By John Schroyer
There’s more bad news on the banking front for cannabis companies.
First Security Bank of Nevada, which began working with the nascent medical marijuana industry in the state last year, has decided to reverse course because of compliance issues, its chairman told Marijuana Business Daily Friday morning.
“The board has decided to (essentially) exit the marijuana industry,” said Jason Awad, the chairman of the board of First Security. “We have attempted, at a huge cost of time, to implement a robust compliance program… We found out that the compliance issue is so costly that it’s going to be prohibitive.”
The move comes at perhaps the worst possible time: Licensed cannabis dispensaries in Nevada are just now gearing up to open, possibly in the coming weeks. This development could delay many of these businesses and present new hurdles for the state’s emerging MMJ industry.
Without bank accounts, many businesses will likely have to store their revenues in cash, which has proven to be an ongoing problem across the country for those in the industry.
Awad estimated that his bank has opened “holding accounts” for roughly a quarter of the cannabis-related businesses in Nevada at this point. The accounts helped businesses work through the licensing application process with the state.
Those accounts will remain open, Awad said, but the bank won’t be accepting any deposits from the sale of cannabis.
At this point, the bank feels it cannot guarantee that it will remain in compliance with the Cole Memo and federal guidelines, Awad said. This is in part because First Security hasn’t found any software tracking systems that meet its needs, and partially because of general uncertainty over legal dealings with businesses that specialize in a federally illegal plant.
Part of the problem, Awad said, is that the financial industry is getting “mixed messages” from Washington DC. He pointed to newly confirmed Attorney General Loretta Lynch as an indication of how tenuous federal marijuana policy is.
“She said she considered that to be in violation of federal law, and she would enforce the law, regardless of whether the state has approved legalized marijuana or not,” Awad said. “That’s a lot of suspense and a lot of uncertainty.”
He also cited recent actions by the Financial Crimes Enforcement Network in Las Vegas, where the agency levied enormous fines at Caesar’s Palace and The Venetian for money laundering violations. Caesar’s is looking at a fine of up to $20 million, and The Venetian was fined $40 million last year, Awad said.
That’s a big gamble for a small bank to take, Awad said.
“Once they come in and tell you there’s a violation, it’s too late,” Awad said. “The risk is so high, and you have to balance that.”
First Security has already had inspections twice this year by the FDIC, Awad added.
Still, the bank will continue to offer limited services to the cannabis industry, Awad said. It has already financed several loans to MMJ startups around the Las Vegas area, he said, and will likely continue to do so. The accounts that are currently opened will not be closed, he stressed, but no deposits from the sale of cannabis will be accepted.
Awad said he hopes that the situation will change in the future and that the bank will be able to more safely serve the cannabis industry. But that will probably take an act of Congress, he added.
“Pressure should be applied on Congress to change the classification from Schedule I to Schedule II. Simple as that. That would provide all the banks an opportunity to come in and service the industry in the open. That’s what needs to be done,” Awad said.
Awad regrets the decision, but said the bank ultimately couldn’t justify the time and manpower it had been spending on compliance for customers. The bank had nine full-time employees at one point dedicated to overseeing marijuana accounts, and that made working with MMJ businesses cost prohibitive.
“I hope they understand what we’re going through, because our decision was not made lightly. We’ve spent a lot of time and money on this,” Awad said. “We would love to continue to do their business, but it would be extremely difficult for us to minimize the risk, and figure out who is going to pay for it.”
Clients have been notified of the change in policy, Awad said.
John Schroyer can be reached at [email protected]