A major crisis is brewing in the Colorado medical marijuana industry, and some observers say it could eventually sink the entire industry.
CSSB Private Bank in Colorado Springs – one of the only financial institutions in the region that actively targeted dispensaries for new accounts – has decided to cut ties with the medical marijuana industry, according to letters it recently sent clients. The bank plans to officially terminate dispensary accounts at the end of September.
This is a significant blow to dispensaries both in Colorado and other states. Many MMCs had turned to CSSB in recent months as other banks started backing away from the industry, fearful of legal action given medical marijuana’s status as a “Schedule 1” drug. Dispensaries have had their accounts closed literally overnight, forcing them to scramble to find other options to handle their business banking accounts.
CSSB seemed to be the only real viable solution, even though it charged what many sources have told me are exorbitant rates. The bank had a heavy presence at industry events, making countless promises that it was committed to the industry and would expand into new states. But the bank’s board of directors apparently decided to back away “after determining that the single branch could not expand regionally and still provide quality services,” according to the Marijuana Business Report.
I’m willing to wager a lot of money that there’s much more to this behind the scenes. In 12 years of business reporting, I’ve yet to hear a company back out of a strong market – especially one where it has a virtual monopoly – for this reason. I’m guessing the board got spooked by the same factors that have scared every other bank (the possibility of prosecution or other repercussions).
Regardless, dispensary owners are up a creek. Robert Frichtel of industry consultancy Medical Marijuana Business Exchange said he’s had about 25 calls from owners who are “panicking.” He’s now on the hunt for other banks that will set up accounts for dispensaries, but so far he’s more or less come away empty-handed. Frichtel said he works with one bank that is accepting a limited number of new MMJ clients based in certain mountain towns. But he doesn’t want to reveal the name, fearing that the small institution might become inundated with calls.
The solution for many dispensaries has been to target banks where they have existing connections (such as a long-time personal account). A handful of these institutions are willing to work with MMCs but don’t want to advertise it and would rather work with someone they know. The other option is simply move to an all-cash business and settle for increased risk.
If you’ve heard of any banks that are opening accounts for dispensaries, please drop me a line.