Marijuana businesses struggle to find willing banking suitors

By Chris Kudialis

Tuesday, Aug. 1, 2017 | 2 a.m.

Making a bank deposit for marijuana store owners in Colorado could involve this complex routine: Some spray Febreze on cash stacks to mask the marijuana smell and others deposit money orders to avoid federal suspicious activity reports from depositing too much cash, dispensary owners there say.

Some of Colorado’s nearly 1,000 licensed dispensaries operate under “don’t ask, don’t tell” circumstances when banking and share little information with banks so they’re allowed to open accounts. To skirt the system, license holders use generic sounding entities as their business names such as Denver’s Royal Asset Management and RK Enterprises, and talk around the issue of what kind of businesses they operate when asked simple questions by bank employees.

Otherwise, they’re stuck with cash — tens of thousands of dollars of it, and no place to deposit their money earned by selling the plant to customers.

“As soon as a bank here gets wind you’re affiliated with the marijuana industry, they’re going to prevent you from getting an account, or close it if you already have one,” said Neil Demers, owner of the Denver-based Diego Pellicer dispensary. “It’s smart to have two or three accounts in case one gets shut down.”

“It’s all on the down low,” he added.

Nevada weed store owners, who have seen a spike in cash flow since the all-cash business of recreational sales began July 1, have that same problem. Banks here won’t allow dispensaries to open accounts because marijuana remains illegal under federal law and most banks are federally insured.

A small number of dispensaries in Colorado, Oregon and Washington have accounts where the banking institution knows deposited money comes from marijuana sales, and are happy to have these clients. But it will cost you — fees on deposits can be as high as 10 percent, Demers said.

Las Vegas-based First Security Bank of Nevada offered banking for medical marijuana stores for less than a year, but stopped dealing with the industry because banking with weed stores was “cost prohibitive” and “burdensome,” CEO Jason Awad said.

Ensuring marijuana licensees don’t violate the many state laws governing the industry forces banks to hire compliance staff to monitor their marijuana clients, resulting in added expenditures, Awad said. First Security Bank employed an additional seven full-time staffers to routinely inspect about 120 marijuana clients they serviced, which resulted in “a lot of extra work.”

Marijuana is still federally illegal, classified as a Schedule I narcotic, which puts the plant on the same level as heroin in the eyes of the federal government. That imposes a risk for banks, even if marijuana dispensaries are following state laws and regulations, Awad said.

“All of a sudden we’re getting visits from the FDIC twice or three times in a span of one year, compared to once every two years before we started marijuana banking,” Awad said. “All of that combined just really paralyzes the bank.”

Hope may have been on the horizon following the 2013 publication of the Cole Memorandum, which suggested the U.S. Department of Justice should not devote law enforcement resources to crack down on those complying with marijuana laws within their state. And in 2014, the Obama administration published guidelines for banks to serve marijuana-related businesses following their respective state laws.

Still, banks have been unwilling to deal with the combination of added expenses of complying with the regulations and ongoing risk of both federal and state criminal prosecution to serve the industry, Awad said.

If banking wasn’t a priority for Nevada’s marijuana industry before the launch of recreational sales on July 1, it is now. While medical sales have been ongoing since the state’s first dispensary opened in July 2015, store owners saw their clientele — and cash on hand — multiply by as much as 10 times when recreational sales began.

A study from Headset Inc. found the average dispensary trip costs between $27 and $64, and some dispensary owners are reporting an average visit of recreational sales upwards of $100 per customer. That means a Las Vegas dispensary averaging 800 daily transactions would have more than $25,000 on hand by the end of the a day — and that’s a low estimate.

“It’s not only a hassle for the business, it’s a hassle for the customers because they have to get cash, too,” said David Goldwater, owner of Inyo Fine Cannabis dispensary in Las Vegas. “Banking would provide more security for employees and customers, and the lending would give me a source of capital to vastly improve my ability to operate my business.”

Once giving back every penny generated by sales in Nevada’s medical-only industry for bills, employee salaries and products, Goldwater says Inyo is just now finally starting to accumulate more cash than the dispensary spends.

While banking “would be a great benefit,” he noted that other Nevada industries, like casinos, and gaming taverns, also operate with substantial amounts of cash. If any city is used to dealing with the extra paper money, it’s Las Vegas, he said.

“This is a town where businesses are used to handling large amounts of cash,” he said. “Our circumstances are not completely unique, just unnecessarily cumbersome.”

Until banks open their vaults to dispensaries, some owners — in Nevada and elsewhere — indicated they have unofficial accounts they operate under the radar with hopes banks don’t realize marijuana money is going through their system.

Andrew Jolley of The+Source said that while proxy bank accounts for pot companies were prevalent in other states, he did not think the practice was common in Nevada. Jolley, who serves as president of the Nevada Dispensary Association, said banks often catch on to dispensaries operating under vague pretenses within months of opening an account, and such accounts are rarely successful.

“My experience is that they’re very good at sniffing that out,” Jolley said. “Once you start depositing large amounts of cash, the red flags are going to go up. And I’m not willing to lie to a bank about that.”

The hope is to have banking privileges similar to Joseph Gadsden of Denver’s Native Roots. His dispensary is one of about 120 marijuana industry clients accepted at a few of the state banks and credit unions to open their doors to weed businesses.

Gadsden said access to banking is exclusive, adding that unless a dispensary owner “knows someone or has a recommendation,” they’re placed on a waiting list with dozens of other dispensaries seeking a haven for their cash. His bank, Safe Harbor of Partner Colorado Credit Union, is sought by thousands of weed entrepreneurs statewide, but only accepts five new marijuana businesses per month.

“Once you’re in, you’re in, but getting there can take months to years, if you get in at all,” Gadsden said.

Safe Harbor CEO Sundie Seefried, who launched Safe Harbor in 2015, said the program is banking $80 million per month for the cannabis industry and demand will cause them to max out their pot banking capacity by the end of 2017.

While known as a national leader in cannabis banking for her work in Colorado, Seefried too said her company has been challenged by an “overwhelming amount” of compliance work required to maintain her pot clients.

“Banking cannabis businesses opens the door to potential prosecution for money laundering if you’re not extra careful,” Seefried said. “And the consequences can be severe.”

For Nevada, the immediate future of marijuana banking is unclear.

Awad said First Security Bank of Nevada is not planning to restart cannabis banking anytime soon, and no other Nevada financial institutions have announced their intention of doing so, either. Longtime Nevada pot advocate and state Sen. Tick Segerblom added the state’s pot industry is “still trying to figure banking out.”

“There are a whole lot of ideas and discussions, but nothing concrete that’s happening,” Segerblom said. “It’s a longer process, and it’s not going to be fixed tomorrow.”

One solution, Awad said, lies with the federal government. If and when marijuana is removed from the list of Schedule I drugs, he said he’d expect more banks, both state and federally chartered, to open their doors to pot businesses.

“If they don’t change it, marijuana banking is always going to be in limbo,” he said. “For as much as banks would love to provide the service here, it’s simply just not worth the risk.”

Editor’s note: Brian Greenspun, the CEO, publisher and editor of the Las Vegas Sun, has an ownership interest in Essence Cannabis Dispensary.