Dickson_Davis_Deborah_Note_volume2number2-article05_SLR_2015

VOLUME 2 │ NUMBER 2
459
Savannah
Law Review
Bank on Marijuana: A Legitimate Industry
Warranting Banking Access
Deborah L. Dickson
ABSTRACT
This Note criticizes federal anti-money laundering laws that create a
gridlock with states’ drug laws legalizing the distribution of medical or
recreational marijuana. This federalism dilemma denies marijuana businesses
equal access to banking. Consequently, marijuana businesses face an impossible
situation without such access. The implications arising from this problem result
in more than just an unbanked class of businesses, but severe consequences flow
from stigmatizing marijuana businesses as criminal. Marijuana businesses face a
deprivation of property and, in some cases, even a loss of liberty. The triggering
event to these consequences is when banks have unfettered discretion to report
any and all marijuana businesses to federal authorities. While the federal
government has attempted to alleviate the situation by creating a special
reporting standard for banks servicing marijuana businesses, this attempt merely
solidifies underlying issues already in place that unfairly alienate marijuana
businesses from banking altogether as an unbanked class of businesses. This Note
proposes a different approach to remove banks’ discretion over reporting
marijuana businesses by placing such discretion squarely upon state agencies,
*
Juris Doctor Candidate, Savannah Law School, December 2015; Bachelor of
Business Administration, Marketing, Terry College of Business, University of Georgia,
2002. I would like to thank Professor Elizabeth Berenguer for helping to form this topic
and mentoring me throughout my progression, Alison Slagowitz for her tireless support,
Amy M. Crossin for her meticulous attention to detail throughout the editing process,
and the staff of Savannah Law Review for their editorial assistance. Additionally, I would
like to thank the following individuals for their invaluable insight and critical feedback:
Professor Caprice Roberts of Savannah Law School; Professor Brannon P. Denning of
Samford University; Professor Benjamin M. Leff of American University Washington
College of Law; and Professor Mark W. Osler of the University of St. Thomas. Finally, I
dedicate this Note in memory of my grandparents, Mr. and Mrs. John F. M. Ranitz II.

Savannah Law Review [Vol. 2:2, 2015]
460
which are ultimately responsible for vetting legitimate marijuana businesses from
those that truly wish to skirt the law.
There’s a public safety component to this [problem]. . . . Huge amounts of
cash—substantial amounts of cash just kind of lying around with no place for
it to be appropriately deposited—is something that would worry me just from
a law enforcement perspective.1
-Former Attorney General Eric Holder Jr.
I. Introduction
To demonstrate the legal complications marijuana retailers face without
equal access to banking, consider the hypothetical of John Doe in La Verte,
Colorado, where both state-licensed medical and recreational marijuana retailers
are legal under state law. John has a stellar background as an upstanding citizen
with an excellent credit record, a pedigree education, and a history of community
activism. John opened a holistic drug store called The Green Tea Shoppe in a
strip mall just down the road from La Verte City Park, a major attraction
surrounded by thriving businesses, schools, and churches. John registered for his
business license and federal tax identification number. Then, he leased and
remodeled the unit in the strip mall for his store’s grand opening.
Nevertheless, credit card merchants would not open an account for John, so
John’s customers have to pay him exclusively in cash. Additionally, John has not
been able to find a bank willing to work with him. He had a business bank account,
but the bank refused to do business with him after several months of depositing
cash on a daily basis. The next bank did the same thing, treating John like a
common criminal and commenting that “the money smelled funny.” Between
bank accounts, John has opted to store his money onsite in a large safe. John has
become paranoid because there have been several attempted robberies at the
store to break into the safe. The police are unable to help with the situation.
Unfortunately, employee turnover is high because of the stressful situation with
the store’s security.
Because John cannot write checks or use online banking, John can only issue
payments in cash for weekly payroll and government taxes. Additionally, for his
federal tax return, John has to pay draconian taxes because he cannot deduct most
of his expenses from his gross profit to mitigate his overall business taxes. Being
between banks, John has had a difficult time managing his cash flow onsite,
making the store’s accounting difficult from a logistical standpoint.
In the meantime, John is now under review from the federal government. He
received a notice from both his landlord, evicting him, and the federal
government, both stating that he has to relocate to another area more than 1,000
feet away from a list of certain types of places such as parks, schools, and
1
David Ingram, U.S. to Adjust Rules to Let Banks Handle Marijuana Money—Holder,
Reuters (Jan. 23, 2014), http://www.reuters.com/article/2014/01/24/usa-marijuana-
banking-idUSL2N0KY03D20140124 (proposing access to banking for marijuana business
in states legalizing marijuana).

Bank on Marijuana
461
churches. John will not be able to get a business loan from the bank to help with
the move because banks are refusing any business loans to marijuana retailers.
Also, the Internal Revenue Service (IRS) came by to do an audit when John was
between banks. The store’s accounting was not yet updated completely or
accurately. John may face possible forfeiture of his entire store and business
assets, as well as substantial fines for inaccurate tax reporting.
While John’s experience with his store illustrates a regulatory parade of
horribles, this example highlights some of the consequences state-licensed
marijuana retailers may face when financial institutions turn them away: (1)
security concerns with having large amounts of cash onsite; (2) logistical
concerns with accounting accuracy and transparency without a consistent bank
account; (3) inaccurate tax reporting that has severe tax implications with the
IRS and possible forfeiture; and, ultimately, (4) criminal prosecution by the
federal government. Worse, in this situation, Colorado will provide John neither
a remedy nor protection, even though Colorado sanctioned his business.
The legal complications for marijuana retailers within the financial industry
begin when financial institutions refuse business from marijuana retailers because
of federal anti-money laundering laws.2
While financial institutions play a pivotal
role in businesses’ profitability, financial institutions serve as the means for
businesses to manage their cash flow: to receive income and pay expenses. On
the other hand, financial institutions can undermine states’ progressive drug
2
The culmination of federal anti-money laundering laws has been an organic process
interweaving various acts since 1970. Anti-Drug Abuse Act of 1988 (Drug Kingpin Act),
Pub. L. No. 100-690, 102 Stat. 4181 (1988) (codified as amended in 21 U.S.C.A. § 848
(2004)) (recognized as repealed by United States v. Stitts, 552 F.3d 345 (4th Cir. 2008));
Intelligence Reform & Terrorism Prevention Act of 2004, Pub. L. No. 108–458, 118 Stat.
3638 (2004) (codified as amended in scattered sections of 50 U.S.C.); Uniting and
Strengthening America by Providing Appropriate Tools to Restrict, Intercept and
Obstruct Terrorism Act (USA PATRIOT Act) of 2001, Pub. L. No. 107-56, §§ 301–377,
115 Stat. 272, 296–342 (2001) (codified as amended at 18 U.S.C. §§ 2339A(a),
2339B(a)(1)) (referring to Title III as International Money Laundering Abatement and
Antiterrorist Financing Act of 2001); Money Laundering and Financial Crimes Strategy
Act of 1998, Pub. L. No. 105-310, 112 Stat. 2941 (1998) (codified as amended in scattered
sections of 31 U.S.C.); Money Laundering Suppression Act of 1994, Pub. L. No. 103-325,
108 Stat. 2243 (1994) (codified to 31 U.S.C. § 5301); Annunzio-Wylie Anti-Money
Laundering Act of 1992, Pub. L. No. 102-550, 106 Stat. 4044 (1992) (codified as amended
in scattered sections of 12 U.S.C., 18 U.S.C., and 31 U.S.C.); Money Laundering Control
Act of 1986, Pub. L. No. 99-570, 100 Stat. 3207-18 (1986) (codified as amended in
scattered sections of 18 U.S.C. & 31 U.S.C.); Bank Secrecy Act of 1970, Pub. L. No. 91-
508, 84 Stat. 1118 (1970) (codified as amended in scattered sections of 12 U.S.C., 18
U.S.C., and 31 U.S.C.) [hereinafter Bank Secrecy Act of 1970]. See generally Charles
Doyle, Cong. Research Serv., RL33315, Money Laundering: An Overview of 18 U.S.C.
1956 and Related Federal Criminal Law 32–37 (2012), available at
http://www.fas.org/sgp/crs/misc/RL33315.pdf (detailing the money laundering
enforcement regime that intertwines criminal and banking regulations); History of Anti-
Money Laundering Laws, Fin. Crimes Enforcement Network, http://www.
fincen.gov/news_room/aml_history.html (last visited Nov. 30, 2015) (discussing the
history of laws created to money laundering) [hereinafter AML History]; The federal anti-
money laundering laws within this footnote will be referred to generally as anti-money
laundering laws for the remainder of this Note.

462
policies when enforcing anti-money laundering laws and reporting marijuana
businesses carte blanche to federal governmental authorities.3
Primarily, financial institutions facilitate and profit from businesses’
economic growth by offering basic services that are integral in business operations
today.4
Some of the primary reasons businesses utilize financial institutions are to:
(1) make daily deposits; (2) issue payments to vendors (i.e., write checks); (3)
utilize online banking; (4) link business bank accounts to online government
websites; (5) ensure compliance with state and federal regulations (i.e., sales,
payroll, and business taxes); (6) establish employee direct deposit for payroll
purposes; (7) set up merchant accounts (i.e., accept payments by credit cards such
as Visa, MasterCard, and American Express); and (8) secure business loans.5
In
3
See, e.g., Richard Clough, Pot Dispensers Forced into Banking Shadows, Orange
Cnty. Reg. (May 23, 2013), http://www.ocregister.com/articles/marijuana-509695-
banks-business.html; John Ingold, Colorado Marijuana Dispensary Owner, Eleven Others
Indicted on Seventy-one Charges, Denver Post (June 19, 2013, 11:11:25 AM), http://
www.denverpost.com/breakingnews/ci_23493035/colorado-marijuana-dispensary-
owner-11-others-indicted-71; Greg Lamm, Federal Bank Rules Leave Pot Businesses with No
Place to Put Proceeds, Puget Sound Bus. J. (Apr. 5, 2013, 5:00 AM), http://www
.bizjournals.com/seattle/news/2013/04/05/federal-bank-rules-leave-pot.html?page=all;
Jonathan Martin, Medical-Marijuana Dispensaries Run into Trouble at the Bank, Seattle
Times (Apr. 29, 2012, 8:00 PM), http://seattletimes.com/html/localnews/2018103547
_maribanking30m.html; John B. Stephens, Pot Shops Shunned by Banks Haul in the Cash,
USA Today (Aug. 31, 2014, 7:30 AM), http://www.usatoday.com/story/money/
business/2014/08/31/pot-marijuana-industry/13628491/; Alison Vekshin, Marijuana
Dispensaries Put Colorado Banks in a Bind, Bloomberg Businessweek (June 6,
2013), http://www.businessweek.com/articles/2013-06-06/marijuana-dispensaries-put-
colorado-banks-in-a-bind; Medical Cannabis Dispensaries Losing Bank Accounts Over Large,
Frequent Cash Deposits, Marijuana Bus. Daily (June 5, 2013), http://mmjbusiness
daily.com/2013/06/05/cannabis-dispensaries-losing-bank-accounts-over-large-frequent-
cash-deposits; Alison Vekshin, Pot Shops Can’t Take American Express or Deposit in Banks,
Bloomberg (May 12, 2013, 8:00 PM), http:// www.bloomberg.com/news/2013-05-
13/pot-shops-can-t-take-american-express-or-deposit-in-banks.html; Exclusive: Medical
Marijuana Dispensaries No Longer Able to Accept Visa, MasterCard as of July 1,
Marijuana Bus. Daily (June 18, 2012), http:// mmjbusinessdaily.com/exclusive-
medical-marijuana-dispensaries-no-longer-able-to-accept-visa-mastercard-as-of-july-1/.
4
See infra Part III.C.1.
5
See supra note 3; Sam Kamin, Marijuana at the Crossroads: Keynote Address, 89
Denv. U. L. Rev. 977, 984–86 (2012); How to Shop for a Bank, Wall St. J. (Sept.
11, 2008, 11:00 PM), http://guides.wsj.com/small-business/funding/how-to-shop-for-a-
bank/tab/print/; Gwendolyn Bounds, Banks Expand Services, Perks for Small Firms,
Wall St. J. (Mar. 8, 2005, 11:59 PM), http://online.wsj.com/news/articles/
SB111023518024272709#printMode; Retail Banking vs. Corporate Banking,
Investopedia, http://www.investopedia.com/articles/general/071213/retail-banking-
vs-commercial-banking.asp (last visited Nov. 30, 2015). See generally Fed. Fin. Inst.
Examination Council, Bank Secrecy Act/Anti-Money Laundering
Examination Manual 178–292 (2010) [hereinafter BSA/AML Manual],
available at http://www.ffiec.gov/bsa_aml_infobase/documents/BSA_AML_Man_
2010.pdf (regulating various banking products and services).

