As the list of states legalizing the use of marijuana grows, so are the number of financial institutions willing to provide banking services to businesses associated with the emerging industry.
Banking options for cannabis dispensaries and the industry's ancillary businesses have long been limited because of the product's federal designation as a Schedule 1 drug which, according to the Drug Enforcement Administration (DEA), is defined as "drugs with no currently accepted medical use and a high potential for abuse." This designation has created hurdles for pot-related businesses looking to open accounts with the risk-averse banking industry.
But banks and credit unions are slowly stepping into the space, with the help of businesses that specialize in compliance and risk.
"Banks are looking for opportunities to find new sources of low-cost deposits," Tony Repanich, chief operating officer of Shield Compliance, a Seattle-based pot compliance business, told Banking Dive. "Small to medium-size business checking accounts are some of the best sources of low-cost deposits because they are not interest bearing, and the average balance on those accounts can be significant."
Repanich, who spent 25 years in commercial and retail banking, said another key advantage for financial institutions serving high-risk portfolios, such as marijuana-related businesses (MRBs), is the lack of competition in the marketplace to secure those business checking accounts.
"Furthermore, MRB customers have limited access to investment opportunities for any excess cash, so their checking account balances tend to be higher than traditional business checking accounts," he added.
As of March, 493 banks and 140 credit unions in the U.S. provide services to MRBs, according to the Financial Crimes Enforcement Network's (FinCEN) latest Marijuana Banking Update. FinCEN declined to provide Banking Dive with the names of the financial institutions on the list.
The FinCEN report shows 633 institutions are servicing the industry, an increase of 54% from the 411 recorded in the same period last year.
Most of the financial institutions entering the space have less than $2 billion in assets, Repanich said.
"They tend to be very close to the market they're serving," he added.
For some of these banks, the marijuana market is a way to expand a foothold in a competitive space, said Jacques Santucci, founder and CEO of Strimo, a software platform for MRBs.
"The banks that I see that are doing it are banks that are trying to grow," he told Banking Dive. "They are fighting for the same dollar, the same commercial real estate building, car loans or for the same deposit. … The way it's going, it's going to be a regulated industry, potentially very mature and potentially a commodity. The sooner you're in and the more loyalty you have, that will help grow your bank."
Dope CFO co-founder Naomi Granger told Banking Dive she encourages her MRB clients to seek out credit unions.
“If it's legal in that state, a lot of times the state-chartered credit unions will take them because they're not governed by the Federal Reserve,” she told Banking Dive.
Granger, a CPA who trains other accountants on how to work in the marijuana niche, said the banking application process for MRBs can be daunting, with approval periods taking as long as 45 days.
Banks often charge hefty fees for the large cash deposits MRBs need to make, in addition to the extra IRS paperwork required for cash deposits of more than $10,000, Granger said.
"I don't think it's getting easier,” Granger said. “But there are more banks that are jumping on board. I've even heard of some clients who have been able to go with some of the bigger federal banks under the radar, but that's not the norm."
Growing support for legislation such as the Secure and Fair Enforcement (SAFE) Banking Act is helping banks feel more comfortable in the space, Repanich said.
Meanwhile, the list of states that have legalized the drug has grown to 33, and Washington D.C. lost one of marijuana reform's most vocal opponents last year when Attorney General Jeff Sessions resigned.
Repanich said Sessions' departure was a sign to bankers that the marijuana industry is "only going to move forward from this point."
Santucci said he wouldn't be surprised to see one of the industry's larger banks enter the space in the near future.
"Bigger banks are going to say, 'We can open a special department just for this, let's look into it.' CPA firms are already doing it, lawyers are already doing it and insurance," he said. "Real estate projects in the cannabis industry are around $20 million. Some companies are growing. They have 100,000 square feet of growth site. And they're going to have 100 retail stores. Somebody's going to want to finance that."
Maps Credit Union
Salem, Oregon-based Maps Credit Union has been actively banking the marijuana industry since 2014. The credit union services around 500 marijuana business accounts, including retail dispensaries, producers, processors, wholesalers and laboratories. Maps said cash deposits from those accounts totaled more than $298 million last year.
To manage the risks and regulatory burden, the credit union said it works closely with state regulatory agencies such as the Oregon Liquor Control Commission (OLCC) to ensure its MRB account holders comply with state licensure requirements.
Maps says it also has a full-time staff of compliance experts, which include a chief risk officer, an enhanced monitoring account operations manager and a Bank Secrecy Act compliance manager, all of whom are dedicated to the credit union's MRB accounts.