Last Friday, another prominent bank that publicly supported the Cannabis Industry announced that it is closing all of its cannabis-related accounts.
MBank in Oregon has been supporting the Cannabis Industry for about a year and tried to expand into Colorado a few months ago, only to retrench a few weeks later. Last week they announced that they will be closing all of their cannabis accounts. One more bank that has serviced this industry has been unable to stick with it.
According to their press release, they are pulling out of the market because of the high cost of compliance.
Why, one might ask, would they not just raise their rates to cover the additional compliance burden necessary to properly service the industry?
Banking compliance requirements for the Cannabis Industry are more extensive than any other industry. Why? Because its a Schedule 1 drug in the Federal government’s eyes and so the line between legitimate business and drug dealer must be extremely transparent.
A problem that CAN be solved
Compliance tools (like seed-to-sale tracking systems, special packaging and labeling, testing, quantity limitations, and customer identification) must meet unprecedented standards. The same is true for banking.
Bank after bank has attempted to serve the industry and profit from the niche, only to turn tail and run once the true cost of compliance has been realized.
The problem can be solved; it will simply be expensive, invasive, and time consuming. As time passes and technology, economy of scale and procedures evolve, these barriers will decrease. But today, the only solution that will deliver sustainable financial services to this industry will be costly and meddlesome.
Five years ago, when seed-to-sale tracking was just a concept, no dispensary wanted this technology for the same reasons. These custom applications were more expensive and much more intrusive than a conventional point of sale system, which could be bought for a few hundred dollars, or even offered for free.
As I read the FinCEN and Justice Department memos on banking cannabis, financial institutions must not only validate the deposits and their sources, but also the dispensaries’ transactions. For a financial institution to support such oversight will require a dedicated team of professionals skilled at forensic accounting, onsite evaluation, and fraud detection.
And, dispensaries that color outside the lines must not be allowed to ruin it for everyone else.
It will take hard work to fix it
There are several thousand dispensaries across the country and MBank was serving less than 80 of them What about the thousands of other dispensaries? Do they not have access to banking? Most of them simply lie about the business they are in. They limit the cash deposits for those accounts so as not to draw attention to themselves.
Why would they lie and risk being shut down the moment they are discovered? Currently, there is no other way for them to solve the problem.
The way to sustainably solve the problem is to build a dedicated financial institution with the expertise and depth to scrutinize their client base satisfactorily to ensure the business is operating within the guidelines of the state’s regulated program and the federal priorities.
This is not brain surgery — but it is hard work.
Mark Goldfogel is a self-confessed nerd who published software at the age of 17. He has held management positions at John Deere Corporation and director positions at ADP before opening a technology consulting company in Telluride, Colorado. Mark co-founded MJ Freeway, the cannabis industry’s first “Seed to Sale” point of sale system and then went on to become CEO and co-founder of C4EverSystems, the industry’s first cash management system. Mark currently is EVP Industry Relations for The Fourth Corner Credit Union, the first state chartered institution whose field of membership includes a common interest in cannabis and hemp. Mark is dedicated to helping humanity understand the benefits and responsibilities associated with this important plant. He can be reached at [email protected].