The legal cannabis industry is worth billions. But many banks won't serve cannabis businesses for fear of federal backlash.
Gordon Friedman, Statesman Journal10:37 a.m. PST December 24, 2015
During a routine audit of a business account in 2014, Maps Credit Union discovered it was providing financial services for a marijuana dispensary.
Shane Saunders, vice president of operations for Maps, said the credit union had a decision to make: Close the account, or create policies to serve it within state and federal guidelines. They chose to keep the account open.
The accounts Maps offers to marijuana businesses are one of the best-kept secrets in the industry.
The credit union doesn't advertise the accounts. Businesses that have an account can't talk about it — Maps has them sign a non-disclosure agreement when the account is opened, Saunders said.
For Oregon's cannabis business owners unaware of Maps' unique service, securing something as simple as a checking account can be nearly impossible.
That's because banks are wary of assurances from federal agencies that if they serve cannabis businesses they won't face money-laundering charges.
According to marijuana business owners, some banks have told them that serving their businesses could lead to the banks' losing their FDIC insurance. However, a 2014 directive from the Financial Crimes Enforcement Network (FinCEN, a division of the U.S. Treasury) provides some clarity on the issue: Banks can serve those businesses, as long as they follow strict anti-money-laundering procedures.
Nevertheless, pot business owners across Oregon have opened accounts only to have them quietly closed when the bank discovered the nature of their enterprise. Most are stuck conducting transactions in cash, including vendor payments and payroll. Large safes can often be found at marijuana dispensaries, a necessity when handling so much cash.
A cash conundrum
"By compelling Oregon business owners to operate on a cash-only basis, current federal laws are making marijuana businesses sitting ducks for violent crimes and perpetuating negative stereotypes. It is ridiculous to make any business owner carry duffel bags of cash just to pay their taxes," Sen. Ron Wyden said in July after he, Sen. Jeff Merkley and two senators from Colorado introduced reform legislation to Congress.
Business owners say cash would be best kept in a bank vault. They're also facing other stumbling blocks: Cannabis businesses aren't eligible for tax deductions and often have trouble renting space because landlords fear banks could pull their mortgage for paying loans with money connected to pot. Add to that the headache of doing business accounting and paying taxes in cash.
That's where Maps Credit Union has broken step with the banking industry: It's the only financial institution in Oregon openly serving marijuana businesses, albeit with strict caveats. Saunders said the decision was in large part about community safety.
"The thought of some guy walking out of his business at night and going to an environment where there might be lots of people, with $25,000 in cash in his backpack to buy money orders just doesn't sit right," he said. "We took the comments by Senator Wyden to heart when he said he does not want Oregonian businesses dragging around duffel bags of cash. And neither do we. Not in our community."
Don Morse, director of the Oregon Cannabis Business Council and owner of theHuman Collective marijuana dispensary, said he's had five credit cards discontinued because of his business. He can't remember the number of times his checking accounts have been shut down.
Norris Monson, CEO of several Oregon-based marijuana businesses, said he's had accounts closed for cashing checks from vendors with names including cannabis-related terms.
Morse said banks haven't disclosed why they closed his accounts.
"It's always like, 'You know why we're shutting you down,' " he said.
Bank of America and Wells Fargo are some of the banks he said have closed accounts of OCBC members.
Bank of America did not return phone calls, but submitted a statement: "At Bank of America, as a federally regulated financial institution, we abide by federal law and do not bank marijuana-related businesses."
Wells Fargo also submitted a statement: "The sale of marijuana is still illegal at the federal level and as a result, we do not bank marijuana businesses." When asked if pot-related accounts would be closed, Wells Fargo spokeswoman Lara Underhill said if bank policy isn't being followed, they "act accordingly."
Some banks find a way
The frustration of business owners like Morse and Monson may stem from simply not being aware of the accounts Maps offers. But why is the credit union so secretive?
"We don't want them out spreading the good news I guess," Saunders said. "It's such a weird place to be. Normally you'd love word of mouth. This is one area where we're not necessarily interested in banking every dispensary in Oregon."
There are 334 dispensaries registered in Oregon. Maps handles accounts for fewer than 50 of them.
After the credit union decided not to close its first dispensary account, staff put together a litany of requirements a marijuana-related business must go through to maintain an account that keeps regulators happy.
There is an annual site inspection by the credit union, license verification with the Oregon Health Authority, background checks on the business owners, verifying financial records against tax filings, and verifying those against cash flows. Maps monitors every transaction individually.
