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United States Federal Marijuana Laws


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Find out the status on United States medical and recreational marijuana here.


Under the federal law, marijuana is still illegal and is classified as a Schedule I drug. This means that although marijuana may be legal in some states, people can still be prosecuted for federal crimes involving marijuana.

However, this does not usually happen for small amounts of marijuana, and the federal government is more likely to step in when there are aggravating factors. These factors can include drug trafficking, the use of firearms in the cultivation and distribution of marijuana, and the protection of public safety (the government is interested in preventing people from driving while marijuana is raised or grown on public lands). This is not an exhaustive list. Instead, it is intended to give an idea of ​​what might be considered an aggravating factor.

What Are The US Federal Laws on Marijuana?

Federal prosecutions of individuals who possess marijuana are not very common, unless the individual is heavily involved in distribution or trafficking. This is because the federal government has limited resources to investigate and prosecute federal drug laws, and low-level marijuana crime is at the bottom of the priority list compared to hard drugs.

Conflict with Medical Marijuana Businesses

On the other hand, individuals and companies selling medical marijuana may face criminal investigation and prosecution, depending on the political winds blowing

In 2013, the Department of Justice, under the administration of President Obama, officially announced that it would not interfere with marijuana operations that strictly comply with state regulations. Instead, federal law enforcement will focus narrowly on targeting:

  • Marijuana proceeds that appear to fund gangs
  • Distribution of marijuana
  • Marijuana moves from states where it is legal to states where it is illegal
  • Money laundering (using legal marijuana sales as a cover for criminal activity)
  • Use of violence and firearms in the cultivation or distribution of marijuana
  • Driving under influence of marijuana or other adverse public health consequences of marijuana use, and
  • Possession or use of the marijuana on federal property (e.g., national parks)

In 2018, under President Trump’s administration, the Department of Justice abruptly ended this policy and announced that federal prosecutors could pursue criminal cases when federal and state marijuana laws conflict.

So far, the policy reversal has been largely symbolic. The individual federal prosecutors have the discretion to pursue prosecutions that federal agents bring to them, but the number of federal marijuana smuggling prosecutions dropped to less than 1,000 in 2021. Moreover, federal prosecutors who bring marijuana cases are at risk of jury disqualification—when the trial jury reaches a verdict. It’s against the law because jurors believe the law or punishment is unfair.

Law enforcement officers make the vast majority of arrests for marijuana offenses under state law rather than federal law. In 2018, U.S. police officers made more arrests for marijuana offenses, mostly possession, than for any other drug, according to 2018 FBI data.

Federal law and legal state marijuana businesses

Legal marijuana is big business. In states where residents have access to the legal marijuana, markets are making billions of dollars, despite federal bans. The conflict between federal and state marijuana laws has caused problems beyond the uncertainty of criminal liability in the state legal marijuana industry. Most pervasive problems concern trade and capital – two areas in which the federal government fully controls.

Banking Services

Banks were generally unwilling to do business with companies that sell marijuana, fearing that taking deposits from marijuana companies might violate federal anti-money laundering laws. Without access to banking, many businesses in the marijuana industry are cash-only businesses and are vulnerable to theft.

Interstate Trade

Federal law prohibits marijuana from crossing state lines, including among states where it is legal to sell marijuana for medical purposes. Federal restrictions on interstate commerce have disrupted markets. For example, hundreds of pounds of marijuana rot in Oregon because farmers cannot export it across state lines, even to neighboring Nevada, where it is legal to use marijuana for medicinal purposes but more challenging to grow marijuana.

Taxes

Federal Tax Code (26 U.S.) is still required. However, marijuana companies are still required to pay federal taxes. Thus, marijuana companies cannot take tax deductions like other companies. For example, payroll and operating premises are not available to them. Marijuana companies end up with substantial federal tax bills that they often have to pay in cash because they lack access to banking services (see above).

