A Comprehensive Guide to Cannabis and Compliance

By Dominic Suszek

ForewordThe growth of the cannabis industry has been well documented over the past

several years, as a growing number of states continue their movements to

adopt the legalized sale and usage of one of the most popular medicinal and

recreational drugs in the United States. As of June 1st, 2017, Alaska, Colorado,

California, Nevada, Oregon, Maine, Massachusetts, Washington, and Washington

D.C. have passed legislation to legalize the drug’s recreational use – this in

addition to 21 other states that have also legalized medical marijuana in

some form. However, while many believed that the cannabis industry had the

potential to be rather successful, few could have envisioned the boom that

has been seen within this market over the past several years, as legal cannabis

sales are set to top the $5 billion mark for the third straight year in 2017. Yet

analysts believe that these margins will only continue to increase in the years

to come, conceivably by as much as a whopping 30% annually. As investors and

entrepreneurs who had previously been hesitant to venture into this high-risk

market begin to see the potential for its high-reward, these numbers could

hold steady for many years to come. Also factoring in to the historic rise of this

industry are the continuous flow of new users to the marijuana market, both

legal and illegal, as well as the diminishing negative stigma against the

plant itself.

While every successful industry must deal with distinctive pitfalls,

those surrounding the marijuana industry are far more complex than others.

As matters currently stand, marijuana businesses have a hard time to obtain

banking services due to federal laws restricting banks and credit unions from

taking marijuana funds. These limitations leave organizations within this

industry – some bringing in upwards of several million dollars a year – to

function on a “cash-only” basis, leaving them susceptible to frequent crime.

While some local financial institutions have begun to serve operators within

this industry following the recent guidance provided by the U.S. Justice

Department, the risk remains high for dealing with companies operating in a

drug-centered business, specifically due to its close ties to the illegal drug trade

and gang-related activity. With the regulatory climate governing U.S. financial

institutions continues to advance, the scope of responsibilities that have fallen

upon compliance departments are now greater than ever before. Compliance-

related tasks with a direct correlation to the cannabis industry would include

vigilant client and transaction monitoring, as well as strict suspicious activity

reporting requirements, each of which would demand a significant amount of

time, money, and other resources to be performed adequately. While the benefits

could be twofold for financial institutions and cannabis companies alike should

there be cooperation between the two, the unknown factors surrounding such a

partnership are too perilous to be ignored.

This handbook, the latest in the meritorious series of comprehensive

works written by author and CEO of Global RADAR, Dominic Suszek, is the

premier source for information regarding the marijuana industry and all that it

entails from the standpoint of those operating in the financial services sector.

Suszek, an individual with over 30 years of experience operating in the

financial spectrum and a pioneer in the now-thriving and essential anti-money

laundering software community, conveys his banking experience in the form of

industry insights and profound subject knowledge made evident from cover to

cover. With unprecedented analysis of the relationship between financial service

providers and the marijuana industry, Suszek travels into uncharted territory to

deliver vital information and coverage of this rapidly evolving industry.

Banking Marijuana is the first text of its kind to tackle a subject matter

of this nature, and should be utilized as a potent tool by financial service

providers to grow accustomed to an industry with the power to change banking

procedures across the globe.

ContentsAbout the Author 9

About Global Radar 9

Introduction 11

Chapter 1 - Marijuana in the United States 15

Overview 15

Availability 15

State-Approved Marijuana 16

State-Approved Personal Use/Recreational Marijuana 16

State-Approved Cannabidiol (CBD) Medical Marijuana 18

Marijuana Resolutions on Native American Lands 19

Industrial Hemp 19

Increasing THC Potency of Marijuana 20

Chapter 2 - U.S. Marijuana Markets 23

Domestic Production 23

Transportation of Domestically-Produced Marijuana 25

Foreign Production 26

Transportation of Foreign-Produced Marijuana 26

Additional Challenges 28

Outlook 28

Chapter 3 -Federal Enforcement Guidelines 31

Department of Justice 31

Financial Crimes Enforcement Network 36

Chapter 4 -Providing Financial Services to Marijuana-Related Businesses 37

Chapter 5 -Filing Suspicious Activity Reports on Marijuana-Related Businesses 41

Chapter 6 - Currency Transaction Reports and Form 8300 47

Chapter 7 - Risk Factors 49

Chapter 8 - Risk Assessment 53

9

About the AuthorDominic Suszek is the founder and CEO of Global RADAR®. With more than 25

years of hands-on experience in the evolving global regulatory landscape in

the financial services sector, Mr. Suszek has gained invaluable knowledge of a

complex and ever-changing industry that has merged technology, compliance

and operations. As a senior executive involved in all aspects of operations,

technology and regulatory compliance, with emphasis on cost reduction, and

enhanced compliance through better data management and simplified processes,

he has acquired extensive knowledge of business requirements and regulatory

expectations from supervisory agencies worldwide.

About Global RADAR®Global RADAR is a software solution that assists all companies comply with

Anti-Money Laundering and Counter Terrorism Financing (AML/CTF) Compliance

and FATCA requirements. Developed by a team of compliance professionals and

software engineers, Global RADAR is the first web-based compliance solution

that provides a comprehensive approach to managing Customer Due Diligence,

Enhanced Due Diligence, Risk Rating and Transaction Surveillance processes.

For information about Global RADAR, please visit www.GlobalRADAR.com or

call US 1.877.AML.RISK (265.7475) or UK +44 (0) 2086 182 216. For complete

protection for your organization wherever you are based in the world,

e-mail info@globalradar.com.

The contents of this booklet are intended to convey general information only and not to provide legal advice or opinions. The contents of this booklet should not be construed as, and should not be relied upon for, legal or tax advice in any circumstance or fact situation. The information presented on this booklet may not reflect the most current legal developments. Further, this website may contain technical inaccuracies or typographical errors. No action should be taken in reliance on the information contained on this booklet and we disclaim all liability in respect to actions taken or not taken based on any or all of the contents of this booklet to the fullest extent permitted by law. An attorney should be contacted for advice on specific legal issues.

11

IntroductionCannabis is arguably the fastest growing industry in the world. According to the

Marijuana Business Factbook for 20171, sales of legal recreational and medical

marijuana in 2016 topped those of Viagra and Cialis, paid music streaming

services, tequila and other established retail products. These figures are

attracting new investors and players to a market that keeps evolving every day.

