Cannabis and the U.S. Financial System: How Can Banks and Credit Unions Prepare? - Part 2

As discussed in Part 1 of this two-part article series, cannabis banking services are a lucrative new venture for financial institutions, with an estimated value of $197.74 billion by 2028. As the cannabis industry continues to grow, and more U.S. cannabis companies become bankable, financial institutions that provide services to the industry are required to be in compliance with AML, KYC, and CDD, as well as state laws and regulations. Since the cannabis industry almost entirely consists of cash transactions, if your financial institution is servicing or intends to service the cannabis industry, it needs to be compliance-ready to avoid possible penalties from regulators.

Staying on top of evolving regulations and requirements is a challenge for most financial institutions, regardless of their size. The National Credit Union Administration states that it will continue to examine BSA/AML compliance for federally-insured credit unions that provide services to marijuana-related businesses.  If you’re a financial institution, you must navigate federal anti-money laundering laws, state laws, and city ordinances. If you’re a cannabis-related business, you need to know the right licenses, permits, and registration requirements and how to get them for your business. The cannabis industry is changing rapidly. Financial institutions will benefit from a reliable method of tracking bills and newsfeeds, as well as keeping a finger on the “pulse” of what is happening in the cannabis industry.  

The Question of Marijuana Legalization

Title II of the Comprehensive Drug Abuse Prevention and Control Act of 1970, commonly known as the Controlled Substance Act (CSA), established a federal policy to regulate the manufacturing, distribution, importing/exporting, and use of regulated substances.

The statute was an effort to combine all previous federal laws and served as a legal foundation in the fight against drug abuse. Controlled substances are placed into classifications, known as a schedule, based on the medical value and potential for abuse.  Marijuana was listed as a Schedule I substance under the CSA, which meant it had a high potential for abuse, was not currently accepted for medical use in treatment in the U.S., and lacked safety for use under medical supervision. There are some states that allow marijuana for medical purposes, but it is the U.S. Food and Drug Administration (FDA) that has federal authority to approve drugs for medical use. The FDA has not approved marijuana for any clinical indication.

“To date, FDA has not approved a marketing application for cannabis for the treatment of any disease or condition and thus has not determined that cannabis is safe and effective for any particular disease or condition. The agency has, however, approved one cannabis-derived and three cannabis-related drug products.”

There have been polls on whether Americans think cannabis should be legal. One poll indicates that:

  • 91% of Americans believe cannabis should be legalized
  • 31% for medical use
  • 60% for both medical and recreational uses
  • 8% believe it should not be legal

Yet another poll indicates Americans are evenly split on marijuana’s effect on society (not users) with 49% viewing marijuana as positive and 50% viewing it as negative. Keep in mind that legalization means passing laws that allow for buying, selling, and possession of marijuana. Decriminalization means that violating certain marijuana laws can result in fines or other penalties but not criminal charges or jail time.

On a state level:

  • In 1996, California became the first state to legalize medical cannabis with the Compassionate Use Act. The cannabis industry in California is regulated by statutes, regulations, and various ordinances. Cannabis is also legal for recreational use in California.
  • 21 states and the District of Columbia have legalized marijuana for recreational purposes, according to the National Conference of State Legislatures.
  • 37 states and the District of Columbia have legalized the use of cannabis for medicinal purposes, according to the National Organization for the Reform of Marijuana Laws.
  • Out of the 5 states that voted on recreational marijuana in November 2022, 2 approved legalization measures.

Looking around the world, there are currently 13 countries that have legalized marijuana for medical purposes.

Cannabis Reform Progress and Banking Services

In 2020, then-candidate Biden promised to decriminalize cannabis and expunge prior cannabis convictions. On October 6, 2022,  President Biden granted a pardon to anyone with a federal conviction for simple marijuana possession. He further directed the Department of Health and Human Services and Attorney General Merrick Garland to review whether marijuana should remain listed as a Schedule I substance. President Biden went as far as urging all Governors to do the same with state offenses. Despite the order granting the pardons, the Drug Enforcement Agency still classifies cannabis as a Schedule I under the CSA.

The Secure and Fair Enforcement Banking Act of 2021 (SAFE Banking Act of 2021) (H.R. 1996) introduced on March 18, 2021, would prohibit federal regulators from taking punitive actions against depository institutions that provide banking services to legitimate cannabis-related businesses. H.R. 5977 titled the States Reform Act was sponsored by Nancy Mace on November 15, 2021, along with other Republican cosponsors. The bill would end federal marijuana prohibition and take steps to ensure existing businesses continue to operate. It includes certain provisions to expunge people with non-violent cannabis convictions.

U.S. Senators Cory Booker, Ron Wyden, Chuck Schumer, Patty Murray, and Gary Peters introduced the Cannabis Administration and Opportunity Act (CAOA) (S. 4591)  on July 21, 2022. The bill would end the federal ban on cannabis and give state-compliant cannabis businesses access to financial services such as bank accounts, business loans, and credit card transactions.

Regulatory Example of Canada

In April 2017, the Government of Canada introduced the Cannabis Act (Bill C-45). The goal was to keep cannabis out of the hands of youth and keep profits out of the hands of criminals and organized crime. The act provides legal access to cannabis; it controls and regulates its production, distribution and sale. The Government of Canada broadened public education to help Canadians understand the legal framework for cannabis, including what is legal, and reminded Canadians that it remains illegal to take cannabis across Canada’s international borders. Traditional banks and credit unions or cannabis-specific banks are able to issue loans for dispensaries and cannabis entrepreneurs are eligible for funding from the Business Development Bank of Canada.  

What is legal:

  • In Canada, only federal cannabis license holders are able to grow cannabis for sale, which ensures cannabis products meet strict product safety and quality control requirements.
  • Legal cannabis products are sold through retailers authorized by the provincial and territorial governments.
  • Individuals who are authorized by a health care professional can register to buy cannabis products for medical purposes directly from a federally licensed seller.


Regology is impartial to the legalization of marijuana, and this blog does not serve as a pro, neutral, or against the legalization. The information provided on this website does not, and is not intended to, constitute legal advice.