Research & Development

Scientists at private universities and labs who receive federal funds must comply with federal marijuana laws and regulations, regardless of state marijuana laws. Status of the marijuana as a Schedule I substance under federal law severely limits access to the plant. As a result, researchers know little about:

  • The benefits and risks of marijuana use, mainly when the substance is used for an extended period of time
  • At what point will users get injured behind the wheel
  • Compounds found in marijuana smoking cartridges, may be responsible for deaths and illnesses associated with e-vaping, and
  • How to reduce the environmental impacts of marijuana cultivation.

Legalization vs. Decriminalization – The Differences

Many countries are rethinking the legalization and decriminalization of marijuana. However, these terms differ. You must fully understand it before you decide to defend it. Therefore, if marijuana becomes legal, the purchase and use of marijuana will not be against the law. However, if marijuana is decriminalized, the penalties for selling, buying, or using marijuana will be reduced. Understanding these terms and how the state views the substances can prevent you from being arrested for marijuana use.

Marijuana Legalization in the U.S.

It is no longer legal in Connecticut for recreational users to purchase and use marijuana. However, marijuana may eventually be legalized. Remember that alcohol was legalized in the United States after Prohibition. If marijuana is legalized, our government will determine at what age adults can purchase marijuana. This may be the age of twenty-one, as with alcohol, or it may be a different age of over eighteen. This means it is still illegal to buy marijuana if you are under the age requirement.

For stores to sell marijuana, they will probably have to obtain permits and licenses. The system will be similar to buying alcohol. Selling marijuana to underage people would be a crime. There are likely to be strict restrictions or regulations regarding the advertising of marijuana. Marijuana legalization and rules may vary from state to state.

Marijuana Decriminalization in the U.S.

If marijuana is decriminalized, it will reduce the penalties associated with marijuana possession. Currently, marijuana possession ranges from hefty fines to imprisonment, depending on many factors. Some factors include the marijuana you own and the number of previous offenses you’ve had. Decriminalizing marijuana only means that falling into marijuana possession will not result in a prison sentence. Possession of marijuana is punishable by fines or other less severe penalties. This is similar to most driving offenses – you receive a speeding ticket and pay a fine if caught speeding and are not sent to prison. Possession is likely considered a misdemeanor, a less severe offense than a felony.

What will happen?

The question of legalizing or the decriminalizing marijuana is still up for debate. There are someof the pros and cons to both cases and leaving the marijuana laws as they are. Connecticut has already made medical marijuana legal in some cases. While this doesn’t mean Connecticut will legalize or decriminalize marijuana, it is possible. For now, it is essential to remember that marijuana possession is illegal and carries severe penalties.

Which U.S. States Have Legalized Recreational Marijuana?

It’s been nearly a decade since Colorado, and Washington’s voters decided at the ballot box to legalize the recreational use of marijuana.  At that time, sixteen states and the District of Columbia followed suit.

New Jersey, which voted to legalize in 2020, has authorized its first legal sales of marijuana to adults age 21 and older to begin April 21 — a day after its annual celebration of cannabis culture. All but a few of the 11 states have approved its medical use, and legalization of the substance at the federal level has gained new momentum. The House recently passed a bill to decriminalize marijuana, and there is another bill that would legalize the plant is in the works in the Senate.

The states that have legalized recreational marijuana use has risen steadily over the past ten years. New York became the 15th state to legalize weed last year, but retail sales in the state are not expected to begin until late 2022 at the earliest.

Each state on this list permitted the use of cannabis for medicinal purposes before full legalization.

  1. Connecticut: approved in 2021
  2. New Mexico: approved in 2021
  3. New York: approved in 2021
  4. Virginia: approved in 2021
  5. Arizona: approved in 2020
  6. Montana: approved in 2020
  7. New Jersey: approved in 2020
  8. Vermont: approved in 2020
  9. Illinois: approved in 2019
  10. Michigan: approved in 2018
  11. California: approved in 2016
  12. Maine: approved in 2016
  13. Massachusetts: approved in 2016
  14. Nevada: approved in 2016
  15. District of Columbia: approved in 2014
  16. Alaska: approved in 2014
  17. Oregon: approved in 2014
  18. Colorado: approved in 2012
  19. Washington: approved in 2012

Recreational marijuana use involves using cannabis for personal enjoyment and not for health purposes. Therefore, recreational use of marijuana can contrast with medical marijuana use, which includes the prescribed use of cannabis to manage symptoms of certain medical conditions.