According to the Substance Abuse and Mental Health Services Administration,

marijuana2 is the most widely used illicit drug in the United States. For example,

per the 2013 National Survey on Drug Use and Health, an estimated 44 percent

of Americans aged 12 and older reported they had tried marijuana, and an

estimated 7.6 percent of Americans aged 12 and older reported having used

marijuana in the past month.3

Marijuana is still a controlled substance under federal law and is classified

in the most restrictive of categories of controlled substances by the federal

government. The Controlled Substances Act of 1970 (CSA)4 places all federally

controlled substances in one of five “schedules”, depending, among other

things, on the drug’s likelihood for abuse or dependence, and whether the

drug has an accepted medical use. Marijuana is classified under Schedule I 5, the classification reserved for drugs that have been found by the federal

government to have a high potential for abuse, no currently accepted medical

use in treatment in the United States, and a lack of accepted safety for use

under medical supervision6. In contrast, the other schedules are for drugs of

varying addictive properties, but found by the federal government to have a

currently accepted medical use. Under the United Nations Single Convention

on Narcotic Drugs (1961)7 , cannabis is listed in both Schedule I and Schedule

IV, and participating countries are required to maintain, at the national level,

certain controls over the production, manufacture, possession, and distribution

of marijuana.

The CSA does not allow Schedule I drugs to be dispensed with a prescription,

12

unlike drugs in the other schedules. Furthermore, the CSA provides federal

sanctions for possession, manufacture, distribution, dispensing, or use of

Schedule I substances, including marijuana, except in the context of a

government-approved research project.

Despite this massive growth, many marijuana businesses still have no access

to traditional banking and financial services. This “drought” of financial services

means a bulk of the industry is still operating on a cash-only basis. Banks and

other providers of financial services struggle every day with demand from an

untapped market while at the same time weighing their options and challenges

to comply with federal regulations.8

This book will provide information on the status of the marijuana business;

challenges and dangers to financial institutions; and indicators on the future of

this activity.

15

CHAPTER 1Marijuana in the United States

Overview

Marijuana is the most commonly used illicit drug in the United States, with

an estimated 22.2 million current users in 2014 representing 8.4 percent of

the U.S. population, according to The National Survey on Drug Use and Health

(NSDUH)9 . This is an increase from 7.5 percent of the population the previous

year. Marijuana use rates appear to have accelerated in states with personal

use marijuana laws, according to NSDUH model-based prevalence estimates.

Colorado and Washington have the highest use rates from this group, and both

legalized personal use marijuana in 2012. Alaska, Oregon, and Washington DC

legalized personal use marijuana in 2014 and current survey data does not

reflect if legalization has made an impact on use rates in these areas. Florida

may be the most recent state to join the “club”, with legislation being passed as

recently as June 2017, that the governor has said he would sign.

Recent and ongoing state legalization actions and shifting priorities are

changing how many law enforcement agencies perceive marijuana as a threat.

While marijuana remains illegal under federal law, many states have passed

laws allowing the cultivation, manufacturing, retail, possession, and use of

marijuana within their respective states.

Availability

Marijuana is available in all areas of the United States. According to the 2016

National Drug Threat Survey10 , eighty percent of responding agencies reported

that marijuana availability was high in their jurisdictions, meaning marijuana

is easily obtained at any time, and sixteen percent reported that marijuana

availability was moderate. In addition, sixty one percent of respondents reported

that marijuana availability had stayed the same, while thirty four percent

16

reported that availability had increased over the past year. Twenty-nine percent

of respondents reported demand for marijuana had increased, while sixty two

percent reported demand had remained the same.

While this is slightly higher than cocaine and significantly lower than heroin,

methamphetamine and controlled prescription drugs (CPDs), it should be noted that

changing state laws are more likely the driving factor in the decreasing perception

of marijuana as a threat than decreases in availability or diminished criminal activity.

Marijuana is widely available in the Pacific and West Central regions and many

criminal organizations operate in these areas; however, most respondents do not see

marijuana as their greatest drug threat

State-Approved Marijuana

In 1973, states started to decriminalize marijuana. As of December 2016, twenty

states and Washington DC had decriminalized marijuana. Decriminalization typically

means a minor penalty or fine is imposed for possession of small “personal use”

amounts of marijuana, but there is no jail sentence. In Missouri, Nevada, North

Carolina and Ohio, the possession of personal use amounts of marijuana is a

misdemeanor, and a conviction will not result in jail time. Missouri’s law went into

effect in January 2017.

Implementation of Washington’s Cannabis Patient Protection Act was set to take

effect in July 2016, and implementation of the California Medical Marijuana

Regulation and Safety Act is set to take effect in 2018.

State-Approved Personal Use/Recreational Marijuana

In 2012, Washington and Colorado approved laws for personal use marijuana,

often referred to as “recreational” or “retail” marijuana. In 2014, Oregon, Alaska,

and Washington DC followed suit and approved personal use marijuana. These

jurisdictions allow their citizens to possess smaller, user-amounts of marijuana (two

ounces or less in Washington DC and one ounce or less in the four other states).

Regulations regarding user-amounts of marijuana infused edibles and marijuana

concentrates vary by state as well.

17

WA

HI

AK

OR

CA

NV

AZNM OK

TX

KSCO

UT

WY

ID

MT ND

MN

IA

WIMI

INOH

WVVA

PA

NY

VT

MACT

NH

NJRI

DE

DC

ME

IL

MO

AR

ARMS AL GA

FL

SC

NCTN

KY

SD

NE

29 States and DC withLegal Cannabis Laws

Medical (21)

Medical and Adult Use (9)

Pending Legislation 2017

No Legislation

AS OF 06.01.17

Map provided by www.tgunthergroup.com2017 TGunther Group LLC

18

These jurisdictions, except for Washington, allow their citizens to personally

grow marijuana. Alaska, Colorado, and Washington DC allow for up to six plants

to be grown, and Oregon allows for up to four plants to be grown. Washington

DC has not approved the retail sale of marijuana for personal use. In 2016

California, Nevada, Massachusetts, and Maine all passed voter initiatives to

legalize adult recreational use of marijuana.

There is a notable distinction in the state laws allowing residents to grow their

own recreational plants. The laws in Oregon, Alaska, and Washington DC limit

that plant number per household. Colorado law allows each adult resident to

grow his/her six plants. If multiple adults live in a residence, multiples of six

plants can be grown. Also, the Colorado law allows residents to “assist” others in

growing marijuana. Thus, many residential grows have numerous plants with no

regulation/verification by the state. Plant size can vary drastically.

State-Approved Cannabidiol (CBD) Medical Marijuana

In 2014, states started passing legislation regarding marijuana that is typically

referred to as “Limited Access” or “Cannabidiol (CBD)-only medical marijuana”.

CBD is a cannabinoid/chemical compound of marijuana. CBD marijuana,

typically ingested in the form of oils, oil-filled capsules, and tinctures, is

extracted from marijuana that contains low levels of THC and high levels of

CBD. Many medical marijuana advocates and parents of children with epilepsy

claim CBD helps control epileptic seizures, but at this time, there is only

anecdotal evidence that CBD benefits those with seizure disorders.