Bank on Marijuana
463
essence, access to banking leaves a paper trail that ensures transparency for
businesses and fosters compliance with government regulations.6
In contrast, federal laws automatically implicate money laundering when
marijuana businesses attempt to use financial institutions for business purposes.
Financial institutions are subject to anti-money laundering laws that prohibit
financial institutions from handling any proceeds from drug trafficking.7
Hence,
financial institutions function as a backdoor approach to enforce the federal
government’s prohibition on marijuana in states that are legalizing marijuana.8
But, denying marijuana businesses equal access to banking hinders transparency
and accurate reporting rather than fostering legitimacy in a controlled, regulated
environment for an emerging marijuana industry.
The federal government reinforces a stigma on marijuana businesses by
enforcing banking regulations that criminalize money laundering before
marijuana businesses ever face prosecution for money laundering—if they are
ever prosecuted. As a result, this stigma materializes into a loss of income and
severe consequences because marijuana businesses do not have equal access to
banking like other state-licensed entrepreneurial enterprises. Simply put, marijuana
businesses are afforded neither the same opportunities nor the same protection
to operate legitimately as other state-licensed businesses.
Part II establishes the threshold issue that marijuana businesses face unequal
access to banking because the Controlled Substances Act of 1970 interlocks with
the Bank Secrecy Act of 1970 to prevent money laundering from drug trafficking.
While the emerging marijuana industry reflects a shift in public policy, the
increase in legislation supporting marijuana as a legitimate industry fails to
address the issue of equal access to banking for marijuana businesses. Beneath
the gaze of federal oversight, financial institutions are unable to differentiate
between criminals and non-criminals under state law; financial institutions are
subject to federal laws and marijuana businesses remain illegal under federal law.
Part III analyzes the ramifications of financial institutions enforcing federal
anti-money laundering laws as quasi-prosecutors, regardless of whether
6
See BSA/AML Manual, supra note 5, at 71–73, 309; Douglas Leff, Money
Laundering and Asset Forfeiture: Taking the Profit Out of Crime, 81 FBI L.
Enforcement Bull. 4, 23 (2012), available at http://leb.fbi.gov/2012/april/leb-
april-2012; Peter E. Meltzer, Keeping Drug Money from Reaching the Wash Cycle: A Guide to
the Bank Secrecy Act, 108 Banking L.J. 230, 231–32 (1991); AML History, supra note
2. See generally President’s Comm’n on Organized Crime, Interim Rep.
to the President & the Att’y Gen., The Cash Connection:
Organized Crime, Financial Institutions, & Money Laundering 8–
10 (1984) [hereinafter The Cash Connection], available at https://www.ncjrs.gov/
pdffiles1/Digitization/166517NCJRS.pdf (establishing the connection between money
laundering and drug trafficking within the financial industry).
7
See infra Part II.B.2.
8
See infra Part II.A.1; cf. Conant v. Walters, 309 F.3d 629, 644–45 (9th Cir. 2002)
(Kozinski, J., concurring). See generally Daniel Mulligan, Comment, Know Your Customer
Regulations and the International Banking System: Towards a General Self-Regulatory
Regime, 22 Fordham Int’l L.J. 2324, 2327–66 (1999) (discussing an overview of
anti-money laundering laws and banks’ Know Your Customer Policies to combat drug
trafficking).

464
marijuana retailers are ever prosecuted. Currently, marijuana businesses lack
protection from the federal government when federal money laundering laws
deputize financial institutions to refuse their business. Facing the stigma of
criminal conviction, marijuana businesses are struggling to find banking services
to adequately maintain their cash flow operations and, ultimately, stay in
business. Legitimate marijuana businesses are caught in the crossfire during this
process and cast aside as criminals instead—with neither a valid, legal status nor
a legal remedy.
Part IV proposes a public-private banking partnership between state
governments and financial institutions, creating a controlled safe-harbor
environment for financial institutions to provide banking services to marijuana
businesses. This solution features how states can extend greater protection to
marijuana businesses than the U.S. Constitution, regardless of the federal
government’s position on marijuana. Fiscal transparency is the key to
transforming the marijuana industry into a legitimate industry while still holding
accountable those who truly wish to skirt the law and stay in the dark.
II. Marijuana Businesses’ Proceeds are Still ‘Dirty Money’
As states struggle with the issues of federalism and marijuana, the conflict
inevitably bleeds over into the issue of federal anti-money laundering laws
denying marijuana businesses equal access to banking. The Controlled
Substances Act of 1970 (Controlled Substances Act) 9
interlocks with the
framework of money laundering laws under the Bank Secrecy Act of 1970 (Bank
Secrecy Act),10
denying marijuana businesses equal access to banking. Thus,
states legalizing the commercial supply of marijuana trigger a major gridlock that
prevents legal access to banking for marijuana businesses.
Financial institutions employ banking policies that comply with federal
authorities and mitigate the risk of money laundering by: (1) filing a Currency
Transaction Report for all cash deposits in excess of $10,000 to the IRS;11
(2)
enforcing Know Your Customer policies (i.e., Customer Identification Program);12
9
Comprehensive Drug Abuse Prevention and Control Act of 1970, Pub. L. No. 91-
513, 84 Stat. 1236 (1970) (as codified as amended in 21 U.S.C. §§ 801–865 (2012))
[hereinafter Controlled Substances Act] (stating legislative intent to (1) research, prevent,
treat, and rehabilitate persons suffering drug abuse and dependency; and (2) strengthen
law enforcement against field of drug abuse).
10
Bank Secrecy Act of 1970, Pub. L. No. 91–508, 84 Stat. 1118 (1970) (codified as
amended in scattered sections of 12 U.S.C., 18 U.S.C., and 31 U.S.C.); 31 U.S.C. §§
5311–5332 (2012); 12 U.S.C. §§ 1829b, 1951–1959 (2012); 18 U.S.C. §§ 1956–1957, 1960
(2012).
11
31 U.S.C. § 5325 (2012) (reporting transactions for monetary instruments for
$3000 or more); 31 U.S.C. § 5331 (2012) (reporting cash transactions for $10,000 or
more per incident); 31 C.F.R. § 1010.100(ff)(2)(i) (2012); 31 C.F.R. § 1010.410 (2013);
Doyle, supra note 2; BSA/AML Manual, supra note 5, at 71–72, 309. This analysis
pertains to domestic currency only.
12
The Know Your Customer provision was mentioned in the legislative history of the
Bank Secrecy Act but never explicitly enacted. H.R. Rep. No. 91-975, 91st Cong., 2d
Sess. (1970), reprinted in 1970 U.S.C.C.A.N. 4394, 4401–02. Later, the phrase “Know

Bank on Marijuana
465
and (3) remitting Suspicious Activity Reports 13
to the Financial Crimes
Enforcement Network.14
As fiduciaries, financial institutions internalize the risk
of dealing with customers, who may implicate financial institutions in illegal
transactions. Yet, financial institutions indemnify themselves through a robust
system of reporting depositor activities to the federal government. This reporting
regime empowers financial institutions to refuse and report marijuana businesses
that are in violation of federal anti-money laundering laws despite state laws that
sanction marijuana businesses to sell and distribute marijuana.15
Thus, state legislators legalizing the use, possession, and distribution of
marijuana ignored a basic threshold issue for marijuana retailers: equal access to
banking. Equal access to financial services16
for marijuana businesses17
serves as
the cornerstone for creating a legitimate industry. A stable, legal environment for
marijuana businesses is, ultimately, a safer environment for marijuana consumers
and non-consumers.18
However, equal access to banking may also be the Achilles
heel to states’ experimental drug reforms using marijuana businesses.
Your Customer” was coined, within the financial industry. See Genci Bilali, Know Your
Customer—or Not, 43 U. Tol. L. Rev. 319, 322–23 (2012). Know Your Customer bank
policies are now synonymous with compliance requirements to screen customers. Being
the arbiter of monetary transactions, banks routinely perform risk assessment and
customer due diligence to determine whether to accept new business. 31 U.S.C. § 5318
(2012) (codifying the Know Your Customer policy as maintaining identification records of
customers); see BSA/AML Manual, supra note 5, at 52–66. But see Money
Remittances Improvement Act of 2014, Pub. L. No. 113-156, § 2(b), 128 Stat 1829, 1829–
30 (2014) [hereinafter Money Remittances Improvement Act], available at
https://beta.congress.gov/113/bills/hr4386/BILLS-113hr4386enr.pdf (deferring
examination of reporting requirements by non-bank financial institutions to “a State
supervisory agency of a category of financial institution, if the Secretary determines that
the category of financial institution is required to comply with this chapter and section 21
of the Federal Deposit Insurance Act”).
13
31 U.S.C. § 5318(g) (2012); 12 C.F.R. § 21.11 (2014); 12 C.F.R. § 208.62 (2014);
12 C.F.R. § 211.5(k) (2014); 12 C.F.R. § 211.24(f) (2014); 12 C.F.R. § 225.4(f) (2014); 12
C.F.R. § 353.1 (2014); 12 C.F.R. § 748 (2014); 12 C.F.R. § 563.180 (2014); 31 C.F.R. §
103.18 (2014); see BSA/AML Manual, supra note 5, at 53–85.
14
31 U.S.C. § 5331 (2012); 31 C.F.R. § 1010.330 (2014) (requiring all trades or
businesses alike to report to both the IRS and Financial Crimes Enforcement Network all
incidences of receiving currency greater than $10,000); see Meltzer, supra note 6, at 232;
see also The Cash Connection, supra note 6.
15
See supra note 2 and accompanying text; see also infra Part III.B.
16
James Marvin Pérez, Blacklisted: The Unwarranted Divestment of Access to Bank
Accounts, 80 N.Y.U. L. Rev. 1586, 1595–96 (2005).
17
Paul Shukovsky, House Bill Would Bring Banking to Legalized Purveyors of Pot,
BNA’s Banking Rep. No. 6, at 230–32 (Aug. 6, 2013).
18
Compare City of Oakland v. Holder, 961 F. Supp. 2d 1005, 1013–16 (N.D. Cal.
2013) (citing Leiva-Perez v. Holder, 640 F.3d 962, 968–70 (9th Cir. 2011))
(acknowledging marijuana retailers do remove the fear of buying marijuana from street
dealers where dangers of being robbed, mugged, or arrested may still loom over the
transaction), with People ex rel. Lungren v. Peron, 70 Cal. Rptr. 2d 20, 28–29 (Cal. Ct.
App. 1997) (rejecting that dispensaries created a safe environment to procure medical
marijuana).

