industry That Most Banks Won't Touch.'' Kevin Murphy. Forbes.com 

https://www.forbes.com/sites/kevinmurphy/2018/09/06/legal-marijuana-the-9-billion-industry-that-most-banks-

"Cannabis: $75B Opportunity; Category Cross-Currents Keep Us Cautious On Booze." Vivien Azer, Brian Nicholas 

Velez, and Gerald Pascarelli. Cowen.com http://www.cowen.com/reports/cannabis-7Sb-opportunity-categorycross-currents-keep-us-cautious-on-booze/ 

'"Marijuana Is The Fastest-GrowingJob Category, Top Recruiting CEO Says," Tom AngelL Forbes.com 

https://www.forbes.com/sites/tomangell/2018/04/09/marijuana-is-the-fastest-growing-job-category-toprecruiting-ceo-says/#834b3aa66874 

""Cannabis industry supports up to 160,000 full-time jobs, with more growth on horizon." Eli McVey. MJ Biz 

Daily. https://mjbizdaily.com/chart-cannabis-industry-supports-over-125000-full-time-jobs/ 

'""Study: Legal marijuana could generate more than $132 billion in federal tax revenue and 1 million jobs." Katie 

Zezima, The Washington Post. 10 January 2018. These estimates are based on a 15 percent retail sales tax, payroll 

tax deductions, and business tax revenue- not taking into consideration local taxes and license fees, or additional 

potential taxes specific to the industry. 

"" "The Credit Unions and Small Banks That Solved the Cannabis Cash Crisis.'' Lester Black. TheStranger.com. 19 

April 2017. https://www. thestranger.com/green -guide-spring-2017/2017/04/19/25083313/the-credit-unionsand-small-banks-that-solved-the-cannabis-cash-crisis 

''"Pot is legal in 10 states, but the industry still can't use banks. Will Congress change that?" Kate lrby. The 

Sacramento Bee. 11 February 2019. https://www.sacbee.com/news/politics-government/capitolalert/article225923620.html 
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U.S. House of Representatives 

U.S. House Committee on Financial Services 

Consumer Protection and Financial Institutions Subcommittee 

February 13, 2019 

Written statement made by Gaynell Rogers to be submitted as part of the record for the 

Congressional hearing, "Challenges and Solutions: Access to Banking Services for CannabisRelated Businesses." 

Chairman Meeks, Ranking Member Luetkemeyer and Subcommittee Members, 

I offer this statement with first -hand experience of the challenges faced by the regulated 

Cannabis industry due to the shortage of traditional banking options. My name is Gaynell 

Rogers, a natiqnal and international expert and trusted media source for 20 years having worked 

in the cannabis industry for I 0 years and 20+ years in national music and film. I'm a Co-Founder 

ofTreehouse Global Ventures, a fund founded by women for women and minorities in the 

regulated Cannabis industry. I'm also a three-time cancer survivor and heavily engaged in 

philanthropy efforts and have served on nonprofit boards for years. 

Thank you for holding a Congressional hearing to better understand the contemporary regulated 

Cannabis industry and for providing an opportunity for stakeholders to share their experiences. 

The U.S. regulated Cannabis industry is conservatively valued at $7+ billion, and due to the 

federally scheduled status of Cannabis, 1 the only means to access a traditional bank is via a 2014 

FinCEN guidance document (FinCEN Guidance )_2 

The FinCEN guidance has facilitated a pathway for 400 banks to engage with the regulated 

industry; however, that number is not nearly great enough to fully bank the regulated industry. 

Every stakeholder within the regulated industry which includes business owners, third-party 

service providers, outside vendors, general public, customers and most importantly, patients 

have been at risk for their own personal safety due to this shortage. Cash management is 

inefficient, expensive and incredibly dangerous. During my time as Head of Media Relations & 

Special Projects for Steve DeAngelo with Harborside Health Center- a national model and 

dispensary based in Oakland, California I witnessed the public and staff safety issues when 

dealing with cash management. 