In addition to the twenty-five states with medical marijuana laws, seventeen

other states have approved legislation regarding CBD-only marijuana, which

means eighty percent of states have approved some form of medical marijuana.

The majority of these seventeen states passed CBD-only laws, which permit

small, controlled studies to be conducted at universities in these states. Some

of these states have passed legislation that does not define or provide in-state

methods of access to, or production of, CBD-only marijuana.

19

Marijuana Resolutions on Native American Lands

Since late 2014, several Native American reservations have passed resolutions

allowing for both personal use and medical marijuana. In September 2015,

the Washington State Liquor and Cannabis Board (WSLCB) and the Suquamish

Tribe on the Kitsap Peninsula signed the nation’s first state-tribal marijuana

compact. The compact governs the production, processing, purchase, and sale of

marijuana on the Tribe’s land. The agreement was made possible by legislation

enacted during the 2015 legislative session. Within two weeks, the WSLCB

signed its second marijuana compact with the Squaxin Island Tribe in Shelton.

Most resolutions passed are by reservations located within state borders that

have already approved medical, personal use, or hemp marijuana; however, in

December 2014, the L’Anse Reservation, located in Michigan, passed a resolution

asking tribal members if they would favor the use and sale of medical and retail

marijuana, but nothing further has been approved (Michigan only has state

approved medical marijuana). In June 2015, the Flandreau Indian Reservation in

South Dakota voted to establish a limited liability company (LLC) for marijuana

cultivation with a projected start date of October 2015; however, they burned

their crops in November 2015 due to fear of federal seizure (South Dakota

doesn’t approve medical, personal use or hemp).

Industrial Hemp

A provision of the U.S. Agricultural Act of 2014, which became law in February

2014, provided allowing growth or cultivation of industrial hemp for purposes

of research conducted under an agricultural pilot program or other agricultural

or academic research. This Act did not amend the Federal Food, Drug, and

Cosmetic Act or the Controlled Substance Act11. The new law, codified at 7

United States Code (U.S.C.) §5940, defines industrial hemp as a cannabis plant,

or any part thereof, that contains no more than 0.3 percent THC. The law further

provides that, notwithstanding the CSA or any other federal law, an institution

of higher education or state departments of agriculture may “grow or cultivate”

industrial hemp for the purpose of agricultural research if such activity is

20

allowed under the law of the state in which such institution of higher education

or state department of agriculture is located, and the growing site is “certified

by, and registered with, the state department of agriculture”. At least twenty-

seven states have laws in place related to industrial hemp.

Increasing THC Potency of Marijuana

While laboratory testing of marijuana has not become a mandate in state

programs, with the exception of Nevada, getting product tested for THC and

other microbials is a must. Laboratory analysis of marijuana seizures is an

increasing burden on forensic laboratories. Prior to state-legalization of

marijuana, federally-approved production of hemp programs, and increasing

seizures of “CBD” or “hemp”, the quantities of THC and other cannabinoids in

marijuana seizures were not important for criminal cases. Now, the quantity

of THC present in marijuana, including marijuana concentrates and marijuana

edibles, is becoming increasingly more important as more states approve

medical, CBD-only medical and industrial hemp laws. Most federal, state,

and local forensic laboratories only conduct qualitative testing. Conducting

quantitative analysis on marijuana edibles presents different challenges than

those presented by traditional leafy marijuana or marijuana concentrates.

Qualitative analysis takes approximately 30 minutes per marijuana exhibit;

however, quantitative testing can range from two to six hours per marijuana

exhibit, provided the laboratory has the capability to conduct the tests.

23

There are three types of marijuana markets operating in the United States:

illicit markets; state-approved medical marijuana markets; and state-approved

personal use/recreational markets. Federally, these three markets are the same

in that they are illicit; however, these markets operate differently and should be

described independently.

Illicit markets are supplied by illicit domestic produced marijuana, diverted

domestic state approved marijuana, and foreign-produced marijuana trafficked

into the United States. Illicit domestic-produced marijuana is cultivated by

various types and sizes of organizations, which range from individuals growing

a limited number of plants to supplement their income to organized groups

that produce large quantities of marijuana to distribute across the United States

to glean more profit. State-approved marijuana is diverted to the illicit market

in several ways. Some individuals or groups operate under the guise of state-

legality using valid or counterfeit state-approved medical recommendations.

Instead of using the marijuana they purchase, they sell some or all of their

marijuana to the illicit market. Some people purchase medical or personal use

marijuana, and then resell it out of state to glean profit. State-approved medical

and personal use markets are supplied by a growing number of state-approved

producers and retail stores. State-approved marijuana markets are changing

the dynamic for law enforcement across the United States. Each state has

created unique laws, and many of these laws are in flux, creating a challenging

environment for law enforcement.

Domestic Production

Domestic production is increasing, but eradication and seizures statistics will

not accurately reflect this trend as law enforcement priorities and capabilities

are also changing. Five years ago, there were no state-approved personal use

CHAPTER 2U.S. Marijuana Markets

24

marijuana sales and medical sales have only recently begun in many states. In

addition, an estimate of the percentage of foreign versus domestic marijuana

supplying the United States does not exist for multiple reasons: (a) consumption

estimates cannot determine the source of marijuana being consumed; (b)

domestic state, local, and tribal law enforcement seizure data rarely provide

origination information for national scale analysis; and (c) there is no signature

program to determine the geographical origin of cannabis plants for specific

marijuana seizures.

Marijuana can be grown both outdoors and indoors. Indoor production is more

difficult for law enforcement to discover and has the advantage of not having

to rely on climate conditions or growing seasons. Criminal organizations of all

sizes and types are involved in illegal marijuana cultivation throughout the

United States.

The establishment of new state-approved marijuana markets is also impacting

the supply of marijuana in the United States.

Drug traffickers, including Caucasian, Cuban, Asian and Eurasian organizations,

have established themselves in state-approved marijuana markets for the

purpose of producing marijuana for sale on the illicit market and out-of-

state. Some of this activity takes place under the guise of states’ licensed

industry. Increasingly, much of this activity is conducted overtly through illegal

residential grows, but is largely unenforced due to the ambiguity of the law, and

restraints on law enforcement. Since the legalization of personal-use marijuana,

there has been an influx of not only individuals, but organized groups of

individuals who have relocated to Colorado for the sole purpose of producing

marijuana to transport and sell in other markets. Many of these operations

involve multiple homes and some of them involve dozens of homes, purchased

or rented and converted into grow sites. Many of the individuals involved in this

activity are long-time drug traffickers, and are frequently armed. Local police

departments have noted that these organizations are often involved in other

crimes, such as credit card skimming and financial fraud. Late last year, officials

in a suburban county in the Denver area reported to DEA that most of their

homicides and assault crimes were in some way linked to marijuana grows.