466
These progressive drug reform efforts may be in vain because access to
banking is the lifeblood of business enterprises whether they are legal or illegal.
For marijuana businesses, liquidity of capital and ease of transferring capital
within the financial system is paramount to running a sustainable, profitable
business within a regulated framework. But if financial institutions continue to
enforce anti-money laundering laws and deny business from marijuana
businesses,19
they will fundamentally impair the overall future sustainability of a
legitimate marijuana industry.20
A. The Status Quo Leaves Marijuana Businesses in a Stalemate
Marijuana lies at the center of much legal controversy because the federal
government has maintained the marijuana prohibition—for over four decades—
under the Controlled Substances Act.21
While many arguments lie on both sides,
the issue of legalization is beyond the scope of this Note.22
More importantly, the
marijuana controversy is appropriately recast as a federalism issue when a state
has exercised its power to enact laws for the benefit of its people through
legalization of marijuana.23
This federalism dilemma leaves marijuana businesses
exposed to greater risks that amount to more than just the cost of doing business.
1. Marijuana Businesses Become the States’ Weapon of Choice
Coined as President Nixon’s War on Drugs, the Controlled Substances Act
has received many criticisms. Primarily, the federal government has effectively
criminalized substance abuse instead of removing crime from drug trafficking or
deterring recidivism.24
While the marijuana prohibition may be a federal drug
policy, states have ultimately borne the lion’s share of the costs from enforcing
this marijuana prohibition. More specifically, Americans as taxpayers bear the
costs. Additionally, other factors supporting this pro-marijuana legalization trend
include, but are not limited to, the following:
(1) a perceived failure of the federal drug policy from the War on
Drugs;
(2) a waning stigma on marijuana over the last forty years;
19
See supra note 3.
20
See Pérez, supra note 16, at 1586.
21
21 U.S.C. §§ 801–865 (2012).
22
The Author further discusses states’ progressive drug policies on marijuana in a
companion Comment to this Note. See Deborah L. Dickson, Marijuana—Justifying a
Legitimate Industry Beyond the Gray Market (Oct. 27, 2014) (unpublished comment) (on
file with author).
23
See id. (discussing the structural issues in the federalism dilemma regarding
marijuana leading states to serve as redress against the marijuana prohibition).
24
Pew Research Ctr., America’s New Drug Policy Landscape:
Two-Thirds Favor Treatment, Not Jail, for Use of Heroin,
Cocaine 1–4, 10 (2014), available at http://www.people-press.org/files/legacy-pdf/04-
02-14%20Drug%20Policy%20Release.pdf (“About three-quarters of Americans (76%) say
that if marijuana use is not legalized, those who are convicted of possessing small amounts
of marijuana should not serve jail time.”).

Bank on Marijuana
467
(3) a shift in public policy favoring marijuana legalization;
(4) a consistent, growing demand for marijuana since 1970;
(5) the deleterious impact of illegal marijuana trafficking on other
countries;
(6) a disparate racial impact from criminalizing marijuana; and
(7) the burdensome social costs from criminalizing marijuana (i.e.,
conserving judicial resources and reducing overcrowding in jails).25
Those criticisms, and changing conditions, have led to the rising trend of
states contravening the marijuana prohibition under the Controlled Substances
Act. Some states are ending the marijuana prohibition altogether on a state level
in the face of a stagnant Congress and recalcitrant President. As of this Note’s
publication, Alaska, Colorado, Oregon, Washington, and the District of
Columbia had legalized the recreational use of marijuana.26
Additionally, twenty-
three states and the District of Columbia had legalized medical marijuana. The
graph below charts the trend for legalizing medical marijuana from 1996 to 2014:27
Ultimately, the right to use marijuana is dependent upon a supply of legal
marijuana.28
As a growing trend, sixteen states and the District of Columbia
(33.3%) allow marijuana retailers (for medical marijuana), more commonly known
as dispensaries.29
By a tour de force among the various retailer-supply-models that
25
See generally Dickson, supra note 22 (discussing the rationales for the failure of the
marijuana prohibition).
26
See infra Table 1.
27
Id.
28
See People ex rel. Lungren v. Peron, 70 Cal. Rptr. 2d 20, 32 (Cal. Ct. App. 1997)
(Kline, J., concurring).
29
This Note defines marijuana businesses as brick-and-mortar retail stores that
supply marijuana legally under state law to persons legally allowed to possess and use
marijuana. For medical marijuana, normally doctors recommend the use of marijuana.
The patient must then register with the state before purchasing medical marijuana. Chris
Lindberg, Room for Abuse: A Critical Analysis of the Legal Justification for the Marijuana
Storefront “Dispensary”, 40 Sw. L. Rev. 59, 63–65 (2010). For recreational marijuana,
one simply must be over the age of 21. The Note author uses marijuana businesses,
0%
50%
100%
Rising Trend of States & the District of Columbia
Legalizing the Medical Use of Marijuana as of
December 2014
States Legalizing Medical Use of Marijuana Marjuana Remains Illegal

468
have evolved, marijuana businesses quickly became these states’ weapon of
choice to create a self-sustaining, regulatory regime for marijuana with over 70%
of the states that have allowed such retailers.30
Hence, the retailer-supply-model
is an effective means to distinguish criminal from non-criminal activity in these
states.
In response to this trend, then-Attorney General Eric Holder Jr. announced
in 2014 that marijuana businesses would soon have access to banking in states
legalizing marijuana. 31
The federal government unveiled its proposal to the
marijuana banking dilemma through a modified reporting regime for financial
institutions still at risk for servicing marijuana businesses.32
But this proposal falls
short. Any issuing of these new regulations may not be retroactive for marijuana
businesses already subject to federal interference, already in this battle over state
regulation of marijuana.33
In the early stages of cooperative federalism,34
the marijuana industry will be
sensitive to changes in the legal environment on both the state and federal level.
marijuana retailers, and dispensaries interchangeably, which also encompasses other
organizations such as dispensary, cooperative, collective, cannabusinesses, and so forth.
30
See generally Dickson, supra note 22 (analyzing features of states’ drug policies on
marijuana).
31
Fin. Crimes Enforcement Network, FIN-2014-G001, Guidance
on BSA Expectations Regarding Marijuana-Related Businesses
(Feb. 14, 2014) [hereinafter FinCen Guidance on Marijuana Banking],
available at http://www.fincen.gov/statutes_regs/guidance/pdf/FIN-2014-G001.pdf.
32
Id.
33
Federalism is defined as the U.S. Constitution allocating power between the federal
and state government creating a dual sovereignty to “enhanc[e] democratic rule by
creating governments more responsive to their constituents, prevent[] tyranny by
diffusing power between the federal and state levels of government, and encourag[e]
policy innovation among states.” Huyen Pham, The Constitutional Right Not to Cooperate?
Local Sovereignty and the Federal Immigration Power, 74 U. Cin. L. Rev. 1373, 1396–97
(2006); U.S. Const. art. VI, cl. 2 (declaring the federal government’s authority as “the
Supreme Law of the Land”); U.S. Const. amend. X (reserving powers to the states
that were not delegated or prohibited by the U.S. Constitution). The anti-commandeering
rule governs the principle that the federal government may issue regulation encouraging
states to emulate federal policies with similar legislation, but the federal government may
not commandeer the states’ processes to do so accordingly. New York v. United States,
505 U.S. 144, 175–88 (1992) (“The Federal Government may not compel the States to
enact or administer a federal regulatory program.”). See generally Todd Grabarsky,
Conflicting Federal and State Medical Marijuana Policies: A Threat to Cooperative
Federalism, 116 W. Va. L. Rev. 1, 2–31 (2013) (outlining the federalism issues
surrounding marijuana such as commandeering, uncooperative federalism, and
preemption).
34
Cooperative federalism is when the federal government “allows the States, within
limits established by federal minimum standards, to enact and administer their own
regulatory programs, structured to meet their own particular needs.” Hodel v. Va.
Surface Min. & Reclamation Ass’n, Inc., 452 U.S. 264, 289 (1981). Additionally,
cooperative federalism usually occurs when both the federal and state governments issue
regulation coterminous with one another showing parallelism, collaboration, and
interdependence regarding certain regulatory issues. Grabarsky, supra note 33, at 7–24.
Often, the states will voluntarily comply and assist the federal government because the

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These changes may not safeguard marijuana businesses operating legally under
state law in this new, uncertain regulatory environment. Meanwhile, the federal
government reserves the right to enforce federal law should this grudging
tolerance for marijuana prove to be too strenuous in the future.35
Marijuana
remains illegal under federal law regardless of whether the federal government
enforces the law.36
For now, the Department of Justice is slowly responding to
these states’ experimentation with marijuana. This cautious response may usher
in a new era of cooperative federalism, or may merely signal a white flag in this
stalemate.37
The Controlled Substances Act derives its authority from the Commerce
Clause, which allows the federal government to exercise preemption over state
laws.38
Accordingly, federal law can regulate all marijuana trafficking that affects
federal government may impose conditions onto the states as a prerequisite to receiving
federal resources (i.e., funds). Id. at 11.
35
U.S. Const. art. II, § 3 (ordering the President to “take Care that the Laws be
faithfully executed”); Steven G. Calabresi & Saikrishna B. Prakash, The President’s Power
to Execute the Laws, 104 Yale L.J. 541, 665 (1994) (discussing the textual meaning of
the Take Care Clause); Memorandum from James M. Cole, Deputy Att’y Gen. on
Guidance Regarding Marijuana Related Fin. Crimes to All U.S. Att’ys, U.S. Dep’t of
Justice 3 (Feb. 14, 2014) [hereinafter Cole Memo III], available at http://www.dfi.wa.
gov/banks/pdf/dept-of-justice-memo.pdf (“[T]his memorandum is intended solely as a
guide to the exercise of investigative and prosecutorial discretion. This memorandum
does not alter in any way the Department’s authority to enforce federal law, including
federal laws relating to marijuana, regardless of state law.”). The President does have
wide discretion to enforce laws, such as overseeing execution with limited resources and
funding, but this rationale arguably fails under the state action doctrine when federal law
deputize financial institutions to enforce law enforcement prerogatives over state
prerogatives under the guise of conflict preemption. See Zachary S. Price, Enforcement
Discretion and Executive Duty, 67 Vand. L. Rev. 671, 757–59 (2014); infra Part III.
36
21 U.S.C. § 802(16) (2012) (defining marihuana as “all parts of the plant Cannabis
sativa L.”); 21 U.S.C. § 812 (2012) (naming marihuana as a Schedule I controlled
substance). Marihuana, marijuana, “Mary Jane,” “pot,” “weed,” or cannabis all refer to
the same plant Cannabis sativa L. and may be used interchangeably in this Note. See also
Price, supra note 35; Robert A. Mikos, Medical Marijuana and the Political Safeguards of
Federalism, 89 Denv. U. L. Rev. 997, 1003 (2012) (“Enforcement of any law requires
the ongoing appropriation of fiscal and political capital, both of which are in short
supply.”).
37
See Mikos, supra note 36, at 1002–06 (discussing the difficulty of enforcing federal
laws due to limited resources).
38
U.S. Const. art. I, § 8, cl. 3 (authorizing Congress “[t]o regulate Commerce
with foreign Nations, and among the several States”). The Supreme Court has construed
Congress’s authority through the Commerce Clause’s reach to regulate and protect the
following categories: (1) the use of interstate commerce channels; (2) instrumentalities of
interstate commerce; (3) persons or objects in interstate commerce; and (4) activities that
are substantially related to or affect interstate commerce. United States v. Morrison, 529
U.S. 598, 609 (2000). Under the Commerce Clause, the “substantial effects” test
permits Congress to regulate conduct if that conduct substantially influences price and
market conditions in the aggregate. Wickard v. Filburn, 317 U.S. 111, 128 (1942). For
example, if selling medical marijuana touches interstate commerce, then marijuana
retailers would be subject to the Commerce Clause, and the courts may exercise federal
preemption under the Controlled Substances Act to criminalize the “manufacture,