Characteristics of recreational marijuana use include:

  • Infrequent use: very intermittent use, not a regular or frequent way to spend time; More time is spent on other activities that are considered more important.
  • No compulsion to use: a person can easily decide to use or not use marijuana when it is available and offered for free; There is no particular compulsion to use.
  • Use of small amounts: A person can easily use only a tiny amount of marijuana with a mild effect, without a particular desire to be “stoned.”
  • Use in Social Settings: Marijuana use is purely recreational, occurring only in social situations; there is no “need” to help a person relax or go about their day, nor do they need to use marijuana to do things like stimulate their appetite, have sex, or have a bowel movement.
  • Low investment: No large amounts of money are spent on marijuana, and other essential purchases, such as food, household bills, and clothing, are not sacrificed in favor of marijuana.

Which U.S. States Have Legalized Medical Marijuana?

States decide on marijuana laws. Some states are moving forward with marijuana legalization regardless of personal feelings. In many states, a doctor can prescribe medical marijuana to patients with seizures, nerve pain, glaucoma, or cancer.

The interesting thing about medical marijuana is how it is administered. While most of the people immediately think of smoking marijuana, this is not the only way it can be taken. Capsules, patches, sprays, oils, and emulsions are available to help patients treat their symptoms. As of February 2021, 39 states plus the Washington, D.C., have legalized medical marijuana.

The marijuana is allowed for medical treatment in most parts of the country. Only 11 countries ban drugs entirely. Here are the states that allow only medical marijuana. Mississippi and Alabama are the latest two states to legalize medical pot, but it still isn’t available for purchase as states try to make regulations.

  1. Mississippi approved in 2022
  2. Alabama approved in 2021
  3. South Dakota approved in 2020
  4. Missouri approved in 2018
  5. Oklahoma approved in 2018
  6. Utah approved in 2018
  7. Iowa approved in 2017
  8. West Virginia approved in 2017
  9. Arkansas approved in 2016
  10. Florida approved in 2016
  11. North Dakota approved in 2016
  12. Ohio approved in 2016
  13. Pennsylvania approved in 2016
  14. Georgia approved in 2015
  15. Louisiana approved in 2015
  16. Minnesota approved in 2014
  17. Maryland approved in 2013
  18. New Hampshire approved in 2013
  19. Delaware approved in 2011
  20. Rhode Island approved in 2006
  21. Hawaii approved in 2000

States have their own dispensary licensing operations, but in all states where marijuana is legal, companies that sell marijuana must obtain a state license.

Sales are regulated and taxed by states at varying rates. Some conditions apply a selective sales tax, which is taxes on a specific good — in this case, marijuana — levied on the seller, which they typically pass on to the consumer by including it in the product price.

Provisions: determining how much marijuana an adult can legally own, if adults can grow their marijuana plants, and how tax revenue is spent vary from state to state.

In addition to being legal in states in the United States, medical marijuana has also been legalized worldwide in 13 countries, including Australia, Poland, Germany, Israel, Italy, and Greece. Alabama, Idaho, Nebraska, North Carolina, South Carolina, Tennessee, and Wyoming are the only states that have not legalized medical marijuana.

Included below is info on each state’s actual specific recreational marijuana and CBD usage laws.

History of Marijuana Regulation in the USA

The United States’ relationship with marijuana goes back to the colonial era. The government encouraged the production of American hemp (the hemp plant) in the 17th century to produce ropes, sails, and clothing. Domestic production of hemp flourished even after the Civil War when imports replaced hemp. In late 19th century, marijuana became a common ingredient in many medicinal products and was sold openly in drugstores.

