The Clash Between Banks and Marijuana Businesses

Written by: Jamie Lee

Imagine if McDonald’s couldn’t use the federal banking systems. No doubt, they would have billions of dollars of cash stashed in a vault somewhere and a security system that rivaled most militaries. If forced to work in cash, it is doubtful they ever would have grown to the immense international presence they are today.

Although this is not the reality of the fast food mogul, it is for other companies. In fact, many businesses affiliated with the federally illegal, multi-billion dollar marijuana industry cannot use traditional banking systems in the U.S. If banks are not offering their services, there is no way to wire money, write checks, or pay taxes online. All business transactions occur in cash, and there is often a lot of it. This can make dispensaries and other marijuana-affiliated companies easy targets for robbers, which requires extra security measures.

With few options to protect their businesses, some cannabis growers and dispensaries have turned to people known as “ganjapreneurs.” Often ex-military, these individuals may carry guns to protect themselves and their loot – sort of an unofficial armored vehicle for businesses, but without the armor. They also run money from the companies to any service that needs payment, such as tax services or electric utilities.

These issues do not just cover dispensaries and growing facilities, however. Banks are extremely hesitant to work with any company associated with cannabis. This includes marijuana testing facilities and even phone app developers, which can make raising seed money to start these businesses extremely challenging and entrepreneurship unlikely for most. Budding companies may attempt to work around this issue by pitching their ideas to private investors at large conferences. If they’re lucky, a wise and progressive investor will take on the risk of providing private funds.

Banks and Cannabis Companies – A Rocky Relationship

Prior to 2014, it was illegal for banks to lend a hand to companies dealing in marijuana, at any level. This law impacted medical marijuana dispensaries as much as it did dispensaries in states that had legalized recreational marijuana. Then, in 2014, the Obama administration allowed banks to take on marijuana companies as customers. The Treasury and Justice Department passed rules to relax the laws on marijuana banking to encourage cooperation between the businesses. However, these were only guidelines and were not binding laws. Without a guarantee from the federal system, many banks did not budge on their willingness to take on marijuana-affiliated customers.

Banking institutions that do decide to work with marijuana clients are required to take extra measures to ensure the money they are taking in is coming from a company that adheres to state law. This often requires far more paperwork and transparency with the government. These extra requirements, combined with the lack of a binding law that excuses banks from marijuana-linked investigations, has made nearly all banks hesitant to work with marijuana businesses. If the federal government so chooses, they can charge these banks with money laundering, which only further compounds the issue.

A Brave Few Take on the Cannabis Industry

According to a report released by the US Treasury department in 2015, only 220 of the 7,600 banks in the nation currently accept funds from marijuana companies. Because of the extra work needed to provide to their clients, it is clear they are providing these services to help those in need, not to gain profits.

Washington is the most progressive state in terms of marijuana banking. Although the national banks are still not on board, even in the liberal state, small credit unions have taken a leap of faith. Salal, a small credit union based in Seattle, has assisted more than 200 marijuana clients since 2014. They have reported working with these clients, largely in the name of public safety, and in the security of their customers.

In Massachusetts, Century Bank and Trust has agreed to work with dispensaries once recreational marijuana is enacted sometime in 2018. Although they have decided not to give out loans, they will be accepting deposits from marijuana-affiliated businesses.

Of course, most banks will not admit that they provide services to cannabis-related businesses, and their clients are equally quiet about who they receive banking assistance. Despite the silence, a fair number of companies do receive services from banks. These few banks, who have been brave enough to take a chance on the marijuana industry, have given hope to businesses. However, the companies that still deal exclusively in cash is far greater than those who have banks to assist them.

Tribal Lands Working to Secure a Banking System

Native Americans who are interested in legalizing marijuana in American Indian nations have proposed an American Indian banking system. CannaNative is a company that is working on convincing nations to create banks to assist marijuana businesses. They use casinos as an argument, pointing to the success of the businesses and the wealth is has brought many nations. Outside entities originally developed many of the casinos that are run on Native American lands. Once the local nation learned how to run the business themselves, they took them over, which is what CannaNative is hoping to achieve with the marijuana industry.

Even if CannaNative succeeds, they can only do so much to help the industry. Another idea is to create a marijuana-only type of banking system. Unfortunately, this is improbable, given that the federal government must approve all banking licenses and insurance. Even the credit unions that have already stepped up are limited in the ways they can help. They can only do so much, and they are not easily able to provide widespread assistance.

No Immediate Answer in Sight

A functional, legal banking system that is willing to take on marijuana clients will, no doubt, provide safety to those in the business and immense profits for banks. As it stands now, however, federal banks are unwilling to work with clients that could put them in jeopardy of being accused of money laundering.

Although solutions have been suggested, the only real and guaranteed way to ensure the safety of banks and marijuana companies is to remove marijuana as a Schedule I substance, or to pass a law that guarantees immunity to banks. Given that some very anti-marijuana individuals currently head our country’s administration, this change is unlikely to occur anytime soon. For now, wary banks and duffel bags full of cash remains the norm, but there is hope that the situation will improve over time.

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