Thank you for making the time for this hearing and we urge Congress to enact fair banking 

legislation to assure public and stakeholder safety. 

Sincerely, 

'The term 'Cannabis' is proper botanical nomenclature and is to be used interchangeably with the term 'marihuana,' 

which is the term used in 21 U.S.C. §801 et al, Controlled Substances Act (CSA), to identify the plant subject to 

Schedule I of the CSA. 2 Department of the Treasury Financial Crimes Enforcement Network, 14.Feb.2014 Guidance, !§A Etr>i!SJ..Q[LC!l!> 

Revardin,g_,1:farijJ!ana-Re/qf.gd_Businesses (FIN-20 14-GOO 1). 
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CAUI=ORNIA 

CANNABIS 

INDUSTRY 

ASSOCIATION 

Submitted on behalf of Lindsay Robinson, Executive Director 

California Cannabis Industry Association 

House Financial Services, Subcommittee on Consumer Protections & Financial 

Institutions 

Challenges and Solutions: Access to Banking Services for Cannabis-Related Businesses 

February 13, 2019 

I appreciate the opportunity to submit written remarks for the Subcommittee on 

Consumer Protections and Financial Institutions' historic hearing on the cannabis industry's 

need for access to traditional banking and the capital markets. I am the Executive Director of the 

California Cannabis Industry Association ("CCIA"), which is the leading cannabis trade 

association in the state of California. We represent a diversity of interests within the industry, 

including retail, cultivation, manufacturing, delivery, distribution, testing, insurance, packaging, 

and various ancillary services. CCIA is comprised of over 460 California businesses 

representing over 650 brands and more than 11,000 employees. Our association was formed to 

unite the legal cannabis industry to help educate and act as a resource to lawmakers and our 

members. 

California is horne to the country's oldest cannabis market, which was established in 

1996 by the voter-approved Compassionate Care Act (Proposition 215). Since that tirne, the 

state has worked to continually expanded access to cannabis for its citizens. This expansion 

culminated in last year's implementation of voter-approved Proposition 64, which created an 

adult-use cannabis market in California. This conversion from medical to adult-use made 

California the largest cannabis market in the United States. Last year, California's industry sold 
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and estimated $2.5 billion in cannabis to consumers throughout the states. Forecasts project 

that by 2025, California's cannabis industry will sell as much as $4.72 billion of cannabis. 

California is not alone. Throughout the country, states are legalizing cannabis at a 

historic rate. Today, 33 states plus the District of Columbia have legalized medical-use. Of those 

states, ten plus the District of Columbia have also legalized adult-use cannabis. The number of 

cannabis-legal states grows with each year, and several more states are working on joining the 

list in 2019. Within current cannabis-legal states, sales of medical-use and adult-use cannabis 

totaled a combined $10.4 billion dollars in 2018. According to New Frontier Data, 2019 sales of 

cannabis will increase by almost quarter, to $12.9 billion. 

The legalization of cannabis is not a partisan issue. We have seen the legalization of 

cannabis across the political spectrum, and public support is at an all-time high. According to a 

recent Pew Research poll, 62 percent of Americans support the full legalization of cannabis. 

Support for medical-use is an astounding 93 percent among Americans, according to a 

Quinnipiac University poll. At a time of unprecedented partisanship, when consensus on any 

issue is difficult, cannabis stands out as an area of genuine bipartisan agreement. 

The states where Americans voted to legalize cannabis have developed robust 

regulatory regimes for their respective cannabis industries. For example, California has spent 

the last several years working towards an advanced regulatory regime that traces cannabis from 

planting to processing to sale. California's system is now highly advanced and provides detailed 

information designed to protect consumers and prevent illicit- market diversion. Many other 

states have followed suit and are now implementing 'track and trace' systems. Despite these 

system, cannabis sales must be conducted in one of the least traceable transaction methods: 

cash. Due to the federal government's continued classification of cannabis as a Schedule I drug 

under the Controlled Substances Act, the multi-billion dollar U.S. cannabis industry is denied 

access to banking and capital markets, which are basic necessities for any legitimate industry. 

