Toting duffel bags stuffed with thousands in cash? Counting money Scarface-like in the back room? Shutting down politician’s accounts for supporting the industry? This is no way to run an industry.
Us: “Irrational.” “Ludicrous.” “Foolhardy.”
Them: “Not our mandate.” “Our hands are tied.” “It’s not our job.”
With all the business momentum in the cannabis industry, and more investors ready to jump in, the one sticking point that everybody talks about is the banking issue. We want it… bankers just can’t make it work… and round and round we go.
Around 70 percent of "plant-touching" and 49 percent of ancillary service providers in the cannabis industry do not have bank accounts.
In fact, less than .03 percent of 11,954 banks and credit unions in the country allow marijuana business – even in legal states.
Why are so few banks capable of profitably banking cannabis? Because they have
to charge hundreds or sometimes thousands of dollars in monthly compliance costs. What for, you ask? Massive diligence and documentation related to the Bank Secrecy Act (BSA) – a law that banks follow to help detect money
laundering activities, especially as related to narcotics - and Financial Crimes Enforcement Network (FinCEN) - a guidance document issued in 2014 that outlines the process for marijuana-related businesses to open bank accounts consistent with their BSA obligations.
So, a multi-billion dollar American industry sits on the banking sidelines, at time when the banking industry is trying to fix itself and lighten up on regulations after seeing 9,000 branches closed over the last decade, according to the Wall Street Journal.
The (Many) Downsides of Cash
If a cannabis business does have an account, it’s usually with a credit union with an account name that doesn’t include “cannabis” or “marijuana”. Far more likely, however, it can’t use a bank, and instead spends tens of thousands in security systems, onsite vaults, and armed security teams who go through grand choreographies of hustles and feints shuttling duffle bags of cash. (Cash that’s already taken dozens of man-hours to simply count and bind hundreds of $10 and $20 dollar bills while managers keep a close eye on things like the new employee with the quick fingers.)
Cannabis businesses have to pay their bills in cash, pay their taxes in cash… even the IRS has had to set up cash counters where there were none before, causing additional costs and security risks.
And let’s not forget the individual buyers, who reluctantly carry their cash to the business because using credit cards is not an option… another facet of a potential community safety nightmare that the federal government refuses to address.
The Definition of Insanity Is…
“It’s a completely irrational system,” Pennsylvania Senator Daylin Leach told The American Cannabis Report. It was Leach who led the political effort for getting medical marijuana legalized in the state in 2016. A letter to Congress on August 24 from the Secretary of the Pennsylvania Department of Banking and Securities, Robin Wiessmann, which included signatures of banking supervisors of 13 states, pleaded with Congress to “resolve the conflict between state cannabis programs and federal statutes”, and that this request was “consistent with those made by governors, state attorney generals, and treasurers” and others.
“It’s time to have a banking system that makes sense, that allows people to do business in an appropriate way,” Leach says. “I hope that the Federal government realizes how foolhardy it is to force people into situations that are not safe and not conducive to be able to conduct business in an efficient way.”
Help from Washington, Perhaps?
It appears that the banking system is circling the issue, throwing out hints starting in 2015 that something might be worked out.
For example, the FDIC Director of Risk Management, Doreen Eberley
issued a statement on January 28, 2015, saying that the FDIC encourages institutions to take a risk-based approach in assessing individual customer relationships “rather than declining to provide banking services to entire categories of customers, without regard to the risks presented by an individual customer or the financial institution’s ability to manage the risk. “The FDIC is aware that some institutions may be hesitant to provide certain types of banking services due to concerns that they will be unable to comply with the associated requirements of the Bank Secrecy Act (BSA).”
Is she talking about the cannabis industry? That was the prevailing thinking then.
Then this year, things heated up. ACR Readers certainly recall the The Cole memo– a guidance document authored by Deputy Attorney General, James Cole, for both medical and adult-use marijuana-related businesses stating that Feds could not go after any legal cannabis business – was rescinded January 4, sparking a moment of fear that slowly passed.
All such guidance hangs on a thread. The Cole memo, and the FinCEN guidance, which is tied and reliant upon the Cole memo, don’t have the weight of law and are simply guidance for the Feds to leave the industry alone. Clearly more needs to be done.
But this year, something – Capitol Hill hallway discussions, economic development enlightenment, big business awakening, or maybe retired Speaker Boehner’s partnership with a cannabis company - seems to have shaken loose a new rollercoaster of no-ways and maybes.
Check Out What Happened Just This June:
On the legislative front, on June 7 the Strengthening the Tenth Amendment Through Entrusting States Act (or STATES Act), was introduced by Senator Elizabeth Warren with seven co-sponsors including four Republicans, which many in the industry see as actually having the desired impact to de-schedule cannabis and end the banking issue. On June 12 Senior Democrat Senator from California Dianne Feinstein signed on to this bill as a co-sponsor - Feinstein had been a very vocal opponent to Prop 64, and has changed her mind on the subject. Currently, it is stalled in the Committee on the Judiciary.
