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Weed Wager: How banks are finding an opening to serve marijuana businesses

With recent changes, banks are now working with more marijuana-related businesses than ever before

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The legal marijuana business is blooming, with plentiful profits and the promise of exponential growth as more states legalize weed. But with federal laws still tying the hands of financial institutions, can the banking industry find a way through the muddy waters of regulation so that its relationship with marijuana can flower?

Nationally,  states have legalized marijuana in some form, either recreationally, medicinally, or both, generating billions of dollars in sales. These billions of dollars mean there is much that banks could make from this booming industry, but federal laws and guidance have made things complicated for nancial institutions who want to participate.

Banks are missing out on the money that legal marijuana-related businesses (MRBs), such as dispensaries and growers, bring in. And the MRBs miss out because they are unable to benefit from safe, regulated financial services. Using banking services means safer handling of money and the ability to pay bills electronically or by check, instead of cash. But for now, these businesses have to contend with unorthodox methods of dealing with their cash and paying bills, such as using armored vehicle cash services or depositing the cash via bitcoin.


In 2013, both Washington state and Colorado legalized the use of marijuana, setting up the battle between state and federal statutes, since marijuana is still illegal under federal law. To try to reconcile these coniflicting legal stances, Deputy Attorney General James Cole issued what became known as the Cole Memo to reassure banks that they were unlikely to face any federal penalties for providing services to marijuana businesses in states where it is legal, as long they screened accounts for signs of money laundering and ensured that customers followed state guidelines.

The Cole Memo was met with serious skepticism from financial institutions who didn’t want to run afoul of federal regulators.

In February 2014, the U.S. Treasury’s Financial Crimes Enforcement Network tried again to clarify the federal position, releasing guidelines for financial institutions outlining what they can do in regard to these businesses and their financial activities. Specifically, the guidance sought to clarify how financial institutions can provide services to marijuana-related businesses consistent with the obligations to uphold the Bank Secrecy Act.

The 2014 guidance stated that banks and credit unions are allowed to do business with marijuana-related businesses as long as they monitor and screen accounts for signs of money laundering and file suspicious activity reports on any illicit activities. 

This position enabled some credit unions to open accounts with MRBs, but major banks largely stayed away from the industry. 

When the guidance was issued, only 51 financial institutions were conducting business with MRBs. According to FinCEN’s data outlined in their most recent Marijuana Banking Update, released in June, more than 350 financial institutions are now providing banking services to marijuana-related businesses. That’s an estimated 620% increase, but that number represents only a small drop in the vast ocean of financial institutions. 

However, the tide seems to be shifting, and big banks are now testing the waters. In January 2017, American Banker published research findings from MRB Monitor, a marijuana-related business intelligence company, that showed that despite previous denials, several big banks have worked with multiple marijuana-related businesses in at least one state: Massachusetts. 

The group’s analysis covered applications that were filed between June 2015 and September 2016 and found that out of 84 applications to operate medical marijuana dispensaries in the state, 29 applicants reported having access to funds in at least one account at Bank of America, Citibank, Wells Fargo or JPMorgan Chase, or one of their subsidiaries. Of those 29 applicants, 17 of them had a connection to Bank of America. 

How can other banks safely navigate this path? 


In May, nine senators joined together to propose the Secure and Fair Enforcement (SAFE) Banking Act of 2017, a bipartisan bill that, if passed, would solve the lack of access to basic financial services in states that have legalized weed. 

“Conflicting federal and state marijuana laws make it difficult for legitimate businesses to use the basic financial services they need access to and this bipartisan legislation gives them that access they need,” Sen. Cory Gardner, R-Colo., said in a statement about the bill. 

The bill focuses not only on banking access but also employee safety and risk. 

“We must also take into account the risk to public safety as these businesses are being forced to carry around bags of money to pay for their employees and rent. Legal businesses should not be treated like this, and I’m glad that Republicans and Democrats are working together to address this issue.” 

The bill, which is co-sponsored by several other senators, including Sen. Elizabeth Warren, D-Mass., and Sen. Rand Paul, R-Ky., would prevent federal banking regulators from: 

• Prohibiting, penalizing or discouraging a bank from providing financial services to a legitimate state-sanctioned and regulated cannabis business, or an associated business (such as a lawyer or landlord providing services to a legal cannabis business); 

• Terminating or limiting a bank’s federal deposit insurance solely because the bank is providing services to a state-sanctioned cannabis business or associated business; 

• Recommending or incentivizing a bank to halt or downgrade providing any kind of banking services to these businesses; or 

• Taking any action on a loan to an owner or operator of a cannabis-related business. 

But even with the support of senators like Warren and Paul, this bill is unlikely to pass, receiving only a 6% chance from legislation tracking service GovTrack. The prediction on the bill, made by Skopos Labs, stated “The overall text of the bill decreases its chances of being enacted. The bill is assigned to the Senate Banking, Housing, and Urban Affairs Committee. The bill’s primary subject is Finance and financial sector,” according to the site. 

A more promising path might be seen in the House of Representatives, where several members have submitted two amendments to be included in the House appropriations bill. Submitted by Reps. Denny Heck, D-Wash., Barbara Lee, D-Calif., and Dina Titus. D-Nev., the amendments are poised to serve as a temporary fix until the SAFE Banking Act is passed into law. Both amendments focus on banking services for legal MRBs. 

The first amendment prohibits any funds in the appropriations bill from being used to penalize banks for serving MRBs that are legal under state law and the second amendment prohibits the Treasury from changing FinCEN’s guidance to financial institutions on providing services to legitimate marijuana businesses. If the amendments are included in the bill, it would allow for a legal marijuana-related business to operate according to state laws while still having access to the banking system. 

