U.S. Attorney General Jeff Sessions has loomed as a threat tothe legalized marijuana industry. But Sessions, at the helm of theU.S. Justice Department since February, hasn't taken any overtaction to undermine state regulations, giving some hope tocannabis advocates that the longtime critic of recreationalcannabis will not interfere in state schemes.

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John Vardaman, general counsel to Arizona software startup HypurInc., helped craft the Obama-era Justice Department policy towardmarijuana enforcement—a series of memos, under the name ofthen-Deputy Attorney General James Cole, that essentially said thefederal government would leave alone state regulatory programs.

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Addressing the Cannabis Law Institute conference inDenver, Vardaman said Sessions had the opportunity to launch acrackdown on July 27. But Sessions did not make any grandstatements.

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John W. Vardaman III, general counsel of Hypur Inc.Courtesyphoto

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That date marked when a Sessions-appointed task force wasexpected to issue a report recommending changes to DOJ policies,including those covering marijuana. Sessions said he would considerthe task force's recommendations as they arrived on a “rollingbasis.”

“If the department had really wanted to rescindthe Cole memo and the U.S. Treasury Department's Financial CrimesEnforcement Network memo they could have easily done that,”Vardaman said, referring to Obama administration guidance for banksand regulators in marijuana-legal states. “They chose not to,”Vardaman continued, “and I think at a minimum that's a reflectionof the fact that this is a more complex issue than they may haveassumed when they entered office.”

Vardaman, who co-wrote a follow-up to the Cole memo in 2014,said he met with Sessions' task force leaders earlier in July.

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“It was probably as encouraging a discussion under thecircumstances as you could have asked for,” he said. “They wereboth very open to hearing ideas, suggestions, recommendations as tohow things could be improved, what's working, what's not working,what are we seeing at the state level, and a lot of focus onbanking.”

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Though the Cole memo and Fincen guidance are in place, for now,banks have not rushed to welcome marijuana businesses ascustomers. Just 300 or so credit unions and mostly small banksopenly serve industry clients in the 29 states and Washington,D.C., where recreational or medical use is legal.

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Financial institutions still fear the many federal bankingregulators not covered by the Fincen guidelines. Thestate-federal tension creates uncertainty, a situation thatconservative banks detest, Vardaman said.

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And those credit unions and banks that do serve the marijuana industry mustcomplete frequent rounds of paperwork on their clients and theirclients' activities, a potentially expensive and time-consumingprocess. As a result, many banks charge marijuana-relatedbusinesses a hefty service premium for providing basic servicesthat usually do not include commercial lending.

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“The law of supply and demand favors banks,” Vardaman said.

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The cash-intensive business causes problems for vendors aswell—including lawyers. A veteran cannabis attorney in Colorado onSaturday at the conference warned his colleagues to dousemarijuana-client cash payments in air freshener or to run themthrough a clothes dryer to remove the stench. Otherwise, he said, abank may be alerted to the source of the payment and close the lawfirm's account.

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The president of the Los Angeles City Council has floated theidea of starting a municipal bank for marijuana businesses.California Treasurer John Chiang has a marijuana bankingworking group that's also studying the idea. Others arelooking at cryptocurrency to avoid banks altogether.

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Any bank, public or otherwise, serving marijuana businesses willhave a problem obtaining a master account from the Federal Reserve,Vardaman said.

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Cryptocurrency systems don't provide the transparency thatadvocates of a regulated market want, he added.

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One solution might be finding a city or state agency willing tobuy an existing bank.

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“There's a difference from a regulatory perspective of startinga new bank or buying an existing bank, which already has a federalmaster account and all the other things in place,” Vardaman said.“I think that's a much more likely scenario and solution thanstarting one from scratch.”