25

Electricity and water consumption are increasing in some localities due to

increasing domestic cultivation from both state-approved and illicit grows. A

2012 study estimated the energy consumption for indoor cannabis production

is around one percent of national electricity use, or $6 billion each year12.

This study also claims that one average kilogram of final marijuana product

is associated with 4,600 kilograms of carbon dioxide emissions into the

atmosphere. Open source reporting shows that more than 1,200 licensed

growing facilities use roughly half of Colorado’s new power demands and, last

year, those facilities combined to use about the same amount of energy as

35,000 households. Most marijuana growing facilities make use of powerful,

environmentally unfriendly lighting systems that allow growers to churn out

fresh crops year-round. In fact, the heat from the lights is often so strong

that growers also need high-power air conditioning systems to keep facility

temperatures at temperate levels. With no industry-wide regulators, growers

have no standards for energy efficient design in their facilities, which creates

unnecessary energy waste. The marijuana industry’s energy consumption is only

going to become a bigger problem in the coming years.

There is also growing concern from local health officials and the public with

regard to how pesticides affect both wildlife and humans ultimately consuming

the marijuana. Pesticides are used during the production of marijuana and are

typically located at domestic grow sites. State-approved marijuana regulatory

bodies are grappling with how to effectively control producers’ use of pesticides.

As marijuana remains federally illegal, the Environmental Protection Agency

(EPA) has not made a recommendation for the amount of, or tolerance for,

specific pesticides in marijuana products intended for human consumption.

Transportation of Domestically-Produced Marijuana

Transportation of Domestically-produced marijuana intra-state is regulated

in most states by local and county authorities, inter-state transportation is

illegal unless approved through specific federal agencies. Domestically-

produced marijuana is often transported in personally owned vehicles, rented

vehicles, semi-trucks, tractor tailors, and buses via U.S. highways. Personal and

26

commercial planes are also used to transport shipments of marijuana. Marijuana

is often shipped via commercial parcel services like the USPS, FedEx, and UPS.

Concentrated forms of marijuana allow for easier trafficking through mail

services due to reduced bulk. Concentrated forms can be flattened and placed in

envelopes, or can be concealed in containers of different shapes.

Foreign Production

Marijuana is smuggled into the United States from Mexico in large volumes,

and in smaller volumes from Canada and the Caribbean. Marijuana from Mexico

is typically classified as “commercial-grade” or “low-grade” marijuana. The

quality of marijuana produced in Mexico and the Caribbean is thought to be

inferior to the marijuana produced in the United States and Canada; however,

law enforcement reporting indicates that Mexican cartels are attempting to

produce higher-quality marijuana to keep up with U.S. demand for high-quality

marijuana.

It is important to realize that many other countries (see Figure 1) have legalized

marijuana as well, like the United States some are still federally illegal but have

legal laws within countries within their domain. Surprisingly you do not see the

Netherlands (home to Amsterdam) as it is still illegal in the country however

it is not enforced. Many countries are spending millions of dollars a year in

medical research regarding the marijuana plant.

Transportation of Foreign-Produced Marijuana

Large quantities of foreign-produced marijuana are smuggled into the United

States via personally owned vehicles, commercial vehicles, buses, subterranean

tunnels, small boats, unmanned aircraft systems (UAS), and walked across by

backpackers. There was a 23.6 percent decline in the total weight of marijuana

seized along the Southwest Border from 2013 to 2014 and an additional 3.7

percent decline from 2014 to 2015, even with increased seizure incidents,

according to the U.S. Customs and Border Protection (CBP) data. Regardless

of this decline, it should be noted that marijuana seizure incidents and total

27

Colombia

Jamaica

Israel

Italy

Czech Republic

Poland

Netherlands

Spain

Romania

Germany

Uruguay

Chile

South Africa

Philippines

Turkey

France

Macedonia

Puerto Rico

India

Colombia

Australia

Guam

Mexico

Figure 1- Provided by TGunther Group (www.tgunthergroup.com)

28

weight are drastically larger than for cocaine, heroin, and methamphetamine

combined

Additional Challenges

Due to varying state laws, as well as an abundance of media attention

surrounding claims of possible medical benefits, the public has been introduced

to contradictory and often inaccurate information regarding the legality

and benefits of marijuana use. This has made enforcement and prosecution

for marijuana-related offenses more difficult, especially in states that have

approved marijuana legalization. State-legalization measures also have had

several observable effects, including increases in marijuana use, increases in

domestically-produced marijuana, shifts in demand for higher-quality marijuana,

increases in seizures of marijuana concentrates, increases in the number of THC

extraction laboratories, and declines in the overall amount of Mexico-sourced

marijuana seized at the Southwest Border.

With recent marijuana legalization actions, some Asian criminal organizations

are overtly operating their marijuana grows and adhering to local regulations

under the guise of supplying marijuana dispensaries. The resulting marijuana is

instead illegally diverted to the Midwest and East Coast, where it is much more

profitable on the black market.

Outlook

Domestic use of marijuana will remain high and is likely to increase. Domestic

production and trafficking of marijuana will likely increase as more states adopt

relaxed marijuana laws. Individuals and criminal organizations will exploit

state-legality in these localities to produce and traffic their product to the

illicit market, particularly to states without state-approved marijuana. Mexico-

produced marijuana will continue to be trafficked into the United States in bulk

quantities and will likely increase in quality to compete with domestically-

produced marijuana.

Fragmented and developing medical and personal use laws among the states

will continue to create uncertainty and increasingly complex issues for the

public, law enforcement, banking systems, and medical professionals. Marijuana

will remain a part of domestic and international political discussions for the

foreseeable future.

30

31

Department of Justice

As previously indicated, the federal government continues to make clear

that marijuana remains an illegal drug under the Controlled Substances Act

(CSA) and that federal prosecutors will continue to aggressively enforce this

statute. The federal posture also specifies that no state law can go over federal

legislation. The Department of Justice (DOJ) is responsible for enforcing the CSA

and developing policies and strategies to do so. Within DOJ, two components

have primary responsibility for enforcing the CSA. The Drug Enforcement Agency

(DEA) is the primary federal law enforcement agency responsible for conducting

criminal investigations of potential violations of the CSA. In addition, U.S.