Access to banking for businesses operating in cannabis-legal states is critical to ensure the 

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safety of workers and consumers and to ensure the full inclusion of women and minorities as 

the industry grows. 

The ability to use U.S. financial institutions for banking is essential to ensure the safety 

of the cannabis industry and cannabis consumers. Without access to banking, companies are 

forced to maintain large amounts of cash on hand, pay employees and vendors in cash, and 

use cash to pay taxes. All of this creates an untenable situation where the safety of consumers, 

employees, and companies is at risk. With more than $2.5 billion in sales - mostly in cash -

California's cannabis retail companies present prime targets for robbery or other forms of theft. 

Aside from the large amount of cash on hand at any time, dispensaries are forced to transport 

cash to pay vendors, which presents opportunity for theft and violence. Employees, who are 

paid in cash, are forced to leave their companies on payday with a full pay-period in cash. 

Unlike cash on location or cash in transport, employees do not have security guards watching 

over them. 

Further, without access to the capital markets, cannabis entrepreneurs are hamstrung 

when trying to raise funds to expand or start new businesses. This creates especially significant 

obstacles for the full inclusion of women and minorities, who already face barriers to accessing 

capital. While still in its infancy stages, the cannabis industry has an opportunity to be more 

inclusive of women and minorities than many established industries. For minorities, the 

cannabis industry presents a chance to set right at least some of the wrongs committed during 

the War on Drugs. It is no secret that cannabis prohibition has been used to marginalize and 

incarcerate minorities for almost half a century. Even today, cannabis continues to be used to 

harass and persecute minorities. According to the ACLU, people of color are four times more 

likely to be arrested for cannabis possession than their white counterparts, despite similar rates 

of use. Now, the cannabis industry can provide a chance to start to repair the destruction 

caused by the War on Drugs to communities of color through minority inclusion and ownership 

within the industry. 

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The lack of access to capital markets, however, means that federal cannabis prohibition 

continues to place women and minorities at a disadvantage. Although some states have sought 

to address the issue of diversity in the cannabis space, the costs associated with starting a 

cannabis company are prohibitively high for those without easy access to capital. Banks' 

inability to lend to cannabis entrepreneurs perpetuates the exclusion of women and minorities 

from the cannabis industry and concentrates opportunities in the hands of a predominantly 

white, male segment of society who traditionally has more access to capital. The injustices of 

the past cannot begin to be remedied within the cannabis industry until disadvantaged women 

and minorities are able to access the capital markets and enter the industry in truly 

representative numbers. 

Cannabis companies operating pursuant to state law must have the same access to 

banking as other industries in the U.S. These companies are bringing cannabis out of the hands 

of organized crime and into the legally regulated market. They employ tens of thousands of U.S. 

citizens, contribute hundreds of millions in tax revenues, and provide opportunities to advance 

race and gender equity in economic opportunity. 

For these reasons, CCIA supports the Secure and Fair Enforcement (SAFE) Banking 

Act. This bill will provide our membership with the access to banking and capital markets that 

they desperately need. It will increase the safety of the industry by eliminating the need to 

operate on a cash basis and will help to ensure that women and minorities have access to the 

capital needed to enter the cannabis industry. We applaud the Subcommittee for holding today's 

hearing and look forward to working with members of Congress to ameliorate the issues created 

by the federal government's continued policy of prohibition. 

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Henry G. Wykowski 

& Associates 

ATTORNEYS AT LAW 

W'W\f/.WYKOWSKILAW COM 

CONTACT FMA!L · \LMAilJ@WYKOWSKH AW.COM 

Submission to tbe Finance Committee by Henry Wykowski Esq. 

Allow me to introduce myself and share some of my background so that the Committee may 

better evaluate my statement and understand the gravamen of being denied an equal opportunity to 

utilize banking merely because I represent cannabis industry associations and operators. 

