Michael Arthur didn’t have to die. Neither did Travis Mason.
Arthur and Mason worked at cannabis dispensaries out west. Arthur, a clerk in Oregon, and Mason, a security guard in Colorado, were shot to death in 2020 and 2016 respectively. Colorado U.S. Rep. Ed Perlmutter named both men when he introduced the Secure and Fair Enforcement Banking Act of 2021, a piece of legislation that would normalize banking in the cannabis industry by prohibiting regulators from dissuading or limiting financial institutions from banking such businesses.
“Forty-seven states, four U.S. territories, and the District of Columbia – representing 97.7 % of the U.S. population – have legalized some form of recreational or medical marijuana, including CBD. Yet current law restricts legitimate licensed marijuana businesses from accessing banking services and products, such as depository and checking accounts, resulting in businesses operating in all cash. This is a serious public safety risk for our communities, inviting theft, robberies, burglaries, or worse,” Perlmutter said in a prepared statement earlier this month.
Sen. Bob Menendez co-sponsored the bill as he had upon its initial introduction in 2019. That bill passed in the House of Representatives in 2019 before stalling in the Senate. It did, however, spur the first-ever congressional hearing on cannabis banking.
Beau Whitney, founder and chief economist at Whitney Economics and former cannabis business executive, has other war stories. A grower affiliated with the company for which he was chief operating officer, Golden Leaf Holdings, was shot and killed for the $40,000 he had in his home safe. Three-quarters of a mile from Whitney’s house, what he described as “a relatively upscale dispensary” was robbed of $225,000 in one night.
These crimes are only possible because of and perpetuated by the fact that these cannabis businesses, which according to Leafly raked in $18.3 billion in legal sales in 2020, face real challenges in banking: basically, they’re not allowed to do it.
Because the banking system is regulated by federal law and cannabis is still illegal under federal law, financial institutions risk charges of aiding and abetting a federal crime if they choose to do business with cannabis-related firms. The ones that decide to do it are confronted with a significant amount of extra paperwork. A recent Marijuana Banking Update from FinCEN, the Financial Crimes Enforcement Network of the United States Department of the Treasury, found that 515 banks and 169 credit unions nationwide serve cannabis-related businesses. Bayonne Community Bank, with 29 locations, is one New Jersey-based institution; as is Parke Bank, which has seven locations.
Out of the approximately 5,000 banks nationwide, that’s a relatively small number to handle the $18.3 billion in sales. A South Jersey business owner who works in cannabis and hemp had her account at a regional bank shut down when employees there realized what business she was in. The bank account that was nixed was, oddly enough, one that dealt exclusively with CBD—totally legal. Her business’s cannabis-only account, held at a different bank, hasn’t been flagged yet. She spoke on the condition of anonymity for fear that if her bank sees her name associated with the plant, they might boot her off their roster.
“Do they know we’re in cannabis? I don’t know, but we’re not asking. That would be crazy,” she said.
Dasheeda Dawson, founder of national cannabis consulting firm MJM Strategy, which has clients in New Jersey, has had her online merchant processing shut down and funds held, even though MJM primarily sells books and accessories.
“Overall, the minute the transactions surpass $10K, there’s a flag for suspicious activity report pretty much on all accounts and once surface investigation reveals ‘cannabis’ in anyway — even in just advocacy work — the bank will place a hold on the funds for further investigation and/or close the account down altogether,” Dawson said. “It can take anywhere from 60 to 120 days for funds to be released and this is usually in the tiniest print ever when signing terms and conditions for accounts when we open them.”
Justice Cannabis Co., a multi-state operator with plans to open a dispensary in Ewing, hasn’t had any issues with its bank, said National Compliance and Government Affairs Officer Gary Seelhorst. However, the company has had to navigate the frustration when ancillary businesses or operators Justice works with get dropped by their banks. When that happens, any transactions between them and Justice must be reconfigured or administered a different way.
Seelhorst’s first foray into the industry three years ago had him lug a satchel of $20,000 from his home in San Diego to California’s capital, Sacramento, because the company’s bank at the time wouldn’t wire transactions over $5,000.
“That was week three or four in the industry. While we do have banking … it was a daunting process,” he said.
Beyond checking and savings functions, which at the very least would prevent the cash hoarding practices that can lead to crimes like robberies and the killings of Arthur and Mason, cannabis businesses don’t have access to the same lending channels as traditional businesses. In cannabis, traditional lending channels are personal networks, rather than a bank branch, therefore pushing aside communities such as women and minorities, Whitney explained, who is also a director at New Jersey-based Cannabis Advisory Group.
“Immediately, the lack of access to capital is a big obstacle for participation. On top of that, if you do go out and put out some risks in order to participate – cash out your 401k if you have one, talk to your uncle or parents—either you fail or survive. There’s no safety net because bankruptcy protection is a federal policy. It’s a double whammy,” he said.
The SAFE Banking Act of 2021 would for the first time allow banks to provide business loans to cannabis operators by prohibiting regulators from taking adverse action on a loan made to a cannabis business, or to the owner or operator of real estate leased to a cannabis business.
The legislation also includes provisions related to insurance, something cannabis businesses also often have a hard time obtaining, especially for a fair price. Bernadette Wanczyk at Green Knolls Insurance Solutions began offering policies for cannabis businesses when the ballot initiative passed, covering everything from the crop itself to the processing equipment to deliveries.
“You always want to protect your property and employees [and have] liability in case you ever get sued. Insurance is just to make it so you can be whole. You don’t want to worry about that when you’re doing your business, and not having it can put you out of business. Nobody wants that,” Wanczyk said.
Industry insiders have generally positive things to say about the SAFE Banking Act. New Jersey Cannabusiness Association President Ed Deveaux said that fixing the industry’s banking and insurance woes is “critical to the safety and reliability and sustainability to the industry.”
Seelhorst notes that it’s “not a cure-all,” but that “it does de-risk the banks.”
“The more banks that start to come on, the more confidence there is in the industry. It’s that success begets success model,” he said. “Those additional banks that come on will take one, two, three operators, and once they have success with those operators, they’ll take on more as well.
“To use a sports analogy, it’s definitely a good single, versus a home run. A home run would be federal legalization. I don’t think that would be feasible in this political climate right now, so a few singles are good,” Seelhorst said. “We want to take what we can get right now.”
Editor’s note: This story was updated at 11:12 a.m. EST on April 21, 2021, to identify Beau Whitney as also being a director at New Jersey-based Cannabis Advisory Group.