Here’s a timeline of American marijuana regulation:

After The Mexican Revolution in 1910

Mexican immigrants flocked to the United States, bringing with them the use of marijuana for recreational purposes. The drug became associated with the immigrants, and fears and thus prejudice, about newcomers, became associated with marijuana. Anti-drug activists have warned of the “risk of marijuana” encroachment. During the Great Depression, massive unemployment, increasing public discontent, and fear of Mexican immigrants heightened public and governmental concern about the potential problem of marijuana. By 1931, 29 states had banned marijuana.

The Marijuana Tax Act of 1937

Congress passed the Marijuana Tax Act, effectively criminalizing marijuana. Meanwhile, the New York Academy of Medicine released a comprehensive report declaring that marijuana does not incite violence or insanity or lead to addiction or drug abuse. During World War II, the USDA turned to the hemp plant to produce marine ropes, parachutes, and other military equipment. She launched the “Hemp for Victory” program and registered 375,000 acres of cannabis in the United States.

Federal regulation in the 1950s

Federal laws establishing mandatory penalties for drug-related offenses were enacted. However, in the 1960s, a cultural climate shift led to more permissive attitudes toward marijuana. But, again, reports commissioned by Presidents Kennedy and Johnson found that marijuana use did not induce violence or lead to the use of heavier drugs.

Federal regulation in the 1950s

Federal laws establishing mandatory penalties for drug-related offenses were enacted. However, in the 1960s, a cultural climate shift led to more permissive attitudes toward marijuana. But, again, reports commissioned by Presidents Kennedy and Johnson found that marijuana use did not induce violence or lead to the use of heavier drugs.

Changes to U.S. Marijuana Laws in the 1970s

Congress had eliminated most mandatory penalties for drug-related offenses. In 1972, the bipartisan Schaffer Committee, appointed by President Nixon at the direction of Congress, considered laws relating to marijuana and decided that personal use of marijuana should not be criminalized. Nixon declined the recommendation, but throughout the 1970s, eleven states decriminalized marijuana, and most other states reduced their sentences.

However, in 1976, a parent’s movement against the marijuana began and was instrumental in influencing public attitudes that led to the 1980s war on drugs. President Reagan re-enacted mandatory sentences. The “three strikes will get out” policy requires life sentences for repeat drug offenders. The war on drugs continued under the President George W. Bush in 1989.

However, there has been a significant shift in public perception of marijuana. For example, in 1996, California passed Proposition 215, allowing the sale and medical use of marijuana to patients with AIDS, cancer, and other serious, painful diseases. Thus began the tension between federal laws criminalizing marijuana and state laws permitting marijuana in certain circumstances that continues today.

In recent years, these efforts have extended beyond the therapeutic uses of cannabis to successful campaigns in many states to legalize its recreational use. Many Americans hail these efforts as a victory for ordinary citizens over a draconian legal system that unnecessarily imprisons large numbers of nonviolent drug users, a failure of the War on Drugs, and an unresponsive regulatory system that denies quickly gained relief to suffering patients.

Whatever one’s assessment of these claims, this unique path to marijuana legalization comes with particular problems? Without the careful scientific study and clinical trials that other new drugs undergo, there can be no clear and reliable guidelines for drug administration or indications of potential side effects from prolonged use. Critics have questioned whether the medical marijuana movement’s immediate response and disregard for research protocols reflect a humane concern about patients suffering or seeking profit by drug producers and distributors.

This appears to be the main reasons why some medical societies recommend removing marijuana from Schedule 1 to allow for further study, rather than simply saturating the market with products that are not regulated in terms of quality or efficacy. Furthermore, because the predominant way marijuana is still consumed is smoked, doctors and scientists suggest that medical users may be exposed to various health threats from among the hundreds of chemical compounds inhaled in cannabis smoke. Although advocates of medical marijuana can be justified in their enthusiasm for the new availability of cannabis, time will tell if this path to legalization represents the ultimate good that they believe it is.

What is the Cole Memorandum?

Cannabis and marijuana laws can be complicated because what is legal in the state is not necessarily legal at the federal level. This controversy can create confusion for those who want to get involved in the state legal cannabis industry but are concerned about federal consequences.

