NYS Department of Financial Services Issues Guidance to Banks on Servicing the Marijuana Industry
Guidance from New York’s financial regulator to potentially widen access to the banking system for certain cannabis industry participants previously shut out
This month, the New York State Department of Financial Services (the “Department”) issued a significant guidance memorandum to New York State-chartered banks and credit unions entitled “Guidance on Provision of Financial Services to Medical Marijuana & Industrial Hemp-Related Businesses in New York State” (the “Guidance Memo”).
In a major policy clarification, the Department, in the Guidance Memo, “encourages New York State chartered banks and credit unions to consider establishing banking relationships with medical marijuana-related businesses that are operating in New York in full compliance with all applicable New York State laws and regulations.” The Guidance Memo was released by the Department in response to inquiries on the subject from financial institutions, given the current uncertain legal landscape, specifically at the federal level.
The Guidance Memo notes that as marijuana is listed on Schedule I of the federal Controlled Substances Act, its manufacture, possession and distribution are prohibited by federal law (and there is no exception under federal law for its medical use).
Nevertheless, since the issuance of the 2013 U.S. Department of Justice Guidance Regarding Marijuana Enforcement (the “Cole Memo”) U.S. Attorneys operated under guidance to prioritize enforcement of marijuana-related conduct that involves activities consisting of serious threats to public safety and other specified concerns, rather than expending the DOJ’s limited resources on the prosecution of activity that States have legislated to be lawful, and which are being conducted in accordance with such State law, such as regulated medical marijuana activity in States that permit it. Similarly, the Financial Crimes Enforcement Network (“Fincen”) issued guidance to financial institutions in 2014, specifying guidelines that financial institutions could use – consistent with guidelines applicable when dealing with other businesses – to vet relationships with, and service, marijuana-related businesses.
In January 2018, however, Attorney General Sessions rescinded the Cole Memo, reinforcing and restoring broader prosecutorial discretion that could result in prosecution by U.S. Attorneys of marijuana related-activity that is lawful under applicable State law. The situation is further muddled by the oft-renewed (most recently in 2018) Rohrabacher–Farr amendment rider to federal appropriations bills, which forbids the use by DOJ of appropriated funds to prosecute State-authorized medical marijuana activity. This complexity necessitated clarity from New York’s financial regulators.
Against this backdrop, the New York Compassionate Care Act authorizes and regulates a medical marijuana industry in New York State, providing individuals with certain serious medical conditions access to a potentially significant remedy in the form of medical marijuana. The Department states that “limiting legal medical marijuana businesses to operating with cash, and preventing them from establishing and maintaining relationships with regulated financial service providers, is not in the public interest.”
Accordingly, in an effort to ease lawfully operating medical marijuana businesses’ access to the banking system, the Guidance Memo has provided the following affirmative guidance to New York financial institutions (our emphasis):
“[T]he Department encourages New York State chartered banks and credit unions to consider establishing banking relationships with medical marijuana-related businesses that are operating in New York in full compliance with all applicable New York State laws and regulations, including the New York Compassionate Care Act, and the applicable regulations and requirements of [the New York State Department of Health]. The Department further provides guidance that it will not impose any regulatory action on any New York State chartered bank or credit union solely for establishing a banking relationship with a medical marijuana-related business that operates a compliant business in New York, as long as the New York State chartered bank or credit union complies with the requirements of the 2014 Fincen guidance, the guidance and priorities set forth in the Cole Memo, and subject to the institution’s own evaluation of the risks associated with offering products and services and its ability and systems to effectively manage those risks – as our institutions do with regard to all their banking relationships.”
Similar guidance was issued related to industrial hemp business conducted in accordance with New York State law.
It must be noted that notwithstanding the Department’s guidance – significant as it is, emanating from one of the most important State financial regulators in the U.S. – federal law continues to make activity in the marijuana business illegal. Moreover, the mandates of a plethora of federal regulators affect the activities of State-chartered banks (e.g., access to the national banking system via the Federal Reserve Banks, and the availability of FDIC insurance), and there is no consistent guidance from these regulators as to a definitive path forward for State-chartered banks that service the industry. Accordingly, despite the Guidance Memo as well as Fincen guidance and current appropriations riders, financial institutions will have to make independent determinations as to their firms’ risk tolerance in servicing this growing industry, until Congress definitively acts to clarify the existing uncertainty.
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