Atl:er graduating from Tulane Law School in 1974, I briefly worked for a small law firm in New 

Orleans before joining the Carter Presidential Campaign. Atl:er President Carter's election, l accepted a 

position in the Tax Division, Criminal Section, U.S. Department of Justice. My assignment was to 

investigate and prosecute tax crimes in multiple jurisdictions throughout the country. In that position it 

became apparent that the best way to address the underground economy and eliminate underreporting 

of income, was to encourage the deposit of all proceeds to better track their source, use and accurate 

reporting for tax purposes. In 1979, l was assigned a high-profile investigation and prosecution in San 

Francisco. At the conclusion of the case, I accepted an otTer to become an Assistant U.S. Attorney in 

that office, where l continued to prosecute tax and other financial crimes. 

In late 1982, l entered private practice, accepting an offer as a mid-sized firm's trial counsel. In 

1986, I started my own firm. My practice involved the defense of white-collar federal crimes and civil 

litigation involving financial fraud matters. Around 2005, I was asked to represent a well-regarded 

cannabis dispensary in connection with an alleged tax deficiency based on IRC 280E. At the conclusion 

of trial, the tax court awarded the IRS approximately l% of the amount they were seeking. Thereafter, 

the IRS began to aggressively assert IRC Sec. 280E in audits of numerous dispensaries, who in turn 

retained me to represent them. In 2012, the U.S. Department of Justice filed forfeiture actions against 

three well known cannabis dispensaries in the San Francisco Bay area: Harhorside Health Center (the 

largest cannabis dispensary in the country), Berkeley Patients Group (the oldest operating dispensary in 

the country) and Shambhala Cannabis Collective. I and my firm represented each of them and obtained 

dismissals with prejudice in each of the actions, thus defeating the government's attempt to eliminate 

the medical cannabis industry. 

When I began my practice in I 986, I established my bank account at University National Bank 

which was subsequently consolidated with Comerica Bank. When I undertook representation of the 

dispensaries in the forfeiture actions noted above, I contacted my banker and explained that these 

clients would be paying me in cash (because they were denied traditional banking accounts). I inquired 

if this would cause any problems with my account. Atl:er she assured me it would not, we began 

depositing our cash fees into the account. Shortly thereafter l received a letter from Comerica' s 

corporate oftlces advising me that my accounts (my attorney trust account and my operating account) 

would be closed. I immediately called my banker to determine what had happened and was assured by 

her that it was a mistake, that l had been a wonderful client for 25+ years, and they "would never let me 

go." A few days later, she apologetically informed me that she had been instructed to close the 

accounts and was not provided any reason. 
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Assuming the cash deposits triggered the account closings, I opened an account with First 

Republic Bank down the street from my office. During the intake I explained that I had a general 

practice and my income was derived solely from fees generated from my clients, some of whom were 

state licensed medical cannabis dispensaries. They opened the accounts and I banked there from early 

2013 until mid-2018, when they advised me that my accounts would be closed because I represented 

cannabis clients. While acknowledging that this was disclosed when the accounts were opened, they 

advised the rescission of the Cole Memo by Attorney General Sessions changed their position. I next 

went to Chase, again disclosing my practice included licensed cannabis dispensaries. The account 

manager confirmed the following day that the bank had "goggled" me and it was apparent that I was 

known for my representation of the industry. A few months later, the manager called to tell me that the 

accounts would be closed pursuant to a decision by the compliance department. 

I then began the search for a new bank without immediate success. Each time I disclosed my 

representation of cannabis dispensaries our business was declined. In desperation I reached out to an 

attorney I met during my representation of Harborside in the forfeiture action. He represented the bank 

which held the mortgage on Harborside's location. He agreed to recommend the bank take on the 

account because what I was doing was providing legal representation to those in the industry who were 

licensed and in compliance with state law. Besides, he noted that I gave good advice and had a 

successful record to prove it. The bank agreed to take on the accounts, but then reversed its decision 

after they entered negotiations for a sale/merger with another banking entity. I have until mid-March to 

find another bank. 