Attorneys are the chief federal law enforcement officers in federal judicial

districts responsible for, among other things, prosecution of criminal cases

brought by the federal government and prosecution of civil cases in which the

United States is a party. As part of their marijuana enforcement efforts, DEA and

the U.S. Attorneys collaborate, often with state and local law enforcement, to

conduct criminal investigations and prosecutions, civil and criminal forfeiture,

seizures, and eradications of cannabis plants.

In October 2009 (Ogden Memo13) and June 2011 (Cole Memo14) the Department

of Justice (DOJ) issued guidance to federal prosecutors concerning marijuana

enforcement under the CSA. This guidance was updated in August 2013 (Cole

Memo Update15) in light of state ballot initiatives that legalized under state

laws the possession of small amounts of marijuana and provided for the

regulation of marijuana production, processing and sale. The guidance issued by

the DOJ applies to all federal enforcement activity, including civil enforcement

and criminal investigations and prosecutions, concerning marijuana in all states.

The federal government policy, as directed by the DOJ, indicates that marijuana

CHAPTER 3 Federal Enforcement Guidelines

32

is a dangerous drug and that the illegal distribution and sale of marijuana is

a serious crime that provides a significant source of revenue to large-scale

criminal enterprises, gangs and cartels. The DOJ guidance published in 201316

identified eight (8) enforcement areas that federal prosecutors should prioritize

when dealing with these cases:

• Prevent distribution of marijuana to minors

• Prevent marijuana revenue from funding criminal enterprises, gangs

or cartels

• Prevent marijuana from moving out of states where it is legal

• Prevent use of state-legal marijuana sales as a cover for illegal activity

• Prevent violence and use of firearms in growing or distributing

marijuana

• Prevent drugged driving or exacerbation of other adverse public health

consequences associated with marijuana use

• Prevent growing marijuana on public lands

• Prevent marijuana possession or use on federal property

These are the same enforcement priorities that have traditionally driven the

DOJ’s efforts in this area. The guidance described examples of circumstances

where the federal government may seek to challenge the regulatory system

implemented by a state to control the production, processing, and sale of

marijuana because it was likely to threaten federal enforcement priorities. DOJ

indicated that the guidance rested on its expectation that states and local

governments that have legalized marijuana would implement strong and

effective regulatory and enforcement systems to address the threat that those

state laws could pose to these priorities.

The DOJ guidance17 was updated on February 2014 to provide additional

resources regarding financial crimes involving marijuana. The updated guidance

was published to specifically address what, if any, impact it would have on

certain financial crimes for which marijuana-related conduct is a predicate.

According to the updated guidance, the provisions of the money laundering

33

statutes, the unlicensed money remitter statute, and the Bank Secrecy Act

(BSA) remain in effect with respect to marijuana-related conduct. Financial

transactions involving proceeds generated by marijuana-related conduct

can form the basis for prosecution under the money laundering statutes18,

the unlicensed money transmitter statute19 and the BSA. Sections 1956 and

1957 of Title 18 make it a criminal offense to engage in certain financial and

monetary transactions with the proceeds of a “specified unlawful activity”,

including proceeds from marijuana-related violations of the CSA. Transactions

by or through a money transmitting business involving funds “derived from”

marijuana-related conduct can also serve as a predicate for prosecution under

18 U.S.C. §1960. Additionally, financial institutions that conduct transactions

with money generated by marijuana-related conduct could face criminal liability

under the BSA for, among other things, failing to identify or report financial

transactions that involved the proceeds of marijuana-related violations of the

CSA20 . Notably for these purposes, prosecution under these offenses based

on transactions involving marijuana proceeds does not require an underlying

marijuana-related conviction under federal or state law.

As noted in the 2013 guidance, the DOJ was committed to using its limited

investigative and prosecutorial resources to address the most significant

marijuana-related cases in an effective and consistent way. Investigations and

prosecutions of the offenses enumerated above based upon marijuana-related

activity were subject to the same consideration and prioritization.

Therefore, in determining whether to charge individuals or institutions with any

of these offenses based on marijuana-related violations of the CSA, prosecutors

were to apply the eight enforcement priorities described above. For example, if

a financial institution or individual provides banking services to a marijuana-

related business knowing that the business is diverting marijuana from a

state where marijuana sales are regulated to ones where such sales are illegal

under state law, or is being used by a criminal organization to conduct financial

transactions for its criminal goals, such as the concealment of funds derived

from other illegal activity or the use of marijuana proceeds to support other

illegal activity, prosecution for violations of 18 U.S.C. §§1956, 1957, 1960 or the

34

BSA might be appropriate. Similarly, if the financial institution or individual is

willfully blind to such activity by, for example, failing to conduct appropriate due

diligence of the customers’ activities, such prosecution might be appropriate.

Conversely, if a financial institution or individual offers services to a marijuana-

related business whose activities do not implicate any of the eight priority

factors, prosecution for these offenses may not be appropriate.

The 2013 guidance rested on the expectation that states that have enacted

laws authorizing marijuana-related conduct will implement clear, strong and

effective regulatory and enforcement systems in order to minimize the threat

posed to federal enforcement priorities. Consequently, financial institutions

and individuals choosing to service marijuana-related businesses that are

not compliant with such state regulatory and enforcement systems, or that

operate in states lacking a clear and robust regulatory scheme, are more

likely to risk entanglement with conduct that implicates the eight federal

enforcement priorities21 . In addition, because financial institutions are in a

position to facilitate transactions by marijuana-related businesses that could

implicate one or more of the priority factors, the 2014 guidance requires that

financial institutions must continue to apply appropriate risk-based anti-money

laundering policies, procedures, and controls sufficient to address the risks

posed by these customers, including by conducting customer due diligence

designed to identify conduct that relates to any of the eight priority factors.

Moreover, as the Department’s and Financial Crimes Enforcement Network’s

(FinCEN) guidance are designed to complement each other, it is essential that

financial institutions adhere to FinCEN’s guidance22.

As with the DOJ’s previous statements on this subject, this 201423 guidance is

intended solely as a guide to the exercise of investigative and prosecutorial

discretion. This memorandum does not alter in any way the DOJ’s authority to

enforce federal law, including federal laws relating to marijuana, regardless

of state law. Neither this guidance nor any state or local law provides a legal

defense to a violation of federal law, including any civil or criminal violation of

the CSA, the money laundering and unlicensed money transmitter statutes, or

the BSA, including the obligation of financial institutions to conduct customer

35

due diligence. Even in jurisdictions with strong and effective regulatory

systems, evidence that particular conduct of a person or entity threatens federal

priorities will subject that person or entity to federal enforcement action, based

on the circumstances.

