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The trend among states, including Illinois, to legalize and regulate the production and sale of recreational marijuana is and has been a troubled legal minefield for banks and their customers trying to make money off such “legalized” production.

Because here’s the deal: While in certain states the creation and sale of marijuana has been sanctioned, it remains an illegal no-no under federal law.

And guess what? Most banks are regulated in some manner by federal regulatory agencies whose rules prohibit a bank from engaging in the handling of funds sourced from activities that are illegal under federal law.

This September, the U.S. House passed the Secure and Fair Enforcement Banking Act (SAFE Act), which assures banks and credit unions they won’t be penalized by federal regulators for working with clients in the cannabis business in states that allow production and sale of marijuana or hemp (the fiber of the cannabis plant). The legislation would also require federal banking regulators to issue guidance on how financial institutions should serve the hemp industry. At this writing, the Senate has yet to consider it.

A farm bill from last year defined legal, industrial hemp as a cannabis with less than 0.3 percent of tetrahydrocannabinol (THC), the compound that creates a high. Higher concentrations of high-inducing THC become, under federal law, marijuana and thus illegal.

But the farm bill only shielded farmers in producing the lawful hemp. It gave no protection to other manufacturers in the supply chain of any hemp. So, maybe a lower standard of THC under some state law could make the hemp from that state still illegal.

The U.S. Department of Agriculture has yet to create a hemp standard and so states are using their own. Thus, hemp grown legally in one state might be illegal in another.

And therein lies the problem for banks. They can be not only civilly fined by federal regulators, but criminally prosecuted for financing criminal activity.

In 2014, the Obama administration issued guidance allowing banks to work with marijuana clients, but banks are still required to report “illegal activities” under the long-standing Bank Secrecy Act. What’s illegal? How do you “monitor” a bank customer’s income if the bank customer’s income is from hemp that is legal in Tennessee but not Indiana?

Without definitive federal guidance on the difference from lawful hemp and THC marijuana, federally regulated banks have been erring on the side of caution by closing or denying the opening of accounts on any hemp/cannabis businesses.

Folks are also trying to make money selling hemp CBD (cannabidiol) products as an extract people can eat. But the FDA has said CBD can’t be sold as a dietary supplement because it’s a drug, and drugs can’t be added to the food supply. Yikes.

The SAFE Act is now planted in the Senate Committee on Rules and Administration. It is awaiting germination upon the sprinkling of approbation by Senate leader Mitch McConnell of Kentucky.

And, by the way, Kentucky is one of the biggest hemp-producing states in the nation.

Oh, dude! Pass me a toke while we stagger down to the ole national bank to open an account.

Brett Kepley is a lawyer with Land of Lincoln Legal Aid Inc. You can send your questions to The Law Q&A, 302 N. First St., Champaign, IL 61820. Questions may be edited for space.

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