The newly-legalized medical marijuana industry in Massachusetts tests the dichotomy between federal and state law, and the state’s banks don’t want to be the legal lab rats for the drug trial.
On Feb. 14, banks got a Valentine’s Day card from the U.S. Treasury in the form of guidelines for taking on licensed marijuana sellers as business clients, requiring that the banks file reports confirming that a dispensary is compliant with local laws. In late August of last year, the Department of Justice said it would instruct federal attorneys not to pursue cases against medical marijuana commerce in states in which it is legal.
On one hand, Treasury is asking banks to take on the responsibility of conducting due diligence on client dispensaries, while the DOJ wants federal prosecutors to call off the dogs. But those puzzle pieces don’t fit.
Massachusetts-based banks are understandably reluctant to take on dispensaries as business clients. As Jon Skarin, senior vice president of the Massachusetts Bankers Association, told the Taunton Gazette, without a change in federal law, a different administration, attorney general or regulator could take action that would put banks at risk. Several Massachusetts-based banks concurred. The directives don’t change the federal statute, they say, and simply impose more regulatory burden on banks.
So, many dispensaries still do a cash-only business, whether they want to or not – and their caution extends to applying for licenses to operate within the state. The Taunton Gazette reported that one dispensary had its application for a license rejected by the state Department of Public Health because its principal withdrew $1.3 million from his organization’s bank accounts the day after applying. He returned the funds to his investors, who had reportedly signed custodianship agreements.
Yes, reading that, it looks really bad. But the principal said that he took the action because he feared his bank accounts were about to be shut down, and he couldn’t jeopardize his investors’ stakes. He reportedly hopes to re-apply.
The medical marijuana trade is only slowly emerging into mainstream commerce acceptance, and it will likely take some time and effort at the federal level to establish a rationale to alter the federal statute. Meanwhile, marijuana has already been demonstrated to be an alternative to opioids in the management of pain and nausea, and as a therapeutic for glaucoma.
An old story from one of our staff’s family vaults: A woman who had been an advocate for Prohibition when it was enacted was actually relieved when it was repealed. Her husband kept drinking all through the Prohibition era and his beverages of choice were not always safe. With repeal, the woman reasoned, at least the stuff he drank would be bonded, and wouldn’t make him blind, or worse.
We’re sure that banks finance a lot of liquor stores these days. As for marijuana, regardless of whether one has ever inhaled, having safe, regulated and legally available marijuana would provide a safe and useful business opportunity for banks that want to support what is now widely considered an alternative medicine.