470
interstate commerce.39
Hence, the Controlled Substances Act40
may preempt
state laws that regulate the domestic cultivation, distribution, or use of marijuana
for medical purposes between intrastate growers and users of medical
marijuana—unless that state creates a comprehensive legislative framework to
withstand attacks that the entire field has been federally preempted.41
This issue
distribution, or possession of marijuana.” Gonzales v. Raich, 545 U.S. 1, 10–15 (2005)
(analogizing home production of marijuana to growing wheat in that both are fungible
commodities which impact the interstate market, in the aggregate, regardless of the
legality of the good).
39
For federal preemption, courts must determine whether Congress’s reach under
the Controlled Substances Act, through the Commerce Clause, is constitutional. Here,
the rational basis standard of judicial review applies: Congress must have a rational basis
for determining that the regulated conduct impacts interstate commerce. Louis C.
Shansky, Gonzales v. Raich: Political Safeguards Up in Smoke?, 56 DePaul L. Rev.
759, 760–69 (2007). Compare Raich, 545 U.S. at 10–15, 18–33 (affirming that intrastate
cultivation, possession, distribution, or use of marijuana falls squarely within the conduct
that Congress may regulate through the Commerce Clause under the “substantial
effects” test), with Shansky, supra at 780–85 (arguing that the Court’s economic analysis
in Raich of the marijuana black market was un-analogous, unsubstantiated, and unjustified
as a premise to allow Congress to use the Controlled Substances Act to preempt intrastate
regulation of medical marijuana).
However, federal preemption is temporarily deferred when the federal government
declines to enforce federal law in an era of so-called cooperative federalism. See supra
notes 34–35 and accompanying text. Meanwhile, the federal government continues
making concessions to the rising number of states legalizing marijuana. FinCen
Guidance on Marijuana Banking, supra note 31; Alex Kreit, The Federal
Response to State Marijuana Legalization: Room for Compromise?, 91 Or. L. Rev. 1029,
1031–40 (2013); Mikos, supra note 36; see also Fed. Deposit Ins. Corp., DSC
Risk Mgmt. Manual of Exam. Pol’y, Bank Secrecy Act, Anti-Money
Laundering, and Office of Foreign Assets Control § 8.1 at 1–20, 35–
48, 55 (2004) [hereinafter BSA Examiner’s Guide], available at https://www.fdic.
gov/regulations/safety/manual/section8-1.pdf (last updated on Feb. 2, 2005).
40
See supra note 36 and accompanying text.
41
The “substantial effects” test under the Commerce Clause has received criticism
that it leads to Congress’s overreach and regulation of non-commercial conduct—that is,
that Congress criminalizes conduct within the states’ jurisdiction to define and enforce
criminal law. U.S. Const. art. I, § 8, cl. 3; Raich, 545 U.S. at 42–45 (O’Connor, J.,
dissenting); United States v. Lopez, 514 U.S. 549, 558–59 (1995); Engle v. Isaac, 456 U.S.
107, 128 (1982) (“The States possess primary authority for defining and enforcing the
criminal law. . . . Federal intrusions into state criminal trials frustrate both the States’
sovereign power to punish offenders and their good-faith attempts to honor constitutional
rights.”); Susan R. Klein, Independent-Norm Federalism in Criminal Law, 90 Cal. L.
Rev. 1541, 1589–90 (2002). Because Congress uses the Commerce Clause to justify its
regulation of marijuana (an object in the stream of commerce), by way of the Controlled
Substances Act, one could posit that the Controlled Substances Act is void for
overbreadth. The Commerce Clause, arguably, becomes an inadvertent means of
regulating noneconomic, criminal conduct (illicit drug trafficking), which falls squarely
within a state’s plenary police power (i.e., public welfare and criminal law enforcement).
See U.S. Const. amend. X; Morrison, 529 U.S. at 564–68. But see Susan R. Klein &
Ingrid B. Grobey, Debunking Claims of Over-Federalization of Criminal Law, 62 Emory
L.J. 1, 24–26 (2012) (justifying the federal exercise of jurisdiction over drug trafficking
under the Controlled Substances Act in that drug trafficking is a national and
international concern, requiring the federal government’s resources to prosecute offenses

Bank on Marijuana
471
arguably remains undecided by the Supreme Court.42
Under the Controlled Substances Act, the federal government may still
exercise federal preemption over state laws—or reserves the right to do so.43
Nevertheless, federal preemption may seem moot at first blush when the federal
government declines to enforce federal law under the stance of cooperative
federalism.44
That is, until one of the regulatory parade of horribles is triggered
and leaves marijuana entrepreneurs unprotected without a remedy. In 2013, the
federal government initiated the beginning stages of cooperative federalism on a
conditional basis, which is a move toward legitimizing the marijuana industry.
The federal government will not enforce federal law against state laws
legalizing marijuana as long as states implement a strict regulatory regime over
the use and distribution of marijuana. 45
But the result is an odd form of
effectively).
Because one of the primary goals of the Controlled Substances Act is “to control the
supply and demand of controlled substances in both lawful and unlawful drug markets,”
the government’s failure to control the supply and demand of marijuana over the last
forty years demonstrates a prime example of Congress’s overreach regulating criminal
conduct in the states. Raich, 545 U.S. at 19; see Mary Emily O’Hara, Legal Pot in the US is
Crippling Mexican Cartels, VICE News (May 8, 2014), https://news.vice.com/article/
legal-pot-in-the-us-is-crippling-mexican-cartels (touting the effectiveness of undercutting
the criminal element by legalizing marijuana). In short, perfect, formalistic logic that
supports the federal preemption of marijuana regulation, through the Controlled
Substances Act, defies reality when states defect from the federal government’s
prohibition of marijuana—in the interests of fairness to rectify serious injustices that have
occurred as a result of the War on Drugs. See generally Robert A. Mikos, Preemption Under
the Controlled Substances Act, 16 J. Health Care L. & Pol’y 5, 7–37 (2013)
(analyzing the reach of the Controlled Substances Act).
42
See Robert A. Mikos, On the Limits of Supremacy: Medical Marijuana and the States’
Overlooked Power to Legalize Federal Crime, 62 Vand. L. Rev. 1421, 1436–55 (2009)
(“The Supreme Court has never squarely addressed the preemption issue . . . .”).
Additionally, the issue of federal conflict preemption is a heavily factual analysis, which
may vary between states as they experiment with different regulatory regimes for
marijuana.
43
United States v. Oakland Cannabis Buyers’ Co-op., 532 U.S. 483, 486 (2001);
Raich, 545 U.S. at 10–15; City of Oakland v. Holder, 961 F. Supp. 2d 1005, 1013–1016
(N.D. Cal. 2013); Marin Alliance for Med. Marijuana v. Holder, 866 F.Supp.2d 1142,
1153–61 (N.D. Cal. 2011); United States v. Randall, 104 Daily Wash. L. Rep. 2249, 2252–
54 (D.C. Super. Ct. Dec. 28, 1976) (on file with the Savannah Law Review) (discussing a
party having raised the common law doctrine of necessity as a defense to possessing
marijuana for medical use); cf. United States v. Jin Fuey Moy, 241 U.S. 394, 402 (1916)
(construing as void for vagueness and unconstitutionally overbroad federal statutes that
policed contraband by taxing registries for both users and suppliers of contraband).
44
See supra notes 33–35 and accompanying text.
45
Brady Dennis, Obama Administration Will Not Block State Marijuana Laws, if
Distribution is Regulated, Wash. Post (Aug. 29, 2013), http://www.washingtonpost.
com/national/health-science/obama-administration-will-not-preempt-state-marijuana-
laws--for-now/2013/08/29/b725bfd8-10bd-11e3-8cddbcdc09410972_story.html?wpisrc=
al_comboPN.

472
federalism: selective federalism. 46
More than mere uncooperative federalism, 47
selective federalism occurs when the federal government sets forth conditional
acceptance and tolerance, yet still imposes its regulatory policy onto state
governments in a coercive and sporadic fashion that may have underlying
arbitrary and discretionary motives. 48
The federal government’s conditional
acceptance and tolerance may really be selective federalism masked as
cooperative federalism.49
With the federal government’s grudging tolerance, more states have
legalized marijuana for either medical use, recreational use, or both. The federal
government has acknowledged that state regulation of marijuana would replace
“an illicit marijuana trade that funds criminal enterprises with a tightly regulated
market in which revenues are tracked and accounted for.” 50
Nevertheless,
46
The author coins the phrase selective federalism to describe the situation when the
federal government unfairly employs coercive measures, whether directly or indirectly, to
impose its policies contrary to state policies, that then escalate into arbitrary law
enforcement (or overreaching). Various forms of the government conduct may include,
but are not limited to: (1) misrepresenting to the public mandatory compliance with
federal laws as selective or conditional (i.e., for further investigatory purposes); (2)
economizing law enforcement decisions that are improperly motivated by a benefit-
detriment analysis to one’s pecuniary and penal interests (i.e., pecuniary interests that
shape unethical prosecutorial discretion, or disparate enforcement among similarly
situated individuals); (3) targeting third parties as a backdoor approach to impose federal
policies contrary to state policies (i.e., private actors in the medical or financial industry);
and (4) failing to disclose the federal government’s pecuniary interests in, or fiscal
interdependence on, enforcing such regulations (i.e., the interrelationship between
criminalizing money laundering and forfeiture as a profitable venture). See Mulligan,
supra note 8; supra notes 33–37 and accompanying text; infra Part III.A–B.; cf. Conant v.
Walters, 309 F.3d 629, 643–47 (9th Cir. 2002) (Kozinski, J., concurring).
47
Marijuana has been the center of much legal controversy because of the federal
government’s stoic position against marijuana, creating a major gridlock between the
federal government and states legalizing marijuana. The federal government imposes its
own drug policy by continually targeting constituents in these states during an era of
uncooperative federalism, defined as the situation when federal enforcement resources are
not prioritized or synchronized according to state policy and regulations. Grabarsky, supra
note 33, at 20–25. See generally Jessica Bulman-Pozen & Heather K. Gerken,
Uncooperative Federalism, 118 Yale L.J. 1256, 1260–92 (2009) (detailing a normative
account of when cooperative federalism fails and dissenting states gain greater
autonomy).
48
49
Ultimately, the issue is also one of ethical prosecution within the Executive
Branch’s discretion to enforce the law. See Alex Kreit, Reflections on Medical Marijuana
Prosecutions and the Duty to Seek Justice, 89 Denv. U. L. Rev. 1027, 1029–33 (2012);
Maria Collins Warren, Ethical Prosecution: A Philosophical Field Guide, 41 Washburn
L.J. 269, 269–73 (2002).
50
Memorandum from James M. Cole, Deputy Att’y Gen. on Guidance Regarding
Marijuana Enforcement to All U.S. Att’ys, U.S. Dep’t of Justice 3 (Aug. 29, 2013)
[hereinafter Cole Memo II], available at http://www.justice.gov/iso/opa/resources/
3052013829132756857467.pdf; see also Memorandum from James M. Cole, Deputy Att’y
Gen. on Guidance Regarding the Ogden Memo in Jurisdictions Seeking to Authorize
Marijuana for Med Use to U.S. Att’ys, U.S. Dep’t of Justice (June 29, 2011) [hereinafter
Cole Memo I], available at http://www.justice.gov/oip/docs/dag-guidance-2011-for-

