Banking on Marijuana

Government guidance on marijuana merchants hasn't seemed to allay the banking industry's fears, but a few financial institutions are looking at the lucrative market thinking it might be time to dive in.

Now that the US government essentially has given financial institutions the green light to begin serving state-licensed marijuana merchants, banks and credit unions across the country are chasing business from this burgeoning industry, right?

Not exactly.

Memos issued by the US Department of Justice and the US Treasury Department’s Financial Crimes Enforcement Network on February 14 state it may no longer be “appropriate” to prosecute financial institutions providing banking services to legal marijuana businesses — those that aren’t, say, selling pot to minors.

Two states — Washington and Colorado — have both legalized pot for recreational use. Many others have legalized marijuana for medical use.

Reality Check: Growing, distributing or selling marijuana remains illegal under US federal law.

This has many banks and credit unions feeling a bit leery. They don’t question whether they would or should take deposits from- and extend loans to businesses in the marijuana sector (e.g., dispensaries, nurseries). The question is, can they do it legally?

Todd Pietzsch, manager of public relations for BECU ($12B in assets) in Seattle, says that if someone in the pot business came into one of their branches today, the answer would be no.

“We don’t establish bank accounts for anybody who works with marijuana, because it’s still an illegal substance at the federal level,” Pietzsch explains.

BECU is particularly concerned about providing loans to marijuana merchants, despite the Obama administration’s guidance on the subject.

“If the feds cracked down on one of the businesses we made a loan to, they would seize all of the assets of that business,” thereby putting the institution’s collateral in jeopardy, Pietzsch says. “The risk to lend in that arena is just too great for us at the moment.”

Weighing the Risks of Green Gold

BECU isn’t turning its nose on the marijuana industry. On the contrary, Pietzsch says the credit union is receptive to serving such businesses, “but we have to balance the risk associated with doing that.”

“We’re still evaluating the guidance and seeing if the risks make sense for the credit union as a whole,” notes Pietzsch.

Sound Community Bank, also based in Seattle, is busy examining the guidance, too. According to president and CEO Laurie Stewart, the main problem at this point is that it’s “only guidance.”

“We don’t know if it will survive different administrations or different regulators,” Stewart points out.

Still, she acknowledges that “there clearly is a pressing demand for banking services” in the marijuana industry.

Stewart is also uncomfortable forcing legal marijuana businesses to use a gray-market or black-market banking system. “There is significant risk to our communities if these entities continue to operate on a cash basis,” Stewart says.

Stewart believes it’s simply a matter of time until the federal government legalizes marijuana in some form or fashion, thereby clearing the way for financial institutions to openly and equally serve marijuana merchants.

“In the interim we have these successful, legitimate medical dispensaries — community businesses — that can’t be banked,” she says with concern.

Dennis Paul, AVP of business and community development at Elevations Credit Union in Colorado, is in the same boat as Stewart.

“It’s vitally important that this industry has access to banking services,” he says. “It’s a recipe for disaster if these folks can’t conduct their business in an above-the-table, legitimate banking environment.”

Paul says the pot business is too big for financial institutions like Elevations to ignore.

“There is no question it’s an industry that’s here to say, and the dollar volume related to it is stunning.”

There are roughly 2,000 or so dispensaries spread among 20 different states — plus the District of Columbia — that have legalized medical or recreational marijuana use. Estimates put the value of their business at around $3 billion in 2014, and three to four times that by 2018.

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Marketing to Marijuana Merchants?

In all likelihood, financial institutions will begin providing financial services to marijuana merchants someday soon, but don’t expect any of them to trumpet that fact to the masses.

“We recognize that there’s still probably a fair number of folks who don’t want to see their bank as the ‘Marijuana Bank,’” Stewart says. “So I don’t think we would go out and brand ourselves in that way. That’s not a comment against the industry, though — we also wouldn’t want to be known as the ‘Liquor Store Bank,’ even though we bank lots of liquor stores.”

Sound Community Bank has qualms at all about serving the pot industry. “If we can just get over the risks, we definitely won’t discriminate against a business because that’s its business line.”

As for BECU, Pietzsch says more than half of the residents in Washington wanted to see this initiative passed,

“We want to support that as best we can,” he says.

Like Stewart at Sound Community Bank, Pietzsch doesn’t envision BECU “being a pioneer in this area,” although he can see other credit unions or banks — small to mid-sized ones, in particular — leading the charge.

“I think some of them might see a big opportunity here, especially if they think it could help them grow or be more competitive.”

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