The Middletown Press (Middletown, CT)
Pot growers finally find banks willing to hold their cash
Faced with a dilemma that has caused major headaches in most states that have adopted legal forms of marijuana, Connecticut growers and dispensaries have developed a workaround for a problem any business would love to have:
What to do with the piles and piles of cash that have been accumulating?
While cannabis for medical use was legalized by Connecticut lawmakers in 2012, federal authorities have yet to lower its classification from a dangerous, illegal Schedule I drug.
That’s been enough to scare off interest from nationally known banks, concerned that federal law enforcement could swoop in and seize assets — with no chance for reimbursement — if they were to accept the cannabis industry as clients.
But smaller, statechartered Connecticut banks and credit unions have quietly agreed to handle the millions of dollars generated by the state’s nine dispensaries and four cannabis producers. In fact, while it was anticipated as a problem when the dispensaries opened nearly five years ago, the service smoothly emerged and now all have bankers.
Ben Zachs, chief operating officer of theWillimanticbased Fine Fettle Dispensary, declined to reveal the name of the bank he uses, but a courier service makes regular cash deposits there.
There are downsides, with those involved in the marijuana business having to forego benefits that other bank customers enjoy.
“It’s annoying because we’re not getting interest,” Zachs said. “We can’t take out a loan. We have to deal in the privatedebt market. Is it a perfect situation? Absolutely not. It’s less good for the economy, and the cash is not being invested. But we’re lucky in Connecticut because we have banks willing to do it. I think that in some places on theWest Coast, they’re probably still keeping cash in their mattresses. The East Coast has been pretty good.”
Linda A. Kowalski, a state Capitol lobbyist who represents the Connecticut Medical Cannabis Council, said the four cannabis growers have longstanding and stable relationships with the state banks.
“Each producer has their own checking and/or savings account with their respective bank and works closely with them to ensure compliance on all rules and procedures,” she said. “As a result, the vast majority of transactions no longer involve cash. Every check, wire or cash payment is immediately deposited. Our seamless banking access is one aspect that has helped make the state's medical marijuana program one of the best, if not the best, in the nation.”
In fact, 493 banks and 140 credit unions nationwide are handling transactions for medical and recreational marijuana, according to April statistics of the U.S. Treasury Department’s Financial Crimes Enforcement Network, or FinCEN.
Although they’re not paying interest on deposits, the institutions are providing necessary safekeeping for the industry, and cannabis companies are making a tradeoff . While convenient on one level, it could be stifling its longerterm growth, when or if the full legalization of cannabis is approved by voters or the legislature, as proposed by Gov. Ned Lamont.
“Federal law is definitely the problem,” said Karen O’Keefe, director of state policies for the Marijuana Policy Project, noting that a memo from FinCEN officials declaring that criminal consequences are unlikely for institutions that accept deposits from the cannabis industry, gave the industry some daylight.
But banks and credit unions have to make regular filings of socalled suspicious activity reports, which require extra time for employees to detail marijuanarelated business. “It’s cumbersome,” O’Keefe said. “Nationwide, the cannabis business is underbanked. That’s why there is a push for federal fixes.”
A recent budget document that passed the U.S. House of Representatives would prohibit penalties against financial institutions that accept business from marijuana operations established under state or local law. It awaits action in the U.S. Senate.
Helping the underbanked
The current legal questions on the use of the drug is also stifling the possibility of growth, O’Keefe warned, since lending institutions balk at making loans.
Judy Britt, vice president of the Credit Union League of Connecticut, said the mostimportant reason for bankers to assist the marijuana space, is the issue of public safety. “I think our credit unions are helping out as much as they can within their appetites for risk,” Britt said Friday. “Certainly our mission is to help the underserved and the underbanked, and we need to remain relevant to our communities.”
And while credit unions don’t advocate the use of cannabis, they have agreed to help the businesses stay on the right side of federal banking regulations, including the formation of a partnership with a compliance platform created specifically for the marijuana industry. “We make the tools available and we ask our credit unions to consider cannabis like any highrisk industry,” she said.
“We have the need to keep our communities safe,” Britt said. “Money on the streets isn’t necessarily safe. Our credit unions and others face a lot of risk in the area, and to say you will not service them can put the public in harm’s way.” She said that it is still early in the banking relationship, and that someday, if the industry grows and federal law relents, loans could be forthcoming. “I think our credit unions would love to help, but right now we’re talking about simple transactions, Making loans is way out in the future. Right now we’re just talking paychecks for employees, paying their taxes and taking money off the street.”
On Monday, Zachs’s dispensary onWillimantic’s Main Street will host 2nd District U.S. Rep. Joe Courtney, who will tour the facility and then talk with reporters about the pending federal legislation and other proposals to help the state’s nascent cannabis industry.
Zachs said that he’s surprised that opposition in the Republicanled U.S. Senate could block the proposed banking protections.
“It’s sort of crazy to me that especially guys focused on states’ rights as a core principle could continue this apparent threat that federal authorities could punish people,” Zachs said. “If banking creates safety in general and you know where the money is, those are better outcomes for the state. We’re creating jobs and we’re getting help to patients in the program.”