Illinois Moves To Bank The Unbanked Marijuana Companies
Growing and selling cannabis for medical purposes in Illinois is legal, and it's looking more likely that the state will legalize a recreational program as well. But one crucial component that remains illegal is for banks to do business with marijuana-related companies.
State Treasurer Michael Frerichs has a blunt response: "This defies logic," he says. So he's pushing a new state proposal that aims to prohibit the Illinois Department of Financial and Professional Regulation from punishing state banks that choose to work with legal cannabis businesses.
"The inability of a legal cannabis industry in Illinois to use a bank or credit union for basic services like check writing, savings, or access to capital is a sleeping giant," Frerichs says. "...Banking rules written decades ago have not kept up with changes in behavior and in law."
Changes at the state level are just the first step, though. Despite more than 30 states throughout the U.S. having some type of legal cannabis program, marijuana is still considered a Schedule I drug under federal law. Banks that handle transactions with the drug could technically be charged with money laundering and be shut down.
This problem has forced many cannabis-related businesses to operate as cash-only, which creates a whole host of problems. For starters, there are safety concerns in handling and transporting large amounts of cash. It also complicates taxation, since all-cash businesses can more easily commit tax fraud.
State Sen. Toi Hutchinson (D-Olympia Fields) recognizes the need for banking reform at the federal level, but says state lawmakers need to act first.
We need to do this for the safety of our own businesses so we can make sure people are doing what they need to do for safe, regulated business operations."State Sen. Toi Hutchinson (D-Olympia Fields)
“Because this is happening state by state by state, it’s the one thing that we think will make the federal government move," said Hutchinson. "We need to do this for the safety of our own businesses so we can make sure people are doing what they need to do for safe, regulated business operations.”
In 2013, the federal Department of Justice issued a memo declaring a hands-off approach to cannabis enforcement. Essentially, if states passed and regulated their own marijuana programs, it ceased to be a priority for the DOJ.
State Rep. Kelly Cassidy (D-Chicago) says this memo helped ease some of the concerns in doing business with medical marijuana companies for at least one bank in Illinois.
"Prior to last year, at least 85-percent of our cannabis industry was banked with a single bank in Illinois," she said. But as a result of then-Attorney General Jeff Sessions rescinding those protections in Jan. 2018, the bank "got nervous about potential backlash" and stopped doing business with cannabis companies.
Frerich's new proposal won't change things at the federal level, but it is designed to give banks more confidence and security as the cannabis industry grows.
Bob Berlin with Illinois State's Attorneys Association says he believes the proposal will advance public safety, since "dealing with that much cash, the opportunity for criminal activity increases."
In addition to championing the state legislation, Frerichs leads a bipartisan group from the National Association of State Treasurers that is seeking the same protections federally.