State Legalization of Cannabis: How Financial Institutions Can Stay Ahead of the Game
Published on December 1, 2020

The November elections may have been filled with many wins and losses, but the approval of marijuana-related ballot measures in five additional states was a definite game-changer. This brings the total to 36 states where some form of marijuana use has been legalized for commercialization, either medicinally, recreationally, or both. Inevitably, forthcoming regulatory changes will bring an increase in marijuana related businesses (MRBs) and ultimate beneficial owners (UBOs) of MRBs within each state with expanded legality. Whether or not financial institutions (FIs) are interested in entering the cannabis game, this rapidly expanding industry can lead to both opportunities and heightened risks. And it is up to the bankers to be prepared or else risk unnecessary penalties or even losing big to the competition. 

State Cannabis Regulations: The Play-By-Play Analysis

Specific details regarding the approved regulations are as follows:


Ballot Measure


Effective Date


Proposition 207

Legalizes possession and use of marijuana for adults, age 21 years or older, in Arizona and permits individuals to grow up to six marijuana plants in their residences.

Use legalized immediately, Licenses to be reviewed and approved in January 2021


Initiative 65 

Legalizes medical marijuana for qualified persons with debilitating medical conditions.

July 2021



Legalizes the possession and use of 1 ounce or less of marijuana or 8 grams or less of marijuana concentrate by persons over the age of 21 in Montana.

January 2021

New Jersey

Public Question 1

Legalizes the recreational use of marijuana for persons age 21 and older and legalizes the cultivation, processing, and sale of retail marijuana.

January 2021

South Dakota

Amendment A

Measure 26

Legalizes the recreational use of marijuana for individuals 21 years old and older. Individuals would be allowed to possess or distribute up to 1 ounce of marijuana.

Establishes a medical marijuana program in South Dakota for individuals who have a debilitating medical condition as certified by a physician.

July 2021

Running Up the Points

States that have legalized marijuana have seen an explosion of growth from the start, and the market continues to expand. Total cannabis sales in the U.S. this year are projected to reach $15.8 billion, up from $12.1 billion in 2019. Each state that newly legalized cannabis can expect hundreds of millions in sales in the first year of legalization, which is estimated to nearly double by 2024.

Sitting on the Sidelines

Despite the opportunities, FIs may choose not to participate in MRB banking based on a lower risk appetite or alternative strategies. The biggest challenge for FIs related to MRB banking continues to be the federal prohibition of marijuana. While there may be a democrat moving into the White House in January, the U.S. is still a long way off from federal legalization. This means, above all else, Bank Secrecy Act and Anti-Money Laundering (BSA/AML) regulatory requirements should be a major consideration for FIs doing business in states with legal cannabis. In fact, most FIs would agree that a need for greater customer due diligence and enhanced due diligence practices exists especially in those states with legalized cannabis, regardless of whether the FI chooses to offer services to MRBs or related UBOs.

The Final Score

Ultimately, changes to regulations require effective change management systems within organizations, which should include adequate board and senior management oversight, robust strategic planning, and a comprehensive compliance program that incorporates all applicable laws and regulations, new and old. Whether a FI views legalization as an opportunity or purely as a risk, the need for additional compliance reviews and screening is now more critical than ever.

Is your compliance program backed by comprehensive data on the cannabis industry? Do you have access to reliable information about MRBs to determine your firm’s level of risk exposure? Read more on our blog: You Don’t Know Pot: 5 Fundamentals to Understanding, Identifying, and Monitoring for CRBs. Or visit our website to request more information and get in touch with our team.

The information provided herein presents general information and should not be relied on as legal advice. If you have specific questions regarding a fact, please consult with competent legal counsel about the facts and laws that apply.

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