The STATES Act was created to amend the Controlled Substance Act, where
cannabis is labeled a Schedule 1 substance (on par with heroin), and stated, among other things, that the proceeds from any marijuana-related transaction “in compliance with this Act and the amendments made by this Act shall not be deemed to be the proceeds of an unlawful transaction.”
Just a week later on June 13, responding to a reporter at a press conference, the new chairman of the Federal Reserve, Jerome Powell and a Trump nominee, hemmed and hawed that banking for marijuana-related businesses “is a very difficult area because we have state law—many state laws permit the use of marijuana and federal law still doesn’t,” he said.
“So it puts, you know, federally chartered banks in a very difficult situation. I think it would be great if that could be clarified. We don’t have—you know, it puts the supervisor in a very, very difficult position. And, of course, this isn’t our—our mandate has nothing to do with marijuana, so we don’t really—we just would love to see it clarified, I think.”
Powell began his work at the Fed reserve in February. He was assistant secretary of the Treasury under President George H.W. Bush, with responsibility for policy on financial institutions. He previously worked as a lawyer and investment banker in New York City. Could he bring some sanity to this issue?
The next day, while working through the Secure and Fair Enforcement (SAFE) Banking Act, the House Appropriations Committee stripped some of the language from an amendment to the BSA that allowed for a safe harbor in which the cannabis industry could operate, which stated that a depository institution could not, under federal law, be liable or subject to forfeiture for providing a loan or other financial services to a legitimate marijuana-related business. (The Senate followed suit on June 21, blocking that now slightly-revised amendment from being included in the 2019 government funding bill.)
Less than a week later on June 19, the new chairman of the FDIC, Jelena McWilliams, another Trump nominee, said in her first official speech as chairman that she was looking at how to balance regulating banks that do business with marijuana companies in states that have legalized cannabis as opposed to states where it’s illegal. “Unfortunately our hands are somewhat tied and I have asked the staff to take us to the next level and think about what we can do here,” she said, as reported in the American Banker. “It is not our job as an agency to set our federal policy on marijuana banking, but it is our job to help our regulated entities learn how to comply in a way that makes sense.”
“FDIC Chairman McWilliams could have avoided the topic entirely, so I guess that is progress,” Leach told ACR. “It does mean she is aware of the issue and maybe we’ll see some action. But whether you are for or against it being legalized, the fact that there is $250,000 in a duffle bag in a dispensary is not good for anybody.”
Meanwhile, back in the real world…
With all of these ifs, ands and buts, all these unresolved issues, the industry still has to try to run their businesses. It’s been tricky.
One business administrative services company in Denver, Colorado serving both the cannabis and hemp industry spent six months applying to 120 banks before finding one bank they could use.
But probably the most alarming news on cannabis banking is what happened recently to Nikki Fried (shown below), a lobbyist for the medical marijuana industry now running for agriculture commissioner in Florida, when Wells Fargo closed her campaign’s account on August 3 because of its responsibility to “oversee and manage banking risks.”
The bank said they uncovered information about her political platform advocating for medical marijuana, and the funds she would be getting from medical marijuana lobbyists.
Days later, her campaign team moved their money over to BB&T, which also closed her account for the same reason, writing that they “would not be able to continue serving you.”
(Photo: Candidate Nikki Fried)
“It’s ludicrous that at this point in industry development we are still being treated like second class citizens. It’s outrageous,” she told ACR. “It has to be politically motivated. I am not touching the plant, and I am not involved in the industry. Yet they have had other politicians across the country for the last five years getting campaign contributions from cannabis related firms.” (On August 22, Wells Fargo responded in a statement, saying that the closing of Fried’s account was not because of her political viewpoint about medical marijuana. “That assertion is completely false. The company has no political positon on this matter.”)
“I have been vocal on this issue for years,” Fried says. “When somebody like me comes on and has a pulpit to stand on, I would be a force to be reckoned with if elected.”
Fried has moved her money to another Florida bank, but has backups ready in case that bank closes her down. “We gotta get on the same page as an industry on this issue. We are all over the place,” she told ACR.
Senator Leach agreed that the industry should be much more “potent politically” and expressed outrage as well about Fried’s banking troubles. “All she is doing is advocating for increased access and for legalization,” he told ACR. “All she is doing is taking a political positon. She should not be punished for that. It’s none of their business what her advocacy is. She is not doing anything illegal. This is outrageous on so many levels. But the goal of (the Wells Fargo move) is to silence people, and that is never healthy in a democracy.”
Us vs. them? It’s not what we would choose to do. In the end, it’s only round and round. And round.
Award-Winning Journalist David Hodes is the Washington Correspondent of The American Cannabis Report. Keep an eye on this news source for breaking news from our nation's capital as it wrestles with ending Prohibition