FinCEN said that it isn’t encouraging banks to use its marijuana directive, but simply seeks to make banks aware that it’s out there should they want it. “We recognized the potential public danger” of unbanked billions in cash, said Steve Hudak, a FinCen spokesman. “We exercised the limits of our authority to do what we could to address the risks. We’re not advocating, nor discouraging banks to take this business.”

Treasury is able to offer this guidance only because the Justice Department has agreed not to go after marijuana sellers in states where it has been legalized as long as those businesses don’t trigger red flags such as selling to children or diverting cash to criminal cartels. So far, less than 200 small banks and credit unions are accepting cannabis cash across the country, according to FinCEN, which has received about 1,700 reports on companies in good standing, categorized as “marijuana limited suspicious-activity.”

‘Prohibitive Industry’

Yet at larger banks, Treasury’s overtures have fallen on deaf ears. Citigroup Inc. and JPMorgan Chase & Co. say they won’t provide services to businesses that engage in activity that is illegal under federal law. KeyCorp chief executive officer Beth Mooney, said that marijuana is still considered “a restrictive or prohibitive industry,” and said the bank hasn’t had any conversations with regulators about the issue.

John Stumpf, CEO of Wells Fargo & Co., said marijuana’s federal illegality stops his bank from even thinking about accepting the business. “That’s out of my sights right now,” he said.

It’s a view shared by some of the biggest regional lenders, including U.S. Bancorp and Huntington Bancshares Inc.

“You’d be hard-pressed to find a large bank that’s willing to take that risk right now,” said Jeff Bahl, a portfolio manager who helps oversee more than $7.9 billion at Bahl & Gaynor Inc., including bank stocks. “The rates of return just aren’t there to justify the reputation risk and the risk that five years from now banks might get in trouble for loans that regulators are now encouraging.”

On The Fence

So, Treasury is setting its sights on banks that operate in states where marijuana is legal, according to the person familiar with the FinCEN bank meetings. Yet these banks are also remaining on the fence, more mindful of their regulators than the concerns of Treasury.

“The FinCEN and DOJ guidance was intended to help banks on how to avoid criminal prosecution if they offered marijuana companies banking services,” said Don Childears, head of the Colorado Bankers Association. But “ultimately, regulators could shut them down if they don’t comply with federal guidelines.”