The burgeoning cannabis industry continues to face challenges accessing banks, experts said last month during the 23rd annual Hemp Industries Association (HIA) conference in Colorado—the U.S. birthplace of legal recreational marijuana.

Under the 2014 Farm Bill, the hemp industry is conducting pilot programs in several states, including cannabis-friendly Colorado, to study the viability of growing and marketing hemp. The hope is that America can revive hemp farming in support of myriad products, from hemp-based foods and supplements to materials in automobiles to medicine that could treat rare forms of epilepsy. But even though Congress has explicitly authorized the pilot programs, at least some banks in The Centennial State remain reluctant to form relationships with the hemp industry.

Trae Miller, executive director of the Logan County Economic Development Corp. in Sterling, Colorado, said county commissioners in his area support hemp, and regional banks understand the distinction between marijuana and hemp. Hemp contains very little of the psychoactive ingredient in pot: tetrahydrocannabinol (THC).

However, local banks are advising agricultural producers “that if they are doing anything in regards to hemp—if they’re leasing their land to people to grow hemp, if they’re growing any hemp—that they can get all their loans called and they won’t take their deposits," Miller revealed. “They will be basically booted from the bank."

“They’re still under the impression that they absolutely cannot touch this and they’re taking a risk," Miller said.

Hemp farms may have more luck with financial institutions in Kentucky, where former state agriculture commissioner James Comer delivered a memorandum to banks across the state. Jonathan Miller, an attorney in Lexington, Kentucky with the law firm of Frost Brown Todd LLC who works on hemp issues, said Comer’s memo assured banks they were not incurring extraordinary risks if they followed certain procedures and obtained evidence that the banking client was part of a sanctioned state-regulated program operating under the Farm Bill.

Banks, however, may have little or no guidance from the feds on hemp.

Although the U.S. Department of Justice (DOJ) has issued guidelines to follow for banking with marijuana businesses, “Those guidelines don’t exist for hemp," observed Mark Goldfogel, executive vice president of industry relations with The Fourth Corner Credit Union in Denver. “So even though hemp is not psychotropic … it actually has less guidelines and less rules for a bank to follow than marijuana does, which puts hemp in a more difficult position in a state like Colorado, where you do have financial institutions coming forward and banking marijuana businesses."

With the passage of Amendment 64 on the 2012 ballot, Colorado made history as the first U.S. state to decriminalize recreational marijuana for adults. Since January 2014, dispensaries in Colorado have sold recreational pot, including bud, candies and edibles. Andrew Freedman, the director of marijuana coordination for the state of Colorado, said “community banks and credit unions have really stepped up into this space."

“My joke is that we now are not unbanked," he said during the HIA conference. “We’re underbanked—and you can even say that we’re half-banked."

But the banking challenges that remain are a sobering reminder of marijuana’s status as an illegal substance under federal law.

“Even if you have a bank, Visa and MasterCard will shut down credit card systems along the way and say you can’t have credit even if you have a bank account," Freedman noted. “But the more and more we can get credit unions and community banks to engage with these businesses, we’ll have our short-term solution; and then later on, we can try to go get a congressional long-term solution … on the federal side to just say people should be able to have banking relationships."

Cannabis Sector Turns to Courts for Banking Relief

Meanwhile, the cannabis sector has sought relief in the courts.

Enter The Fourth Corner Credit Union, whose mission is to support the cannabis and hemp industries. After receiving a state credit union charter in 2014 from the Colorado Division of Financial Services, the credit union submitted an application for a master account at the Federal Reserve Bank of Kansas City. Its application was denied.

This was no small setback. The credit union needed access to the Federal Reserve payments system for the electronic transfer of funds, and as a federal court later explained, “without this access, The Fourth Corner Credit Union is out of business."

The cannabis-focused credit union filed a complaint in federal court, requesting a mandatory injunction directing the Federal Reserve Bank of Kansas City to grant it the master account. In January, U.S. District Judge R. Brooke Jackson denied the request. The Fourth Corner Credit Union is not presently open for business, according to its website.

One of the credit union’s arguments in favor of the master account? That a memorandum from Deputy Attorney General James Cole of the DOJ and guidance from the Treasury Department’s FinCEN (Financial Crimes Enforcement Network) authorize financial institutions to serve marijuana-related businesses.

The judge wasn’t persuaded.

“The problem is, the FinCEN guidance and Cole memorandum do nothing of the sort," Jackson wrote in his nine-page order dismissing the civil action with prejudice. “On the contrary, the Cole memorandum emphatically reiterates that the manufacture and distribution of marijuana violates the Controlled Substances Act, and that the Department of Justice is committed to enforcement of the Act. It directs federal prosecutors to apply certain priorities in making enforcement decisions, but it does not change the law."

“In short, these guidance documents simply suggest that prosecutors and bank regulators might ‘look the other way’ if financial institutions don’t mind violating the law," Jackson concluded. “A federal court cannot look the other way. I regard the situation as untenable and hope that it will soon be addressed and resolved by Congress."

The decision is on appeal before the Tenth Circuit, and Goldfogel is bullish on the long-term prospects of banking cannabis businesses.

“Ultimately, banking will be available and ultimately, there will be a nonprofit credit union out there openly willing to service the hemp and cannabis movement," he said. “Until then, we’re operating much like being gay in the military a few years ago. It’s kind of a ‘don’t ask, don’t tell,’ scenario. It’s best if your bank does know what you’re doing because then you likely won’t get shut down as quickly. But it is not a scenario where a bank is going to put on the front page of The Denver Post, ‘We’re now taking marijuana money.’"