Cole Memo

U.S. Attorney General Jeff Sessions earlier this month rescinded the Cole Memo, an Obama administration guidance that essentially said the federal government would not interfere with marijuana programs in states in which they are legal.

U.S. Attorney for Massachusetts Andrew Lelling followed that up a few days later, saying in a statement that he could not “provide assurances that certain categories of participants in the state-level marijuana trade will be immune from federal prosecution.”

But despite the language, which some consider to be a federal crackdown, industry experts and lawyers say nothing has changed for banks when it comes to deciding whether or not to bank marijuana deposits.

“We believe and are optimistic that the DOJ’s ‘reversal’ will not have a significant impact upon the present course of the cannabis industry in Massachusetts,” said Frank Segall, co-chair with Scott Moskol of the Cannabis Advisory Group at the Boston-based law firm Burns & Levinson.

That’s because the Cole Memo was not a law, but a direction to try to provide some clarity at that time, Moskol said.

“Presently, the federal government remains barred from using federal funds to prosecute properly licensed, compliant medical marijuana facilities as a result of the bipartisan Rohrabacher-Blumenauer Amendment; such protections are silent as to adult-use marijuana,” he said.

Even when the Cole Memo was intact, banks were extremely cautious about working with the marijuana industry, and very few have tested the waters.

Medford-based Century Bank is the only bank in Massachusetts known to be willing to do business with marijuana dispensaries. However, a marijuana investor told the audience at a marijuana conference last October that there were three state-chartered banks in Massachusetts working with marijuana businesses at that time.

Momentum has undoubtedly been building given the potential size of the marijuana industry.

Moskol and Segall say they have seen increased interest in the area.

There were 400 financial institutions in the U.S. banking marijuana businesses as of Sept. 30, 2017, up from 340 nine months earlier, according to the Financial Crimes Enforcement Network.

Katrina Skinner is the general counsel at Safe Harbor Services, a subsidiary of Partner Colorado Credit Union, which offers an automated compliance platform to help financial institutions provide financial services to marijuana business.

She said that only one beta financial institution Safe Harbor Services is working with has gotten spooked since the rescinding of the Cole Memo.

The Consequences

While it may not have been a law, rescinding the Cole Memo, a move that Skinner considers an attempt by Sessions to try to slow down the momentum of legalized marijuana, did send some upheaval through the industry.

Various media outlets reported earlier this month that numerous medical dispensaries in Massachusetts had to stop accepting debit cards after the payment company facilitating the transactions called to say that movement at the federal level made it too risky.

“My opinion is that the dispensaries taking debit or credit cards are likely doing it under the radar because Mastercard and Visa do not want to be in the space right now,” said Skinner. “So, for those processors, the Sessions memo likely reinforced their fear of prosecution under anti-money laundering laws.”

This could be a big hit for business.

According to Skinner, the demand from consumers and users of patients and customers in Colorado is 25 percent to 30 percent higher when plastic can be used.

But Skinner agreed with Segall and Moskol that the movement will not slow down; more banks are now willing to do an extraordinary amount of due diligence in order to enter the industry.

The best method, according to Moskol, is to not only check for compliance and a license, but to also make sure the customer is asking for information and disclosures from the bank.

Safe Harbor’s platform helps this process by working with both the financial institutions and the marijuana businesses to make sure all operations comply with the local rules and regulations of the Bank Secrecy Act, FinCen guidelines and anti-money laundering requirements.

It first assists the marijuana business with the onboarding process, which includes critical document collection and review, a full operational review, background checks, a business practice and, formerly, a Cole Memo compliance review.

The platform, which has a fintech option in areas of the country where there are no financial institutions willing to bank marijuana, also does constant monitoring, compliance reporting and independent program reviews.

The company has been able to reduce the time it takes perform due diligence from months to weeks, and it has also been through numerous regulatory exams. It hopes to set the national standard for compliance when banking marijuana.

“It’s very labor intensive,” said Skinner. “But I think it’s really helped the industry grow and consolidate some, and become more of a traditional enterprise as opposed to one that is cash-driven.”

As the industry continues to expand – California recently began recreational marijuana sales and Massachusetts will follow suit later this year – Sessions’ move to rescind the Cole Memo may be a push for quicker action.

“It’s very possible that the DOJ’s action will galvanize Congress to delist cannabis as a schedule 1 controlled substance or result in an amendment to the Rohrabacher-Blumenauer Amendment, thereby further legitimizing this industry,” said Segall.

Obama Administration’s Cole Memo Was Guidance, Not Law

by Bram Berkowitz time to read: 3 min