By Tony C. Dreibus
Banking has long ranked as one of the biggest hurdles for cannabis companies, but the tide seemed to be turning as 2014 came to a close and the new year began.
MBank, a community financial institution based in Oregon, had opened accounts with dozens of cannabis companies and even expanded into Colorado – a bold experiment that many felt would usher in a new era for cannabis banking. Equally as important, a first-of-its-kind credit union designed to cater to marijuana businesses appeared ready to open for business.
Much of that progress seems to have unraveled in the blink of an eye, however. MBank is closing all of its cannabis business accounts, while the credit union has been slowed by regulators and has not yet opened. And just last month, a meeting between key industry advocates and Kansas City Fed Chief Esther George bore little fruit.
Although there’s still been some positive developments – more financial institutions in general are working with the industry, and the credit union still hopes to launch soon – the future of cannabis banking is as uncertain as it’s ever been.
Feeling that the momentum has stalled, some cannabis business owners interviewed by Marijuana Business Daily said they now have little hope that banking will get easier anytime soon. Executives are left wondering if they’re ever going to have a long-term account with a legitimate bank.
Many find themselves still dealing with large amounts of cash, while others have resorted to misleading banks to get accounts – a long-time practice in the industry that remains prevalent.
MBank’s move to exit the industry and terminate accounts for 75 cannabis companies could have a particularly brutal ripple effect.
The bank’s president and chief executive, Jef Baker, said compliance issues proved to be a huge headache that ate up too many resources. MBank’s plan to serve the cannabis industry in multiple states was regarded as breakthrough for cannabis banking, but the fact that it fell apart in less than six months might dissuade other financial institutions from trying something similar.
Even Baker admitted as much.
“My personal opinion is that it will have a negative effect on other banks’ appetites,” Baker told Marijuana Business Daily just before publicly announcing the bank would no longer do business with cannabis companies. “Anytime one of us exits a business it’s a red flag of sorts.”
The recent meeting involving cannabusiness owners, Colorado Reps. Ed Perlmutter and Jared Polis, and the Kansas City fed chief didn’t improve the situation either.
While industry representatives said the meeting was worthwhile, George was in no position to make any changes and “was very circumspect in her remarks,” Perlmutter told reporters.
Jenifer Waller, the senior vice president of the Colorado Bankers Association, said it wasn’t surprising little came of the meeting since the Fed “isn’t a lobbying organization.” She also said her organization doesn’t expect much to change until federal law shifts.
Many businesses report that they haven’t seen much of a change over the past year, even though more banks are working with the cannabis industry.
Brock Binder, the owner of the Oregon dispensary High Quality Compassion, said in the 12 months he’s been open, he’s already had three of his accounts shut thanks to underwriters who were unwilling to bank the fledgling business.
Two accounts at Wells Fargo were closed, as was one at Oregon State University Credit Union. He now has an account at another bank but is fearful he could lose it any day.
Still, Binder said, he doesn’t blame the banks for not doing business within the cannabis industry considering the risks they take and the costs of compliance.
“It will continue to be one of the biggest burdens we face unless the federal government reschedules marijuana, (or) it’s going to take state-level changes for these banks to even come close to feeling secure,” he said. “I’m totally understanding – I just shake their hand and go find the next bank.”
Indeed, those on the front lines of trying to change the situation say it’s a steep uphill battle.
Fourth Corner Credit Union, the Colorado cannabis-centric financial institution, received a state charter late last year, and in January it acquired a branch location to base its operations. At one point there was hope that it could open by January 2015.
The company, however, has yet to open as it waits for approval for a master account from the Kansas City Federal Reserve and deposit insurance from the National Credit Union Administration, CEO Deirdra O’Gorman said.
Whether Fourth Corner will actually receive those approvals is still up in the air. If it does, the development could be a game-changer for the industry and open the doors for more banking. If it doesn’t, another promising banking avenue will likely have closed.
“Either regulators don’t talk to you at all or they have lots of discussions,” O’Gorman said. “We’ve had a lot of discussions, so we take that as a positive sign.”
Some Reasons for Optimism
To be sure, finding banking is easier than it used to be in some areas.
In Washington State, for instance, O Bee Credit Union and Salal Credit Union both offer accounts to cannabis businesses, while First Security Bank serves the budding industry in Nevada and South Porte Bank is working with MJ businesses in Illinois.
In fact, in an indication that financial services firms are doing business with cannabis companies, banks have filed more than 1,700 “marijuana limited” suspicious activity reports since last year, the Wall Street Journal reported. A “marijuana limited” report is filed by a bank on a company that works in the cannabis industry but isn’t violating state law or any priority enforcement areas outlined in the 2013 Cole Memo.
Still, about 1,300 “marijuana termination” reports were filed with the Financial Crimes Enforcement Network (Fincen), meaning banks ended their relationship with companies, according the newspaper.
O’Gorman said she’s optimistic Fourth Corner will receive the master account and deposit insurance soon, and that other banks or credit unions will eventually follow suit, but only those that are willing to take on the challenges and associated risks of doing business with cannabis business owners are going to survive.
“Banks and credit unions that take it seriously are going to stand the test of time much like the industry has,” she said. “Institutions that make this an ancillary business or dabble in the industry aren’t going to stay around.”
David Dinenberg, the CEO of Kind Financial, which plans to offer merchant services to cannabis companies, said while he doesn’t downplay the difficulties faced by business owners with regards to banking, the Wall Street Journal report is evidence that it’s possible to find banking.
He said small state-chartered banks and credit unions are going to be the leaders as they don’t have to worry about interstate or international commerce like larger banks such as JPMorgan Chase or Wells Fargo. The smaller companies will eventually step up, they’ll just have to weigh the risks and rewards of doing business within the cannabis industry.
“It’s a terrible situation the industry is in, however, I do believe there are solutions,” Dinenberg said. “There are smart people trying to figure these things out and I do believe things are going to get better, but it’s going to take time.
Tony C. Dreibus can be reached at firstname.lastname@example.org