The New York State Department of Financial Services (DFS) issued guidance, at Governor Cuomo’s urging, to New York state – chartered banks and credit unions to offer banking services to medical marijuana businesses licensed under the New York State medical marijuana program (Registered Organizations) and to industrial hemp businesses participating in the New York State industrial hemp research program (Research Partners).
The DFS guidance identifies several requirements for banks to consider in providing services to Registered Organizations (ROs), including the following:
- customer due diligence in accordance with established principles and procedures;
- transaction monitoring in accordance with established principles and procedures;
- compliance with New York Compassionate Care Act;
- compliance with applicable regulations and requirement of New York State Department of Health (NYSDOH);
- Cole Memo guidance and priorities (including, among other things, preventing diversion of marijuana to minors and to other states, and the flow of revenue to criminal enterprises);
- FinCEN guidance clarifying Bank Secrecy Act expectations (including, among other things, verifying the business is a licensed RO, reviewing the RO’s application for a license, obtaining information from the NYSDOH on the RO, understanding the ROS’s activities and customers, monitoring public information on the RO, monitoring for red flags based on assessment of revenue, movement of funds, location of ROs, among other indicia); and
- Fling Suspicious Activity Reports (SARs), such as a Marijuana Limited SAR, Marijuana Priority SAR, or a SAR for Termination, depending on the RO’s compliance with NYS law and regulations and Cole Memo, and the bank’s need to maintain effective anti-money laundering compliance program.
With regard to providing banking services to entities that are,or wish to be,engaged as a Research Partner in growing or cultivating industrial hemp under the NYS industrial hemp program, the DFS guidance identifies the following requirements for banks to consider:
- eligibility and authority of entity for participation under the NY Agriculture and Markets Law, which permits:
- industrial hemp and products derived from hemp as agricultural products to be grown, produced and possessed in NYS and sold distributed, transported or processed either in or out of State as part of the state program;
- satisfaction of requirements under Section 7606 of the 2014 Farm Bill, which permits the growth and cultivation of industrial hemp if;
- it is grown or cultivated for research under an agricultural program or academic research; and
- it is grown and cultivated pursuant to state program (in NY, the New York State Industrial Hemp Research Pilot Program);
- appropriate underwriting by the bank; and
- customer due diligence.
As long as the banks follow the guidelines outlined by the DFS and manage associated business risks properly, the DFS stated that it will not impose any regulatory action on the banks for establishing banking relationships with New York Registered Organizations and Hemp Research Partners.
According to the DFS press release, the guidelines are intended to clarify the landscape to encourage banks to provide services to these New York State operators. To the extent that New York State banks are encouraged by the guidance and begin to offer banking services, they are likely to add legitimacy to the NYS medical marijuana and industrial hemp programs and further foster their growth.