In a previous posting titled, Are Financial Services Available to the Cannabis1 Industry or Not?, I provided an overview of the Cole Memo priorities and the FinCEN requirements for a financial institution to work with the highly regulated cannabis industry. Here is a deeper look at the Cole Memo priorities and the type of information that a financial instution gathers that provides evidence to federal regulators that their cannabis clients comply with all regulations.
1At JSI we generally use the term cannabis instead of marijuana unless quoting or discussing content that uses the term marijuana. Some agencies, states, and countries use the term marijuana but there is a growing trend towards using the botanical name cannabis instead of marijuana.
Cole Memo Priorities
Preventing the distribution of marijuana to minors.
The business should have a policy about sells to minors. They need a training plan that includes recognizing and dealing with false IDs. They should have training records, and onsite observation should indicate that ID’s are always carefully inspected. Selling quantities above legal limits can be an indicator of diversion which could be to minors. Using branding and labeling that appeals to minors, being located near businesses and places that cater to minors, and advertising or marketing methods that fail to limit exposure to minors are issues for concern.
Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity.
Accurate tracking and reconciliation of cannabis inventory and sales are important. This includes accounting for all cannabis waste. Financial institutions can watch the trends of similar businesses. Large expenditures such as capital improvements to the business or personal items that don’t align with normal cash flows can be indicators of other illegal activity.
Preventing violence and the use of firearms in the cultivation and distribution of marijuana.
Due to the nature and high value of cannabis, professional security measures are required to reduce and prevent violence. Facilities and perimeters need to be hardened, intrusion alarm and surveillance systems are required, and transportation of cash and cannabis products need to be performed with heightened security and safety measures or be performed by professional high-value transportation companies. Security policies, training plans, training records, should be verified during site audits. Opertions that decide to possess firearms should have policies and procedures in place that meet local and state regulations and they should have a good relationship and coordination with local law enforcement.
Preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels.
Knowing the structure of ownership and investors of the business is very important. Due diligence of all individuals involved in the business, their background, criminal history, and other business activities is necessary. Verifying that state and local cannabis licenses are valid and not expired in necessary.
Preventing the diversion of marijuana from states where it is legal under state law in some form to other states.
While cannabis is illegal at the federal level any transfer across a state line will be illegal. If this changes, restrictions for commercial sales across state lines will persist in some form similar to the alcohol industry. Monitoring for large or frequent financial transactions from other states are indications of potential diversion.
Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use.
Negative indicators are allowing consumption of cannabis or alcohol by employees or others on or even near the property, promoting events with a high probability of drugged driving.
Positive indicators are signs and posters to educate on the dangers of drugged driving, community involvement, good working relations with local law enforcement.
Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands.
Financial institutions can monitoring that plant counts meet license restrictions and that inventory and sells reasonably reflect production capacity at the licensed facility. Also, watch for sudden large sells and verify that state and local cannabis licenses are valid.
Preventing marijuana possession or use on federal property.
Similar to priority on drugged driving. The presence of warning signs and posters is good, being located near the entrances to federal recreation areas is not. While it is difficult to monitor usage after a sale to a medical or retail user, a cannabis business would not want their branded packaging from being involved with an incident or getting negative press.