Bank on Marijuana
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federal interference looms over the marijuana industry as federal prosecutors still
possess a multitude of weapons in their arsenal and continue to enforce
compliance with the Controlled Substances Act on a selective basis.51
Moreover, the judiciary is not able to exercise executive discretion, but,
instead, must follow the existing law. Primarily, in federal courts of states
legalizing marijuana, federal law typically preempts52
state law in cases regarding
marijuana.53
The federal courts usually afford marijuana businesses no legal
medical-marijuana-use.pdf.
51
See Anti-Drug Abuse Act of 1986, Pub. L. No. 99-570, §§ 1351–1402, 100 Stat.
3207, 18–40 (1986) (restricting banking activities with anti-money laundering laws); 18
U.S.C. § 981(a)(1) (2012) (requiring the forfeiture of real or personal property traceable
to a violation of anti-money laundering laws or the Controlled Substances Act); 21 U.S.C.
§ 812 (2012) (stating that supplying marijuana is a felony under the Controlled
Substances Act); 21 U.S.C. § 860 (2012) (preventing marijuana retailers from opening up
locations within 1,000 feet of “real property comprising a public or private elementary,
vocational, or secondary school or a public or private college, junior college, or university,
or a playground, or housing facility owned by a public housing authority, or within 100
feet of a public or private youth center, public swimming pool, or video arcade facility”);
I.R.C. § 280E (2012) (prohibiting tax deductions or credit from any trade or business that
“consists of [or is connected to] trafficking in controlled substances”); Kamin, supra note
5, at 985–88 (enumerating difficulties besides the risk of facing incarceration such as
struggling with maintaining bank accounts, obtaining business lending, facing forfeiture
from government seizures, being evicted by landlords, and keeping business contracts
that are void against public policy); Press Release, U.S. Dep’t of Agric., U.S. Att’ys
Announce Final Statistics on Operation Mountain Sweep Targeting Illegal Marijuana
Cultivation on Public Lands, Forest Serv. (Sept. 5, 2012), available at http://www.fs.
usda.gov/detail/r5/news-events/?cid=STELPRDB5389385; Memorandum from David
W. Ogden, Deputy Att’y Gen. to Selected U.S. Att’ys on Investigations and Prosecutions
in States Authorizing the Med. Use of Marijuana, U.S. Dep’t of Justice 1–2 (Oct. 19,
2009) [hereinafter Ogden Memo], available at http://www.justice.gov/opa/documents/
medical-marijuana.pdf.
52
The Supremacy Clause gives Congress the authority to preempt state laws, but
usually a strong presumption against preemption prevails if a federal law trumps state law
that has been reserved under state police power historically. U.S. Const. art. VI, cl. 2;
U.S. Const. amend. X; Qualified Patients Ass’n v. City of Anaheim, 115 Cal. Rptr. 3d
89, 105–06 (Cal. Ct. App. 2010). Federal preemption is either express or implied. Express
preemption is when the federal statute explicitly states that Congress intended to
preempt state law. Implied preemption is when the federal statute does not explicitly
preempt state law, but the courts must determine whether federal law preempts state law
under two tests: (1) field preemption; or (2) conflict preemption. Qualified Patients Ass’n,
115 Cal. Rptr. at 105–06. Because the Controlled Substances Act does not apply express
preemption, or field preemption, by statute, the preemption analysis falls under conflict
preemption, which consists of either impossibility or obstacle preemption. See id.; 21
U.S.C. § 903 (2012). Impossibility preemption is when one is simultaneously unable to
comply with both state and federal law, hence the state law creates an affirmative burden
that is in direct violation of federal law or vice versa. Qualified Patients Ass’n, 115 Cal.
Rptr. at 106–07. Obstacle preemption is a factual inquiry based on the intent behind
federal law and whether state law achieves a similar result or undermines the overall
objective of that federal law. Id. at 108–10.
53
See, e.g., Gonzales v. Raich, 545 U.S. 1, 23 (2005); United States v. Oakland
Cannabis Buyers’ Co-op., 532 U.S. 532, 489–95 (2001); United States v. Landa, 281 F.
Supp. 2d 1139, 1145 (N.D. Cal. 2003); Emerald Steel Fabricators, Inc. v. Bureau of Labor

474
remedy from government actors who enforce federal law contrary to state law.54
Thus, the marijuana industry is built on an illegal foundation, and cooperative
federalism may be no more than fickle display by the federal government.
Moreover, this status quo perpetuates a stigma against marijuana and those
associated with it. As a form of social control, a stigma is nonverbal stimuli that
triggers cognitive shortcuts of relating to one another. Stigma defines one’s
perceived identity as an individual and among a collective group of individuals
(i.e., society at large). Stigma operates as one of society’s means of self-
organization: whether to include or exclude others based on a shared set of
beliefs, “endorsements of those beliefs, and status associated with those
beliefs.”55
This stigma materializes into real, legal consequences for marijuana
businesses. For example, marijuana businesses may struggle with maintaining a
bank account, procuring business loans, enforcing contracts, or obtaining
commercial space—in addition to facing possible prosecution, forfeiture, and
incarceration by the federal government. 56
Unlike other state-licensed
businesses, marijuana businesses internalize the costs of (1) a criminalized
activity (i.e., government seizures, prosecution, and incarceration);57
(2) state
& Indus., 230 P.3d 518, 521–22, 525–34 (Or. 2010); see also Klein & Grobey, supra note 41,
at 50–52 (discussing issue of jury nullification with federal prosecution in states legalizing
marijuana, and noting that enforcement is difficult when juries comprise “of citizens who
voted to decriminalize medical marijuana use in the first place”), Kristina Davis, Plea
Deal Reached in Med Pot Case, San Diego Union-Trib. (Oct. 15, 2013, 5:28 PM),
http://www.utsandiego.com/news/2013/oct/15/plea-guilty-medical-marijuana-federal-
chang/. But see Ter Beek v. City of Wyoming, 846 N.W.2d 531, 536–41 (Mich. 2014);
White Mountain Health Center, Inc. v. County of Maricopa, No. 2012-053585, 2012 WL
6656902, at *4–*11; Qualified Patients Ass’n, 115 Cal. Rptr. at 105–10; Cnty. of San Diego
v. San Diego NORML, 81 Cal. Rptr. 3d 461, 475–83 (Cal. Ct. App. 2008); Mikos, supra
note 36.
54
See infra Part III.C.; Richard H. Fallon, Jr., The Linkage Between Justiciability and
Remedies—And Their Connections to Substantive Rights, 92 Va. L. Rev. 633, 640 (2006)
(“[T]he central standing question is whether particular plaintiffs possess [legal] rights
under particular statutory and constitutional provisions [for redress].”); Caprice L.
Roberts, Teaching Remedies from Theory to Practice, 57 St. Louis U. L.J. 713, 722
(2013) (theorizing “remedies shape substantive rights”). See generally James Leonard,
The Shadows of Unconstitutionality: How the New Federalism May Affect the Anti-
Discrimination Mandate of the Americans with Disabilities Act, 52 Ala. L. Rev. 91, 96,
99–114 (2000) (discussing that plaintiffs seeking vindication from discrimination are
unlikely to have a remedy under rational basis standard of judicial review). Congress is
more effective to craft a remedy when regulating conduct that imposes a burden to act or
not act. See Leonard, supra, at 142 (opining that the judiciary is limited in its capability to
fashion a remedy because the courts are “confined to relief that restores plaintiffs to the
position they would have occupied had the wrongful conduct not occurred”).
55
See generally Dickson, supra note 22 (expounding upon the socio-psychological
framework of stigma rooted in the criminalization of marijuana).
56
See Kamin, supra note 5, at 984–86.
57
Aside from the costs of prosecution, seizures, and incarceration, marijuana
retailers also have to pay taxes on their gross income (instead of their net income like
other legal businesses). Distributing a Schedule I controlled substance is still a taxable
event according to the IRS. I.R.C. § 280E (2012). This provision is known as a draconian

Bank on Marijuana
475
regulation and taxation;58
and (3) a high barrier of entry into the legitimate
marijuana industry.59
Subsequently, these costs are passed to users in the form of higher prices for
marijuana. 60
Overregulation of marijuana businesses may price marijuana
retailers out of the marijuana industry and inhibit their ability to pay sin taxes,
thus undermining states relying on them to create a self-sufficient regulatory
framework for marijuana.61
This retailer-supply-model has the ability to create a
solid foundation for marijuana as a legitimate industry, but, unless further
safeguards are put in place, marijuana businesses will struggle to remain
competitive in a gray and black market.62
At the heart of the matter, marijuana
businesses are neither afforded the same opportunities nor protections as other
state-licensed businesses.63
2. Money Laundering Laws Hold Back Marijuana Businesses
The implications of this status quo go far beyond safe access to marijuana
when the effects trickle down into an essential service like banking—a service
that is ubiquitous. As a country founded upon capitalism, a freeman is defined by
his ability “to adopt such calling, profession, or trade as may seem to him most
conducive to that end . . . [which] is a man’s property and right.”64
But now,
“[t]he ability to thrive in America’s mainstream financial economy is
tax because business owners have to pay taxes on both their gross income and business
expenses (i.e., money that is already spent towards the operation of the business). This tax
significantly increases the costs of doing business. Benjamin M. Leff, Tax Planning for
Marijuana Dealers, 99 Iowa L. Rev. 523, 530 (2014). But see Small Business Tax Equity
Act of 2013, H.R. 2240, 113th Cong. § 2 (2013) (proposing to amend I.R.C. § 280E
(2012) by adding an exception for marijuana businesses). However, if the dispensary
provides caregiving services, the labor costs for caregiving may be bifurcated and
deducted from the gross revenue as a taxable deduction. Californians Helping to Alleviate
Med. Problems, Inc. v. C.I.R., 128 T.C. 173, 182–83 (2007).
58
See Jeffrey A. Miron & Katherine Waldock, The Budgetary
Impact of Ending Drug Prohibition, Cato Institute 7–12 (2010),
available at http://object.cato.org/sites/cato.org/files/pubs/pdf/DrugProhibitionWP
.pdf.
59
Elezar David Melendez, Marijuana Dispensaries Becoming Exclusive Domain of the
One Percent, Huffington Post (May 5, 2013, 12:10 PM), http://www.huffingtonpost
.com/2013/06/25/marijuana-dispensaries_n_3496588.html?view=print&comm_ref=
false.
60
Marc Bilodeau, Legalizing and Taxing Commerce in Marijuana: A More Efficient
Policy Designed to Reduce Both Consumption and Crime, UNUS PRO OMNIBUS (Aug.
24, 2011), http://unusproomnibus.blogspot.com/2011/08/legalizing-and-taxing-
commerce-in.html.
61
See generally Dickson, supra note 22 (analyzing the supply and demand economics
behind the marijuana industry).
62
For states legalizing marijuana, the marijuana gray market is defined as the legally
obtained marijuana under state law that is sold outside of authorized channels. According
to the federal government, all marijuana is sold illegally on the black market. See generally
Dickson, supra note 22 (discussing gray and black market economics).
63
See Kamin, supra note 5, at 984–86.
64
Slaughter-House Cases, 83 U.S. 36, 116 (1872) (Bradley, J., dissenting).

