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Fresh Deposits in the Ongoing Cannabis Banking Conundrum

January 3, 2018


California finally legalized marijuana (officially), but with increased interest and subsequent revenue, the ever-present question of where marijuana businesses in California and other cannabis-legal states should place their money for safekeeping arises yet again. While some credit unions and community banks have been open to dealing with cannabis businesses, including one in particular in Maryland that’s seemingly supporting many of the newly legal weed enterprises in the state, these small-town solutions won’t scale to suit the needs of the entire industry.


Ever since individual states began legalizing cannabis in the face of federal prohibition, there has been a disconnect on the financial front. The state governments want to erase the black market and tax those sales for the betterment of infrastructure, education, addiction support, and more, yet banking institutions in the state have their hands tied because of a reliance on federal insurance.


With recreational marijuana sales and taxation up and running in California — the world’s sixth largest economy — it’s real world, implementable solutions that are required now, not later.


The City of Los Angeles has floated the idea of founding a city-owned bank that would not require federal assistance or backing and thus could service any legal business in the state. Considering the marijuana market in California is expected to generate roughly $7 billion, a self-contained bank servicing the structure-hungry cannabis business owners who currently deal in cash would seemingly have plenty of eager new clientele.


The lack of banking solutions for these businesses means they’re forced to dole out far more overhead to protect their earnings, sometimes having to hire third-party security services and transportation for multiple daily cash pickups to mitigate the risk of robbery.


In Maryland, where medical marijuana dispensaries have only recently begun selling products to patients, one small bank based in Annapolis is risking their federal backing to offer their helping hand to a number of newly flourishing businesses in the region.


According to The Washington Post, four cannabis businesses in Maryland (two growers and two dispensaries) have been allowed to open accounts with Severn Savings Bank, whose parent company is publicly traded. There are reports of other businesses in the industry holding accounts with Severn Savings as well.


But Severn isn’t throwing all caution to the wind.


Business account holders involved in the cannabis industry have entirely different accounts than “traditional” businesses, complete with hiked up banking fees and restrictions on solutions that may invite further federal interference. For example, cannabis accounts may not write checks from their business accounts or apply for loans. The businesses must be operating in complete accordance with Maryland’s established cannabis laws to maintain an account’s status with the bank.


“We have to account for every penny, every piece of product, to prove that there is no diversion of anything,” says Sajal Roy, co-owner of Allegany County Medical Marijuana Dispensary, who paid $3,000 up front and nearly $1,800 monthly to have a business account with Severn.


Even with the extra hurdles, the solutions that are offered to cannabis business owners are worth it. The accounts allow the businesses to utilize direct deposit for their payroll delivery as well as wire funds to suppliers for products, among other benefits.


“That bank was very quick out of the gate saying, ‘I want to work with the industry,’” said Jake Van Wingerden, owner of SunMed Growers, a licensed cultivator in Cecil County that has held an account with Severn for over a year. “Everybody I talk to has accounts at Severn … I don’t know how else we would do business.”


Whether the industry receives more lifelines from community banks like Severn willing to assume some risk in order to get involved with the fastest growing industry since broadband internet remains to be seen. But one thing is certain: a fix is necessary if the industry wants to grow into the enormous juggernaut it could become.


Be it the blockchain solution that has allowed bitcoin and other cryptocurrencies to explode in use and value, or locally-owned and federal-backing-free banks like the City of Los Angeles would like to establish, the always innovative and trailblazing cannabis industry will surely find a way to prosper.


This article was originally published on Marijuana.com


About Duke London: Used to write about music for XXL, Elevator, Complex, Genius, and a few other outlets. Follow @LongLiveTheDuke on Twitter if you’d like to read way fewer words by me.

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