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Out of the weeds

The SAFE Banking Act would protect financial institutions offering routine services to cannabis businesses

Tara Sargente, owner, Blazin’ Bakery, is applying for a marijuana dispensary license. -(BLAZIN’ BAKERY)

It was business as usual for Tara Sargente, processing sales of her Blazin’ Brownies brownie mix online and in stores. When she ran into a processing problem, she went into her bank — Columbia Bank in East Brunswick, which she’d recently joined after hearing of their small business perks — to straighten it out only to find that their relationship was being terminated after less than a month.

“[The branch manager] said ‘we don’t work with your type of business,’” she said.

Sargente’s brownie mix is marketed as a base for edibles, formulated to work really well with cannabis. It’s not plant touching and there’s nothing illegal about it, but it had recently been featured as a product to check out in High Times magazine, which was linked on her site.

“I explained to her it was a brownie mix but she totally cut me off. It was complete discrimination just based off my website [and the] High Times cover,” Sargente said. “I was pretty much told to leave and my funds would be mailed to me. It was degrading and humiliating. In no other industry are they able to make such snap judgments, but we face discrimination as a cannabis business.”

At her new bank, she tries to get in and get out as quickly as possible. Her LLC name is completely generic, as is her associated email.

“Most people develop a relationship with their bank, but you can’t be upfront about what you’re doing [in this business]. It’s so limiting,” she said.

U.S. Sen. Bob Menendez is helping to push the banking legislation through Congress. (MENENDEZ CAMPAIGN PHOTO)

A bill introduced by U.S. Sen. Bob Menendez aims to change that. The Secure and Fair Enforcement Banking Act, if passed, will ensure that legal cannabis businesses have access to banking services by preventing federal regulators from prohibiting or discouraging banks from working with legitimate companies. Although the bill will help protect ancillary businesses like Sargente’s from banking discrimination, it’s geared to allow plant-touching state-sanctioned cannabis businesses access to the same sorts of routine financial services every other kind of business uses as a matter of course.

“The fact is, we already have legal medical marijuana businesses in New Jersey,” Menendez said in a statement.  “What they don’t have are bank services to pay employees, take credit cards, write checks or pay taxes. Instead, they’re forced to operate entirely in cash — large sums — an open invitation for robbery and crime. We can fix this with common sense legislation that simply allows banks and credit unions to service these legitimate, legal enterprises without risk of federal prosecution.”

A Columbia Bank spokesperson said that as a matter of policy, Columbia does not discuss individual customer account situations with the press.

Better for patients

The Financial Crimes Enforcement Network (FinCEN) Marijuana Banking Update reported 486 banks and credit unions nationwide handle marijuana related businesses as of September 2018.

According to TerrAscend Chief Executive OfficerMichael Nashat, there’s only one such institution in New Jersey — he wouldn’t share the name — and all the alternative treatment centers use it. TerrAscend is one of six new ATCs entering the New Jersey market in the coming year in addition to the established six. He said that his relationship with the bank not only makes operations easier, but improves the customer experience.

“One of the biggest advantages is not just our ability to have a bank account but our ability to interact with patients and customers,” Nashat said. “We can’t accept credit cards, for example, but we can sell online. It helps us give our patients a better experience.”

Such banks have to fill out a Suspicious Activity Report for every transaction carried out for a cannabis business as directed by FinCEN’s 2014 guidelines in response to some states legalizing cannabis. Most transactions that they report don’t call for any action beyond letting FinCEN know they happened.

That process is cumbersome, though, according to cannabis law attorney Joshua Bauchner, partner at Ansell, Grimm & Aaron PC in Woodland Park.

“Anytime a depository institution has to [file an SAR] is a deterrent because that’s a tremendous amount of paperwork they don’t want to have to suffer through,” Bauchner said. “If you’re accepting an actual credit card, any transaction over the course of the day would require the banking institution behind that credit card to file an SAR. Because of the prohibition it becomes a real bureaucratic challenge.”

Bauchner also had some cannabis-related banking trouble. Days before his firm’s symposium on cannabis last year, their credit card processor shut their account down, leaving them to scramble last minute to find a new one.

“They know we’re a law firm, but they didn’t want anything to do with cannabis. It’s a big company and they don’t want to risk it,” Bauchner said. “It was a huge problem for us as you might imagine, because a lot of people registered.”

Risky business

Steve Fox, strategic advisor to the Cannabis Trade Federation, said he’s personally aware of the regulators telling financial institutions that they wouldn’t be able to serve cannabis industry clients. But the real issue posed by the lack of access to credit systems and bank services, Bauchner said, is the danger posed to all-cash businesses. Robberies have been reported at dispensaries across the country.

“If you know you’re dealing with an all cash business, you really are putting employees at risk. If you know on any day they’re doing $200,000 to $300,000 in business … that’s how much a bank has. It really does put people at risk,” Bauchner said.

Sargente, who in addition to having her account closed at Columbia Bank has had accounts shut down at PayPal, Stripe, Square and Amazon for suspicious activity, along with three separate credit card processors despite never having a plant-touching business, said the SAFE Banking Act would be “a relief” to business owners like herself.

“It’s vitally important and long overdue that we have at least the bare minimum tools needed to operate a business, such as a bank account and the ability to accept credit cards reliably. It’s something in any other industry one simply takes for granted,” she said. “Unfortunately, I don’t know that the bill has the support. I can only hope that regardless of someone’s personal opinion on cannabis they realize forcing businesses to run by moving large quantities of cash is not practical and benefits absolutely no one.”

The House Financial Services Committee voted at the end of March to advance, House Resolution 1595, the House version of the SAFE Banking Act. Menendez is joining Sen. Jeff Merkeley, D-Oregon, in pursuing the Senate bill.

Gabrielle Saulsbery
Albany, N.Y. native Gabrielle Saulsbery is a staff writer for NJBIZ and the newest thing in New Jersey. You can contact her at gsaulsbery@njbiz.com.

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