Banking institutions are in a race to allow cannabis businesses ahead of imminent changes in the way cannabis is classified at the federal level, according to federal data. Cannabis remains prohibited at the federal level, but the U.S. Health & Human Services Department (HHS) recommendation to reclassify cannabis from a Schedule I to a Schedule III changes everything.

NORML reports that there’s a spike in the number of banking institutions that are filing to work with cannabis businesses as the fear of repercussions subsides. 

According to quarterly data provided by The Financial Crimes Enforcement Network (FinCEN),  a bureau of the United States Department of the Treasury, over 800 banks and credit unions have filed paperwork with the U.S. government acknowledging their relationships with licensed cannabis businesses.

FinCEN reports that 812 banks and credit unions reported that they are actively working with cannabis companies during the second quarter of the FY2023. That’s a record high since FinCEN first started tracking these numbers. It represents a significant rise from last year’s numbers, when they identified 553 banks—only 11 percent of all U.S. banks—and 202 credit unions.

FinCEN “issued guidance to clarify Bank Secrecy Act (BSA) expectations for financial institutions seeking to provide services to marijuana-related businesses (MRBs),” the report, which is available for download, reads. “This FinCEN guidance clarified how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations, and aligns the information provided by financial institutions in BSA reports with federal and state law enforcement priorities.”

FinCEN Types of Cannabis Businesses

“FinCEN’s 2014 Guidance specifies three phrases for describing a financial institution’s relationship to Marijuana-Related Businesses (MRBs) in SARs: 

• Marijuana Limited:  means the financial institution provides financial services to an MRB that the financial institution reasonably believes, based on its customer due diligence, does not implicate one of the Cole Memo priorities or violate state law.  
• Marijuana Priority:  means the financial institution provides financial services to an MRB that the financial institution reasonably believes, based on its customer due diligence, implicates one of the Cole Memo priorities or violates state law. 
• Marijuana Termination: means the financial institution deems it necessary to terminate a relationship with an MRB in order to maintain an effective anti-money laundering compliance program.”

NORML leaders discussed the topic with The Hill last May.  

“No industry can operate safely, transparently or effectively without access to banks or other financial institutions and it is self-evident that the players in this industry (smaller and minority-owned businesses in particular), and those consumers that are served by it, will remain severely hampered without better access to credit and financing,” NORML Deputy Director Paul Armentano told The Hill.

According to survey data compiled last year by Whitney Economics, over 70% of cannabis businesses that were asked said that the “lack of access to banking or investment capital” is their top challenge. 

FinCEN’s Marijuana Banking Update from March 2022 shows a steady increase in the number of banks and credit unions filing to cater to cannabis businesses. “As of 30 September 2021, FinCEN had received a total of 219,097 SARs using the key phrases associated with MRBs. Several of the SARs contain more than one key phrase, which accounts for the numbers for each key phrase being greater than the total,” the report reads.

“FinCEN received 172,501 SARs from filers using the key phrase ‘Marijuana Limited.’ FinCEN received 15,359 SARS from filers using the key phrase, Marijuana Priority. FinCEN received 42,791 SARs from filers using the key phrase ‘Marijuana Termination’.”

FinCEN began providing guidance to cannabis businesses in 2014 with the goal to to help banking institutions operate while cannabis remains illegal at the federal level.

Why Banks Are Changing Their Tune

Yahoo! News reported earlier this month that HHSrecommendation to reclassify cannabis from a Schedule I to a Schedule III drug could transform the cannabis industry and create new opportunities for banking institutions.

“Rescheduling cannabis to Schedule III may allow dispensaries to accept credit card payments,” Richard Laiderman, former head of global treasury for VISA and Co-Founder and chair of StandardC, said. Credit card payments may supplant cash transactions if this occurs, reducing the risks and costs associated with cash-only operations.”

Cannabis banking expert Robert Baron said, “While changes will inevitably occur, financial institutions looking to serve this market segment must implement risk management tools to evaluate and monitor cannabis businesses. This is where StandardC’s business underwriting & monitoring tools are perfectly suited to meet their Bank Secrecy Act and customer due diligence obligations.”

The HHS recommendation to reclassify cannabis from Schedule I to Schedule III would be a pivotal step—the first of its kind at the federal level—to make the cannabis industry safer for everyone.

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A group of Republican legislators recently sent a letter to the Drug Enforcement Administration (DEA) asking for the agency to reject the recent recommendation to reschedule cannabis, which was suggested by the Department of Health and Human Services (HHS) on Aug. 29.

