Cannabis Banking: A Fourth Corner Credit Union Follow-up

There is one way to solve the cannabis banking problem: Congress must act.
There is one way to solve the cannabis banking problem: Congress must act.

As we unfortunately expected, Fourth Corner Credit Union lost its case against the Federal Reserve Bank of Kansas City. We’ll do a deep dive into District Court Judge Jackson’s order.

First, the judge did a fine job distilling down to essentials the basics of each side’s case. For Fourth Corner, the Monetary Control Act of 1980 is the key issue in the case, and it mandates that the Federal Reserve open the account as a matter of course, and that the Fed doesn’t have the right to lock Fourth Corner out.

The Fed’s three main arguments are: 1. Colorado’s actions to legalize marijuana are preempted by federal law. 2. The Court should not use its equitable powers to facilitate criminal activity, and 3. The Monetary Control Act does not mandate that it open accounts for all comers. For non-attorney readers, argument 2 comes into play because Fourth Corner isn’t seeking monetary damages, it is seeking an injunction — a court order. To get a court order, in addition to being right on the law, you also have to show that you win on a balancing of additional factors, including public interest and irreparable harm and you have to show that you come to the case with “clean hands” — another way of saying that you aren’t using the court that rewards you despite your bad acts in the process.

Thankfully, the judge did not touch on the preemption issue. It was too big of an issue for this case, and one that wasn’t necessary to resolve it. And in a pretty big surprise, the judge seemed close to agreeing with Fourth Corner on argument 3, the statutory interpretation issue. He said, “I agree with the plaintiff that the italicized language [referring to language in the Monetary Control Act referenced in our last post] is not limited to pricing.”

Instead, the judge gave the Federal Reserve a victory based on argument 2 — courts cannot provide equitable relief to a party when the relief would facilitate criminal activity. This is where Judge Jackson really digs into the enforcement memoranda put out by the Department of Justice and FinCEN that we and others have written about hundreds of times. Just because law enforcement and regulatory agencies make clear what crimes they do and do not want to enforce doesn’t make the activities that they don’t enforce against legal. The activities remain crimes. And though prosecutors have discretion, judges don’t. When criminal activity is at issue in a civil case, the criminal has to lose, even if the cops and prosecutors don’t care.

And that’s it. Federal illegality is the entire reason for Fourth Corner loss. Aaron Smith of the National Cannabis Industry Association had the exactly correct response to this case: “This ruling sends a message loud and clear — Congress must act. There’s no shortcut, there’s no Band-Aid, there’s no work-around to fix this industry-wide.” The cannabis industry has developed as far as it can under the current system, and the industry is going to be stuck in neutral until Congress acts on something, whether it is cannabis tax reform, banking reform, or federal legality in marijuana-legal states. There is no other path to success.