476
inter[t]wined with the ability to maintain a bank account.”65
As the spokes on the
wheels of commerce, the banking industry is essential in today’s economy, where
equal access to banking is inextricably tied to legitimate business operation.66
Thus, marijuana businesses’ legitimacy is tethered to the ability to use a bank
account during the normal course of business.
The contention between clashing state and federal laws unfolds when
financial institutions prevent marijuana businesses67
from depositing money.68
As an effective strategy to bolster the War on Drugs, anti-money laundering laws
hook through the Controlled Substances Act’s prohibition on marijuana, thus
creating a gridlock for marijuana businesses to access financial services. This
gridlock hinders the cash flow from marijuana businesses and prevents illegal
proceeds from entering the stream of commerce through financial institutions.69
Coincidentally, the United States is one of the world’s major money
laundering countries—despite having a robust regulatory regime in place to
combat money laundering proceeds from organized crime. 70
Within the
framework of banking regulations under the Bank Secrecy Act,71
the Money
Laundering Control Act of 1986 criminalized money laundering and culminated
into a series of interlocking anti-money laundering laws that apply to depositors
and financial institutions alike.72
Anti-money laundering laws apply to various
types of financial institutions,73
but, more specifically, to all financial institutions
serving dual roles as depository institutions (banks).74
65
See Pérez, supra note 16, at 1586–90.
66
Id. at 1588.
67
68
12 U.S.C. § 1813(l) (2012).
69
See The Cash Connection, supra note 6.
70
Internationally, anti-money laundering laws comply with the United Nations
Convention Against Illicit Traffic in Narcotic Drugs and Psychotropic Substances of 1988
in a worldwide prohibition of drug trafficking. See International Narcotics Control Act of
1988, Pub. L. No. 100-690, 102 Stat. 4261 (1988); Bureau for Int’l Narcotics
and Law Enforcement Affairs, U.S. Dep’t of State, Int’l
Narcotics Control Strategy Rep., Volume II: Money Laundering
and Financial Crimes Report 1–19 (Mar. 2012), available at http://www.state.
gov/documents/organization/184329.pdf.
71
See Mulligan, supra note 8, at 2334–47 (reviewing the regulatory regime that
developed to buttress the Bank Secrecy Act of 1970).
72
Money Laundering Control Act of 1986, Pub. L. No. 99-570, 100 Stat. 3218 (1986)
(codified as amended in 18 U.S.C. §§ 1956–1957 (2012)).
73
Compare 12 U.S.C. § 4742 (1996) (defining financial institutions as “any federally
chartered or State-chartered commercial bank, savings association, savings bank, or credit
union”), with 31 U.S.C. § 5312 (2012) (enumerating financial institutions to businesses
well beyond the scope of depository institutions). Moreover, the Anti-Drug Abuse Act of
1988 expanded the definition of financial institutions to target large currency transactions
by including a variety of businesses such as casinos, car dealerships, and real estate firms.
Bank Secrecy Amendments, Pub. L. No. 100-690, 102 Stat. 4354 (1988); see, e.g., 31
U.S.C. §§ 5325–5326 (2012).
74
In this Note, the term banks will entail the traditional depository institution model
subject to FDIC oversight with either a state or federal charter. But, the analysis of
marijuana retailers making deposits applies to any financial institution that provides

Bank on Marijuana
477
Moreover, all banks are required to establish either a state or federal charter
for authorization to conduct business operations.75
Regardless of whether a bank
has a state or federal charter, all banks are either regulated or supervised by the
Federal Deposit Insurance Corporation, Inc. (FDIC).76
Still, a majority of banks
are FDIC-insured for all deposits up to $250,000. 77
Thus, in theory, full
compliance with federal regulations ensures that banks will keep their charters
and continue receiving FDIC Deposit Insurance Coverage.78
The Money Laundering Control Act prohibits illegal proceeds from entering
the stream of commerce through financial institutions. Consequently, the federal
government also targets banks opting to service marijuana retailers.79
Because
marijuana businesses are considered illegal under the Controlled Substances Act,
marijuana businesses’ proceeds presumably remain illegal. For banks that accept
deposits of these proceeds, money laundering penalties threaten to revoke a
bank’s charter,80
forfeit FDIC Insurance Coverage,81
and hold directors (or
depository banking services and requires federal oversight. 12 U.S.C. §§ 1752 (2006),
1786(q) (2011), 1813(c) (2011), 1817(b) (2012), 1818(s) (2011), 1829(b) (2011). Compare 12
U.S.C. 1786(q) (2011) (regulating federally insured credit unions), and 12 U.S.C. § 1831
(2014) (supervising private depository institutions that are not FDIC-insured), with 12
U.S.C. 1818(s) (2011) (regulating federally insured depository institutions).
75
Sarah Pei Woo, Regulatory Bankruptcy: How Bank Regulation Causes Fire Sales, 99
Geo. L.J. 1615, 1623 (2011) (“[B]anks, which must obtain a banking charter, from
government agencies to operate, are supervised by both state and federal regulators.”).
The Office of Comptroller of the Currency under the Department of Treasury regulates
federal bank charters while states regulate state bank charters. 12 U.S.C. §§ 1–16, 21–27
(2012).
76
See 12 U.S.C. §§ 266, 330, 1820 (2012). Amending the Banking Act of 1933, the
Federal Deposit Insurance Act of 1950 created the FDIC, overseeing financial
institutions’ deposits and insuring deposits. Federal Deposits Insurance Act, Pub. L. No.
112-215, 64 Stat. 873 (2012).
77
Today, the FDIC insures deposits up to $250,000. 12 U.S.C. §§ 1811–1835a
(2014). On average, at least three of every five financial institutions are FDIC-insured
financial institutions. Statistics at a Glance as of June 30, 2012, FDIC (2012),
http://www.fdic.gov/bank/statistical/stats/2013jun/industry.pdf (reporting that at the
end of the second quarter in 2012 and 2014, FDIC-insured financial institutions
comprised of 61.4% and 61.3% of the total financial institutions respectively); Fed. Deposit
Ins. Corp. Inst. Directory, FDIC, http://www2.fdic.gov/idasp/ (last visited Nov. 30,
2015) (reporting 6,892 FDIC-insured institutions as of October 24, 2013, and 6,578
FDIC-insured institutions as of November 6, 2014).
78
See generally Michael P. Malloy, Principles of Bank Regulation
41–74 (2d ed. 2003) (explaining the role of FDIC insurance and bank charters maintaining
bank solvency).
79
18 U.S.C. §§ 1956–1957 (2012).
80
See, e.g., 12 U.S.C. § 93 (2012) (revoking charter for national banks); 12 U.S.C. §
1820 (2012) (outlining administrative proceedings for bank examinations that may
escalate to revoking a bank’s charter).
81
12 U.S.C. § 1818 (2012) (terminating FDIC insurance for depository institutions).
The Depository Institution Money Laundering Amendments of 1990 enacted “death
penalty” provisions for financial institutions implicated in money laundering or reporting
offenses: (1) imposing personal liability on negligent bank employees, directors, and
officers; (2) revoking the bank’s charter; and (3) terminating the bank’s FDIC-insurance.
S. Res. 2327, 101st Cong. (1990) (enacted); H.R. Rep No. 101–446 (1990) (reporting

478
officers), who are involved in money laundering, personally liable.82
With anti-
money laundering laws looming over the financial industry, banks still risk
disciplinary action, severe penalties, or insolvency when servicing marijuana
businesses.
B. Marijuana Businesses Resort to Money Laundering
Dispensaries are caught in the crossfire between the state and federal
government. The state sanctions dispensaries as legitimate marijuana businesses.
The federal government, however, criminalizes and stigmatizes dispensaries in
the same category as the Mexican cartels for the same offense of money
laundering. 83
In contrast to organized crime, dispensaries are using their
proceeds to grow as a legitimate business rather than promulgate an empire of
crime. Arguably, out of necessity, many of the legitimate dispensaries have
engaged in money laundering since 2013. Department of Justice enforcement
guidelines have shunned dispensaries, warning financial institutions of money
laundering penalties from servicing dispensaries.84
Despite the banking guidance
issued by Financial Crimes Enforcement Network in 2014, banks are still not
offering banking services as expected, leaving dispensaries in a lurch.85
In 2011, Deputy Attorney General James M. Cole issued a memo in response
to the growing number of dispensaries operating openly in violation of the
Controlled Substances Act within states that legalized medical marijuana. The
memo served as guidance for prosecutors to exercise discretion and priorities
the legislative history for H.R. 3848, 101st Cong. (1990), which is the companion bill to S.
Res. 2327, 101st Cong. (1990)).
82
See, e.g., 12 U.S.C. § 93 (2012) (civil penalties for directors of national banks); 12
U.S.C. §§ 501a–506 (2012) (civil penalties for banks and bank employees within the
Federal Reserve banking system); 12 U.S.C. § 1833a (2012) (civil penalties for banks and
bank employees under the FDIC); 18 U.S.C. §§ 1956–1957, 3351–3585 (2012) (criminal
penalties for bank and bank employees). The Author loosely uses the term bank employees
to refer to any institution-affiliated party, or more specifically “any director, officer,
employee, or controlling stockholder (other than a bank holding company or savings and
loan holding company) of, or agent for, an insured depository institution.” 12 U.S.C. §
1813 (2012).
83
The Mexican cartels are the largest suppliers of imported marijuana on the black
market in the United States. Celina B. Realuyo, Woodrow Wilson Int’l
Ctr. for Scholars, It’s All about the Money: Advancing Anti-
Money Laundering Efforts in the U.S. and Mexico to Combat
Transnational Organized Crime 3–20 (2012), available at http://www.
wilsoncenter.org/sites/default/files/Realuyo_U.S.-Mexico_Money_Laundering_0.pdf.
84
Cole Memo II, supra note 50; see also 12 U.S.C. § 93 (2012) (forfeiture of banking
charter); 12 U.S.C. § 1818 (2012) (loss of FDIC insurance); 18 U.S.C. § 3571 (2012)
(fines); 31 U.S.C. §§ 5321–5322, 5324 (2012) (civil and criminal penalties); United States
v. Beusch, 596 F.2d 871, 878 (9th Cir. 1979).
85
See FinCen Guidance on Marijuana Banking, supra note 31; Cole
Memo III, supra note 35, at 2; Cole Memo II, supra note 50; Brian Kindle, Op-Ed., SAR
Data Reveals Few Institutions Willing to Bank the Marijuana Industry, Despite FinCEN and
DOJ Guidance, Ass’n of Certified Fin. Crim. Specialists (Aug. 13, 2014),
http://www.acfcs.org/sar-data-reveals-few-institutions-willing-to-bank-the-marijuana-
industry-despite-fincen-and-doj-guidance/.

