Before recreational marijuana became legal in some parts of the U.S., starting in 2012, you needed cash to buy weed. These days, even many legal weed businesses are still cash-only because banks refuse to deal with them — forcing some dispensaries to transport their money in armored cars and pay their taxes with stacks of $20 bills.
Last month, a Florida politician said Wells Fargo went as far as to close her account simply because she accepted money from lobbyists for the medical-marijuana industry. But federal data suggests there’s been a slight increase in the number of banks dealing with pot businesses.
The Financial Crimes Enforcement Network (FinCEN) reports that, as of March, 411 banks and credit unions work with pot businesses — up from 318 in October 2016. Patrons of big marijuana dispensaries like San Jose, California’s Airfield Supply Co., Colorado-based LivWell, or Culver City, California-based MedMen might be pleasantly surprised to find they can finally, at long last, pay for their weed with a debit card.
Weed businesses that take debit cards have presumably found banks to work with them. But, asked to identify which banks work with cannabis companies, Harvey Englander, a spokesperson for the United Cannabis Business Association wrote, via email: “Your question provides me with a conundrum because if I identify some banks they may close the accounts. So I must decline to respond.”
That might be because it’s still technically illegal to provide banking services to weed companies and, potentially, because marijuana is still stigmatized. One thing is clear: Even as more states legalize marijuana, a tiny fraction of banks are willing to work with cannabis companies. The financial institutions that do serve cannabis companies tend to be smaller banks and credit unions — and most do not advertise their services to the world.
‘It is 100% legal under federal law to bank the cannabis industry’
It was less than six years ago that Washington and Colorado became the first states to legalize marijuana for recreational use. While a total of nine states and Washington, D.C., have legalized recreational pot, and 30 states have legalized it for medical purposes, weed companies still operate in a legal grey area because pot is illegal under federal law. The DEA classifies cannabis as a Schedule 1 drug, meaning it has “currently no accepted medical use.” That puts it in the same category as heroin.
Under the Obama administration, then-Deputy Attorney General James Cole issued a memo, known as the Cole Memorandum, that clarified the Justice Department’s stance on pot. The memo, from August 29, 2013, asserted that, for the most part, the Justice Department would not enforce the marijuana ban in states that had legalized it. (Cole laid out a number marijuana enforcement priorities, including preventing drugged driving.)
Following suit, in February 2014, FinCEN, which is part of the Treasury Department, issued its own guidance on how banks could provide services to the cannabis industry without violating an anti-money laundering law, the Bank Secrecy Act. One apparent goal of that memo — to ensure that cannabis companies could find banks.
The guidance noted: “This FinCEN guidance should enhance the availability of financial services for, and the financial transparency of, marijuana-related businesses.”
When the FinCEN guidance was issued, banks could theoretically avoid the threat of federal prosecution as long as they complied with its guidelines — including filing Suspicious Activity Reports, or SARs, for transactions related to all marijuana companies. (The recent FinCEN report showing an uptick in banks that work with cannabis companies arrived at its numbers by examining SARs.)
But the Donald Trump administration has threatened the legitimacy of that FinCEN guidance, which itself referenced the Cole memo multiple times. In January, Attorney General Jeff Sessions rescinded the Cole memo, calling marijuana “a dangerous drug” and asserting that “marijuana activity is a serious crime.” While Treasury Secretary Steve Mnuchin told Congress in February that he wanted the cannabis industry to have access to banks, that might provide little assurance to notoriously risk-averse financial institutions.
“At the end of the day it is 100% illegal under federal law to bank the cannabis industry because of the Bank Secrecy Act,” said business lawyer Hilary Bricken, who writes a column on cannabis policy and regulation for Above the Law. She added, “None of the big banks … openly do business with cannabis companies … These are massively conservative institutions and are probably more regulated than any other institution in the U.S.”
‘We’re prohibited to say who we bank with’
Still, Bricken’s firm, Harris Bricken, does represent a half-dozen banks and credit unions serving cannabis companies in compliance with the 2014 FinCEN guidelines. These banks and credit unions might not advertise themselves as pot-friendly financial institutions, though.
Indeed, LivWell’s executive director and chief legal strategist, Dean Heizer, said he was “not at liberty to” say which bank or credit union his company works with. In fact, he said, that financial institution required him to sign a non-disclosure agreement.
