Banking on marijuana
Startup Green Check Verified links pot, financial businesses in growth industry
NEW HAVEN — Marijuana growers and dispensaries can only sell their products for cash and need a financial institution where the money can be deposited.
Small, state- chartered banks and credit unions are always on the lookout for new accounts to expand their businesses.
Both industries are composed of highly regulated, complex organizations, and their relationship is complicated by the fact that cannabis is listed on the federal level as a Schedule 1 illegal drug, along with cocaine, heroin and LSD.
But a startup company, Green Check Verified, based, for now, at 5 Science Park, is offering a way for marijuana companies and banks and credit unions to conduct business together in a secure, high- tech environment.
“We have these people on both sides, the cannabis industry and the financial industry, and they’ve not been able to communicate effectively,” said Paul Dunford, director of customer experience for Green Check Verified. “This is about bringing them together using technology.”
The technology is key, because both the cannabis and financial companies will use the same cloud- based platform and must comply with myriad laws, regulations and rules that vary from state to state.
So, as founder and presi- dent Kevin Hart said, “we’ve been in stealth mode here” since September 2015, filing for three patents, designing the platform and planning to “expand the team and the thinking, and that’s all before we wrote the first line of code.”
In July 2017, the company incorporated in Delaware and Connecticut and, in December, signed up its first customers — two dispensaries and a financial institution — as it launched a pilot program, Hart said. He is in “active conversations” with companies in 13 states, which happens to be the number of employees Green Check has on its payroll.
Interstate commerce in cannabis is illegal, which is why marijuana dispensaries and growers can’t use credit cards and why Green Check is only working with statechartered banks and credit unions, not federally chartered banks such as Bank of America or Wells Fargo.
Dunford said the companies are allowed to conduct business within states because of an amendment in the fiscal 2015 federal budget, which prohibited federal enforcement of the Controlled Substances Act in states that have a medical marijuana program. “In the federal budgets you cannot use federal funds to prosecute these businesses in states where it’s legal,” Dunford said.
In 2013, an Obama administration ruling, called the Cole Memo, named for thenDeputy Attorney General James Cole, had covered any state- approved marijuana program. Both rulings said federal prosecutors should only focus on sales to minors, those involving criminal activity and on sales from a state where cannabis is legal to one where it is not.
Then- Attorney General Jeff Sessions rescinded the Cole Memo in January 2018, but Hart said it “was merely guidance; it’s not law,” and that President Donald Trump has come out in favor of medical marijuana.
While Sessions had opposed recreational marijuana for adults, Hart said that position “caused a lot of rhetoric and a lot of hysteria” but nothing ever came of it.
“Interstate commerce is illegal, but everything that happens within the states is legal,” he said. “It is a misconception that it is illegal and that has been an unfortunate hard stop for people in the financial services industry.” In fact, the Financial Crime Enforcement Network, adivision of the U. S. Treasury Department, has issued guidelines about banking in the cannabis industry, Hart said.
“There are more protections in place,” Dunford said. “No one person at this point could turn the clock back but people don’t know that.”
Solving the problem of cash
The real issue for marijuana businesses is how to deal with the large amounts of cash from customers. Banks, at the same time, want to make sure their transactions are legal and that the cannabis businesses are operating within the law. The challenge is to “establish a true and trusted relationship between those two entities,” Hart said.
“It’s a fascinating problem set because, on one side, you have these local community financial institutions [ that] are struggling to find new deposits,” said Mike Kennedy, director of product strategy. “From the bank’s perspective, you have this $ 10 billion industry that’s largely unbanked or underbanked and that solves their problem.