Bank on Marijuana
479
when charging marijuana offenses. The memo directly threatened banks
servicing dispensaries as “[t]hose who engage in transactions involving the
proceeds of such activity may also be in violation of federal money laundering
statutes and other federal financial laws.”86
As a result, banks sharply reacted by
turning away dispensaries as a class of businesses.87
In 2013, Deputy Attorney General Cole issued a second memo that switched
gears regarding marijuana laws. The federal government entered into an era of
cooperative federalism, but this new stance is conditional upon a state’s strict
regulation of marijuana within its borders.88
The federal government continued
to remain silent regarding the assimilation of dispensaries into the financial
industry. On February 14, 2014, Deputy Attorney General Cole issued a third
memo, addressing financial institutions servicing dispensaries: providing
financial services to dispensaries remains illegal under federal law. Hence,
financial institutions wishing to service dispensaries do so at their own risk—with
blanket reporting requirements on all dispensaries’ banking transactions.89
Furthermore, the Department of Justice reserves the right to prosecute
according to the enumerated priorities set forth in the third memo.90
Whether
the proposed framework under the Obama administration will operate as a
Trojan horse in the future is uncertain. This relaxed stance could serve as a
pretext to gather intelligence on all marijuana businesses before concentrating
efforts against them under a new administration.91
86
See Cole Memo I, supra note 50, at 2.
87
See supra note 3 and accompanying text. But see Avinash Tharoor, Banks Launder
Billions of Illegal Cartel Money While Snubbing Legal Marijuana Businesses, Huffington
Post (Jan. 17, 2014, 3:53 pm), http://www.huffingtonpost.com/avinash-tharoor/banks-
cartel-money-laundering_b_4619464.html (reporting banks who are servicing drug
cartels but not marijuana businesses operating legally under state law).
88
See Cole Memo II, supra note 50, at 3.
89
See Cole Memo III, supra note 35, at 2; see also FinCen Guidance on
Marijuana Banking, supra note 31.
90
Cole Memo III, supra note 35, at 1 (“Preventing the distribution of marijuana to
minors; [p]reventing revenue from the sale of marijuana from going to criminal
enterprises, gangs, and cartels; [p]reventing the diversion of marijuana from states where
it is legal under state law in some form to other states; [p]reventing state-authorized
marijuana activity from being used as a cover or pretext for the trafficking of other illegal
drugs or other illegal activity; [p]reventing violence and the use of firearms in the
cultivation and distribution of marijuana; [p]reventing drugged driving and the
exacerbation of other adverse public health consequences associated with marijuana use;
[p]reventing the growing of marijuana on public lands and the attendant public safety and
environmental dangers posed by marijuana production on public lands; and [p]reventing
marijuana possession or use on federal property.”).
91
18 U.S.C. 3282 (2012) (“[N]o person shall be prosecuted, tried, or punished for
any offense, not capital, unless the indictment is found or the information is instituted
within five years next after such offense shall have been committed.”); see Vijay Sekhon,
Comment, Highly Uncertain Times: An Analysis of the Executive Branch’s Decision to Not
Investigate or Prosecute Individuals in Compliance with State Medical Marijuana Laws, 37
Hastings Const. L.Q. 553, 561–62 (2010) (“The imprimatur of the Executive
Branch with respect to medical marijuana also provides individuals with a false sense of
security in relying upon compliance with state medical marijuana laws given the
possibility of a change to such enforcement policy by the Executive Branch during or after

480
1. Washing out Marijuana as Dirty Money
Without equal access to banking, anti-money laundering laws are forcing
dispensaries to operate on a cash-and-carry basis and launder their own money—
just to keep the doors open—while maintaining compliance with state laws.92
Conversely, money laundering is a serious issue in the United States: financial
institutions serve as the breeding ground for organized crime to interject the
proceeds of their endeavors into the stream of commerce and build upon an
empire of crime. 93
If the Controlled Substances Act is the sword attacking
organized crime from drug trafficking, then the Bank Secrecy Act94
is the shield
against concealing or promoting illicit proceeds from drug trafficking within the
financial industry.95
Even after all these years, money laundering remains elusive
to authorities because organized crime primarily uses cash in criminal
transactions to avoid detection by omitting or manipulating records of those
transactions.96
Money laundering is a rinse-and-repeat cycle that yields exponential gains
from illicit proceeds—or dirty money—through three stages: placement, layering,
and integration.97
The placement stage is when the dirty money enters into the
financial system for the first time.98
The simplest way to place money99
into the
the expiration of the term of President Obama.”); Ingram, supra note 1; Serge F.
Kovaleki, U.S. Issues Marijuana Guidelines for Banks, N.Y. Times, Feb. 14, 2014, http:
//www.nytimes.com/2014/02/15/us/us-issues-marijuana-guidelines-for-banks.html?_
r=0.
92
Cash-and-carry refers to a business dealing only in cash without other means of
accepting payment for transactions such as accepting checks, credit cards, and alternative
forms of payment. See supra note 5 and accompanying text; Pérez, supra note 16, at 1588–
90.
93
See Doyle, supra note 2, at 4–8; BSA/AML Manual, supra note 5, at 7–14;
The Cash Connection, supra note 6, at iii, 3–6; Leff, supra note 6, at 23–31; Patrick
T. O’Brien, Tracking Narco-Dollars: The Evolution of a Potent Weapon in the Drug War, 21
U. Miami Inter-Am. L. Rev. 637, 638–43 (1990).
94
See Bank Secrecy Act of 1970, Pub. L. No. 91–508, 84 Stat. 1118 (1970); see also
BSA Examiner’s Guide, supra note 39.
95
See The Cash Connection, supra note 6, at x; Realuyo, supra note 83.
96
H.R. Rep. No. 91–975 (1970), reprinted in U.S.C.C.A.N. 4394, 4396; see State v.
McAllister, 875 A.2d 866, 874 (N.J. 2005) (holding that keeping records of sensitive
financial information outside of a bank or intermediary forces the government to obtain
adequate process before conducting a search).
97
U.S.S. Caucus on Int’l Narcotics Control, 113th Cong., The
Buck Stops Here: Improving U.S. Anti-Money Laundering Practices
16–19 (2013) [hereinafter AML Report] available at http://www.feinstein.senate.
gov/public/index.cfm/files/serve/?File_id=311e974a-feb6-48e6-b302-0769f16185ee.
98
Id. at 16.
99
18 U.S.C. § 1956(c)(5) (2012) (defining monetary instruments as “(i) coin or
currency of the United States or of any other country, travelers’ checks, personal checks,
bank checks, and money orders; or (ii) investment securities or negotiable instruments, in
bearer form or otherwise in such form that title thereto passes upon delivery”); see
Meltzer, supra note 6, at 239–41.

Bank on Marijuana
481
financial system is by depositing it into a bank account. 100
Governmental
regulation focuses on the placement phase by hypothesizing that creating a paper
trail early in the cycle will lead to an earlier detection of money laundering.101
In the layering phase, the dirty money funnels through a variety of financial
transactions among various financial institutions and commercial enterprises.
These transactions dilute the original source of the funds with apparently
legitimate sources. After the final rinse, the dirty money emerges as clean money
from legitimate sources in the integration stage. Typically, these funds are used
to further promote or conceal illegal or legal business ventures that ultimately
befuddle the paper trail in the process.102
Then, rinse and repeat.103
A cash-and-carry dispensary meets the most friction during the placement
stage. With several theories underpinning the premises for criminalizing money
laundering, the two major theories that apply to dispensaries are the promotion
theory and the concealment theory. 104
The promotion theory focuses on
reinvesting money in criminal activities to further those activities, regardless of
whether the source of the funds derived from criminal activities.105
In contrast,
the concealment theory focuses on moving money derived from criminal
activities with the intent to “disguise the nature, the location, the source, the
ownership, or the control of the proceeds.”106
State-licensed dispensaries use these funds and banking services simply in
the normal course of doing business pursuant to state law. But, these
transactions, unfortunately, further the illegal distribution of marijuana under
federal law according to federal authorities. In effect, many dispensaries—unlike
other similarly situated businesses—are forced to conceal funds when making
innocuous payments toward taxes, payroll, overhead expenses, liabilities, legal
counsel, and other similar obligations. Thus, dispensaries may fall under both the
promotion and concealment theory for money laundering by default.
100
Duncan E. Alford, Anti-Money Laundering Regulations: A Burden on Financial
Institutions, 19 N.C. J. Int’l L. & Com. Reg. 437, 439 (1994) (“The simple method
of changing small denominations of bills into larger denominations eases the physical
transport of the money.”).
101
Id. at 439; see BSA/AML Manual, supra note 5, at 71–73, 309; Meltzer, supra
note 6, at 231–32.
102
See Leff, supra note 6, at 23–24; AML Report, supra note 97, at 16–23.
103
See Alford, supra note 100, at 437–40.
104
18 U.S.C. § 1956 (a)(1)(A)–(B) (2012); see Leff, supra note 6, at 23–24.
105
See Leff, supra note 6, at 23–24. But, the promotion theory meets a ceiling when
crime is not committed for a profit, but for the sake of committing an atrocity such as
terrorism in reverse money laundering that uses clean money to promote terrorism. See
Jimmy Gurulé, Does “Proceeds” Really Mean “Net Profits”? The Supreme Court’s Efforts to
Diminish the Utility of the Federal Money Laundering Statute, 7 Ave Maria L. Rev.
339, 379–87 (2009).
106
18 U.S.C. § 1956 (a)(1)(B)(i) (2012); see Leff, supra note 6, at 23–24.

482
2. A Statutory Analysis of the Money Laundering Control Act of 1986
Under the Money Laundering Control Act of 1986,107
money laundering
itself is a crime rather than an act dependent on the commission of another crime
(similar to the crime of conspiracy). Initially, the overall goal was to ameliorate
the deleterious effects of drug trafficking: (1) the abuse (or misuse) of drugs; and
(2) related crime (or hardship) that ensued from the distribution of illegal drugs
on the black market.108
The legislative intent behind the criminalization of money
laundering boils down to this proscribed harm: injecting blood money into the
stream of commerce.109
Realistically, this backdoor approach stigmatizes dirty money and prohibits
organized crime from profiting from wrongdoing. The Money Laundering
Control Act strictly prohibits tainted proceeds110
from any Specified Unlawful
Activity.111
Dirty money may not enter the stream of commerce under the guise
of clean money from legal sources. This “dirty money” stigma rears its ugly head
107
18 U.S.C. §§ 1956–1957 (2012). Civil and criminal forfeiture was also introduced
as a consequence to Bank Secrecy Act violations. 18 U.S.C. §§ 981–982 (2012). For
dispensaries, this Note will not focus on aspects of money laundering that involve wiring
funds outside of the United States.
108
United States v. Majors, 196 F.3d 1206, 1212 (11th Cir. 1999); supra notes 12–14,
18, 47, and accompanying text. However, this goal falls short of some key steps in the
logic: (1) the very person abusing or misusing drugs is usually her own victim too; (2) not
all users of drugs abuse drugs; (3) substance abuse is usually specific to the user and not
the drug itself—that is, not all drugs are addictive instantaneously because of
physiological and psychological factors; and (4) not all drug transactions create violence.
109
In this context, blood money refers to money that remains stained by egregious
criminal activity, or by the harm inflicted on another for one’s own financial gain (or
greed). As more than just dirty money from criminal proceeds, blood money comes from
one drawing blood of another either literally, or in a figurative manner of speaking.
Historically, blood money was money that one paid to the victim of one’s wrongdoing as a
matter of restitution to diffuse and resolve the blood feud (i.e., if one took the blood of
another, a fine was paid to the victim or the victim’s family to avoid their vengeful
retaliation). Here, blood money implies the moral stance that one should not profit from
one’s wrong. See Wex S. Malone, Ruminations on the Role of Fault in the History of the
Common Law of Torts, 31 La. L. Rev. 1, 1–8 (1971); Blood Money Definition,
Merriam-Webster, http://www.merriam-webster.com/dictionary/blood%20money
(last visited Nov. 30, 2015) (defining blood money as “money obtained at the cost of
another’s life”); cf. Stephen G. Gilles, The Judgment-Proof Society: “As the System
Currently Operates, Liability Is, for Wrongdoers . . . Voluntary”, 63 Wash. & Lee L.
Rev. 603, 605–07, 665–69 (2006). The legislature defined the harms of drug-related
crime and substance abuse, implying that profiting from those harms is equally prohibited
as the harm itself. Thus, blood money reinforces a stigma on one who benefits financially
from causing another’s demise.
110
Courts differed over the meaning of proceeds when dealing with organized crime or
legitimate businesses, and whether to construe proceeds as gross profits or net profits
respectively. Now, proceeds are defined as the gross receipts of a predicate crime.
Doyle, supra note 2, at 4–8; see United States v. Santos, 553 U.S. 507, 519–21 (2008);
United States v. Scialabba, 282 F.3d 475, 475–78 (7th Cir. 2002). But see 18 U.S.C. §
1963(a) (2012); 21 U.S.C. § 853(a) (2009); People v. Gutman, 959 N.E.2d 621, 631–32
(Ill. 2011).
111
18 U.S.C. § 1956(c)(7) (2012).