Financial Crimes Enforcement Network

The Financial Crimes Enforcement Network (FinCEN) issued guidance on

February 2014 to clarify the Bank Secrecy Act (BSA) expectations for financial

institutions seeking to provide services to marijuana-related businesses. FinCEN

issued this guidance in light of state initiatives to legalize certain marijuana-

related activity and related guidance by the U.S. Department of Justice (“DOJ”)

concerning marijuana-related enforcement priorities. This FinCEN guidance

tried to clarify how financial institutions can provide services to marijuana-

related businesses consistent with their BSA obligations, and align the

information provided by financial institutions in BSA reports with federal and

state law enforcement priorities. FinCEN’s enforcement priorities in connection

with this guidance would focus on matters of systemic or significant failures,

and not isolated lapses in technical compliance. According to the press release,

this FinCEN guidance should enhance the availability of financial services for,

and the financial transparency of, marijuana-related businesses. The jury is

still out on this expectation. The main challenge for financial institutions is

the ability to monitor legal marijuana companies and their adherence to the

guidelines stated in the guidance document.

37

The FinCEN guidance clarified how financial institutions can provide services to

marijuana-related businesses consistent with their BSA obligations. In general,

the decision to open, close, or refuse any particular account or relationship

should be made by each financial institution based on a number of factors

specific to that institution. These factors may include its particular business

objectives, an evaluation of the risks associated with offering a particular

product or service, and its capacity to manage those risks effectively. Thorough

customer due diligence is a critical aspect of making this assessment.

According to FinCEN, when assessing the risk of providing services to a

marijuana-related business, a financial institution should conduct customer

due diligence that includes: (a) verifying with the appropriate state authorities

whether the business is duly licensed and registered; (b) reviewing the

license application (and related documentation) submitted by the business

for obtaining a state license to operate its marijuana-related business;

(c) requesting from state licensing and enforcement authorities available

information about the business and related parties; (d) developing an

understanding of the normal and expected activity for the business, including

the types of products to be sold and the type of customers to be served (e.g.,

medical versus recreational customers); (e) ongoing monitoring of publicly

available sources for adverse information about the business and related

parties; (f) additional monitoring for suspicious activity, including any of the

red flags described in this guidance; and (g) refreshing information obtained

as part of customer due diligence on a periodic basis and commensurate with

the risk. With respect to information regarding state licensure obtained about

such customer due diligence, a financial institution may reasonably rely on the

accuracy of information provided by state licensing authorities, where states

make such information available.

CHAPTER 4 Providing Financial Services

38

As part of its customer due diligence, a financial institution should consider

whether a marijuana-related business implicates one of the Cole Memo

priorities or violates state law. This is a particularly important factor for a

financial institution to consider when assessing the risk of providing financial

services to a marijuana-related business. Considering this factor also enables

the financial institution to provide information in BSA reports pertinent to law

enforcement’s priorities. A financial institution that decides to provide financial

services to a marijuana-related business would be required to file suspicious

activity reports (SARs) as described below.

41

The obligation to file a SAR is unaffected by any state law that legalizes

marijuana-related activity. A financial institution is required to file a SAR if,

consistent with FinCEN regulations, the financial institution knows, suspects,

or has reason to suspect that a transaction conducted or attempted by, at, or

through the financial institution: (i) involves funds derived from illegal activity

or is an attempt to disguise funds derived from illegal activity; (ii) is designed

to evade regulations promulgated under the BSA, or (iii) lacks a business or

apparent lawful purpose24. Because federal law prohibits the distribution and

sale of marijuana, financial transactions involving a marijuana-related business

would generally involve funds derived from illegal activity. Therefore, a financial

institution is required to file a SAR on activity involving a marijuana-related

business (including those duly licensed under state law), in accordance with this

guidance and FinCEN’s suspicious activity reporting requirements and related

thresholds.

One of the BSA’s purposes is to require financial institutions to file reports

that are highly useful in criminal investigations and proceedings. FinCEN has

indicated that the guidance below furthers this objective by assisting financial

institutions in determining how to file a SAR that facilitates law enforcement’s

access to information pertinent to a priority.

“Marijuana Limited” SAR Filings

A financial institution providing financial services to a marijuana-related

business that it reasonably believes, based on its customer due diligence, does

not implicate one of the Cole Memo priorities or violate state law should file

a “Marijuana Limited” SAR. The content of this SAR should be limited to the

following information: (a) identifying information of the subject and related

parties; (b) addresses of the subject and related parties; (c) the fact that the

CHAPTER 5Filing Suspicious Activity Reports

42

filing institution is filing the SAR solely because the subject is engaged in

a marijuana-related business; and (d) the fact that no additional suspicious

activity has been identified. Financial institutions should use the term

“MARIJUANA LIMITED” in the narrative section.

A financial institution should follow FinCEN’s existing guidance on the timing

of filing continuing activity reports for the same activity initially reported on a

“Marijuana Limited” SAR. The continuing activity report may contain the same

limited content as the initial SAR, plus details about the amount of deposits,

withdrawals, and transfers in the account since the last SAR.

However, if, in the course of conducting customer due diligence (including

ongoing monitoring for red flags), the financial institution detects changes in

activity that potentially implicate one of the Cole Memo priorities or violate

state law, the financial institution should file a “Marijuana Priority” SAR.

“Marijuana Priority” SAR Filings

A financial institution filing a SAR on a marijuana-related business that it

reasonably believes, based on its customer due diligence, implicates one of the

Cole Memo priorities or violates state law should file a “Marijuana Priority” SAR.

The content of this SAR should include comprehensive detail in accordance

with existing regulations and guidance. Details particularly relevant to law

enforcement in this context include (a) identifying information of the subject

and related parties; (b) addresses of the subject and related parties; (c) details

regarding the enforcement priorities the financial institution believes have

been implicated; and (d) dates, amounts, and other relevant details of financial

transactions involved in the suspicious activity. Financial institutions should

use the term “MARIJUANA PRIORITY” in the narrative section to help law

enforcement distinguish these SARs.

FinCEN recognizes that a financial institution filing a SAR on a marijuana-

related business may not always be well-positioned to determine whether the

business implicates one of the Cole Memo priorities or violates state law, and

43

thus which terms would be most appropriate to include (i.e., “Marijuana Limited”

or “Marijuana Priority”). For example, a financial institution could be providing

services to another domestic financial institution that, in turn, provides financial

services to a marijuana-related business. Similarly, a financial institution could

be providing services to a non-financial customer that provides goods or

services to a marijuana-related business (e.g., a commercial landlord that leases

property to a marijuana-related business). In such circumstances where services

are being provided indirectly, the financial institution may file SARs based on

existing regulations and guidance without distinguishing between “Marijuana

Limited” and “Marijuana Priority.” Whether the financial institution decides to

provide indirect services to a marijuana-related business is a risk-based decision

that depends on a number of factors specific to that institution and the relevant

circumstances. In making this decision, the institution should consider the

Cole Memo priorities, to the extent applicable. FinCEN released the Marijuana

Banking Update25 in March 2017.