The list included lead authors Sen. James Lankford (Oklahoma) and Rep. Pete Sessions (Texas), along with signatures from Sen. M. Michael Rounds (South Dakota), Sen. James E. Risch (Idaho), Sen. Marsha Blackburn (Tennessee), Sen. Mike Crapo (Idaho), Sen. Ted Budd (North Carolina), Sen. Markwayne Mullin (Oklahoma), Sen. Tom Cotton (Arkansas), Rep. Chuck Edwards (North Carolina), Rep. Robert B. Aderholt (Alabama), Rep. Hal Rogers (Kentucky), Rep. Earl L. Carter (Georgia), and Rep. Andy Biggs (Arizona).

“The recommendation to remove marijuana from the DEA’s list of dangerous Schedule I drugs is not based on science—it’s based on an irresponsible pro-pot agenda,” Lankford wrote on social media and sharing the letter.

“We write to urge the Drug Enforcement Administration (DEA) to reject any petition or request to remove marijuana from Schedule I of the Controlled Substances Act (CSA). Any effort to reschedule marijuana should be based on proven facts and science—not popular opinion, changes in state laws, or the preferred policy of an Administration,” the letter states.

One of the letter’s arguments against rescheduling cannabis cites the National Institute on Drug Abuse (NIDA), stating that “30% of marijuana users have marijuana use disorder, who are severely addicted to the drug.” The authors mention the rise in THC in products today compared to 25 years ago. “These facts indicate that marijuana has a high potential for abuse and that the risk is only increasing,” they added. Last month, NIDA reportedly signed off on the HHS recommendation.

The letter authors also make claims that cannabis “does not have a currently accepted medical use.” While it mentions the single Food and Drug Administration (FDA)-approved cannabis-derived drug (Epidiolex), and three synthetic cannabis drugs (Marinol, Syndros, and Cesamet), the letter states that substances only have medical value if they are approved by the FDA. The authors also added that previously in 2016, the DEA rejected two petitions for cannabis rescheduling, and the HHS agreed. “The rejection letter stated, ‘At this time, the known risks of marijuana use have not been shown to be outweighed by specific benefits in well-controlled clinical trials that scientifically evaluate safety and efficacy,’” the letter stated. “We believe this analysis is still true today. In fact, HHS recommended at the time that DEA reject these petitions and that marijuana remain in Schedule I.”

The signatories state that nothing has changed over the past seven years, and believe that “the situation has gotten worse,” citing an increase in child hospitalizations due to accidental cannabis consumption, and the negative effects of cannabis on youth teenagers.

“It is irresponsible for HHS to recommend that marijuana be removed from Schedule I,” they concluded. “It would also be irresponsible for DEA to act on this recommendation. Our country relies on DEA to enforce our nation’s drug laws. We ask you to uphold your mission by rejecting any effort to remove marijuana from Schedule I.”

The letter fails to mention the evidence of cannabis’ medical benefits for countless conditions, or its part in the War on Drugs and countless people affected by its Schedule I status.

Now that the HHS has provided the details of its recommendation to move cannabis from a Schedule I to Schedule III substance, the DEA will also conduct a scientific review.

These Republican legislators believe that cannabis should remain a Schedule I substance, which labels it as having no medical value, high potential for abuse, and places it among other substances including heroin, LSD, ecstasy, and more. Legislators who have continued to support cannabis in congress, such as Rep. Earl Blumenauer, believe that this is just the beginning. “This is a step in the right direction but it is not sufficient. I hope it is followed by more significant reforms. This is long overdue,” he said in a statement.

NORML Deputy Director Paul Armentano published an article explaining why rescheduling cannabis isn’t enough. “While some entities, particularly those involved in the commercial cannabis industry, have lauded the proposed change as a ‘giant’ step forward, others—like myself—have been far more restrained,” Armentano stated. “First, reclassifying cannabis to a lower schedule within the CSA continues to misrepresent the plant’s safety relative to other controlled substances such as anabolic steroids and ketamine (Schedule III), benzodiazepines (Schedule IV), or even alcohol, which is unscheduled.”

NORML has previously called for cannabis to be completely descheduled, and Armentano wrote that this is still the case. After the HHS recommendation news was published, Armentano discussed the topic with outlets such as The Associated Press, The Washington Post, and more. “Tobacco and alcohol are not in the Controlled Substances Act,” he told CNN. “Those substances are well recognized to pose far greater hazards to health than cannabis. We should treat marijuana [under the federal scheduling system] equally.”

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