In 1973, Oregon decriminalized cannabis, reducing the penalty for up to an ounce to a $100 fine. That same year, Texas law was amended to declare possession of 4 ounces or less a misdemeanor. The end to prohibition began with those baby steps and has evolved into a multistate-legal cannabis system responsible for $17.5 billion in U.S. sales in 2020.

Three years before those baby steps began, an impediment for the future cannabis industry came through the unintended consequences of the Bank Secrecy Act (BSA) of 1970, which aimed to prevent money laundering and other financial crimes through requiring financial institutions to keep records of certain cash purchases and file reports of suspicious activity or transactions.

It wasn’t until February 2014, when 20 states and the District of Columbia had already legalized medical cannabis or some form of cannabis activity, that the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN) issued guidance regarding the BSA’s expectations for financial institutions seeking to provide service to cannabis-related businesses.

A dozen more states came on board with medical cannabis legislation by the end of 2014, and more than 100 banks filed Suspicious Activity Reports (SARs)—the reporting structure that was laid out by the 2014 guidance—for providing financial services to cannabis-related businesses, according to FinCEN.

That number grew to 515 banks and 169 credit unions by the end of 2020, but most of those institutions are local, state or regional players, who are not guaranteed full safe harbor at the federal level without banking reform, such as the Secure And Fair Enforcement (SAFE) Banking Act, which was reintroduced in the U.S. House this week.

As long as financial institutions are filing their SARs, auditing their clients, and those clients can prove they’re operating in a state-authorized cannabis space, then the risk of federal enforcement is lower, said Jonathan Havens, a partner at Saul, Ewing, Arnstein and Lehr’s Philadelphia-based law firm. But there is still a large number of banks, particularly the biggest of the big banks, that don’t want to fuss with the compliance risks and won’t get into the space directly without more formalized reform, he said.

At the end of 2020, FinCEN had received a cumulative 170,975 SARs using key phrases associated with cannabis-related businesses. That overall total included 36,932 SARs coming from filers using the key phrase “marijuana termination,” meaning the financial institution’s due diligence indicated a client raised a red flag or was not fully compliant with the appropriate state’s regulations. Of those 36,932 terminations FinCEN has tracked since issuing its guidance seven years ago, 8,907 came in 2020.

As financial institutions in the space continue to show their due diligence and effort to be good actors, they deserve confidence at the federal level that will allow them to offer more traditional banking options and transactions to those who want to participate in a regulated and licensed marketplace, where cannabis operators are no longer suspicious.

-Tony Lange, Associate Editor