United States: Developments In The Marijuana Industry And The Implications For Financial Institutions

The myriad—and conflicting—state, federal and international laws governing the burgeoning marijuana industry have created a complicated legal landscape for financial institutions. In the United States, most states have legalized some form of marijuana use, but the manufacture, sale and distribution of marijuana nevertheless remains illegal under federal law. As a result, in providing financial products and services to US marijuana-related businesses (MRBs), a financial institution could risk violating the Controlled Substances Act (CSA), 21 U.S.C. § 841. Moreover, engaging in or facilitating transactions that contain proceeds from US marijuana sales could create liability under the money laundering laws.

Further complicating matters, Canada became the first major world economy to legalize recreational marijuana in October 2018. Because the US narcotics laws generally do not apply to activity that is legal abroad, providing financial products and services to Canadian MRBs would not violate the CSA or implicate the US money laundering laws. However, that is not the case in many European countries. The European Union recently passed a law expanding the extraterritorial scope of member countries' money laundering laws with respect to certain narcotics-related offenses. These laws could now criminalize the transfer of funds from activity that is legal in the foreign country (e.g., marijuana sales in Canada) if that activity would be illegal in the home country.

Below we discuss the fragmented legal and regulatory landscape governing the marijuana industry as well as notable recent developments and their implications for global financial institutions.

The US Narcotics Laws

In the United States, 46 states have legalized marijuana for medical and/or recreational use in some form. Medical marijuana is used to control seizures, ease glaucoma and combat the loss of appetite caused by chemotherapy, among other treatments. Notwithstanding these developments, the manufacture, sale and distribution of marijuana for any purpose continues to be a violation of the CSA even in states that have legalized its use at the state level. As a result, businesses that manufacture, sell or distribute marijuana in the United States are generally operating in violation of federal law.

The federal government, however, has issued directives that create uncertainty regarding the likelihood of marijuana-related prosecutions. Department of Justice (DOJ) officials in the Obama Administration had issued several memoranda, known as the "Cole memoranda," deprioritizing federal criminal prosecutions involving state-regulated marijuana businesses based on a set of eight priority factors.1 On January 4, 2018, former Attorney General Jefferson Sessions rescinded that guidance and instructed federal prosecutors to determine "which marijuana activities to prosecute" based on the "well-established principles that govern all federal prosecutions."2 Practically, this means that federal marijuana enforcement priorities will be determined by individual United States Attorneys' Offices. Although Attorney General Sessions' memorandum did not alter the status of marijuana under federal law—marijuana commerce remained illegal even after the Cole memoranda were issued—the rescission of the Cole memoranda increased the risk of prosecution for marijuana-related commerce. Attorney General nominee William Barr has not yet decided whether he would formally reinstate the Cole memoranda if he is confirmed, but he has announced that he "do[es] not intend to go after parties who have complied with state law in reliance on the Cole memorandum."3 The risk of prosecution with respect to medical marijuana is much lower because Congress has limited DOJ's ability to use federal funds to enforce the CSA with respect to state-legalized medical marijuana businesses through the Rohrabacher-Blumenauer Amendment.4

The 2018 Farm Bill, Industrial Hemp and CBD

Industrial hemp and products derived from hemp, such as cannabidiol (CBD), create yet another source of uncertainty. In December, Congress passed and the president signed the long-awaited 2018 Farm Bill, which removes industrial hemp from the CSA's definition of marijuana and expands legal cultivation of industrial hemp.5 CBD and other extracts derived from industrial hemp are no longer Schedule 1 drugs under the CSA.

The cultivation of industrial hemp and the manufacture and sale of CBD products, however, are still subject to state laws and regulations as well as Food and Drug Administration (FDA) regulation. Although some states had legalized hemp and CBD prior to the 2018 Farm Bill, industrial hemp and CBD products remain illegal (at least for now) at the state level in many states. Other states regulate CBD as a form of medical marijuana and allow its use by patients with prescriptions. And it remains to be seen how state regulation of industrial hemp and CBD may change in response to the 2018 Farm Bill.

