When states across the country, including California, began legalizing recreational cannabis, they did so primarily because of the huge financial upside generated by tax revenue from the industry. It was, quite simply, money in the bank. Yet for many commercial cannabis businesses, that term has taken on a darker meaning, because federal illegalization effectively prevents these entities, which are operating legally under state law, from obtaining banking services.
Under federal law, it is illegal to manufacture, distribute or dispense cannabis unless the activity is compliant with the Controlled Substances Act of 1970 (the “CSA”). With respect to banking, however, the question of enforcement depends on federal priorities, specifically the current and future policies of the Department of Justice (“DOJ”) and Treasury. Congress could amend the CSA or the various federal anti-money laundering laws to resolve inconsistencies and effectively legalize banking for the commercial cannabis industry, but it has yet to do so. Hope springs eternal that a federal law change is on the horizon following the 2020 election.
So how do industries outside of the cannabis sphere interface with these potential clients while minimizing their risks? Many cannabis businesses handle large amounts of cash as a result of their banking issues and are left asking vendors to take cash payments for their services. This puts vendors—like yourselves—in the difficult position of determining their potential exposure when depositing cash from cannabis clients in their own bank accounts. Under existing federal laws, any cash received and deposited from a cannabis business remains tainted as arising from the trafficking of a federally illegal controlled substance, namely cannabis.
This means that any cash you accept from cannabis clients is, in essence, fruit from the poisonous tree for purposes of anti-money laundering laws. While federal enforcement in this space is virtually nonexistent at present, and what enforcement there is tends to be against the cannabis businesses themselves, there are a few important ways to insulate your business from potential liability.