Legal Haze Thickens for Pot Businesses

October 23, 2015 at 9:00 am 5 comments

Anyone in a credit union considering offering banking services to marijuana businesses should take the time to make sure that their attorney is paying close attention to litigation between the Federal Reserve Bank of Kansas and the Fourth Corner Credit Union of Colorado. (See Fourth Corner Credit Union v. Federal Reserve Bank of Kansas, U.S. Dist Ct, CO, 15-cv-01644). This case has national implications. It may well clarify the legality of state efforts to legalize pot businesses.

As I explained in a previous blog, Colorado has one of the most liberal marijuana laws in the Country. Its policy makers grew so frustrated with the inability of marijuana businesses to access basic banking services that the state approved a state charter for the Fourth Corner Credit Union. Remember that even though marijuana businesses are still illegal as a matter of federal law, the Justice Department has issued guidance – the Cole Memorandum – detailing the circumstances under which federal prosecutors will forgo enforcement of these laws.

The credit union adopted a detailed BSA policy to conform with the memorandum’s mandates. It also applied for Share Insurance Coverage and a Master Account at the Federal Reserve Bank of Kansas City. The credit union might be able to get private insurance, but without a Master Account it cannot effectively provide banking services.

So, when the NCUA declined to provide Share Insurance, it was a big deal. But it was an even bigger deal when the Federal Reserve quickly followed suit and rejected the credit union’s application. These rejections set the stage for a lawsuit that will clarify the state of federal law in the absence of much needed Congressional intervention. I just finished reading the Federal Reserve’s motion to dismiss the lawsuit. The Federal Reserve argues that irrespective of any actions taken by the State of Colorado, marijuana remains illegal as a matter of federal law. For instance, in notes that “of course the manufacture and distribution of marijuana is prohibited by federal criminal law. . .so is aiding in the manufacture, distribution and dispensing of marijuana. . .even transporting or transmitting funds known to have been derived from the distribution of marijuana is illegal.”

As for arguments that the Cole Memorandum sanctions state laws legalizing marijuana, the bank argues that neither finCEN nor the DOJ can or has legalized marijuana businesses. Whether you agree or disagree with the government’s position in this case, the fact that it is making these arguments underscores just how unsettled this area of the law is. To be clear, New York’s law is vastly more restrictive than Colorado’s as it is designed to make sure that marijuana is used only for medical purposes. Nevertheless, the Federal Reserve certainly has a good faith basis for arguing that with or without state laws and DOJ guidance, marijuana businesses remain illegal unless and until Congress votes for change.

Entry filed under: Legal Watch, Regulatory. Tags: , , .

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5 Comments Add your own

  • 1. Paula B. Givens, JD  |  October 24, 2015 at 12:28 am

    Notwithstanding the Fed’s position in its Motion to Dismiss, it continues to accept cash deliveries from Garda, Blue Line and others known to be delivering funds from lawful cannabis businesses. This disconnection is typical of governmental entities and the distinct divisions therein. Not infrequently, the left hand does not know, or does not want to know, what the right hand is doing.

    The Fed’s motion underscores the need for clear legislation to guide the many federal agencies involved here, including the FDIC, OCC, Federal Reserve, NCUA, and various divisions within the Department of Treasury. Consistent regulatory policies spread among the various agencies responsible for the regulation of financial institutions is what is called for here, but quite unlikely anytime soon.

  • 2. Henry Meier  |  October 26, 2015 at 10:37 am

    Amen Paula-The NCUA is following the Cole memo for examination purposes even as it questions the ability of Fourth Corner to adhere to its mandates!! I don’t blame the regulators I blame Congress which has placed them in an impossible position

  • 3. Dave  |  October 27, 2015 at 12:51 am

    There is an E-Wallet solution that provides financial services

  • 5. Reefer Madness! | new york's state of mind  |  December 14, 2016 at 9:57 am

    […] can provide services for marijuana business in states where they are legal. On the other hand, the Federal Reserve and NCUA blocked a state chartered credit union in Colorado from obtaining access to the Federal Reserve System. In […]


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Authored By:

Henry Meier, Esq., General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association.

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