Additionally, the FDA's approach to regulating CBD is not yet clear. The FDA has indicated that it may regulate CBD as a pharmaceutical drug (subject to the FDA drug-approval process) rather than as a dietary supplement.6 And the FDA recently approved a childhood epilepsy drug, Epidiolex, whose active ingredient is CBD. The FDA has also issued warning letters addressed to CBD manufacturers and retailers who claim unproven health benefits from CBD, but it has not yet brought enforcement actions against CBD manufacturers.

The US Money Laundering Laws

The risk of providing products or services to marijuana-related businesses is not limited to narcotics laws. The US money laundering laws make it a crime to conduct a financial transaction with proceeds of "specified unlawful activity," provided that a defendant has the requisite knowledge and/or intent. See 18 U.S.C. §§ 1956, 1957. It is also a crime to transport, transmit or transfer funds internationally for the purpose of promoting a specified unlawful activity even if the funds are derived from a legitimate source. See 18 U.S.C. § 1956(a)(2).

As relevant in the context of marijuana commerce, federal, state and foreign narcotics offenses constitute specified unlawful activity. As a result, if an entity engages in a financial transaction knowing that the property involved represents the proceeds of some unlawful activity (e.g., US marijuana sales or foreign marijuana sales in other countries where marijuana remains illegal) and intends to promote the carrying on of unlawful activity, it may violate the US money laundering laws. If a transaction exceeds $10,000, intent to promote the underlying activity is not required. See 18 U.S.C. § 1957. The government need only establish that the entity knowingly engaged in a monetary transaction in property derived from specified unlawful activity with a value greater than $10,000.

Implications for Financial Institutions in the United States

The complicated legal status of marijuana in the United States has potentially serious implications for financial institutions. A financial institution that provides products or services directly to a US MRB could be viewed as conspiring to violate or aiding and abetting a violation of the CSA because such services promote or facilitate the US MRB's business. The potential money laundering risk arises where the financial institution receives or transfers funds from a US MRB that it knows are derived from the sale of marijuana. The money laundering risk is greater for transactions that exceed $10,000 because specific intent to promote the underlying criminal activity is not required; the government need only prove that the transaction contained crime proceeds and that the financial institution had knowledge or was willfully blind to that fact.

The money laundering risk is not limited to direct transactions with US MRBs. There may also be risk in providing products and/or services to businesses that support US MRBs, such as companies that manufacture fertilizer and packaging materials or even provide accounting or legal services. Businesses that support US MRBs may engage in transactions with funds that contain proceeds from US marijuana sales (i.e., crime proceeds), and the receipt or transfer of such funds by a financial institution could expose a financial institution to liability under the US money laundering laws. The risk of providing products or services to such supporting businesses is lower than for providing products and services directly to US MRBs, but financial institutions can further mitigate their risk by obtaining representations and warranties from supporting businesses to ensure that they are not transacting with crime proceeds.7

The risk also differs based on the products or services provided (e.g., consumer banking services, initial public offerings, secondary-market trading, and research and analysis). Products and services that are material (i.e., necessary) to a US MRB's business create a greater risk that a financial institution could be viewed as aiding and abetting or conspiring to violate the CSA or promoting illegal marijuana sales in violation of the US money laundering laws. Activities that are further attenuated from the underlying marijuana sales—e.g., secondary-market trading of securities—make it less likely that a financial institution would have the requisite knowledge and/or intent to violate US narcotics or money laundering laws.

In fact, regulatory guidance suggests that financial institutions may provide certain banking services related to marijuana-related business. In 2014, the US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) issued guidance based on the Cole memoranda that was designed to help banks reconcile the tension between state and federal narcotics laws. The FinCEN guidance created a three-tiered suspicious activity report filing system for marijuana-related activity. Notably, the FinCEN guidance does not prohibit financial institutions from providing banking services to state-licensed MRBs. Rather, FinCEN issued the "guidance [to] clarif[y] how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations."8 FinCEN has not revised the guidance following the repeal of the Cole memoranda.