When I asked why my accounts were being closed, I was told that it was because I was involved 

in a "cannabis related" business. Of course, if my business was a "cannabis related" business, so was 

theirs because they received mortgage payments for the building from which Harborside operated. 

Indeed, anyone who sold gas to licensed distributors, provided electricity or water to licensed 

cultivators, or states and municipal entities who collected tax revenue or licensing fees were also now a 

"cannabis related" business. 

My inability to open and maintain a bank account is wrong on many levels. As a proud fonner 

federal prosecutor whose work resulted in awards, it is contrary to my principles as an attorney. 

Everyone is entitled to representation and this is an interference with that recognized constitutional 

right. When I pursed civil rights cases in New Orleans, I was allowed to bank. When I represented 

individuals or entities charged with criminal conduct, I was allowed to bank. Indeed, it is well 

recognized in federal criminal law that if a defendant's assets arc seized, enough of those funds to 

secure representation would be relea~ed for that purpose. 

I am proud of the work I have done for the cannabis industry. I am a founder of the National 

Cannabis Industry Association and serve as its counsel (nearly 2000-membcr businesses and 

professionals). The California Cannabis Industry Association (approximately 500 members) and the 

National Cannabis Bar Association (nearly 600 members) have each asked me to serve as their counsel 

as well. Together these three organizations represent an industry that has gained acceptance with a 

majority of American citizens, with medical use allowed in thirty-three states and adult use in ten 

states, along with the District of Columbia. 

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There is something fundamentally wrong when laws and policies meant to maintain the legal 

integrity of our financial institutions get in the way of people seeking legitimate advice. My clients, 

and others in the industry, depend on my firm to advise them on how to operate in compliance with 

state law. The employees of my lirm depend on me for a pay check. My firm and others doing similar 

work for the cannabis industry should be permitted banking access without restriction or fear of 

reprisal. 

Thank you for your consideration and in advance for your assistance. 

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QFR For Hearing titled Challenges and Solutions: Access to Banking Services for Cannabis-Related 

Businesses 

See responses below from Greg Deckard, Chairman, President & CEO of State Bank Northwest in 

Spokane, Washington. 

Representative Roger Williams 

Did any state officials offer guidance or advice about how to properly tax, enforce, and ensure 

compliance with their state's excise tax on marijuana? 

My bank does not serve cannabis-related businesses. However, in order to respond to your question, I 

contacted an official in the office of the Washington State Treasury. She sent me a link to an FAQ on 

the taxation of cannabis-related businesses on the website for the Liquor Control Board: 

https:/llcb.wa.gov/mj2015/faqs-on-taxes. 

Do you feel as if the overall tax compliance was adequate? 

My bank does not serve cannabis-related business; therefore I cannot comment on the adequacy of 

tax compliance. 

Are there any lessons you took away from these discussions about taxation at the state level that you 

feel are worth conveying to Congress should we debate the merits of a federal excise tax as a 

component offederal marijuana legalization? 

I have not had discussions with any state official about the taxation of cannabis-related business. 
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QFR For Hearing titled Challenges and Solutions: Access to Banking Services for Cannabis-Related 

Businesses 

Representative Roger Williams 

Response from witness Rachel Pross, Chief Risk Officer of Maps Credit Union in Salem, Oregon. 

Did any state officials offer guidance or advice about how to properly tax, enforce, and ensure 

compliance with their state's excise tax on marijuana? 

Maps Credit Union has not received any specific guidance from the State of Oregon pertaining to 

enforcement and compliance with Oregon's state excise tax on marijuana. 

Do you feel as if the overall tax compliance was adequate? 

This question is not applicable based on my response to your first question. 

Are there any lessons you took away from these discussions about taxation at the state level that you 

feel are worth conveying to Congress should we debate the merits of a federal excise tax as a 

component of federal marijuana legalization? 

This question is not applicable based on my response to your first question. 

0