“As a condition of banking with the institution, we’re prohibited to say who we bank with,” said Heizer, who said his company was “kicked out” of three banks before it finally found one. Other banks that work with cannabis companies also require NDAs, according to Bricken. “Many banks want to keep a low profile if they are participating, so NDAs make sense,” she wrote an email message, while also noting that not every bank that works with cannabis companies requires an NDA.
A representative for another major pot company, MedMen, said he wasn’t sure whether his company had signed a non-disclosure agreement. However, that representative, Daniel Yi, declined to name the financial institutions that work with MedMen. In the past, he’s asked the financial institutions that serve MedMen whether they’d like to speak to reporters covering the cannabis industry.
“I haven’t had one of them say yes,” said Yi, MedMen’s senior vice president of corporate communications and investor relations. He added, referring to credit unions and banks that work with cannabis companies, “Right now they are not wanting to advertise to the world that they’re banking cannabis … I think it’s more the stigma than anything else. If the federal government really wanted to crack down on this, you’re not safe simply because you did not publicize the fact that you’re banking [with the weed industry.]”
The challenge of finding a bank — and serving the weed industry
With relatively few banks dealing with cannabis at all, and those that do declining to advertise their services, it’s not exactly easy for a marijuana company to find a bank.
LivWell has 15 locations in Colorado and Oregon and hundreds of employees, and Heizer said the banks that didn’t want to work with the company didn’t think it was doing anything untoward. Rather, he said, “They got cold feet.” Heizer noted: “Whether or not Justice has the motivation or resources to go after banks, the fact that it remains illegal and Justice hasn’t reaffirmed the FinCEN memo. Practically speaking, it’s only the most robust marijuana companies that are able to get banking.”
Acreage Holdings — a cannabis company that will soon operate in 15 states — has found banking services because it has the resources to account for every dollar of its business, according to the company’s CEO, Kevin Murphy. But smaller firms have a tougher time finding banks. He noted that one of his friends in the cannabis industry recently took a picture of over $1 million he had to pay the IRS in $20 bills because his business didn’t have a bank.
“This business is quickly becoming a business of haves and have nots,” he said, referring to cannabis companies that can and cannot get banking services.
One credit union that openly banks marijuana companies, Seattle-based Salal Credit Union, opens roughly one marijuana-related account for every 10 applications it receives, according to Carmelia Houston, its vice president of business services. That’s partly because the credit union has high standards for its business clients and also because, Houston acknowledged, they don’t want to pay the extra fees that credit unions like Salal charge cannabis companies.
Cannabis companies get charged extra fees for a few different reasons, including the fact that banking weed businesses demands a lot of paperwork. To comply with the 2014 FinCEN guidelines, Houston said that Salal has to file a Suspicious Activity Report (SAR) every time it starts working with a cannabis company and again every 120 days after that.
Moreover, banks like Salal have to assume the added risk that comes with banking cannabis money. For example, banks might attract the attention of federal authorities if they work with a cannabis company that’s sending its wares to a state that hasn’t legalized pot. Christopher Barry, of counsel at Dorsey & Whitney, noted that the following scenario might be problematic:
“Let’s say you’re a bank, and you’re banking a cannabis producer, and it turns out that the cannabis producer is putting a portion of its cannabis on a pickup truck and taking it to Idaho to sell on the black market.”
To assume that risk, and to file mountains of paperwork with FinCEN, banks and credit unions get to charge a “massive premium” to marijuana businesses, according to Bricken. That premium can amount to a fee that’s three to four times higher than what non-marijuana businesses would pay, Bricken said. For credit unions like Salal, though, serving marijuana businesses could have benefits other than the extra fees they can charge.
“We … know that it’s an underserved market, and credit unions are known for serving underserved markets,” Salal’s Houston said. Moreover, she said, “We wanted to help get the cash off the streets to improve public safety.”
In the future, other financial institutions might be able to generate good will from the public by serving the cannabis industry as more states legalize pot and consequently decrease its stigma. Sen. Elizabeth Warren, a Democrat from Massachusetts, is currently working with Colorado Republican Sen. Cory Gardner to pass a bill that would let states regulate marijuana without interference with federal law-enforcement.
For now, though, many banks will continue not to touch weed money. That means that a lot of weed smokers, for the foreseeable future, will have to hit the ATM before they buy pot from legal dispensaries — just like they did when they met their drug dealers on the street corner.
Correction: An earlier version of this article said LivWell had 6 locations. In fact, it has 15.
Erin Fuchs is deputy managing editor at Yahoo Finance.