Cole’s memo was the first critical step toward addressing this fundamental disconnect. The memo guided federal prosecutors to look into investigations or charges related to marijuana in states where marijuana has been legalized.

A Brief History of the Cole Memorandum

The Cole Memorandum, or Cole’s Memorandum as it is sometimes referred to, was authored by Deputy Attorney General for the Department of Justice James Cole in 2013. Drafted under the Obama administration, the memorandum was issued as the cannabis landscape in the United States began to change.

Colorado and Washington have just legalized recreational cannabis and are in the process of developing rules and regulations. It became clear that federal guidance was necessary to address the conflict between state and federal law. Cole issued a memo to US county attorneys negotiating the tightrope between respecting the state’s new cannabis laws and supporting the National Controlled Substances Act.

Essentially, the memorandum sets out the expectations for federal prosecutors and law enforcement to pursue in states with legal cannabis programs. It encourages them to use the federal government’s resources to counter threats “in the most effective, consistent and rational manner.”

Cole’s Memo specifically directed federal representatives to focus on the following eight priorities to avoid interference with state laws:

  • Avoid distributing marijuana to minors
  • Prevent criminals from benefiting from marijuana
  • Preventing marijuana from crossing state borders
  • Eliminate illegal activity and drug sales under cover of state-sanctioned marijuana sales
  • Removing guns and violence from the marijuana cultivation and distribution system
  • Elimination of driving under the influence of marijuana and other adverse public health outcomes associated with marijuana
  • Preserving the cultivation, possession, and use of marijuana off public property

The memo, which bears the official title of Guidelines for Marijuana Enforcement, was sent to all US attorneys. It was not the first document of its kind. It expanded according to a 2009 memo issued by Deputy Attorney General David. W. Ogden.

Ogden urged department attorneys to avoid focusing federal resources on individuals acting under current state laws that allow medical marijuana.

What Did Cole's Memo Accomplish?

The memo explained how the legal cannabis industries and federal law enforcement agencies could coexist peacefully. It also filled a crucial legal void when the nascent cannabis industry thrived in the face of unwavering government opposition.

Cole’s words provided clear guidance on the aspects of cannabis control that federal representatives should prioritize. Doing so gave individuals and businesses in legal states the peace of mind they needed to participate in the industry without fearing the risk of litigation.

Why Did Jeff Sessions Cancel The Cole Memo?

On January 4, 2018, Attorney General Jeff Sessions rescinded Cole’s memo, replacing it with his memorandum addressed to all federal prosecutors. Sessions’ memo immediately overturned the directive issued by James Cole in 2013. However, some commentators saw Sessions’ statement announcing a new war on drugs.

The hearings note noted the national historical stance toward prohibition and severe penalties for marijuana-related crimes. He also affirmed Congress’s view that marijuana is dangerous and that marijuana-related activity constitutes a serious crime. He recommended that prosecutors follow the established principles and protocol that govern all federal prosecutions.


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What is the Cannabis Administration and Opportunity Act?

On July 14, 2021, the senators Chuck Schumer, Cory Booker, and Ron Wyden introduced a bill to legalize and regulate the cannabis at the federal level, titled The Cannabis Administration and Opportunity Act. This short and poignant bill will sure spark controversy and polarized debate among lawmakers when and if it reaches the Senate floor.

Status Of This Marijuana Legislation

The deadline for the public comment recently passed — September 1, 2021 — and, unsurprisingly, the drafters of the bill were inundated with input from special interest groups, including the American Cannabis Council, the Marijuana Policy Project, several prominent universities and legal scholars, and the Fiscal Policy Institute in DC.

While not required, the bill’s drafters will likely do a revision based on some of the comments received, with the actual filing of the statement that will follow. Once submitted, then it will be sent to the committee for continued review and discussion.

Americans Support Cannabis Legalization

Recent polls show that 60% of Americans support cannabis legalization, but despite unrealistic promises of representative government, popular support does not necessarily translate into positive votes in the Senate. In addition, the bill requires the permission of every Democratic senator and at least 10 Republicans.

