Barr eases pot banking concerns, but banks still in limbo
WASHINGTON—Financial institutions looking to serve businesses in the marijuana industry may have breathed a collective sigh of relief during Attorney General nominee William Barr’s confirmation hearing earlier this week when he said that if confirmed he would uphold an Obama-era memo that relaxed marijuana enforcement.
But his comments ultimately do little to mitigate the inherent risks associated with pot banking.
“It's a reiteration of the status quo and unless and until Congress passes a law that legalizes it at the federal level and the president signs it, we're going to continue to be in limbo on this issue,” said Dan Stipano, a partner at Buckley LLP and former top official at the Office of the Comptroller of the Currency.
When asked about former Attorney General Jeff Sessions’ decision to rescind that memo, Barr told the Senate Judiciary Committee this week that he would instead choose to uphold the guidance, which helped to foster growth in the cannabis sector in states where it has been legalized.
“My approach to this would be to not to upset settled expectations on the reliance interests that have arisen as a result of the Cole memoranda,” Barr said. “Investments have been made and there has been reliance on it, so I don’t think it’s appropriate to upset those interests.”
The comments were in sharp contrast to Sessions, whose firm anti-marijuana stance had added to the legal uncertainty for banks and credit unions trying to serve marijuana-related businesses.
“Bank management and boards of directors have just been very, very skittish about taking the legal risk of moving forward,” said Joseph Lynyak, a partner at Dorsey and Whitney. “Barr’s comment appears to be an indication that one way or another, he is going to reverse Sessions’ position and reinstate the view that if you comply with state law and you’re not dealing with Tony Soprano, they’re not going to prosecute you for banking marijuana.”
Though Barr’s comments indicate a return to the norm, the smaller financial institutions that tend to serve businesses in the pot industry can now operate with more clarity, said Stipano.
“I don't know that DOJ's investigatory and prosecutorial practices changed much following the rescission of that policy, but it did create more uncertainty within the banking community as to the legal status of marijuana-related businesses and whether banks can do business with them,” he said.
While Barr may have appeared softer than Sessions on cannabis, he warned Booker he believes “it’s a mistake to back off on marijuana,” and said that he would support a federal law prohibiting pot entirely.
“This AG is also pretty clearly not exactly a friend to cannabis, so I don’t think any bank or attorney is going to read his comments and be optimistic about what he said,” said Steve Kemmerling, the founder and CEO of the consulting firm MRB Monitor.
For some, Barr’s comments demonstrated the Trump administration’s noncommittal stance on marijuana, which two additional states have legalized for recreational use since President Trump took office. A total of 10 states have authorized pot for recreational use, while 33 have approved it for medical purposes.
“While it’s nice to hear a change in tone, this administration remains out of touch with the American people on cannabis legalization,” said Rep. Earl Blumenauer, D-Ore., co-chair of the Congressional Cannabis Caucus, to American Banker in a statement.
Though Barr’s equivocated stances during his confirmation hearing could have appealed to some senators from states that have legalized marijuana, such as Sen. Cory Gardner, R-Colo., he appeared unwilling to tackle the issue and instead urged Congress to decide on a federal unilateral approach, calling the current situation “untenable.”
“If you believe he’s had any conversations with the Trump administration before he made his comments, you’d believe that cannabis is not a battle that they want to deal with,” said Loren Picard, the CEO of The 42nd Group, a real estate development firm with a focus on developing properties to grow cannabis.
But observers generally agreed with Barr that it’s up to Congress to both decide on the legalization of marijuana and to determine a path forward for banks that wish to serve businesses in the cannabis industry. Still, a return to the status quo could help to stabilize the issue for some financial institutions, said Lynyak.
“He indicated that there’s really virtually no priority to be going after marijuana participants,” he said. “That’s going to be a very clear sign to banks that they themselves can provide banking services.”
Regardless, banks generally remain wary of entering into the marijuana foray, which has proved to be both complicated and costly.
“The broader problem is even with something as hemp, which is not as scary as marijuana and not a controlled substance, you still don’t see banks rushing in at all,” said Kemmerling. “What you see is them starting to acknowledge it and starting to learn about it.”
Banks that serve marijuana-related businesses face constant threats such as money laundering, which sometimes dissuade them from entering the business altogether, Picard said.
“They’re going to be treated like pawn shops, porn shops, cash advance places, strip clubs—all that high cash stuff that nobody wants to be associated with,” he said.
On the upside for institutions that want to bank cannabis businesses, there is growing bipartisan support for cannabis banking and several bills have been introduced that would enable banks and credit unions to work around the federal ban on marijuana.
Comptroller of the Currency Joseph Otting even predicted that Congress will take action on the issue before 2020, telling reporters during a roundtable discussion on Wednesday that legislators will have to “act at the national level to utilize marijuana if they want those entities involved in that business to utilize the U.S. banking system.”
For now, though, Barr provides some sense of relief to financial institutions that may have been unclear on business proceedings under Sessions, said Lynyak.
“The bottom line is — the comments are probably going to give, if he moves forwards and implements this as a policy — a great deal of comfort to banks to actively provide banking services to marijuana participants,” he said.
— Rachel Witkowski contributed to this article.