Moreover, some states have encouraged the financial services industry to provide banking services to state-authorized MRBs. For example, New York Governor Andrew Cuomo directed the New York State Department of Financial Services to encourage New York state-chartered banks and credit unions to provide banking services to New York's medical marijuana and hemp businesses.9 Several members of Congress have introduced legislation to enable state-licensed US MRBs to engage in relationships with banks and other financial institutions,10 and many have advocated for US MRBs to have access to the banking system.11

Canada Legalizes Recreational Marijuana

Canadian MRBs, however, do not pose these same risks under US law. Canada legalized recreational marijuana on October 17, 2018, becoming the world's largest marketplace for legal marijuana. Each of Canada's provinces and territories is responsible for establishing its own rules governing how marijuana may be sold and where it may be consumed, but as a general matter, individuals 18 years and older may now consume marijuana, possess up to 30 grams of marijuana in public and grow up to four marijuana plants at home. Some provinces, such as British Columbia, have elected to operate government-run marijuana stores while others have granted licenses to private distributors.

Because the manufacture, distribution and sale of marijuana in Canada is now legal, MRBs that operate exclusively in Canada with no nexus to the United States are no longer engaged in specified unlawful activity—a predicate offense—under the US money laundering laws. Accordingly, providing the same products and services that could implicate the US narcotics or money laundering laws if provided to a US MRB would not violate US law if provided to a Canadian MRB. That is not necessarily the case under European law.

European Countries Expand the Scope of Their Money Laundering Laws

On October 23, 2018, the European Parliament and the European Council signed the Directive on Countering Money Laundering by Criminal Law (the Directive),12 which broadens the scope of extraterritorial activity that may serve as a predicate for a money laundering offense in European Union (EU) member countries. Currently, the laws of some EU member countries, such as Germany, provide that extraterritorial activity is generally not a basis for a money laundering conviction unless the activity is illegal both in the country where the activity takes place and in the EU member country. These laws apply what is known as the "double criminality criterion," meaning that the activity has to be a crime in both relevant countries to constitute a predicate offense. The Directive prohibits EU member countries from applying the double criminality criterion in cases of illicit trafficking in narcotic drugs and psychotropic substances (including the cultivation of cannabis). The elimination of the double criminality criterion means that proceeds from legal marijuana sales in Canada, which would be illegal if they occurred in the EU member country, could provide the basis for a money laundering conviction in the EU. EU member countries will be required to implement the Directive by December 3, 2020.

The United Kingdom's money laundering law similarly provides that persons or institutions that receive payments derived from legal marijuana sales abroad commit a criminal offense, provided that they know or suspect the funds were derived from the sale of marijuana. In the United Kingdom, it is illegal to possess, grow or sell marijuana, and the Proceeds of Crime Act (POCA) defines "criminal property" by reference to whether the predicate activity is lawful in the United Kingdom (not where the activity occurred).13 Although there is a statutory exemption to POCA for certain predicate acts that are legal where they occurred, that exemption does not apply to marijuana possession, cultivation or sales given the prison sentences permissible for such crimes.

As explained above, because the manufacture, distribution and sale of marijuana in Canada is now legal, MRBs that operate exclusively in Canada with no nexus to the United States are not acting in violation of the US narcotics or money laundering laws. Providing products and services to Canadian MRBs could, however, provide the predicate for a money laundering violation in European Union member countries.


In sum, the risk of violating the US narcotics or money laundering laws by providing products or services to businesses involved in marijuana commerce depends on a number of factors, including (but not limited to):

  • Whether the business is engaged in the manufacture, sale, or distribution of recreational or medical marijuana in the United States;
  • Whether a foreign business operates in or has a nexus to the United States or operates solely in a jurisdiction where marijuana is legal, such as Canada; and
  • Whether the business provides products or services to MRBs and/or receives funds that may be derived from US marijuana sales.

Financial institutions should be aware of and develop policies and procedures to mitigate these risks. Because different jurisdictions take different approaches to criminalizing activities involving MRBs, financial institutions should centralize risk-management decision making around marijuana-related issues with a knowledgeable group of legal, compliance and risk management personnel.


