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Many cannabis companies are having a tough time opening a bank account and it is putting innocent people at risk. A bank account serves as the lifeline of any business and it is tough to operate (successfully) without one. The high cash nature of a cannabis business requires access to a bank account and the federal government is putting these businesses in harm’s way.
Statistics show that banking services have been generally unavailable to marijuana businesses due to the opaque regulatory environment given conflicting state and federal laws. Recently, the Financial Crimes Enforcement Network (Fincen) released data stating that some financial institutions are knowingly providing services to marijuana-related businesses. The report also stated that many banks are staying away from or closing marijuana-related business accounts.
Treasury Department issued guidance to financial institutions
On February 14, 2014, the Treasury Department issued guidance to financial institutions in regards to how to work with a legal marijuana business. The financial institutions were instructed to report marijuana-related business activities by filing a suspicious activity report (SAR). The Treasury Department instructed these institutions to use three classifications (limited, priority, termination) when filing SARs.
Limited is used when the bank is working with a marijuana-related businesses that is not violating federal guidance or their state marijuana laws.
Termination is for businesses that no longer receive banking services.
Priority is used when that the bank believes the marijuana business may have violated federal guidance or state law.
Between February 14, 2014, and January 26, 2015, around 400 financial institutions filed 3,157 marijuana-related SARs. More than half were filed under the limited classification. Approximately 1300 and 300 were filed under the termination and priority classification respectively.
Marijuana industry takes hit after MBanks closes all accounts
MBank was a first mover in the marijuana banking industry. The company made waves earlier this year when they announced they were expanding into Colorado. Less than one week later, Mbank announced that it would close all Colorado cannabis accounts.
Recently, MBank announced that they are closing all cannabis business accounts in Oregon as well. The move comes months before Oregon’s legal marijuana law goes into effect on July 1. Mbank has 70 clients in the cannabis industry and they delivered 60-day notices to the businesses to let them know it will no longer offer banking services.
MBank President and CEO Jef Baker issued the following prepared statement: “MBank entered the business to provide quality banking services to a growing but underserved industry. However, through our experience the past nine months as a pioneer in this new business sector, we determined the bank is not big enough to provide and support all of the compliance components required.”
Outlook
To successfully operate a business, a company needs to have access to a bank account. The lack of support from financial institutions not only hinders growth, but also puts these all cash businesses in harm’s way. The recently submitted bipartisan bill helps alleviate some of these issues by creating banking solutions for cannabis businesses; hopefully, change does not come too late.
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