Banking for an Emerging Industry

Since Arkansas voters passed the Medical Marijuana Amendment in November of 2016, entrepreneurs have been working feverishly on business plans for cultivation facilities, dispensaries, testing facilities and other marijuana-related businesses or “MRBs.” No wonder. In 2017, legal cannabis sales topped nine billion dollars in the 29 states (plus the District of Columbia) where state law permits the sale of marijuana for medical or recreational purposes, or both. Yet, many of these state-legal MRBs do not have access to bank accounts or traditional financial services.  What’s going on here and why? And how will this impact Arkansans wishing to purchase medical marijuana?

One obvious legal conflict is that banks are federally regulated, while marijuana is still considered a Schedule I controlled substance under the Federal Controlled Substances Act. The vast majority of banks have opted not to bank MRBs because of the risk of of hefty fines for non-compliance with federal banking regulations. Under the Bank Secrecy Act and other anti-money laundering laws ("BSA/AML"), banks are required to report all suspicious illegal activity to FinCEN, a division of the U.S. Treasury. Most state-legal markets transact largely in cash, even giving rise to the cottage industries of cash transportation and security, which have become a significant part of most dispensaries’ operating budgets.

However, a handful of banks across the country have been accepting deposits from the cannabis industry, thanks to FinCEN-issued guidance on how to report their dealings with state-legal cannabis enterprises without running afoul of their obligations under BSA/AML. This guidance doesn’t address the myriad of other legal issues that surround the conflict between state and federal law, but it did provide a framework under which a few banks have begun to serve the industry.

The FinCEN guidance was prompted by the Justice Department’s 2014 release of the Cole Memos, which set forth law enforcement priorities with respect to state-legal MRBs. Before then, it was not uncommon to hear of MRBs disguising the true nature of their businesses in order to open bank accounts, or even for them to bank offshore.  Though generally well-intentioned, these strategies could easily implicate business owners in money laundering or fraud.  Even today, many business owners still believe they have no other option, especially if they want to be able to accept payments electronically, which is exactly how the vast majority of consumers now prefer to pay.

Further muddying these murky waters, Attorney General Jefferson Sessions recently rescinded the Cole Memos.  However, the FinCEN guidance for banking MRBs remains in place as of today.  This policy dissonance continues to keep major financial players from serving the industry, including Mastercard and Visa. However, innovators have stepped up to fill the void. The banks and payment companies that choose to work with MRBs are generally smaller, regional organizations, using technology to assist with their compliance and regulatory filings. These smaller entities are able to bring financial services to this high-growth industry, and cannabis cash is slowly being removed from the streets and placed into the banking system where it belongs.

Given the current political climate and disjointed nature of state and federal law, Arkansas’ newest industry will need to operate either in cash or through an alternative payment method. The good news is that we have a long history of financial innovation. It should come as no surprise that local entrepreneurs are developing new ways of navigating banking challenges for MRBs. 

MediPays is one such alternative available to MRBs in Arkansas. Much like a health savings account, patients can load money into their MediPays mobile wallet to be spent at participating dispensaries. MediPays has partnered with an established and reputable Arkansas bank to launch its closed-loop payment system where patients and MRBs can transact electronically without the costs and risks of cash. MRBs can use MediPays and its partner to bank their money in an FDIC insured account, pay bills, manage payroll, and create financial reporting.

To learn more about MediPays or to ask further questions about marijuana purchases and banking in Arkansas, contact Dan Roda or Brian Bauer at