Banking on pot in Pennsylvania

Financial institutions should do business with legal marijuana sellers

Sales of $150 million Whether the bills will become are expected next law is unknown. In year in Pennsylvania the meantime, citizens and when legalized financial institutions must medical marijuana understand the competing comes to market. Colorado, legal rules and adapt their Washington and California behavior accordingly. each report annual sales exceeding For citizens, cash-only $1 billion. Yet growers, sales of marijuana mean processors and dispensaries that dispensaries and in all states must do grower/processors must business in cash because have high levels of physical marijuana remains an illegal security to reduce risk of substance under federal robbery of money and theft law. Banks refuse to accept of marijuana inventory. money earned by the marijuana Those who live or work in trade because the Federal the vicinity of marijuana operations Reserve System, the will need to be alert Federal Deposit Insurance to risks that come with highsecurity Corp. and the U.S. Treasury environments. Department have said First responders will banks do so at their peril. have additional responsibilities. PNC Bank recently closed Willie Sutton said he bank accounts of an advocacy robbed banks “because that organization that campaigns is where the money is.” In for marijuana legalization. California, four robbers kidnapped PNC’s move drew an Orange County headlines in Boston and marijuana dispensary Washington, D.C. owner. The robbers burned

Pending in Congress are the man with a blow torch bills that would permit in an effort to have him reveal banks to handle money the locations of cash the from marijuana sales without robbers believed he had buried risking prosecution under in the desert. The victim federal statutes against survived and said his earlier money laundering. earlier trips to the desert had to do with a potential real estate development.

Under regulatory guidance issued by the federal departments of justice and treasury, banks must file suspicious activity reports for any financial transactions they believe to be related to the marijuana business. These reports are analyzed by the Treasury Department and referred to the FBI for investigation when appropriate.

Because they are not members of the Federal Reserve System, credit unions have become the financial institutions of choice for marijuana-related businesses in Washington and California. Unknown at present is whether Pennsylvania credit unions will accept marijuana-related businesses as customers. My law firm has received inquiries, but no Pennsylvania institution has yet said it will embrace the business.

Eventually, competing federal and state laws are likely to be harmonized. In the meantime, financial executives can serve their communities by viewing medical marijuana in valueneutral terms: it is simply a business opportunity.

At the banking industry norm of 1 percent return on assets (i.e., loans), banks or credit unions stand to earn $5 million if Pennsylvania marijuana sales reach $500 million. Because of the greater administrative and security risks associated with marijuana-related businesses, financial institutions probably will be able to earn a higher rate of return.

Banking for marijuana businesses will be a niche market, likely to attract only a handful of financial institutions state-wide, if Washington state’s experience is typical. For institutions that seize the opportunity and put the right resources to work accordingly, the flame will be worth the candle.