“Marijuana Termination” SAR Filings

If a financial institution deems it necessary to terminate a relationship with

a marijuana-related business in order to maintain an effective anti-money

laundering compliance program, FinCEN notes that the financial institution

should file a SAR and note in the narrative the basis for the termination.

Financial institutions should use the term “MARIJUANA TERMINATION” in the

narrative section.

To the extent the financial institution becomes aware that the marijuana-

related business seeks to move to a second financial institution, FinCEN urges

the first institution to use Section 314(b) voluntary information sharing (if it

qualifies) to alert the second financial institution of potential illegal activity26.

Red Flags to Distinguish Priority SARs

As part of its guidance, FinCEN also provided examples of situations or “red

flags” that financial institutions should consider when assessing a customer

44

relationship and transactional activity. The following red flags may be indicative

that a marijuana-related business may be engaged in activity that implicates

one of the Cole Memo priorities or violates state law. These red flags indicate

only possible signs of such activity, and also do not constitute an exhaustive list.

It is thus important to view any red flag(s) in the context of other indicators and

facts, such as the financial institution’s knowledge about the underlying parties

obtained through its customer due diligence. Further, the presence of any of

these red flags in a given transaction or business arrangement may indicate a

need for additional due diligence, which could include seeking information from

other involved financial institutions under Section 314(b). These red flags are

based primarily upon schemes and typologies described in SARs or identified

by our law enforcement and regulatory partners, and may be updated in future

guidance.

• A customer appears to be using a state-licensed marijuana-related business

as a front or pretext to launder money derived from other criminal activity

(i.e., not related to marijuana) or derived from marijuana-related activity not

permitted under state law. Relevant indicia could include:

• The business receives substantially more revenue than may

reasonably be expected given the relevant limitations imposed by

the state in which it operates.

• The business receives substantially more revenue than its local

competitors or than might be expected given the population

demographics.

• The business is depositing more cash than is commensurate with

the amount of marijuana-related revenue it is reporting for federal

and state tax purposes.

• The business is unable to demonstrate that its revenue is derived

exclusively from the sale of marijuana in compliance with state

law, as opposed to revenue derived from (i) the sale of other illicit

drugs, (ii) the sale of marijuana not in compliance with state law, or

(iii) other illegal activity.

• The business makes cash deposits or withdrawals over a short

period of time that are excessive relative to local competitors or

45

the expected activity of the business.

• Deposits apparently structured to avoid Currency Transaction

Report (“CTR”) requirements.

• Rapid movement of funds, such as cash deposits followed by

immediate cash withdrawals.

• Deposits by third parties with no apparent connection to the

accountholder.

• Excessive commingling of funds with the personal account of the

business’s owner(s) or manager(s), or with accounts of seemingly

unrelated businesses.

• Individuals conducting transactions for the business appear to be

acting on behalf of other, undisclosed parties of interest.

• Financial statements provided by the business to the financial

institution are inconsistent with actual account activity.

• A surge in activity by third parties offering goods or services to

marijuana-related businesses, such as equipment suppliers or

shipping servicers.

• The business is unable to produce satisfactory documentation or evidence

to demonstrate that it is duly licensed and operating consistently with

state law.

• The business is unable to demonstrate the legitimate source of significant

outside investments.

• A customer seeks to conceal or disguise involvement in marijuana-related

business activity. For example, the customer may be using a business with a

non-descript name (e.g., a “consulting,” “holding,” or “management” company)

that purports to engage in commercial activity unrelated to marijuana, but

is depositing cash that smells like marijuana.

• Review of publicly available sources and databases about the business, its

owner(s), manager(s), or other related parties, reveal negative information,

such as a criminal record, involvement in the illegal purchase or sale of

drugs, violence, or other potential connections to illicit activity.

• The business, its owner(s), manager(s), or other related parties are, or have

been, subject to an enforcement action by the state or local authorities

responsible for administering or enforcing marijuana-related laws

46

or regulations.

• A marijuana-related business engages in international or interstate

activity, including by receiving cash deposits from locations outside the

state in which the business operates, making or receiving frequent or

large interstate transfers, or otherwise transacting with persons or entities

located in different states or countries.

• The owner(s) or manager(s) of a marijuana-related business reside outside

the state in which the business is located.

• A marijuana-related business is located on federal property or the

marijuana sold by the business was grown on federal property.

• A marijuana-related business’s proximity to a school is not compliant with

state law.

• A marijuana-related business purporting to be a “non-profit” is engaged

in commercial activity inconsistent with that classification, or is making

excessive payments to its manager(s) or employee(s).

47

Financial institutions and other persons subject to FinCEN’s regulations must

report currency transactions in connection with marijuana-related businesses

the same as they would in any other context, consistent with existing

regulations and with the same thresholds that apply.

For example, banks and money services businesses would need to file CTRs

on the receipt or withdrawal by any person of more than $10,000 in cash per

day. Similarly, any person or entity engaged in a non-financial trade or business

would need to report transactions in which they receive more than $10,000

in cash and other monetary instruments for the purchase of goods or services

on FinCEN Form 8300 (Report of Cash Payments Over $10,000 Received in a

Trade or Business). A business engaged in marijuana-related activity may not be

treated as a non-listed business under 31 C.F.R. §1020.315(e)(8), and therefore,

is not eligible for consideration for an exemption with respect to a bank’s CTR

obligations under 31 C.F.R. §1020.315(b)(6).

CHAPTER 6Currency Transaction Reportsand Form 8300’s

49

The current regulatory setting for marijuana-related businesses makes it

extremely difficult for financial institutions to address their compliance

requirements. As previously noted, the marijuana business involves multiple

parties that perform supplementary services not necessarily addressed in the

state laws but covered by stringent federal regulations. For example, a state

licensed marijuana business may use a private courier to distribute its products.

The courier is not in the “marijuana business” but the income received from

these services may subject the courier to federal enforcement. By the same

token, the landlord of the “marijuana business” may be subject to forfeiture of its

property if its lessor is indicted under federal law.

Some trends that are anticipated for the marijuana business market that may

affect a financial institution risk assessment include:

• Industry Consolidation and Brand Emergence: Due to legal and

financial risks associated with cannabis being illegal at the

federal level, many state-legal pot businesses have been able

to successfully operate at smaller scales for some time. But

as deep-pocketed investors enter the legal pot landscape and

competition grows, smaller operations are more likely to merge or

fold into larger companies. As the investment community becomes

increasingly eager to finance cannabis brands, the market will

grow at a faster pace and will likely see national brand leaders

begin to emerge. This consolidation presents new risks for financial

institutions as a customer may be an “investor” in one of these

businesses; customers may have other financial arrangements with

businesses in other states or jurisdictions; and/or companies may

invest in these new markets under new subsidiaries.

