Perhaps the biggest logistical obstacle facing many cannabis businesses today is the reluctance of most financial institutions to serve the industry. Because of marijuana’s status as a Schedule 1 controlled substance, banks and credit unions remain vulnerable, at least theoretically, to criminal charges from the Department of Justice if they cooperate with plant-touching companies.
Members of Congress have introduced bills for years to try to solve the banking problem, which they view as a public safety hazard because many state-legal marijuana businesses are forced to do business in cash. But those attempts have failed, and the lack of banking services remains a top problem for the cannabis industry.
In response, a small but significant subsector of companies has emerged that focuses on connecting marijuana-related businesses with bank accounts and related services, such as the ability to accept electronic payments.
While the number of companies trying to solve the banking issue is sizable – the industry directory at MJBizDaily.com lists dozens of “banking and payment processing” companies – many are not reputable or simply don’t work.
“Effectively, there are only two ways to solve this problem. You can solve it overtly, or you can solve it covertly,” said Mark Goldfogel, executive vice president of Fourth Corner Credit Union in Colorado, which is mired in litigation with the Federal Reserve over its desire to serve the marijuana industry. (In 2015, the Federal Reserve Bank of Kansas City denied the credit union a master account needed to access the nation’s banking system.)
“Overtly,” according to Goldfogel, means cannabis business executives being up-front and honest about their business operations when attempting to land banking services. “Covertly,” by contrast, means disguising the actual business dealings — for example, a cannabis cultivator tells a bank that it’s in agriculture but doesn’t specify the plants that are grown and sold.
While there are many snake oil salesmen who promise the sky when it comes to cannabis banking, at least a handful of reputable companies are making inroads with financial institutions.
Over 300 banks in the U.S. are working with cannabis-related companies, according to federal data released last spring. However, many of those banks only provide temporary or limited services to cannabis companies that are in the process of obtaining state or local business licenses.
“In Pennsylvania and California, we’ve got a few new banks that we’re working with, but they’re only open to establishing capital accounts,” said Lance Ott, CEO of Washington state-based Guardian Data Systems, which helps cannabis businesses obtain financial services. “So it’s a holding company, while they get ready to apply (for business permits). But I can’t guarantee that those accounts will remain open once these folks become an active cannabis business.”
Steve Schain, a Pennsylvania attorney with the Hoban Law Group, said that by his count only 38 banks nationwide are working hand-in-hand with marijuana-related companies. There could be more than that, he said, but probably not a lot.
That means there’s a huge demand for anyone with a solid business plan on how to deal with the banking conundrum, and plenty of companies are actively working on just that.