Part III: Confronting the Banking Dilemma for State-Licensed Marijuana Businesses in the United States

By Tenzin GGT and Richard Pollak ​

Tenzin _Pollack
Pictured left to right: Tenzin GGT and Richard Pollak

This article analyzes the conflict between federal and state marijuana laws, and its impact on the inability of state-legal marijuana businesses to obtain traditional and fundamental types of banking services from federally insured banks. The article is divided into three parts: (i) an explanation of the conflict of state and federal marijuana laws; (ii) the effect of the conflicting laws on the decision of banking institutions to provide services to state-licensed marijuana businesses; and (iii) congressional and judicial attempts to resolve the conflict between state and federal marijuana laws.

Part III: Judicial & Congressional Remedies to the Marijuana Dilemma

The United States Congress is in the best position to resolve the conflicting marijuana laws of this country. Although the CSA provides for an administrative measure to modify or remove the categorization of a controlled substance from its scheduled tier, history has shown that Attorney Generals are highly reluctant to initiate rule-making proceedings to do so, despite the petitions of many interested parties. Some Americans have completely given up on that hope and sought relief with the highest court of the land, but given the position of the majority of federal courts who have spoken on the issue, it’s unlikely that the granting of an adequate judicial remedy should be expected in the near future.

Congress has been far from silent or ignorant on the conflicting federal and state marijuana laws, and the concerted efforts by pro-marijuana constituents to reform the CSA have not fallen on deaf ears. The problem, as is always the case in Congress, is obtaining the majority bi-partisan votes needed to pass legislative reforms that have already been introduced to remove the barriers for state-licensed marijuana businesses in obtaining fair and equal access to banking and financial institutions.

Petitions to the Attorney General to Reschedule Marijuana as a Schedule 1 Drug

Although Congress drafted the CSA with provisions that allowed for the rescheduling and removal of marijuana, the Attorney General has never initiated rule-making proceedings to do so despite the petitions of many “interested” parties. Part of the reason for the AG’s reluctance and inability to challenge the legal characterization of marijuana as a Schedule 1 controlled substance is attributable to the DHHS’ consistent stance on marijuana’s lack of medical efficacy. What’s evident is that many supporters of federal marijuana reform are jaded with attempting to pursue reformation under the administrative remedy provided under the CSA.

In the case of Washington v. Barr, the United States Court of Appeals for the Second Circuit contemplated whether or not plaintiffs could circumvent the administrative procedures under the CSA and seek immediate judicial relief in their effort to strike the classification of marijuana as a Schedule 1 drug.

Marvin Washington, a former NFL player and African-American businessman who worked in medical marijuana industry, claimed that scheduling of marijuana under the CSA impeded him from applying to the federal Minority Business Enterprise Program.[1] Washington and several other plaintiffs, who asserted that they used marijuana as a “life-saving medication”, sought declaratory relief and an injunction in the Southern District of New York against the Attorney General from enforcing the CSA with respect to marijuana before seeking administrative relief under the CSA. [2] One of the Plaintiffs’ key arguments was that the administrative process was not expedient enough to afford them adequate relief.

The Court of Appeals ruled that although the CSA didn’t require the exhaustion of administrative remedies, Plaintiffs must in the first instance petition the AG to initiate rule-making procedures before seeking judicial relief because that was what Congress had intended when it enacted the CSA.[3] Furthermore, the court also held that none of the three judicially created exceptions to requiring the exhaustion of remedies under administrative procedures applied in this case.

In an interesting and unusual twist, the Court of Appeals decided to retain jurisdiction of the case because they were sympathetic to the Plaintiff’s alleged injuries, and stated that the plaintiffs who claimed that marijuana had life-saving medicinal properties should not be required to “live indefinitely with uncertainty about their access” to marijuana.[4] The Court held that it would keep jurisdiction of the case, instead of affirming the lower court’s decision to dismiss it, in order to take “whatever action that may become appropriate if the DEA fails to act promptly.”[5] In stating that the plaintiffs should not be unduly prejudiced by “delay”, the court recognized that in the past, the Attorney General had failed to act timely upon the petitions of interested parties under the CSA.[6]

The plaintiffs in the Washington case were not satisfied with the result of their appeal to the Second Circuit and in brazen defiance announced that they would not pursue an administrative policy change as the court had recommended, and instead sought to appeal their case to the Supreme Court.[7]