CHAPTER 7Risk Factors

50

• Ancillary Business Boom: As the legal cannabis market expands in

2017, so too will the market for ancillary products and services. In

fact, the growth of businesses that deal with cannabis industry and

consumer needs, but don’t necessarily touch the plant, may surge

far past that of cannabis proper. For example, cannabis-related

businesses may need farmers, private security, courier, custom lighting

and temperature rooms. Other ancillary businesses that are popping

around include “special” hotels, restaurants and lounges where

customers can use these products27. Ancillary cannabis startups

are popping up across America mainly for two reasons: (a) they’re

generally less risky than growing and distributing pot from a legal

standpoint; and (b) traditional businesses, such as banks, still don’t

want to touch those who directly touch the controversial plant

• New Types of Frauds: The Securities Exchange Commission (SEC)

has seen an increase in the number of investor complaints regarding

marijuana-related investments. The SEC has issued temporary trading

suspensions for the common stock of different companies that claim

their operations relate to the marijuana industry. The SEC suspended

trading in these companies because of questions regarding the

accuracy of publicly-available information about these companies’

operations. Some of the trading suspensions were also based on

potential illegal activity (unlawful sales of securities and market

manipulation).28

• Fraudsters often exploit the latest innovation, technology, and product

or growth industry – in this case, marijuana – to lure investors with

the promise of high returns. Also, for marijuana-related companies

that are not required to report with the SEC, investors may have

limited information about the company’s management, products,

services, and finances. When publicly-available information is scarce,

fraudsters can more easily spread false information about a company,

making profits for themselves while creating losses for unsuspecting

investors.

51

• Impact on Local Governments: The revenue from these businesses

is bringing tax revenue to local jurisdictions tax offices, usually in

large cash payments. The risks associated with the unexpected and

sometime continuous large influx of cash is a matter that government

entities and financial institutions need to address.

So, for financial institutions, it is not a matter of deciding whether to service the

“marijuana business” segment; it is a matter of how much risk the institution is

willing to accept as part of doing business. Any decision to service this market

should be thoroughly consulted with the institution’s legal counsel. In addition,

federal regulatory agencies have indicated that this decision should also be

consulted with the institution’s regulatory examiners.

CHAPTER 8 Risk Assessment

53

The following recommendations should be considered when deciding whether

to provide financial services to this business segment:

• Determine the legal, reputational, compliance, financial and geographical

risks associated with this business segment.

• Determine whether the financial institution’s geographic market(s) is

located in any of the jurisdictions that currently permit some form of

marijuana business and what are the requirements for these businesses.

• Determine if the financial institution has the necessary resources and

infrastructure to ensure that all applicable requirements for these

businesses is tracked and keep updated in the institution’s records.

• Determine the availability of public information and independent

verification of licenses granted and their status. The available information

should consider how the institution will be notified if an investigation has

been initiated, a license has not been renewed or has been revoked.

• Determine how the financial institution will constantly ensure that the

customer complies with the federal enforcement priorities detailed in the

Cole Memo.

• Determine the extent of supporting documentation, due diligence

and enhanced measures are to be taken to address these customer

relationships.

• Determine whether current or new customers present a risk of being

involved in providing ancillary or supplemental services to marijuana

CHAPTER 8 Risk Assessment

54

businesses. This analysis should include payment processors like credit/

debit card companies.

• Determine whether the current policies and procedures are appropriate for

the increased risk presented by these customers. Any decision to service this

business segment should be documented in the Board Minutes, and policies

and procedures updated as necessary. Additional specialized training may

also be necessary to the institution’s personnel.

• Determine whether current monitoring systems may be sufficient or strong

enough to capture this activity or if additional investments will be needed

to address this business segment.

1 The report could be accessed on this website: https://mjbizdaily.com/factbook/.

2 Marijuana refers to the dried leaves, flowers, stems, and seeds from the cannabis plant, which contains the psychoac-

tive or mind-altering chemical delta-9-tetrahydrocannabinol (THC), as well as other related compounds. Marijuana can

be smoked or consumed in food or drinks, such as marijuana-infused brownies, cookies, peanut butter, candy and soda.

3 Funded by the Substance Abuse and Mental Health Services Administration, the National Survey on Drug Use and

Health provides information on the use of illicit drugs, alcohol, and tobacco among noninstitutionalized Americans

aged 12 and older.

4 21 U.S.C. §§801 et seq

5 21 U.S.C. §812(c), Schedule I (c)(10)

6 21 U.S.C. §812(b)(1)

7 https://www.unodc.org/pdf/convention_1961_en.pdf

8 21 U.S.C. §§823(f), 841, 844

9 https://nsduhweb.rti.org/

10 https://www.hsdl.org/?view&did=797265

11 See USDA Statement of Principles on Industrial Hemp, 81 FR 53395

12 http://evanmills.lbl.gov/pubs/pdf/cannabis-carbon-footprint.pdf

13 This guidance is also known as the “Cole Memo”.

14 18 U.S.C. §§1956 and 1957

15 18 U.S.C. §1960

16 See, e.g., 31 U.S.C. § 5318(g)

17 For example, financial institutions should recognize that a marijuana-related business operating in a state that has

not legalized marijuana would likely result in the proceeds going to a criminal organization.

18 Under FinCEN’s guidance, for instance, a marijuana-related business that is not appropriately licensed or is operating

in violation of state law presents red flags that would justify the filing of a Marijuana Priority SAR.

19 https://www.fincen.gov/sites/default/files/shared/FIN-2014-G001.pdf

20 See, e.g., 31 CFR §1020.320. Financial institutions shall file with FinCEN, to the extent and in the manner required,

a report of any suspicious transaction relevant to a possible violation of law or regulation. A financial institution may

also file with FinCEN a SAR with respect to any suspicious transaction that it believes is relevant to the possible viola-

tion of any law or regulation but whose reporting is not required by FinCEN regulations.

21 See Section 314(b) Fact Sheet for more information. The Information Sharing Between Financial Institutions: Section

314(b) Fact Sheet is available at http://fincen.gov/sites/default/files/shared/314bfactsheet.pdf.

22 Most recently, California’s insurance commissioner is calling on insurance companies to provide coverage to cannabis

firms in the state. (https://mjbizdaily.com/california-commissioner-insurers-serve-marijuana-businesses/)

23 The SEC website has additional information on suspended companies (www.sec.gov).

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