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Despite attempts to undo other Obama-era regulations, President Donald Trump and Attorney General Jeff Sessions, a staunch anti-marijuana advocate, haven’t exactly been clamoring to rescind the Cole Memo or to impose tougher regulations on financial institutions or MRBs. 

But the uncertainty of what the administration might or might not do on the issue has put banks and legal marijuana businesses in a holding pattern. 

Recently, PNC Bank closed the account of nonprofit organization The Marijuana Policy Project, a group that lobbies for the drug’s policy reform, after 22 years. According to a Washington Post article by Nicole Lewis, the group said they were notified in May 2017 by PNC Bank that the bank would close the accounts after an audit revealed that the organization received funding from marijuana businesses that handle the plant directly.

“They told me it is too risky. The bank can’t assume the risk,” Nick Field, MPP’s chief operating officer told the Washington Post. 

During his January 2017 Senate confirmation hearing for the position of attorney general, Sessions, then a Republican senator from Alabama, was unclear about how he would approach legal marijuana businesses, despite his previous criticisms of the Obama administration’s approach to cannabis laws. 

During the hearing, Sessions was asked by Sen. Patrick Leahy, D-Vt., about using federal resources to prosecute those abiding by state marijuana laws and said: “I won’t commit to never enforcing federal law. But absolutely it’s a problem of resources for the federal government.” 

Sessions furthered commented on the 2013 Cole Memo, saying that some of the guidelines from the Obama administration are “truly valuable in evaluating cases.” 

With all this smoke, it doesn’t appear that Sessions’ attitude on marijuana will mellow out any time soon, despite a Justice Department recommendation that he not take any action against states with legalized marijuana. According to an August 2017 Associated Press article by Sadie Gurman, the government’s Task Force on Crime Reduction and Public Safety “has come up with no new policy recommendations to advance the attorney general’s aggressively anti-marijuana views.” 


While banks are forced to watch from the wings, other players are reaping the rewards from this industry. Recently, Jennifer Kaplan from Bloomberg reported that marijuana dispensaries are turning to the increasingly popular digital currency bitcoin as a way to get rid of the excess cash from sales. This deters the use of cash at dispensaries or other MRBs by providing consumers another option. 

The article points out that two financial-technology startups, POSaBIT and SinglePoint, use the cryptocurrency as an intermediary step that allows pot consumers to use their bank-issued credit cards to buy weed. 

“There’s no industry — whether it’s the production and sale of cannabis or the production and sale of a cup of coffee — that can operate safely, transparently or effectively without access to banks or other financial institutions and traditional services,” Jon Baugher, co-founder of POSaBIT, told Bloomberg. His company’s technology is currently being used by 30 dispensaries in Washington state. 

Bloomberg further reports that POSaBIT has taken steps to comply with federal and state laws regulating both marijuana sales and digital currency. Customers must present a valid ID that is scanned, encrypted and stored and buyers are only allowed to purchase $150 in bitcoin in an effort to prevent money laundering. POSaBIT also boasts a nine-point fraud-detection program that is designed to deter criminals. 


In addition to traditional banking services, MRBs also need access to capital just like any other business, for things like land, buildings and equipment. So where do MRBs turn for this kind of capital? 

When traditional banks and credit unions are unable to lend to MRBs, especially grow warehouses, those interested in investing in property that will then be leased to marijuana-related businesses either put the cash up themselves or they look to hard money lending. 

Denver-based Montegra Capital Resources is a hard money lender that’s been in the business of private capital for real estate loans for 46 years. In 2014, the company opened the Montegra Warehouse Fund, which lends money strictly for marijuana-related real estate deals. 

In March of this year, Montegra Warehouse Fund reported that it has raised $11.7 million since opening, according to the company’s most recent disclosure with the Securities and Exchange Commission. 

“There are a variety of reasons why borrowers can’t get loans from banks, not necessarily because of bad credit. Banks are somewhat restricted by regulations,” said Bob Amter, co-founder and president of Montegra. 

“In 2014, we decided that there’s one kind of loan that is impossible to get from the bank. Banks are not allowed to lend to marijuana-tenanted properties because marijuana is still against federal law, but it is legal under Colorado law,” Amter said. 

Montegra Warehouse Fund is open to accredited investors with $100,000 minimum input. The company offers loans up to 60% of appraised value on cannabis-tenanted warehouses. After Montegra’s fees, the fund returns around 10% to investors, Amter explained. 

The company does not make loans directly to MRBs or the tenants that may use the warehouses. Instead, they lend to the owners of the warehouse who will then add the necessary agricultural equipment to the property and lease it to a marijuana-related business. 

“We are making loans to the owners of a warehouse and they are the owners of the real property,” Amter said. “We are taking a first-mortgage loan against the warehouse, so really we’re making a loan to the landlord. They own the building and lease it to the marijuana business tenant, a grower, for instance.” 

It’s not cheap to equip the warehouse and set up the proper tools and equipment for growing marijuana. Amter said it can cost upwards of $50 to $75 per square foot to equip a warehouse with everything from security systems, lights, irrigation equipment, electrical wiring, ventilation and more. 

Once these warehouses are fully equipped and ready to rent, they represent a profitable opportunity for investors. 

“You might get $8 per square foot for a widget tenant, but if you have a marijuana business tenant you could get $20 to $25 per square foot,” Amter said. “They can get rents that are more than double, or three times, than a normal manufacturing or storage tenant. It’s an incredible increase in rental income, which is why the warehouses owners like to do this — they double or triple the income they get from the building they own.” 

What kind of risk do investors face with this kind of investment? 

“We’ve never had a single borrower be one day late, everyone has had a terrific payment history,” Amter said. “We think we’re providing a useful service in the real estate capital market by being able to help people who want to buy these warehouses by giving them the funding to do it.” 

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