Another important thing: "No smelly money," Saunders said. Cash smelling like marijuana can raise eyebrows when currency transaction reports are sent to regulators, so Maps requires cannabis accounts to store money away from the product.
Saunders said Maps has a zero-tolerance policy for offenders; a dispensary that was late setting up its annual inspection had its account closed. Monitoring and serving these accounts is expensive and labor intensive. "What we've found is these businesses are in such need of these services they are willing to comply with whatever hoops we put in front of them," he said.
These accounts don't go to the branches either. Instead they come to Maps' general counsel and his team of three assistants for service. There's a $250 application fee for the account, $250 fee for the annual inspection and deposit fees on every transaction.
Several credit unions in Washington have also found ways to cope with these high-risk accounts. Kelli Hawkins, a spokeswoman for the Spokane Valley-based Numerica Credit Union said that by working closely with state and federal regulators, Numerica has found a way to serve marijuana businesses licensed in Washington. Those customers have reported being thankful for the ability to pay their employees, vendors and taxes with checks rather than cash, Hawkins said.
Seattle-based Salal Credit Union also serves marijuana businesses. Making those accounts available came down to having an open-minded board of directors, weighing the financial risks and working intimately with regulators, said Carmella Murphy Houston, vice president of Salal's business services division.
Maps stands alone in Oregon, Saunders said, because other institutions tried to enter the market too quickly and didn't set up their processes to assuage regulator's doubts about high-risk accounts like those of cannabis businesses. "It's an intimidating business," he said.
Regulatory compliance takes a toll
Paula Givens, a cannabis banking consultant and former attorney for the National Labor Relations Board, said she can't overstate the difficulty of complying with regulations.
"In my mind the lack of banking boils down to financial institutions who are unwilling to go to the expense of establishing and maintaining the type of thorough due diligence program that will keep the regulators happy," Givens said.
For many, the risks are too high until laws change, said Linda Navarro, president of the Oregon Banker's Association. Depending on who occupies the White House next, regulations could quickly change and cannabis businesses operating legally under state law or banks serving them could, hypothetically, be prosecuted as money-laundering operations.
Directives to banks on serving marijuana businesses from FinCEN and the Department of Justice's "Cole Memo" don't mitigate risk because "It's just guidance not assurance," said Lynn Heider, a spokeswoman for the Northwest Credit Union Association. The Cole Memo is a message signed in 2014 by then-U.S. Deputy Attorney General James Cole to U.S. attorneys directing prosecutors to focus on the most significant criminal marijuana cases, like gang or cartel activity, rather than shutting down businesses operating within state law.
Business still booming
With marijuana's recent legalization in Oregon, business owners as well as members of the state's congressional delegation are beginning a stronger push for federal reform. They say it's time for change — the marijuana industry is a market growing quickly.
According to ArcView Market Research, a firm focusing on marijuana markets, the industry grew by 74 percent in 2014 to $2.7 billion in sales across the medical and recreational industries nationwide. That data doesn't include numbers from states that recently legalized cannabis for recreational use like Oregon and Alaska.
Banks would like to profit from serving those businesses, but, "At the crux is the fact that it's illegal at the federal level," Navarro said. (A Department of Justice spokesman didn't return calls asking if charges have ever been filed against a bank for serving cannabis clients.)
A spokeswoman from the FDIC would not comment about whether a bank could lose or has ever lost FDIC insurance for serving marijuana businesses. She said banks should follow federal rules like the FinCEN guidelines, the assurance from the Treasury that banking pot businesses is legal.
Laws may change
There is a chance the laws will change: reform is gaining the attention of Congress. The 2016 omnibus bill recently signed by President Obama has an inconspicuous single sentence within the 887-page bill that says the Department of Justice can't use money appropriated to it to prevent states from implementing medical marijuana laws. That sentence effectively legalized medical marijuana at the federal level. U.S. Rep. Earl Blumenauer (D-Ore.) released a statement which said he was "disappointed" that banking reform wasn't included in the bill.
A delegation of Oregon cannabis leaders also traveled to D.C. in October and lobbied in support of reforms, including allowing marijuana business to take tax deductions. Blumenauer recently addressed the House of Resentatives in support of those objectives.
"Stop interfering. Let legal marijuana businesses have bank accounts. Don't force them to be all cash," he said.
Wyden and Merkely have also co-sponsored marijuana finance reform bills, which are awaiting a committee hearing. Morse said he's hopeful Congress will acknowledge the need for reform.
"They're seeing that this has to change," he said. "It's not right."
(Photo: ASHLEY SMITH / STATESMAN JOURNAL)