Many Washington insiders doubt the bill will have the needed support, but some optimists believe this is a (reasonably) long overdue measure that demands bipartisan support. At the risk of sounding naive, I count myself among those optimists. Ten years ago, this bill would not have gotten off the desktop of a pro-cannabis lawmaker. Still, now federal cannabis legislation is being introduced by the Senate Majority Leader and has the support of dozens of other lawmakers. So regardless of whether this law becomes law,  ​​legalizing cannabis at the federal level has not been so far-fetched.

Removal of Marijuana & THC From The Controlled Substances Act

The act transfers the agency’s jurisdiction over cannabis from the Drug Enforcement Administration to the Food and Drug Administration, the Bureau of Alcohol and Tobacco Trade and Commerce, and the Bureau of Alcohol, Tobacco, Firearms, and Explosives.

The Act also enables the following:

  • Allow the transportation of cannabis products through interstate commerce channels, regardless of whether the media are located in a state where cannabis is legal or illegal.
  • A federal excise tax on sale of cultivated marijuana – 10% of the removal price for the first year, followed by annual increases of up to 25% over the next three years. (The removal price is the sale price from the farmer to any third party.)
  • Create a trust fund and transfer $10 million or 10% of the annual production tax collected on cannabis. Small Business Administration will administer the fund to provide loans to women and historically socially and economically disadvantaged individuals for use in connection with the recipient’s cannabis business.
  • Create and conduct a study on the effects of driving under the influence of marijuana.
  • Create and conduct a study on the effects of cannabis use on the human brain and the effectiveness of cannabis use for medicinal purposes.
  • They are issuing federal advertising regulations to avoid marketing to children and youth.
  • Provide funding for states to use in connection with delisting proceedings for those convicted of marijuana offenses at the state level.

The bill does not force states to legalize cannabis. It will remain illegal in every state where it is currently unlawful unless codified by that state’s legislative process.

What is the Marijuana Opportunity and Reinvestment Expungement Act (MORE)?

Recently, the House of the Representatives moved forward with proposed cannabis legislation. The Marijuana Opportunity Reinvestment and Deletion Act (HR 3617) passed the House on April 1, 2022. If enacted, the proposed bill would decriminalize cannabis and impose two new taxes: a production tax on the cannabis products produced in or imported into the United States and an occupational tax on the cannabis production facilities and export warehouses.

The MORE Act would also remove the cannabis from the Controlled Substances Act (“CSA”), provide a means to overturn federal cannabis arrests and convictions, and require the Bureau of Labor Statistics to release demographic data on cannabis business owners and employees regularly.

Proposed Excise Tax

As explained above, the MORE Act proposes a selective tax on cannabis products. The excise tax depends on the selling price of the product and starts at a base level of 5% for the first two years. Each year after that: up to the fifth year, the rate will increase by 1%. From the fifth year onwards, the tax will be 8% of the prevailing sales price set by the Treasury.

A commonly cited concern about the planned tax proposed in the MORE Act is that the tax, in combination with state and local sales taxes, would make cannabis sold through unlicensed retailers less expensive and thus boost the black market economy.

Main Interests of the Cannabis Industry

Currently, the cannabis businesses, even those operating legally, are hampered by the restrictions outlined in IRC Section 280E, which prohibits companies selling controlled substances from deducting expenses related to such sales. The passage of the MORE Act will solve this problem by removing cannabis from the CSA.

Another primary concern facing the cannabis industry, not included in the proposed legislation, is access to banking services in states where cannabis sales are legal. Congress attempted to address this problem through the Safe Banking and Fair Enforcement (SAFE) Act (H.R. 1996) but to no avail. As a result, the House and Senate agreed to go to a conference to discuss America’s Competition Act of 2022 (H.R. 4521), which includes provisions from the Safe Banking Act (SAFE).

Until the conference addresses the lack of access to the financial system, the cannabis industry will continue to operate mainly as a cash business. Unfortunately, the products being sold and access to large amounts of cash help foster an environment full of opportunities for “bad guys,” which significantly increases the risk of many crimes, including fraud and money laundering.

