By Alison Bosma MetroWest Daily News, Framingham, Mass.
WWR Article Summary (tl;dr) Even with an account, many banks won't give loans or lines of credit to marijuana businesses, which means many cannabis entrepreneurs have to borrow money from friends and family, find an investor, or already have the capital.
MetroWest Daily News, Framingham, Mass.
What sort of issues crop up when your industry is locally legal yet federally prohibited, as is the case with marijuana businesses?
"The banking problem is probably the most challenging hurdle for entrepreneurs who want to be involved in legal cannabis," Marijuana Business Association Executive Director David Rheins said, "essentially because of Schedule I."
Schedule I is a federal Drug Enforcement Administration designation of drugs that are illegal to possess, use or sell, except in specifically approved circumstances. Despite medical legalization in multiple states, the federal government still classifies marijuana as a Schedule I drug.
Where do banks come in? Because most financial institutions are federally insured and operate under federal regulations, marijuana industry professionals say managers want nothing to do with a federally illegal drug, no matter what local authorities have ruled.
"Even as a landlord, local banks (wouldn't) take my money generated by a marijuana business," Colorado businessman Serge Chistov said. "I'm talking about money for rent."
Chistov was the landlord of a building in Oak Creek, Colorado, that held the Honest Marijuana Company. Colorado made recreational marijuana legal in 2012. He said five out of seven banks wouldn't accept the company's rent checks. Eventually, Chistov became an investor in the company.
Jaime Lewis was kicked out of nine banks over more than a decade, as she tried to find her footing in the marijuana business.
"They legitimately shut down my account two days before payroll," Lewis said, of a particularly bad experience, with Wells Fargo. "It took roughly four and a half weeks for me to get my money back from them."
Lewis has since formed good relationships with a couple of banks, and is now the chief operating officer with Mayflower Medicinals, which is looking to locate a medical marijuana dispensary in Holliston.
Even with an account, many banks won't give loans or lines of credit to marijuana businesses, which means cannabis entrepreneurs have to borrow money from friends and family, find an investor such as Chistov, or already have the capital. With established businesses, that can affect expansion, Lewis pointed out, including hiring new employees or upgrading equipment.
"It handicaps the industry," Lewis said. "It affects so much."
Though a major hurdle, the problem doesn't mean marijuana businesses operate on cash alone.
"I would put that in the bucket of common misconception," Theory Wellness CEO Brandon Pollock said. "We and all the other dispensaries that are licensed and operating in Massachusetts have working banking relationships."
Theory Wellness is a medical marijuana dispensary with locations in Bridgewater and Great Barrington.
Finding a bank isn't impossible, marijuana industry professionals say, it's just difficult.
"It is possible to find a bank that will, in exchange for the additional due diligence, create an opportunity for you to bank," Chistov said.
It can be more expensive, and bankers keep a close eye on businesses -- Chistov said Honest Marijuana Company opens the books to its bank every month for a close inspection -- and industry professionals say they have better luck with credit unions and small banks than with big banks in multiple states.
"There's not many banks that do it," Pollock said. "There's a lot of compliance work. These are considered high-risk accounts."
The most obvious solution to the banking problem, marijuana businesspeople point out, is to remove cannabis from Schedule I.
Schedule I drugs, according to the U.S. Drug Enforcement Administration, have "no currently accepted medical use and a high potential for abuse." It is listed as the most dangerous of five categories of drugs, and includes heroin, LSD and ecstasy. Fentanyl, a synthetic opioid widely blamed for worsening the region's opioid crisis, is a Schedule II drug.
Some businesspeople, however, think the solution could be beyond banks.
"There's a lot of people who aren't in the cannabis industry who see the dollar signs," Healing Rose co-founder Zach McInnis said. "(Banks) need to get on board because they're first of all missing out on money and potential clients."
Healing Rose is a company in Andover that supplies body care products infused with cannabidiol, a compound that can be taken from either hemp or marijuana -- Healing Rose uses hemp -- and is not psychoactive.
Others point to cryptocurrency, or virtual money, such as Bitcoin, as the future of business.
"You're seeing enough dollars here where folks are saying, 'We'll start our own banks' .... 'we'll find our own cash management solutions,'" Rheins said. "At some point the banks will jump in because they won't want to forfeit this entire industry."
Chistov thinks banks will change their tune eventually.
"It's a matter of supply and demand," he said. "No bank in its healthy mind will be able to say no for a very long time."
Few banks returned calls for comment for this story.