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CannaBanking in Mississippi: Eliminating the Rules | Bradley Arant Boult Cummings LLP


medical cannabis arrived in Mississippi. What does this mean for banks in Mississippi? The implications of this development are enormous for Mississippi’s financial services industry, as each institution will soon have to determine whether it will knowingly bank the proceeds of the state’s newest industry and, if not case, how to make sure she doesn’t do it unintentionally. .

To make this decision, the financial institution must first understand the federal and state rules and regulations involved.

An Overview of Federal Anti-Money Laundering Laws

If medical cannabis is legal in Mississippi, why is there a barrier to banking the medical cannabis product?

The federal Anti-Money Laundering (AML) laws are the main hurdle for banks serving the cannabis industry. The Bank Secrecy Act (BSA) and its regulations establish various record keeping and reporting requirements for domestic banks, federal savings associations, and foreign bank branches. Like us before Explain, the BSA requires a financial institution to file a Suspicious Activity Report (SAR) when it knows, suspects, or has reason to suspect that a transaction involves funds derived from illegal activities. This would apparently include any transaction involving funds derived from the manufacture, distribution or distribution of cannabis, which is federally illegal under the Controlled Substances Act (CSA).

Over the years, federal regulators have issued a series of guidance notes aimed at clarifying when a bank should file an SAR regarding its cannabis customers. In 2013, the Ministry of Justice published a memorandum for all lawyers in the United States providing advice regarding cannabis law enforcement, better known as the “Cole Memo”. In response to the Cole Memo and the growing number of states legalizing cannabis under state law, the Financial Crimes Enforcement Network (FinCEN) released advice which sought to “clarify[y] how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations” (FinCEN Guidance) in 2014. The FinCEN Guidance requires that a financial institution engaging in substantial cannabis-related business conduct and, most importantly, continue to exercise due diligence in determining whether this company is (1) complying with state law, (2) interfering with any of the eight priorities listed in the Cole Memo, or (3) otherwise engages in “suspicious activity”, including a list of “red flags” listed in the advice. Depending on what the institution discovers in its due diligence, it must then file one of three cannabis-specific SARs and continue to file SARs throughout its relationship with the cannabis-related business.

Although the FinCEN Guidance is an informal guidance document that does not immunize a financial institution from federal prosecution, many financial institutions have relied on it to provide banking services to cannabis companies. In effect, 515 banks and 169 credit unions were providing such services as of December 2020. However, as the American Bankers Association has explained“without congressional action,” the “majority of financial institutions will not take on the legal, regulatory, or reputational risk associated with cannabis banking[.]”

What does the SAFE Banking law do?

By its terms, the SAFE Banking Act is intended to “ensure[e] access to financial services to legitimate cannabis businesses and service providers” by removing some of the legal and regulatory risks that come with it. Key aspects of the law include:

  • Establishing that “proceeds of a transaction involving the activities of a legitimate cannabis business or service provider” are not “proceeds of illegal activity”, so that processing transactions involving this product will no longer constitute money laundering “solely” because the cannabis-derived product.
  • Prohibit federal regulators from terminating or limiting deposit insurance solely because a financial institution provides services to a legitimate cannabis-related business.
  • Prohibit federal regulators from taking adverse action against financial institutions or discourage them from providing services to legitimate cannabis-related businesses.
  • Protect depository institutions from civil, criminal or administrative forfeiture of assets for providing financial services to legitimate cannabis businesses.
  • Changes to SAR reporting guidelines for legitimate cannabis businesses.
  • Ask the Financial Crimes Enforcement Network to publish guidelines and review procedures for financial institutions transacting with legitimate cannabis-related businesses.

Will the SAFE Banking Act pass?

Prospects for the SAFE Banking Act to come into force have gone up and down for more than two years. The act was introduced for the first time by Rep. Ed Perlmutter on March 7, 2019, but he did not receive the support needed to pass the Senate.

The law reappeared in both the House and Senate with more bipartisan support in March 2021. Representative Perlmutter again introduced the SAFE Banking Act – HR 1996 – this time with 180 cosponsors (154 Democrats and 26 Republicans) . Around the same time, Sen. Jeff Merkley introduced a similar bill — S. 910 — with 39 cosponsors (28 Democrats, nine Republicans, and two independents). The law was passed by the House on February 4, 2022 as part of the America COMPETES Act of 2022. The Senate previously passed a version of the COMPETES Act without the cannabis banking provision, so the Senate must yet to act favorably before the SAFE Banking Act can become law.

As we recently wrote, there appear to be enough votes in both houses of Congress — including Republican votes — to pass the SAFE Act if it receives a direct vote. The more difficult question is whether those leading the charge for federal cannabis reform will allow the proposal to be put to a piecemeal vote or whether they will insist that lawmakers vote on a broader reform package. as a whole (including widespread decriminalization, expungement of previous marijuana convictions, etc.). If the latter, I think Republicans may balk at some of the more progressive provisions. If that happens, we’ll see if the more outspoken proponents of cannabis reform are ready to score a narrower victory or if they will insist on an all-or-nothing approach.

Mississippi Law

The Mississippi Medical Cannabis Act addresses the issue of medical cannabis banking, make clear this “[a] the bank may provide services to any person or entity licensed in that state to engage in the business of medical cannabis, or to any person or entity engaged in a business relationship with such licensee, if the bank provides such services to any other business. Further, a bank and its officers, directors, agents, and employees are not liable under any state law or regulation solely for (a) providing financial services to a licensed medical cannabis establishment or (b) investing any income from the provision of financial services to a licensed medical cannabis establishment. On the other hand, a bank is not required provide financial services to a licensed medical cannabis establishment.

These provisions appear to provide a safe harbor for Mississippi banks wishing to provide banking services to cannabis consumers. The confounding factor, however – and as is so often the case in the cannabis industry in the United States – is that cannabis is still illegal at the federal level. Banks in Mississippi are therefore generally still subject to the federal AML laws described above.

Take away food

So, is the juice worth it? Are There Risks Associated With Cannabis Business Banking Products? Yes. But again, risk is inherent when financial institutions provide services to any industry. The cannabis industry, however, presents financial institutions with unique challenges and unique opportunities. And, as is so often the case when it comes to deciding matters involving questions, the answer likely depends on how each financial institution approaches risk-benefit analysis.

For financial institutions looking for new revenue streams, the cannabis industry is creating new opportunities through low-cost deposits, cash management fees, cash management services, and more. While cannabis businesses will always present compliance challenges for financial institutions, those willing to invest in the infrastructure necessary to manage relationships with this high-risk industry should reap significant rewards.