Cannabis Banking

“Today, we have a banking crisis because rules built decades ago have not kept up with changes in law and acceptable behavior. Working together, we can use common sense to bring safety and security to this legal industry and everyone who lives in Illinois.”
-Treasurer Michael Frerichs

Why are we involved?

As the State’s Chief Investment Officer and Chief Banking Officer, the Treasurer’s Office is responsible for receiving the revenues and all other public monies of the state. However, banks and credit unions are often not willing to provide financial services to cannabis-related businesses because cannabis is still illegal under federal law. Due to the inconsistency between federal and state laws, banks and credit unions in Illinois are at risk of losing their assets, insurance, and licenses if they work with legitimate cannabis-related businesses authorized under Illinois state law.

This legal conflict has pushed Illinois’ legitimate cannabis industry primarily into a cash-based business. In 2018, there were an estimated $136 million in legal cannabis sales in Illinois alone. That much cash in any industry is ripe for theft, fraud, and tax evasion. By encouraging financial institutions to provide basic banking services to cannabis-related businesses, these businesses will be able to pay their taxes and fees transparently, comply with regulations, and thrive just like any other legal commercial enterprise.

As State Treasurer, our office is working with lawmakers at the state and federal levels to bring clarity and predictability to our banking regulations, to protect and support financial institutions that serve cannabis-related businesses, and to design solutions that will boost economic development in the State of Illinois. To this end, the Treasurer’s Office has:

  1. Established banking services to collect taxes and fees from cannabis-related businesses on behalf of the state’s multiple agencies.
  2. Created the Community Invest – Cannabis Banking Services Program to support banks and credit unions in providing basic banking services to cannabis-related businesses.
  3. Introduced legislation to protect financial institutions in Illinois that provide services to cannabis-related businesses.
  4. Hosted Cannabis Banking Summits to bring industry players and experts together to help generate innovative solutions and form productive new partnerships.
  5. Contacted federal lawmakers to advocate for clarity and predictability in federal banking regulations.
  6. Co-authored a resolution before the National Association of State Treasurers to promote bipartisan solutions on the federal and state levels.
 

How do we collect fees, charges, and taxes on the state’s behalf?

To help the State collect fees, charges, and taxes reliably, securely, and on time, the Treasurer’s Office partners with financial institutions that can accept cash, checks, and electronic deposits through established banking controls. This approach creates a consistent, compliant way for cannabis-related businesses to make required payments—while helping the State and its agencies.

Currently, we contract with three financial institutions to accept payments on behalf of multiple state agencies, including the Illinois Department of Revenue, the Illinois Department of Financial and Professional Regulation, the Illinois Department of Agriculture, and the Illinois Department of Public Health.

Community Invest – Cannabis Banking Services

The Community Invest – Cannabis Banking Services Program was created to support financial institutions in providing basic banking services to Cannabis-Related Businesses (CRB) in Illinois. As a result, CRBs will now have access to basic banking services starting on January 1, 2020.

Basic banking services include (1) the ability to write checks, (2) make direct deposits for payroll, and (3) make electronic or check payments of required licenses, fees, and taxes, among other services. The economic impact the Cannabis Banking Services Program provides is two-fold: basic banking services give CRBs the capacity to grow while also promoting the transition from an all-cash cannabis market, estimated at over $136 million in Illinois, to a fully banked, regulated, and transparent market.

In February 2019, the Treasurer’s Office advanced legislation known as the Banking Options for Legal Cannabis-Related Businesses Act (SB2023), which created protections under Illinois banking law for financial institutions that serve legitimate cannabis-related businesses. As of July 2019, the Illinois Department of Financial and Professional Regulation (IDFPR) may not penalize or discourage a state bank or credit union solely for providing financial services to cannabis-related businesses (Public Act 101-0363).

Cannabis Banking Summits

After Illinois launched the Compassionate Use of Medical Cannabis Pilot Program, it became clear that conflicting laws, rules, and regulations created challenges for both businesses and the financial institutions that serve them. As cannabis policy continued to evolve at the state and federal levels, the Treasurer’s Office convened experts in cannabis banking, law, and regulation to help ensure Illinois financial institutions had practical, up-to-date guidance.

In 2019, the Treasurer’s Office hosted an industry summit featuring national leaders and multi-state perspectives. Through presentations and panel discussions on best practices, the summit provided local banks and credit unions with a clearer roadmap for safely, compliantly, and effectively serving cannabis-related businesses.

Letters to the President, U.S. Treasury, and U.S. Attorney General

As early as March 2017, the Treasurer’s Office anticipated the challenges Illinois and its burgeoning cannabis industry would face. To preempt these challenges, Treasurer Frerichs urged the President and federal policymakers to issue clear guidance on the enforcement of marijuana and banking laws. The letters outlined the necessity for federal policymakers to provide financial institutions with the assurance that they will not face penalties or prosecution for conducting business with state-licensed cannabis businesses.

NAST Resolution on Cannabis

The Treasurer’s Office coordinated with other state treasurers through the National Association of State Treasurers (NAST) to promote a bipartisan cannabis banking resolution to alleviate cannabis banking-related issues at the federal level. This resolution cements bipartisan support for common-sense federal laws and regulations needed to provide essential banking services to legal cannabis businesses, promote financial transparency, and facilitate local, state, and federal tax and fee collection without compromising federal enforcement of anti-money laundering laws against criminal enterprises.

Limited access to basic banking services for Illinois’ legal cannabis industry is a serious public safety and economic issue. A lawful, regulated sector that generates billions in economic activity is still constrained by older banking rules that were not designed for today’s cannabis marketplace. This creates avoidable challenges for businesses and for the State.

Illinois should ensure that licensed cannabis-related businesses can use banks and credit unions for routine financial services. This allows financial institutions to do what they are meant to do: support safe commerce, strengthen compliance, and expand opportunities for responsible economic development.

When legitimate businesses are forced to operate largely in cash, cash handling and transport increase risks to people and property, including theft and other criminal activity. Illinois cannabis sales totaled more than $136 million in 2018, and much of that activity relied heavily on cash.

Denying cannabis-related businesses access to standard services such as electronic payments, check writing, and credit also limits their ability to operate efficiently, invest, and grow. Over time, that slows economic activity and job creation in communities across Illinois.