By Tony C. Dreibus
Serenity Wellness opened three accounts at First Security Bank of Nevada over the past 60 days, a key step in its plans to open production, processing and dispensary operations in Las Vegas.
Imagine its surprise when the bank abruptly reversed course and decided to stop taking deposits from cannabis companies going forward.
“We’re certainly concerned,” Ben Sillitoe – co-founder of Serenity Wellness, which has a total of four accounts with First Security, including one it opened last year – told Marijuana Business Daily. “We had been operating under the premise we had banking solutions. We’re still going to operate that way, but if there’s no solution we’ll be forced to operate like businesses in other states where there’s an abundance of cash floating around.”
First Security’s decision to pull back from the cannabis industry couldn’t have come at a worse time.
The first dispensaries in the state are planning to open in a matter of weeks, and more are expecting to begin operations this year. The move has left startup medical marijuana businesses that had – or were planning to open – accounts at First Security scrambling to find a financial institution that will accept their cash.
The bank, which started working with medical marijuana companies last year, blamed its retreat on the cost of compliance. Chairman of the board Jason Awad said he told his cannabis clients that they can keep money in the bank to pay consulting and other fees until they find alternate solutions.
“It’s really unfortunate,” he said. “The industry in Nevada is in flux and I’m rooting for it – I just hope the state and federal government address this issue because it’s sad these (business owners) have to keep cash. It’s dangerous.”
Sillitoe said he won’t be carrying around large amounts of money because he fears for his safety and that of his staff. Instead, he’ll hire armed security to escort employees who need to get money orders or other sorts of financial instruments to pay bills.
He said he’s hopeful that he’ll be able to find another bank in the wake of First Security’s announcement – though that could be difficult.
Nevada recently awarded 55 dispensary licenses and more than 300 permits to other types of cannabis businesses, including growers, testing laboratories and edibles producers. The willingness of First Security to service the budding cannabis industry in the state helped smooth the rollout of the state’s medical marijuana program.
Greta Carter – the founder of Life Gardens, which was awarded two producer, two processor and one retail license in Nevada – said First Security’s exit from the cannabis industry is certainly a blow to the state’s nascent medical cannabis industry.
“You bet it hurts,” said Carter, who didn’t disclose her company’s banking situation. “Since licenses are being issued, checks are being cut, money is being spent – banking is needed.”
This isn’t the first bit of bad news for cannabis businesses hoping to get banked. Last month, Oregon-based MBank said it would close all cannabis business accounts, also citing compliance costs.
In the meantime Fourth Corner Credit Union, a Colorado-based startup planning to focus on cannabusiness banking have had to delay opening. Executives said they’ve been waiting months for regulatory approval to open and serve marijuana companies.
Leslie Bocskor, a Nevada-based investment banker who doubles as the chairman of the Nevada Cannabis Industry Association, said it’s unfortunate that the banking situation seems to be in reverse rather than overdrive like other facets of the legal cannabis market.
“The industry needs to see progress, not regression,” Bocskor said. “In some ways it is better that this happened now, (as it) allows everyone to look into other strategies.”
Both First Security and MBank, which many in the cannabis space thought would be long-term solutions to what has become an ongoing battle for business owners, should have done more research before making inroads into the industry, Bocskor said.
“If a bank is going to be so public about this, it would be advisable that they prepare ahead of time to deal with this in a long term fashion,” he said. “This reflects badly on the banking industry. A change of direction like that after so public an announcement must be very difficult for them.”
Business owners in Nevada now have to find banks to take them. That could be a huge challenge: Bocskor and Carter said they’re not aware of any that will do business with cannabis companies.
Still, it appears some banks are working with the industry, though not seeking publicity for it.
Joe Lamarca, the owner of dispensary Euphoria Wellness in Las Vegas, told the Las Vegas Review-Journal that he opened an account at Kirkwood Bank of Nevada. Officials at Kirkwood didn’t return calls seeking comment.
Those who have personal relationships with their bankers may be able to open accounts in which they can deposit money, but others will be stuck – as many marijuana companies are – lugging bags of cash around to pay their bills.
Lawmakers need to act soon, Carter said, to avoid any risk that more people are hurt as they carry cash to pay utility, vendor and tax bills. “This has to be corrected,” she said. “We are begging for harm to be brought to people who will be forced to conduct business in an all-cash way.”
“The timing is horrible, but we’ll make do,” Sillitoe said. “We’re in this industry because it’s worth it and were passionate about it. It’s been extremely challenging to get to where we are, and this is just another challenge to add to the list.”
Tony C. Dreibus can be reached at firstname.lastname@example.org