Legal cannabis industry still struggles to find banks

The legal marijuana industry’s struggle to find banks willing to offer loans and account services was widely reported when states legalized the drug for recreational and medicinal purposes in recent years.

Marijuana’s opaque legal status — it remains prohibited under federal law — means most financial institutions won’t touch it.

But those troubles also extend to hemp, which also comes from the cannabis plant and found itself in similarly murky legal terrain until the 2018 Farm Bill fully legalized the crop. Ohio lifted its hemp prohibition in 2019.

Even so, hemp farmers and processors say they have to call dozens of banks before they find one willing to loan money or let them open an account. The few financial institutions willing to serve hemp growers and entrepreneurs generally charge higher fees.

“I called probably 20 different companies and got denied 19 different times before I found someone, and it’s probably 10 times the cost of what it would be if we weren’t dealing with hemp,” said Erik Bogard, president of the Columbus, Ohio hemp processing company Columbus Naturals.

Bogard said the company’s overhead costs are relatively low, so he can pay high banking fees without passing exorbitant costs to his customers, but it’s still a headache.

Members of the hemp industry like Bogard attribute the problem to lingering fear of anything associated with marijuana.

“It’s still a new industry, and there’s still that stigma with cannabis,” he said.

Banks, however, consider the hemp industry fraught with risk.

The line between hemp and marijuana is exceedingly thin. Under the 2018 Farm Bill, any cannabis crop exceeding 0.3% THC — marijuana’s intoxicating compound — is legally considered marijuana.

Most states with hemp programs, including Ohio, adopted the 0.3% threshold when they legalized the crop.

Growers and scientists who study hemp largely consider the limit arbitrary and constricting, but state officials said they had to adopt the standard laid out under federal law.

The low threshold makes banks nervous.

“From a lending perspective, this slim margin of error presents risk that may make some banks hesitant to serve these businesses, particularly banks that lack the resources to ensure a business is complying with that threshold,” an American Bankers Association spokesperson said in an emailed statement.

In a 2019 letter to financial regulators, Virginia O’Neill, vice president for regulatory compliance and policy for the American Bankers Association, said banks don’t have a reliable mechanism for distinguishing hemp from marijuana.

The letter asked regulators to clarify rules surrounding hemp businesses.

Banks can lose their license if they are found to offer services to an illegal business.

Brian Samuels, senior vice president for research and development for the Cleveland-based wellness company Buoyant Brands, said finding a bank “was one of the major hurdles” to getting started.

His company sells products infused with CBD, a hemp extract said to have a calming effect on users. Samuels was fortunate enough to find the Middlefield Banking Co., which has criteria the business had to meet to ensure it was making a legal product, he said.

Samuels said he found the company through his industry connections. But others weren’t so fortunate.

“The cooperative has had four bank accounts closed on us because we are a hemp business,” said Julie Doran, founder and president of the Ohio Hemp Farmers Cooperative.