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Medical marijuana and industrial hemp businesses need banking services as much as other businesses do. (Photo: Shutterstock)
On July 3, New York’s Gov. Andrew M. Cuomo directed the state’s Department of Financial Services (DFS)  to support the development of medical marijuana and industrial hemp businesses by issuing guidance regarding what his statement announcing the guidance called the “safe and sound provision of banking services for these businesses.”According to Cuomo’s statement, the DFS guidance is designed to encourage New York state-chartered banks and credit unions to consider establishing banking relationships with medical marijuana-related businesses that are operating in New York in full compliance with all applicable New York State laws and regulations, including the New York Compassionate Care Act, and the applicable regulations and requirements of the state Department of Health. The guidance also encourages state-chartered banks and credit unions to support the development of industrial hemp businesses statewide.“The ability to establish a banking relationship is a challenge that legal industries face unlike no other,” Cuomo said. “As the federal government continues to sow discord surrounding the medical marijuana and industrial hemp businesses, New York has made significant progress in creating a supportive economic development and regulatory landscape for these companies.”The guidance notes that “So long as it remains difficult to open and maintain bank accounts, the industry will largely rely on cash to conduct business and operate.” Large amounts of cash distributed outside the regulated banking system is unacceptable and creates risks to the companies, their employees and business partners. In addition, large-scale cash operations make it difficult to track funds for tax and anti-money-laundering purposes.

Cutting red tape

“While the federal government ignores the reality of the benefits of medical marijuana and industrial hemp, New York has supported the development of the industry and advanced our agricultural economy,” said Lt. Gov. Kathy Hochul in the announcement. “We’re cutting the red tape and removing regulatory barriers to support businesses in the legal cannabis industry. Today’s action to encourage banking relationships will go a long way to assist this emerging sector of our economy.”As explained in the memorandum issued by N.Y. State Superintendent of Financial Services Maria T. Vullo, in recognition of the demonstrable medical benefits of marijuana, New York has considered the findings of respected medical practitioners and researchers, as well as the reports of patients in need of medical marijuana’s unique properties, in enacting the New York Compassionate Care Act. Signed by Cuomo in 2014, the law provides patients suffering debilitating symptoms and diseases access to medical marijuana, under strict requirements regulated by the N.Y. State Department of Health.The memorandum also notes that, under Cuomo, by permitting the cultivation of industrial hemp New York has recognized the economic development opportunity for farmers and businesses across the state. In 2017 Cuomo signed legislation to amend New York law to ensure that industrial hemp will be considered an agricultural product and that it will be treated the same way as other crops and seed.

‘Unsettled’ federal law

The “unsettled environment at the federal level” has discouraged institutions from providing financial services to companies with medical marijuana or industrial hemp operations, the memorandum explains. Because marijuana currently is still listed on Schedule I under the Federal Controlled Substances Act, medical marijuana and industrial hemp-related businesses operating in accordance with New York State laws and regulations continue to have difficulty establishing banking relationships at regulated financial institutions.In the July 3 memorandum, DFS advised New York’s chartered institutions that it will not impose any regulatory action on any New York State chartered bank or credit union for establishing a banking relationship with a medical marijuana-related business that operates a compliant business in New York, as long as the New York State chartered bank or credit union:

  • Complies with the requirements of the 2014 Financial Crimes Enforcement Network guidance;
  • Complies with the requirements of the guidance and priorities set forth in the Department of Justice’s 2013 memorandum from U.S. Deputy Attorney General James M. Cole; and
  • Is subject to the institution’s own evaluation of the risks associated with offering products and services and its ability and systems to effectively manage those risks.

Vullo said in a statement, “DFS stands ready to work with our chartered institutions to assist them in moving forward towards helping New York’s medical marijuana and industrial hemp businesses operate in a safe and sound manner. New York’s financial institutions should provide banking services to these legal businesses, in accordance with established principles and procedures, including customer due diligence and transaction monitoring. In this way, New York’s businesses can operate more effectively under the law to serve New Yorkers.”

What N.Y. State law allows

New York law permits the cultivation of industrial hemp and federal law permits the growing and cultivation of industrial hemp for certain limited research purposes. As such, the memorandum says, the DFS guidance encourages New York State-chartered banks and credit unions to support this development in the state of New York.The DFS guidance provides that any institution that seeks to provide financial services to entities that are or wish to be engaged in the growing or cultivation of industrial hemp should assess and verify the eligibility and authority of the entity for participation in a research program, as authorized under the New York Agriculture and Markets Law. As of July 3, the state Department of Agriculture and Markets had issued 123 permits to individuals and entities researching industrial hemp and products derived from industrial hemp.As with any other lending activity, DFS’s guidance says, banking institutions should establish and conduct appropriate underwriting and customer due diligence, including verification of eligibility of a research program and other requirements of federal and New York State law.A copy of the guidance can be found on the DFS website .

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