No matter how well a cannabis farmer or retailer goes by the book and follows every regulation, not everyone wants their legally-earned money.
“When you first start out and you have these big wads of $20 bills, it feels a bit illegal,” said Kevin Oliver, co-owner of Washington’s Finest Cannabis.
Federal regulations prevent traditional banks from offering services to anyone associated with the cannabis industry, even though sales and possession of marijuana products are legal in more than half the states. This requires businesses to either use cash to pay their bills, taxes, employee paychecks and other purchases, or seek the services of certain state-based credit unions.
In Washington, Numerica Credit Union was the first credit union in the country to express an interest in working with cannabis clients, as early as May 2014.
“I had heard stories about violent crime associated with [the excess cash of] medical marijuana, so we put a team together to figure out how to provide banking to cannabis businesses in a safe and sound manner,” said Lynn Ciani, Numerica’s executive vice president and general counsel. “Numerica is about building our communities, but also protecting our communities.”
Other credit unions and banks have since followed suit; as of September 2017, more than local 300 banks and nearly 100 credit unions nationwide are providing services to cannabis-related businesses, according to the U.S. Financial Crimes Enforcement Network. However this number is still 3.3 percent of the 11,867 financial institutions nationwide.
In Washington, there are now about 12 financial institutions which handle these types of accounts. Numerica and Salal Credit Union are considered the largest, according to the state’s Department of Financial Institutions.
So after five years of state legalization, why aren’t more banks and credit unions stepping up to share in the multi-million dollar industry? A big reason is uncertainty.
During the Obama administration, banking institutions received guidance from the Department of Justice that that they would not be prosecuted for accepting cannabis money if they made sure that the business was following all state laws. But official federal policy and regulations still prohibit institutions from handling cannabis money, with the threat of federal enforcement and asset seizure.
This has created conflict for banking businesses wanting to be part of the community but avoid federal trouble.
Carmella Houston, vice president of business services for Salal Credit Union in Seattle, said the road “has been challenging.” The institution began working with Washington cannabis clients in June 2014.
“We did a lot of research about the industry and applicable regulations. We had numerous in-depth conversations and presentations educating our board of directors and our regulators regarding the industry and we sought legal counsel,” she said.
In addition to following federal guidelines, banks and credit unions may create their own strict guidelines and fee structures for clients.
”We do on-going monthly, quarterly and annual monitoring of the accounts reviewing various items each time. We also use a learned behavior compliance software program,” said Houston.
Last year, Washington’s Liquor and Cannabis Board reported a majority of legal marijuana businesses had opened bank accounts and were able to pay taxes with a check or something besides cash. But there are still growers or retailers who either aren’t interested or can’t qualify for banking services.
Now with California’s recreational sales quickly racking up since recreational cannabis became legal in January, the number of these cash-only operations will likely continue to grow.
According to Beth Mills, spokesperson for the California Bankers Association, the biggest challenge the industry has seen a lack of clarity from the federal government about what banks can and can’t do.
“It’s a public safety issue when you’re going to have a multibillion dollar industry primarily operating in cash,” she said. “We feel very strongly this needs to be resolved one way or another.”
A survey in 2017 by the California Growers Association found 75 percent of its members don’t have a bank account, and the ones who do have had three or more accounts closed in the past due to concerns about legality of their business.
Other options besides traditional banking include PayQwick, a peer-to-peer network used by some retailers, and public banks, which are insured by states, not the federal government. But both concepts have been slow to catch on.
“We hear all these proposed solutions being offered up by state officials,” said Mills. “Really, the solution is at the federal level.”
Oliver, who is also the executive director for NORML’s Washington chapter and a national NORML board member, expects to see some sort of resolution or clarification coming from the federal government soon.
He said NORML has established a good relationship with U.S. Rep. Denny Heck, WA, who sits on the House Banking and Financial Services Committee.
“I would say that some of his support is even why we got financial guidance, at least advice that banks can [serve cannabis customers],” said Oliver. “Prior to that, he really had no knowledge of the marijuana industry at all.”
Oliver, a Numerica customer, said having access to financial services goes a long way.
“I think the idea of interstate and federal legalization is not so much a pipe dream anymore—it’s a matter of when, not if,” he said.