  1. See Memorandum from David W. Ogden, Deputy Att'y Gen., US Dep't of Justice, to Selected US Att'ys: Investigations and Prosecutions in States Authorizing the Medical Use of Marijuana (Oct. 19, 2009); Memorandum from James M. Cole, Deputy Att'y Gen., US Dep't of Justice, to US Att'ys: Guidance Regarding the Ogden Memo in Jurisdictions Seeking to Authorize Marijuana for Medical Use (June 29, 2011); Memorandum from James M. Cole, Deputy Att'y Gen., US Dep't of Justice, to All US Att'ys: Guidance Regarding Marijuana Enforcement (Aug. 29, 2013); Memorandum from James M. Cole, Deputy Att'y Gen., US Dep't of Justice, to All US Att'ys: Guidance Regarding Marijuana Related Financial Crimes (Feb. 14, 2014).
  2. Memorandum from Jefferson B. Sessions, III, Att'y Gen., US Dep't of Justice, to All US Att'ys: Marijuana Enforcement (Jan. 4, 2018). 
  3. Tom Angell, "Trump Attorney General Pick Puts Marijuana Enforcement Pledge In Writing," Forbes.com (Jan. 28, 2019, 1:23 PM).
  4. See Consolidated and Further Continuing Appropriations Act, 2015, Pub. L. No. 113-235, 128 Stat. 2130 (2014); Consolidated Appropriations Act, 2016, Pub. L. No. 114-113, 129 Stat. 2242 (2015); Consolidated Appropriations Act, 2017, Pub. L. No. 115-31, 131 Stat. 135; Continuing Appropriations Act, 2018 and Supplemental Appropriations for Disaster Relief Requirements Act, 2017, Pub. L. No. 115-56, 131 Stat. 1129 (2017); Second Continuing Appropriations, Fiscal Year 2018, Pub. L. No. 115-90, 131 Stat. 1280 (2017); Third Continuing Appropriations for Fiscal Year 2018, Missile Defense, Health Provisions, Other Matters, and Budgetary Effects, 2018, Pub. L. No. 115-96, 131 Stat. 2044 (2017); Fourth Continuing Appropriations for the Fiscal Year 2018 Federal Register Printing Savings, Healthy Kids, Health-Related Taxes, and Budgetary Effects, Pub. L. No. 115-120, 132 Stat. 28; Continuing Appropriations Amendments Act, 2018, Pub. L. No. 115-124, 132 Stat. 314; Consolidated Appropriations Act, 2018, Pub. L. No. 115-141, 132 Stat. 348.
  5. The 2018 Farm Bill defines "hemp" as any part of the cannabis plant "with a [THC] concentration of not more than 0.3 percent on a dry weight basis." Agriculture Improvement Act of 2018, § 297A, Pub. L. No. 115-334, H.R. Doc. No. 2 (signed by President, Dec. 20, 2018).
  6. See, e.g., US Food and Drug Administration, FDA and Marijuana: Questions and Answers (last visited Feb. 5, 2019) (Q. "Can products that contain THC or cannabidiol (CBD) be sold as dietary supplements? A. No. Based on available evidence, FDA has concluded that THC and CBD products are excluded from the dietary supplement definition under sections 201(ff)(3)(B)(i) and (ii) of the FD&C Act, respectively.").
  7. Medical marijuana-related businesses present an even lower risk of prosecution given the Rohrabacher-Blumenauer Amendment. 
  8. Guidance from Dep't of Treas., Fin. Crimes Enforcement Network (Feb. 14, 2014) (FIN-2014-G001).
  9. See Press Release, Andrew M. Cuomo, Governor, New York State, Governor Cuomo Announces Further Action to Support Development of Medical Marijuana and Industrial Hemp Businesses in New York (July 3, 2018). 
  10. See Secure and Fair Enforcement Banking Act of 2017, H.R. Doc. No. 2215, 115th Cong. (2017), and S. Doc. No. 1152, 115th Cong. (2017).
  11. See, e.g., Reps. Ed Perlmutter (D. Colo.) and Denny Heck (D. Wash.), "Open the Banking System to the Marijuana Industry," The Hill (Feb. 7, 2018, 8:25 AM). 
  12. Directive (EU) 2018/1673 of the European Parliament and of the Council of 23 October 2018 on combating money laundering by criminal law, 2018 O.J. (L 284) 22.
  13. Proceeds of Crime Act 2002, c. 29, § 340(3).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Matthew T. Martens
In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions