Providing banking services for marijuana-related businesses (MRB) is profitable, but only a few dozen institutions have been willing to take the risk of serving the cannabis industry in earnest, based on the contents of a new report.
The June 30, 2018, report, released by the Financial Crimes Enforcement Network (FinCEN), noted that there are 441 U.S. depository institutions, including banks and credit unions, which are serving marijuana-related businesses.
The number sounds pretty impressive considering that the number of institutions was put at only 340 in January 2017. However, the 441 figure includes banks that might serve only one MRB. Often, these are banks that agree to handle the account of a personal friend or family member in the cannabis industry.
A better measure would be looking at banks that handle at least 15 MRBs. When that standard is applied, the number of institutions plunges to 35. That's 35 banks handling millions of dollars in cannabis transactions.
While some banks claim it's too expensive to serve MRBs, the report stated, "The banks and credit unions that have entered this market are doing so in an extremely profitable manner, and in the process is performing a valuable public service."
Nevertheless, banks are understandably cautious.
Cannabis is still illegal at the federal level. Also, banks that had begun to think they might have some cover under the Cole Memorandum from the Department of Justice, which offered guidelines for banks working with cannabis businesses, got a surprise when U.S. Attorney General Jeff Sessions recalled the memo. That development caused banks that had been considering serving marijuana-related businesses to stop the process. One bank closed all the MRB accounts it had been serving.
FinCEN had its own set of guidelines for the banks to follow and it chose to leave its advice in place. It currently serves as the only federal guidance on MRB-related banking. The Federal Financial Institutions Examination Council (FFIEC) typically sets standards for banks to follow and this organization has chosen to remain silent on dealing with cannabis-related businesses. The banks, abandoned by their oversight agencies, have resorted to solving the problem on their own.
Payment technology providers such as Hypur Inc., among others, have stepped in to help address MRB banking issues. Hypur already was working with banks that in turn were working with cash-intensive businesses such as check-cashing companies. Cannabis companies are also cash-intensive businesses, so Hypur was accustomed to some of those challenges. The key is assuring that the cash coming into the banks is documented in a way that would satisfy bank regulators and bank examiners. On the other side of the equation, MRBs want to make sure they are following the rules as well.
Banking issues present challenges to the MRBs. Not only is it a problem to open an account and write checks and make online payments, but transaction processing is a big hurdle. Credit card companies MasterCard Inc. (MA) and Visa Inc. (V) have refused to process cannabis purchases even in legalized states. As a result, businesses must rely on workarounds to process transactions, or in the case of dispensaries install on-site ATM machines.
Numerous companies have stepped up to help MRBs navigate these banking and transaction problems. Some states also have tried to figure out ways to bridge the gap, only to learn they are limited. West Virginia legislators have tried to come up with a solution and suggested two options to the governor but have yet to get an answer.
So far no banks have been penalized for working with MRBs. Perhaps with four years of cannabis banking behind them more banks will feel comfortable with serving MRBs. If that isn't enough, losing out on cannabis-related profits may be enough incentive to jump in.