The Cole Memo and Its Rescission

In 2013, during President Obama’s administration, the former Attorney General James Cole, issued a four-paged guidance memorandum (the “Cole Memo”) to all U.S. attorneys of the Department of Justice that concerned the prosecution of state-legal marijuana operations.[8] The memorandum contemplated the conflict of federal and state marijuana laws and was a swift and direct response to the 2012 legalization of marijuana in the states of Colorado and Washington. The memo was modeled after Deputy Attorney General David Ogden’s 2009 letter to federal prosecutors to “not focus federal resources… on individuals whose actions are in clear and unambiguous compliance with existing laws providing for the medical use of marijuana.”[9]

The Cole Memo directed federal attorneys to focus their resources in the enforcement of the CSA against marijuana-related conduct to eight specific categories, including preventing: the sale of marijuana to minors; the growing of marijuana on public land; and the sale of marijuana from going to criminal enterprises like the Mexican cartel.[10] The memo asked federal attorneys to trust in the state and local governments’ ability to enforce the regulatory regimes they had established to monitor and manage the sale of recreational and medicinal marijuana.[11]

Although the Cole Memo did not have the force of law, it was an important administrative step in addressing the gray area between federal and state marijuana laws. the Cole Memo doesn’t have the same effect that an initiation of rulemaking proceedings to reschedule or remove marijuana from the CSA would have, but it was far more than just a neutral position on the issue and helped to reduce the fear of federal prosecution for the banking and financing institutions interested or already involved with state-licensed marijuana businesses.

When the Cole Memo was repealed by Attorney General Jeff Sessions in 2018, experts in the state-legal marijuana industry reacted by stating that the effect of the repeal would primarily be on the ability to “secure funding from investors” and would exacerbate the “already difficult banking” problem.[12] Although guidance materials like the Cole and Ogden Memos were useful for banking institutions because it gave them perspective on the Attorney General’s broad position on federal marijuana regulation, they were only temporary solutions to a much bigger dilemma. 

The Rohrabacher-Farr Amendment (H.R. 2758)

H.R. 2578 (the “Farr Amendment”) was introduced in the House of Representatives in 2001, and enacted into law by way of the FY 2016 Omnibus Appropriations Bill, signed into law by President Obama on December 18, 2015.[13] The Farr Amendment has been included as a rider bill in every federal omnibus-spending bill since its enactment. The Farr Amendment prohibits federal agencies from using federal funding to “prevent states from implementing their own laws that authorize the use, distribution, possession, or cultivation of medical marijuana.”[14]

Although the Farr Amendment does nothing to prevent federal agencies from enforcing the CSA as it relates to state law on the sale and use of recreational marijuana, the amendment was the first instance in which the ability of the U.S. Department of Justice to use federal funds to prosecute violations of cannabis-related federal law was congressionally prohibited.

The effect of the Farr Amendment had a significant impact for state-licensed marijuana businesses. In 2019, a San Francisco County Superior Court judge ordered the federal government to return $257,753 of seized cash to Wild Rivers Transport, a licensed marijuana distribution company in CA, after federal authorities had seized the business’ marijuana proceeds from their delivery truck during a traffic stop. The Superior Court judge’s decision in that case was influenced in part by the impact of the Farr Amendment.[15]

The Secure and Fair Enforcement (SAFE) Banking Act of 2019 (H.R. 1595)

The SAFE Banking Act of 2019 (the “SAFE Act”) was proposed in the House of Representatives to specifically tackle the disposition of money obtained from the state-licensed sale of marijuana in the United States. The SAFE Act provides a safe harbor for depository institutions by disallowing federal banking regulators from terminating or limiting the deposit insurance under the Federal Deposit Insurance Act “solely because the depository institution provides or has provided financial services to a cannabis-related legitimate business or service provider.”[16]

The SAFE Act directs the Secretary of Treasury to ensure that financial and banking institutions that are subject to filing suspicious activity reports under the BSA will not be inhibited from the “provision of financial services to a cannabis-related legitimate business or service provider in a State… that has allowed the cultivation, production, … [and] sale of cannabis.”[17]

Furthermore, the SAFE Act prevents Federal-banking agencies from requesting or ordering a depository institution to “terminate a specific customer account … or otherwise restrict[ing] a depository institution from entering into or maintaining a banking relationship with the specific customer … unless the agency has a valid reason for such a request or order.” [18]

If the SAFE Act were to be enacted, Congress would have effectively addressed almost all of the major financial risks that banking institutions have in providing banking services to state-licensed marijuana businesses. Banks would no longer have to be concerned about losing their federal deposit insurance and the Secretary of Treasury would have to make a concerted effort in addressing the administrative and financial burdens imposed on banks to submit a large volume of SARs. In addition, the SAFE Act also protects state-licensed marijuana businesses from having their bank account suddenly closed or have their applications to open a bank account rejected without proper cause. What the SAFE Act does not do is address the potential for civil seizure and forfeiture of assets, property, and money in connection with the state-licensed sale of marijuana under the CSA and the RICO Act.

