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Banking on green: Credit unions and community banks cultivate banking services for cannabis industry

in Cannabis/Market & Currency by

The new year ushered in greener pastures, as marijuana laws decriminalized cannabis use in multiple states.

Therein lies a significant hurdle: banking.

Working to carve a niche in a multi-billion-dollar industry, smaller financial institutions are coming up with innovative ways to provide banking services to cannabis businesses.

With 29 states and Washington DC making marijuana legal for medical or recreational purposes, businesses find difficulty in locating a banking institution that allows them to open accounts and apply for financing.

Since banks employ insurance through the Federal Deposit Insurance Corporation (FDIC), they run the risk of violating federal laws that prohibit cannabis use.

By forcing cannabis companies to work as all-cash businesses or broker funding with risky private investment firms, the illicit world of the marijuana industry continues to thrive.

Other ways people generate money is through home equity lines, angel investors and borrowing from friends and family.

At the same time, limited banking avenues exclude groups from enterprising legitimately. According to Green Rush Daily, in Nevada it takes $250,000 to open a medical marijuana dispensary, while in Massachusetts, applicants must show proof of $500,000 in liquid cash before they apply for a license.

Regulation

Currently, a little under two dozen banks work with marijuana businesses.

In 2014, the U.S. Justice Department provided stringent instructions for banks and credit unions to handle accounts of cannabis companies without prosecution.

In Colorado, the state moves towards a cashless cannabis economy. Huffington Post reports that regulators allowed one credit union allows accounts owned by cannabis companies to transfer money to CanPay, a debit payment app for marijuana sales.

A Maryland financial institution, Severn Savings Bank, works with a handful of growers and dispensaries to remove the financial risks of an industry in which 70 percent operate as all-cash entities.

While a Washington Post reports that Severn is not willing to disclose the terms of their relationships with clients, it is known that set up and monthly fees are high. Although this is an exception to dealing with currency from the marijuana industry, this is may not be a sustainable financial endeavor.

Legal Inequities

Another issue at the forefront of marijuana activist is the color of black and brown.

People of color are incarcerated at disproportionately high numbers for handling marijuana, but still cannot afford to open up a dispensary.

As voters begin to pass laws implementing legal marijuana, the road to decriminalizing weed gets trickier.

On one hand, laws ease cannabis use, but at the same time, regulation is heavy. The rigid policies ensure that only a handful of people to monopolize the industry.

Photo credit: Jakob Owens

Even lobbying for stringent laws to minimize competition has become big business.

The Boston Globe reported that grassroots organizations campaigning to expand Massachusetts marijuana legislation often loses against big corporations investing in the green rush.

Although state marijuana laws expand, federal legislators must catch up. However, the current Republican majority will not budge or address the issue. If Democrats dominant the 2018 midway elections then marijuana advocates are more optimistic about a shift in the conversation.

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