Cannabis is no longer a fringe industry. Yet for financial institutions, investment firms, and professional services providers, engaging with cannabis-related businesses (CRBs) remains a high-risk, legally ambiguous area. The core compliance challenge? Cannabis may be legal locally, but remains a controlled substance federally in the US and other key jurisdictions, triggering anti-money laundering (AML) risks, regulatory scrutiny, and reputational exposure.
That said, risk does not equal prohibition. While the federal-state legal conflict adds complexity, it does not make compliance impossible, or even prohibitively difficult. With a clear policy, robust due diligence, and a readiness to file Suspicious Activity Reports (SARs), financial professionals can engage with CRBs in a controlled and defensible way. As with any high-risk sector, the key is treating cannabis involvement deliberately, documenting every step, and ensuring your compliance framework evolves with the law.
The legal paradox: State legality v federal illegality
Under US federal law, cannabis is a Schedule I drug under the Controlled Substances Act (CSA), meaning it is considered to have “no currently accepted medical use” and a “high potential for abuse.” Despite this, over 40 states have legalised cannabis for medical or recreational use.
This creates a fundamental conflict: while a cannabis business may be fully compliant with state regulations, its operations are still considered federally illegal. As a result, any funds derived from such businesses are deemed the proceeds of unlawful activity at the federal level. This is a key trigger under the Bank Secrecy Act and AML regulations. Be aware that from 1 January 2026, VCs and private equity will also be covered by BSA rules.
FinCEN guidance: SARs are not optional
In 2014, the Financial Crimes Enforcement Network (FinCEN) issued guidance permitting banks to serve marijuana-related businesses (MRBs) under strict conditions. While the Department of Justice’s Cole Memo which informed these conditions was rescinded, FinCEN’s expectations remain in force.
SAR filing categories:
Banks must file Suspicious Activity Reports (SARs) for all MRBs. However there are special types of SAR depending on the issue at hand.
“Marijuana Limited” SAR – filed when the bank’s due diligence indicates the business is following state law and not implicating DOJ’s priorities; basically a note to say “this customer is a state-legal cannabis business, and we saw no red flags of priority violations; we’re filing because we have to by law, but it’s routine.”
“Marijuana Priority” SAR – filed if the institution believes the business is violating a Cole Memo priority or state law, i.e., something problematic is happening, like diversion of product out of state, or the business has a connection to criminal enterprises.
“Marijuana Termination” SAR – filed if the bank decides to sever the relationship due to illicit or unsatisfactory activity.
The compliance risks for financial and professional services
Regulatory and legal risk
Even indirect exposure to cannabis funds, e.g. through a Limited Partner who owns a dispensary can trigger federal compliance obligations. DOJ enforcement risk may be low currently, but it’s not zero. Firms should disclose these risks to investors and consider whether accepting cannabis funds could breach fiduciary duties or violate partnership agreements.
Banking and de-risking
Many CRBs are underbanked due to the legal grey zone. Working with such clients may jeopardise your own banking relationships. Financial institutions may terminate accounts to avoid perceived exposure, even if only indirect.
AML and due diligence burden
Cannabis money is automatically high-risk under AML rules. Firms must conduct enhanced due diligence (EDD) on:
- The source of funds
- State licence status
- Ownership structures
- Controls against diversion to illicit markets
If you invest in or take money from a CRB, you may need to file recurring SARs and build internal systems for documentation, monitoring and audit.
Reputational risk
Partnering with cannabis-linked businesses or investors could alienate other stakeholders. For example, European or Middle Eastern investors may be unable to co-invest due to local legal constraints. Pension funds and insurance firms may have internal prohibitions against cannabis exposure.
International considerations for cannabis financing
In countries like Canada, Uruguay, and parts of Europe, cannabis is federally legal. Funds originating in those jurisdictions may not violate U.S. federal law. However, importing those proceeds into the U.S. could raise red flags if they are mixed with U.S. cannabis activities. Compliance teams must assess:
- Where the funds originated
- Whether the activities breached U.S. federal laws at any point
- Cross-border reporting and risk appetite
CBD and hemp
Hemp (<0.3% THC) was federally legalised in the US via the 2018 Farm Bill. However, many hemp or CBD businesses operate in both cannabis and hemp markets, so clarity on product lines and THC content is vital. Only pure hemp businesses that comply with FDA and state regulations fall outside MRB definitions.
Why engage with cannabis? The commercial and social case
While cannabis presents compliance and legal challenges, it also represents a significant and often values-aligned opportunity. The global cannabis industry is projected to exceed $100 billion in value by 2030, driven by growing consumer demand, medical adoption, and evolving public policy. For financial institutions and professional services firms willing to navigate the complexities, there are both commercial benefits and broader societal reasons to support the sector.
Medical impact and public health benefits
Cannabis is increasingly used in the treatment of chronic pain, epilepsy, PTSD, and other conditions. Medical marijuana programmes are now active in more than 35 US states and many other jurisdictions worldwide. Supporting licensed producers, dispensaries, and research companies in this space allows institutions to back scientifically supported healthcare innovation, while serving communities with real therapeutic needs.
Legalisation momentum and policy reform
The long-term trajectory points toward broader decriminalisation or federal reform. In the US, multiple bills have proposed safe harbour for banks and investors, and more than 70% of Americans now support cannabis legalisation. In Canada, where cannabis is fully legal federally, the market is stabilising and maturing, providing a model for what a post-prohibition economy could look like.
Social equity and economic inclusion
Many jurisdictions have built social equity goals into cannabis licensing, supporting entrepreneurs from communities disproportionately impacted by historical drug policies. By investing in or providing services to these businesses, firms can align their ESG strategies with tangible, local economic empowerment outcomes.
High-growth potential
Cannabis remains one of the fastest-growing consumer segments in North America. From cultivation to retail tech and wellness products, the ecosystem is broad and expanding. Ancillary services like logistics, security, software, and compliance tech are booming and carry lower regulatory risk than “plant-touching” businesses. For firms with risk tolerance and strong compliance frameworks, the industry is still a first-mover opportunity in a maturing, highly fragmented market.
Practical compliance steps for cannabis tech
Decide your firm’s cannabis policy
Make a firm-level decision:
- Avoid entirely: Blanket prohibition until federal reform.
- Engage with controls: Define when and how you accept cannabis exposure, with policies to mitigate risk.
Document and train teams on this policy.
Due diligence on CRBs and investors
Establish a due diligence checklist:
- State licence validation
- Background checks on owners
- Review compliance with local laws
- Assess exposure to federal enforcement priorities (Cole Memo-style factors)
Use third-party compliance consultants if needed.
SAR protocols and staffing
Prepare for SAR filings, even if not currently mandatory. Set up internal SOPs covering:
- When to file Limited vs. Priority vs. Termination SARs
- Review frequency
- Documentation procedures
Train your compliance and finance teams accordingly.
Monitor regulatory shifts
Stay informed on developments such as:
- The SAFE Banking Act or federal decriminalisation
- State-level enforcement changes
- FinCEN AML updates
Adjust your policies and SAR protocols as the legal landscape evolves.
Consider strategic alternatives
Some firms opt to engage only with:
- Ancillary businesses (e.g. hydroponics, logistics, POS tech)
- International operators in fully legal markets
- CBD and hemp-only product companies
These options reduce legal exposure while capturing cannabis-adjacent opportunities.
Transparency with stakeholders
Disclose cannabis exposure and associated compliance steps to LPs and partners. Be prepared for opt-out clauses or questions about SAR filings. Surprises can damage trust more than transparency.