Bank on Marijuana
483
when federal authorities and banks refuse state-licensed dispensaries access to
banking services, casting aside dispensaries and their money as dirty.
In relation to the marijuana industry, anti-money laundering laws define the
manufacture, sale, and distribution of any controlled substance under the
Controlled Substances Act as a Specified Unlawful Activity. 112
Because
marijuana is a controlled substance under Schedule I of the Controlled
Substances Act,113
dispensaries’ gross profits are considered tainted proceeds
from a Specified Unlawful Activity that automatically implicate dispensaries—
as a class of businesses—in money laundering by default. In turn, banks may be
prosecuted for any of the following: concealing the Specified Unlawful Activity
proceeds by accepting dispensaries’ deposits; facilitating Specified Unlawful
Activity proceeds through commercial banking activities or lending to
dispensaries;114
or conducting routine transactions when the dispensary might be
depositing or comingling Specified Unlawful Activity proceeds.
Under Title 18 of the U.S. Code, Sections 1956 and 1957 codified money
laundering into the design provision and the access provision, respectively.115
The
design provision defines money laundering as knowingly engaging or attempting
to engage in the willful promotion or concealment of proceeds from a Specified
Unlawful Activity in a financial transaction (of any dollar amount).116
In turn, the
access provision defines money laundering as knowingly conducting, or
attempting to conduct, a monetary transaction with a financial institution117
that
112
18 U.S.C. § 1956(c)(7)(B)(i) (2012).
113
21 U.S.C. § 812 (2012).
114
Vincent M. Di Lorenzo, Equal Economic Opportunity: Corporate Social
Responsibility in the New Millennium, 71 U. Colo. L. Rev. 51, 67–68 (2000).
115
The terms design and access relate to the overall criminal nature of each provision
to reference the role of the funds in an overall scheme and the physical movement of the
money respectively. The design provision pertains to the promotion theory, concealment
theory, or both, which has no threshold dollar limit. The access provision pertains to the
movement theory of money (i.e., the physical movement of funds from a Specified
Unlawful Activity) limited to a threshold dollar amount. The other distinguishing element
is the degree of knowledge required. The design provision is willful, whereas the access
provision is volitional and intentional.
116
18 U.S.C. § 1956 (2012); United States v. Santos, 553 U.S. 507, 519–21 (2008)
(establishing knowledge as a prima facie element proven by circumstantial evidence); see
Leff, supra note 6, at 24 (explaining circumstantial evidence is sufficient to (1) show the
launderer treated the proceeds differently from an innocent transfer, and (2) prove the
launderer’s knowledge that she believed the money was dirty instead of requiring specific
knowledge of the Specified Unlawful Activity). Commercial lending to dispensaries falls
under the promotion theory of money laundering subjecting bank loans to forfeiture and
freezing access to credit cards. Thus, lending activities to dispensaries would not comport
with the Controlled Substances Act because lending would promote and facilitate
dispensaries’ businesses and the distribution of marijuana within the stream of
commerce. Furthermore, clean money used to facilitate a Specified Unlawful Activity
would constitute money laundering as well, impacting investors of dispensaries.
117
31 U.S.C. § 5312 (2012) (subjecting various businesses to reporting requirements
and reserving the right to regulate “any [] business designated by the Secretary whose
cash transactions have a high degree of usefulness in criminal, tax, or regulatory
matters”).

484
involves the physical movement of more than $10,000 worth of property derived
from any Specified Unlawful Activity. 118
While knowledge implicates both
depositors and banks alike in money laundering, the element of knowledge pivots
on the willfulness requirement, distinguishing the mens rea for the design and
access provisions accordingly.119
The mens rea element in the design provision requires willfulness, which is
defined as one knowing the act is unlawful. Direct or circumstantial evidence of
the actus reus—concealing or facilitating the proceeds from a Specified Unlawful
Activity—allows one to draw an inference of the suspect’s willfulness.120
Willful
blindness will not excuse any bank, or bank employee, from money laundering121
because “[a] deliberate effort to avoid guilty knowledge is all the guilty
knowledge the law requires.”122
In contrast, the mens rea element in the access
provision requires only voluntary and intentional acts when conducting routine
monetary transactions with tainted funds, regardless of whether the infraction is
willful.123
But, when tainted proceeds are commingled with other funds from
legitimate sources, courts are divided on whether there is a presumption of
money laundering because only some of the funds are tainted.124
Moreover, money laundering is not considered a continuing offense because
the tainted funds become too obfuscated to distinguish from legitimate funds
within the cyclical nature of money laundering. 125
Each incident of money
laundering constitutes a separate offense126
with serious penalties,127
especially
for “violations [that] are [not] isolated events and [are] part of a common or
systematic scheme.”128
But, various incidents of money laundering may be linked
118
18 U.S.C. § 1957(a) (2012); United States v. Gregg, 179 F.3d 1312, 1315 (11th Cir.
1999).
119
United States v. Sokolow, 91 F.3d 396, 407–09 (3d Cir. 1996).
120
United States v. Bank of New England, N.A., 821 F.2d 844, 854 (1st Cir. 1987)
(establishing prima facie element of willfulness as a mental state “by drawing reasonable
inferences from the available facts”); United States v. Majors, 196 F.3d 1206, 1211–14
(11th Cir. 1999).
121
Willful blindness occurs when “the professional money launderer, aware of a high
probability that the laundered funds were profits, deliberately avoids learning the truth
about them.” Santos, 553 U.S. at 521; Trans World Airlines, Inc. v. Thurston, 469 U.S.
111, 126–27 (1985); see Meltzer, supra note 6, at 243.
122
United States v. Giovannetti, 919 F.2d 1223, 1228 (7th Cir. 1990).
123
Sokolow, 91 F.3d at 408–09.
124
See John K. Villa, A Critical View of Bank Secrecy Act Enforcement and the Money
Laundering Statutes, 37 Cath. U. L. Rev. 489, 497 (1988). But see United States v.
Johnson, 971 F.2d 562, 569–70 (10th Cir. 1992); United States v. Yagman, 502 F. Supp.
2d 1084, 1087 (C.D. Cal. 2007). Commingling of dirty and clean funds may reduce the
amount implicated in money laundering.
125
See Leff, supra note 6, at 25; see also AML Report, supra note 97, at 16–19.
126
See Leff, supra note 6, at 25; see also United States v. Conley, 826 F. Supp. 1536,
1540–44 (W.D. Pa. 1993).
127
But see supra note 95.
128
United States v. Dickinson, 706 F.2d 88, 92 (2d Cir. 1983).

Bank on Marijuana
485
through conspiracy to increase the severity of the penalty for depositors and
banks.129
Incidentally, anti-money laundering laws use a bilateral approach, penalizing
both depositors and banks receiving tainted proceeds, 130
because depositing
money into a bank account is defined as a “monetary transaction . . . affecting
interstate or foreign commerce.”131
For depositors, the degree of knowledge is
determined on an individual basis according to the willful or intentional mens rea
for the design and access provisions respectively. This analysis also depends on
whether the depositor is actually handling tainted proceeds, which may be more
obfuscated in nature due to the nature of money laundering. Hence, dispensaries
automatically fall under the design provision by default when engaging a bank to
deposit business proceeds. Whether the access provision applies to dispensaries
depends on whether the transaction involved $10,000 or more with a financial
institution.
For banks, corporate liability is a two-tiered liability scheme that imputes the
aggregate knowledge of its employees to the bank’s collective knowledge, holding
banks accountable for its employees’ actions as well as their failure to act.132
Both
the bank and the bank’s employees will be held responsible for maintaining
tainted accounts.133
Banks generally fall under the design provision from insider
abuse by directors, officers, or employees who are colluding with the depositor.134
Notwithstanding whether a wayward bank employee actively cooperates with a
129
18 U.S.C. § 1956(h) (2012); see Doyle, supra note 2, at 18–22; Leff, supra note
6, at 25.
130
Compare 18 U.S.C. § 1956(c)(3) (2012) (defining transaction as “a purchase, sale,
loan, pledge, gift, transfer, delivery, or other disposition, and with respect to a financial
institution includes a deposit, withdrawal, transfer between accounts, exchange of
currency, loan, extension of credit, purchase or sale of any stock, bond, certificate of
deposit, or other monetary instrument, use of a safe deposit box, or any other payment,
transfer, or delivery by, through, or to a financial institution, by whatever means
effected”), and 18 U.S.C. § 1956(c)(4) (2012) (defining financial transaction as “(A) a
transaction which in any way or degree affects interstate or foreign commerce (i)
involving the movement of funds by wire or other means; or (ii) involving one or more
monetary instruments; or (iii) involving the transfer of title to any real property, vehicle,
vessel, or aircraft; or (B) a transaction involving the use of a financial institution which is
engaged in, or the activities of which affect, interstate or foreign commerce in any way or
degree”), with 18 U.S.C. § 1957(f)(1) (2012) (defining monetary transaction as “the
deposit, withdrawal, transfer, or exchange, in or affecting interstate or foreign commerce,
of funds or a monetary instrument . . . by, through, or to a financial institution . . .
including any transaction that would be a financial transaction”).
131
18 U.S.C. § 1957(f)(1) (2012) (emphasis added).
132
United States v. Bank of New England, N.A., 821 F.2d 844, 855–56 (1st Cir.
1987).
133
12 U.S.C. §§ 93(c), 1818, 3105 (2012); Annunzio-Wylie Anti-Money Laundering
Act of 1992, Pub. L. No. 102-550, § 1502–1503, 106 Stat. 3672, 4045–4051 (1992)
(codified as amended in scattered sections of 12 U.S.C. and 18 U.S.C.); see Meltzer, supra
note 6, at 243–44, 255; see supra note 95.
134
Fed. Deposit Ins. Corp., DSC Risk Mgmt. Manual of Exam.
Pol’y, Bank Secrecy Act, Bank Fraud and Insider Abuse § 9.1 2–4, 14–
16 (2005), available at https://www.fdic.gov/regulations/safety/manual/section9-1.pdf.

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