Marijuana Opportunity Reinvestment and Expungement (MORE) Act of 2019 (S.2227)

The MORE Act is a one-stop solution to the conflict between federal and state marijuana laws. It would effectively remove marijuana and tetrahydrocannabinols from the classification of a Schedule 1 drug under the CSA within 180 days of its enactment.[19]  In addition, the MORE Act directs the Small Business Administration to establish the Cannabis Opportunity Program, which would provide small business loans to businesses and entrepreneurs seeking to enter into the legal marijuana industry.

The removal of marijuana from the CSA would relinquish most of the current legal concerns banks face when providing legitimate marijuana businesses with basic and sophisticated financial and banking support. If the sale of marijuana is not a federal crime, banks do not have to worry about civil seizures of assets, being subject to a RICO investigation, or losing their depository insurance.

Furthermore, as a result of allowing marijuana businesses to access banking tools like electronic wiring, the marijuana industry’s dependency on cash transactions will decrease; therefore reducing the amount of SARs banks will have to report under the BSA.


The modern marijuana industry is booming. Just like any other modern business, state-licensed marijuana businesses need to be able to perform banking and financial transactions with the assurance that their access to such crucial services will not be deprived from them through no fault of their own. In addition, banks should also be free from the risk of losing their federal deposit insurance or be subject to a RICO investigation simply because they offer banking services to a marijuana-related business. Lastly, the administrative and financial burdens of filing SARs under the BSA will resolve itself when federal law protects the right of licensed-marijuana businesses to access banking services. Congress must quickly pass the MORE Act and SAFE Act in order to promote an efficient regulatory regime to manage the growing demand for recreational and medicinal marijuana.

[1] Washington v. Barr, 925 F.3d 109, 113 (2d Cir. 2019).

[2] Id. at 114.

[3] Id. at 116.

[4] Id. at 120 (“Plaintiff’s claim that marijuana has extended their lives, cured seizures, and made pain manageable. If true, these are no small things.”).

[5] Id. at 121.

[6] Id.

[7] Kyle Jaeger, DEA Marijuana Scheduling Lawsuit Will be Appealed to Supreme Court Following Dismissal, MARIJUANA MOMENT, April 23, 2020, (The Second Circuit Court of Appeals dismissed the case soon after the plaintiffs had made their announcement).  

[8] James M. Cole, Memorandum for all United States – Guidance Regarding Marijuana Enforcement, U.S. Department of Justice, August 29, 2013, (hereinafter, “The Cole Memo”).

[9] David W. Ogden, Memorandum for Selected United States Attorneys – Investigations and Prosecutions in States Authorizing the Medical Use of Marijuana, U.S. Department of State, October 19, 2009,

[10] The Cole Memo, at pg. 1-2.

[11] Id.

[12] Brad Auerbach, How Cannabis Entrepreneurs Feel About Sessions’ Revers of the Cole Memo, FORBES, March 3, 2018.

[13] Consolidated Appropriations Act of 2016, H.R. 2029, 114th Cong. (2015).

[14] Commerce, Justice, Science, and Related Agencies Appropriations Act, 2016, H.R. 2578, 114th Cong. (2016).

[15] Federal Agents Return $250k Seized From Licensed CA Marijuana Distributor, MARIJUANA BUSINESS DAILY, June 12, 2019.

[16] Secure and Fair Enforcement Banking Act of 2019, H.R. 1595, 116th Cong. (Introduced March 7, 2019).

[17] Id.

[18] Id.

[19] Marijuana Opportunity Reinvestment and Expungement Act of 2019, S. 2227, 116th Cong. (Introduced July 23, 2019).


About the Author

Tenzin GGT is a graduate of the American University Washington College of Law. While in law school, Tenzin was a law clerk for a telecommunications law firm in Tysons Corner, Virginia, where he worked on complex tort litigation, performed licensing transactions, and provided guidance to clients on regulatory and compliance matters.

Richard M. Pollak is a partner at Troutman Pepper based in the national law firm’s Washington, D.C. office. Pollak structures, negotiates and executes complex domestic, cross-border and multinational financing transactions, including high net worth deals. He is particularly experienced in representing financial institutions and other lenders in asset-based financings, tech lending, loan workouts and restructurings, and secured financings to government contractors.