Traffic Prospects

Moore’s Act passed the House by 219 votes to 202 on a partisan basis, and Democrats implemented it. Unfortunately, with no registered Republican support, the prospects for the More Act are not promising. The previous House-passed cannabis law is effectively dead in the Senate, where 60 votes are required to overcome the blockage and bring the legislation to a vote.

The Senate is preparing its cannabis legalization bill, The Cannabis Administration and Opportunity Act. The discussion draft was released in July 2021, and an updated account is expected before the August recess. The odds of this proposed legislation passing depend on whether it gets Republican support.

What is the Secure and Fair Enforcement Banking Act?

The Safe Banking and Fair Enforcement (SAFE) Act of 2021, sponsored by Senators Jeff Merkley (D-Oregon) and Steve Danes (R-MT), has been re-introduced in the Senate. This re-introduction comes days after an accompanying bill was re-introduced by Representative Ed Perlmutter (D-CO) in the House on March 18. Part of COVID-19 relief bills in 2020 – before it eventually dies in the Senate, there are encouraging signs that the prospects for passage look strong now in 2022.

Background

For decades, marijuana was illegal at the federal level under the Controlled Substances Act (CSA). Issued in 1970, CSA imposes strict legal controls on the manufacture, distribution, dispensing, and possession of any controlled substance listed in one of the five schedules established by CSA. Currently, 47 states, four US territories, and the District of Columbia have legalized some form of marijuana for medicinal or recreational purposes. However, despite this extensive statewide legalization, marijuana remains a Schedule I controlled illegal substance under federal law.

In light of expanding statewide legalization initiatives, along with US Department of Justice (DOJ) guidance on federal enforcement priorities, the Financial Crimes Enforcement Network (FinCEN) issued guidance in February 2014 (2014 guidance)2 outlining its expectations for financial institutions seeking to provide Services to “marijuana-related businesses” under the Bank Secrecy Act (BSA).

Under the 2014 guidelines, FinCEN specified that “since federal law prohibits the distribution and sale of marijuana, financial transactions that involve marijuana-related activity will generally include funds derived from illegal activity.”

As a result, the 2014 Guide identified three categories of suspicious activity reports (SARs)—Marijuana Limited SARs, Marijuana Priority SARs, and Marijuana Termination SARs—that financial institutions were generally required to provide when dealing with marijuana-related business transactions. In addition, the financial institutions were expected to comply with other expensive and burdensome due diligence obligations and report currency transactions.

Overview of the Secure and Fair Enforcement Banking Act

Because of these risks, many banks and other financial institutions do not serve marijuana-related businesses. As a result, marijuana-related companies, legal and licensed under state law, are often denied access to the banking system, unable to take advantage of all the banking, checking, payroll, and accounting functions that other businesses rely on. As a result, multi-billion dollar cannabis industry operates mainly on a cash-only basis. This has created significant public safety, tax, and regulatory problems. In this environment, companies, employees, and customers are more vulnerable to theft and other monetary-motivated crimes, and the tax collection and audit process is ineffective. As a result, the industry is more challenging to regulate.

The Banking SAFE Act aims to address these concerns and increase transparency in the industry by creating a haven from criminal prosecution, liability, and asset forfeiture for financial institutions, their directors, officers, and employees, who choose to provide financial services to the legitimate state. Authorized cannabis business under the bill, federal regulators would be barred from taking any of the following actions:

  • Prohibit, penalize or discourage a financial institution from providing financial services to a legitimate cannabis business or a business related to it (i.e., a law firm that offers legal services to a legitimate cannabis business);
  • Termination or limitation of a financial institution’s deposit or participating insurance solely because the financial institution provides services to the cannabis business or related business;
  • recommend, motivate or encourage a financial institution to stop or reduce the level of provision of any type of banking service to this cannabis business; or
  • Take any adverse or corrective action on loan to a cannabis-related business owner or operator (or who owns rental property or equipment for a cannabis business).


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