While the majority of the banks are still reluctant to go near cannabis space, some are exploring ways to jump on the cannabis bandwagon on a national scale.
The cannabis industry has all the signs of a burgeoning industry: more states are getting ready to launch legal medical and adult use cannabis programs, and the U.S. consumer cannabis spending is expected to total $20.8 billion by 2021, according to research firm Arcview. Retail North America sales jumped about 33% to nearly $10 billion last year alone.
Meanwhile, many of the companies taking part in this sales growth have to resort to "armored cars and people moving money around" in the absence of legal and financial infrastructure to support their growing businesses.
Industry advocates say banking framework will help the industry grow more quickly by opening up the flow of capital, providing banks with a growing business, additional revenues and M&A activity.
Robert Bernstein, a partner at Grassi & Co. accounting firm that works with cannabis companies, says some major banks are looking to follow their clients into the cannabis business.
"There's no real reason why a major national bank isn't in the space, although it is a lot more work for them," Bernstein said. "Banks are going to jump into it."
He's expecting a cannabis bank to launch and then become a target for an established banking giant to "gobble it up."
Until that happens, credit unions and other cannabis industry advocates have been filling the void.
Sundie Seefried, the president and CEO of Partner Colorado Credit Union in the Denver metro area, says they have gone from zero cannabis accounts to handling up to $100 million a month in the past three years. The credit union follows 2014 guidelines laid out by the Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) to help banks legally handle money from marijuana-related businesses.
Thus far, Partner Colorado Credit Union has 200 dispensaries as their clients, plus 160 cultivation operations and 60 manufacturers, all with bank accounts.
Despite these existing provisions, other banks have been reluctant to get into the space because of the extra cost and administrative burden to follow the guidelines. Cannabis remains an illegal drug under federal law.
Over the next month, Seefried is off to a roadshow to meet lenders interested in the space and share her experience. She declined to list them by name, but said she is surprised by a recent spike in interest.
"Everyone wants to know how to bank the industry," Seefried said. "I'm speaking with about five to ten financial institutions now about banking the industry."
Existing regulatory roadblocks
With cannabis illegal on the federal level, most banks still face the Bank Secrecy Act (BSA) as their main obstacle, a law than bans illegal operations.
That means that many legal state-level cannabis operations have to resort to all-cash businesses to pay employees, their sales taxes or even take care of their electric bills.
Lack of clarity in banking regulations also slows down the flow of investment capital into the sector in the form of loans or private placements.
In January, the industry took a deep breath when Attorney General Jeff Sessions rescinded the Cole memo, a measure from the Obama Administration that prohibited federal law enforcement officials from prosecuting states with legal cannabis programs. Meanwhile, despite some support in Congress, no movement is expected in the near term on the cannabis banking front.
"The current Congressional leadership has not allowed legislation to move," said Aaron Smith, executive director of the National Cannabis Industry Association, a lobbying group for the industry.
Banking will be one of the main agenda items this week when 200 industry members will descend on Washington to promote cannabis legislation, Smith said.
Among its membership ranks, the National Cannabis Industry Association lists 20 in the financial services and payments business such as Cannabiswallet.net, Doctors Merchant Services, and Connection Capital, along with cannabis vendors forced to use cash, according to its website.
"We're going to drive the message home by personalizing it," Smith said. "Our members will talk about using cash to make payroll and how it's really dangerous to have their employees walking around with all that money."
Along with the lobbying push, sentiment may be shifting slowly in the GOP as evidenced by Ex-House Speaker John Boehner joining the board of private equity firm Acreage Holdings on April 11 after opposing many measures for the industry, Seefried said.
However, more protections for banks are needed, she said.
"On the federal level, we're looking for some kind of safe harbor so we don't get penalized for banking the business, so that we can't be excluded from being insured or using the Federal Reserve or other institutions," Seefried said. "You have to have very specialized processes for this industry."
David Feldman, partner, Duane Morris, estimated that 97% of banks still do not go anywhere near the cannabis space but about 300 provide accounts.
"Some banks are doing it but are refusing to admit it," Feldman said at a cannabis industry panel in New York City last month. He cited a 2017 study of public records by American Banker that revealed major banks such as Wells Fargo provided bank accounts to cannabis-related entities in Massachusetts.
"It is Wells Fargo's policy not to knowingly provide banking services to marijuana-related businesses, or to those that lease real property to marijuana-related businesses, as based on federal laws under which the sale and use of marijuana is still illegal," a Wells Fargo spokesperson said in an email to Real Money.
Congressman Earl Blumenauer, D-Oregon, said banking remains key. While he's not met anyone opposed to bank accounts for legal cannabis companies, little has been done to fix the problems caused by carrying around too much cash.
"Clarification of the banking situation would remove a cloud," Blumenauer said on May 11 at a High NY gathering in Brooklyn to support his Cannabis Fund political action committee. "People who are investing have noticed that something could happen to them if they move forward. For me, fixing the banking is the most important first step toward opening up the industry and protecting the public."
Without legislation in place, industry players continue to share tips for working under the current regime.
Joe Segilia, general counsel of Terra Tech Corp, a cannabis producer and retailer, said at the April High NY cannabis investing event that the company shapes its banking based on what's available in each geography.
The company uses credit unions in some states. In Nevada, it uses hard currency because "Nevada knows how to handle cash" from its existing casino business, Segilia said. In California, "you have to have armored cars and people moving money around."
State officials there are exploring the possibility of opening up a state-chartered bank, he said.