Impact of Movement of State-Licensed Medical Marijuana to Schedule III By JORDAN C. MADDY, ESQ., Associate Attorney, and AMY J. TAWNEY, ESQ., Partner, Bowles Rice The movement of state-licensed medical marijuana from Schedule I to Schedule III under the federal Controlled Substances Act (CSA) enhances the ability of banks to provide traditional deposit, cash management and lending services to the licensed growers, processors and dispensaries in West Virginia who complete the new federal registration process by reducing banks’ legal and regulatory concerns and by increasing the creditworthiness of medical marijuana businesses through reduced tax burdens. Indeed, the West Virginia medical marijuana market is ideally situated for the introduction of banking services because the CSA scheduling change strictly applies only to medical marijuana, and West Virginia has not legalized recreational adult-use marijuana. Diligence and compliance issues that result from dual-use operations in other states should be less applicable in West Virginia. FEDERAL LAW IMPEDIMENTS TO PROVIDING BANKING SERVICES Financial institutions have been functionally unable to provide banking products and services to marijuana businesses because marijuana has been classified as a Schedule I drug under the CSA. Even though 40 states, including West Virginia, have legalized the sale and use of marijuana for medical purposes and have established systems to regulate such activity, the CSA criminalizes the manufacture, sale, possession and distribution of Schedule I substances. The federal anti-money laundering laws (AML) criminalize the handling of proceeds derived from marijuana manufacturing and sales in violation of the CSA. Federal authorities may also confiscate, through civil or criminal asset forfeiture proceedings, all proceeds derived from any real or personal property involved in or traceable to marijuana sales in violation of the CSA. In addition, the Bank Secrecy Act (BSA) requires financial institutions to adopt certain policies and procedures, to file suspicious activity reports (SARs) with the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) regarding transactions suspected to be derived from marijuana sales, and to establish and maintain AML programs designed to prevent institutions from facilitating money laundering and financing terrorist activity. In February 2014, FinCEN issued guidance to clarify BSA expectations for financial institutions seeking to provide services to marijuana-related businesses. The guidance addresses the customer due diligence that should be performed and requires financial institutions to file one of three types of SARs (marijuana limited, marijuana priority and marijuana termination) on activity involving a marijuana-related business. The FinCEN guidance also lists examples of “red flags” that may indicate that a marijuana priority SAR is appropriate, such as if a business fails to sufficiently document state law compliance. 8 WEST VIRGINIA BANKER
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