5 Reasons Banks Remain on the Edge of Cannabis Business
By: Aaron Diamond
“The Green Rush” is upon us. Every day brings us closer to the federal legalization of Marijuana, and depending on which state you reside in, there may already be opportunities to get into the Cannabis Industry.
"These are exciting times, and new millionaires and possibly billionaires are about to be made, while simultaneously society will become safer and freer," says Troy Dayton, CEO of The ArcView Group, an Oakland-based cannabis market research and investment company.
For those in the right place, the time is ripe to invest in this budding industry; but the glacial process of de-scheduling marijuana is still deterring investors, venture capitalists, and perhaps most importantly; banks from participating. While financial institutions are gradually working with more canna-businesses - from 50 in 2014 to over 300 at the time of press - they are still hesitant to offer their services to Marijuana businesses. Here are a few of the ways US banks are restricting the Marijuana industry’s growth.
Outdated road blocks like the “Bank Secrecy Act” are a frustrating obstacle to banks approving ‘Green’ business loans. Passed in 1970 by Congress - also known as the “anti-laundering law” - the Bank Secrecy act is meant to examine the exchange of cash bills and track foreign bank exchanges. This affects Marijuana business as it is almost exclusively a ‘cash only’ industry. Everything from employee wages to utilities is paid in cash. Any transaction over $10,000 has to be passed through Financial Crimes Enforcement Network to make sure everyone who has touched this money is completely legitimate. This means that a Cannabis business owner has to have all of the right certifications and make sure any other marijuana businesses or vendors they work with are as financially diligent.
Banks have to ensure every cannabis business has the proper federal documentation and state certification required. If a business doesn’t have the correct legal paperwork, the bank will not endorse them, no matter how legal the rest of their operation is. In states such as Colorado, some counties even require additional local certification.
The Cannabis industry’s ever-evolving legislation means banks have to be sure that any business they work with is not only compliant with current laws, but is also going to follow future developments of regulations and new laws. Even dispensary budtenders must be able to show public records clear of drug trafficking and money laundering.
Banks who decide to help the budding industry with business loans are at risk of losing their charter. If a bank approves a loan that gets abused or used in any illegal business they face a threat of closure and even criminal ramifications. Currently, less than 250 of America’s 7500 banks and credit unions approve loans for Cannabis businesses.
The “Cole Memorandum” is a list of federal priorities that have to be withheld by Marijuana institutions. It points out exactly where any irregularity might be, enabling Federal law enforcement to shut a business down. This could mean anything from “preventing the use of Marijuana on any government property” to “preventing approved businesses from using their government approval as a cover to traffic other illegal substances.” With such potential to be shut down, few banks show an interest in businesses facing these unpredictable threats.
Despite all of the rules and red tape, the Green Rush is happening, and now is the time to make an investment. Colorado marijuana businesses made over 700 million dollars in retail and the Washington Post claims it could reach over 1 billion dollars in 2016. Even Forbes has begun commenting on Cannabis, speculating that the Marijuana industry will pull in 8 billion of revenue by 2018.
So if you are an American entrepreneur looking for a fruitful investment, there is no better time than now - unless you’ve already invested - it will mean more work and stress in the beginning, but those who make it past the Cannabis legalization finish line will come out very wealthy. It is not often that one will have the opportunity to enter a brand new American industry in its infancy.