Legal pot businesses can't count on banks letting them open accounts

The most sought-after product among cannabis companies right now, besides a business license, might be a bank account.

Only a few financial institutions will work with farmers authorized to grow pot in the region, entrepreneurs looking to process and sell their yield and the lawyers, real estate agents and consultants advising them.

These firms employees' may also need to seek out cannabis-friendly financial institutions because getting a paycheck from a marijuana company can cause issues at their old banks. The dearth of options has forced some pot businesses to weather periods without bank accounts, which is particularly dangerous for dispensaries, where cash can accumulate and make storefronts a crime target. 

The federal government classifies cannabis as an illegal drug, which makes accepting money tied to the substance a challenge for banks and credit unions. Many financial institutions are authorized at the federal level and don't want to attract regulatory scrutiny by serving cannabis clients.

Banks are also deterred by the amount of monitoring they must do to follow federal rules when working with marijuana businesses. Taking on cannabis clients sometimes involves too much compliance work to be profitable, according to Peter Su, senior vice president at Green Check Verified, which provides financial institutions with software to streamline oversight of marijuana-related businesses.

A handful of banks and credit unions have started serving marijuana businesses in New York State since the substance was legalized for medical treatment in 2014 and for general use in April 2021, according to Su. Newsday interviewed six professionals working in or with cannabis businesses for this story, and none estimated there were more than five financial institutions working with marijuana-related businesses on Long Island. Four of those firms confirmed in interviews or email exchanges with Newsday that they will provide bank accounts to cannabis firms in the region: Valley National Bank, BCB Bank, the Hauppauge-based Dime Community Bank and Abaca, a software company that offers banking services in the U.S. through partnerships with three financial institutions.

Opening a bank account is currently a challenge for cannabis companies on Long Island: Business owners described submitting dozens of pages for applications that dragged on for weeks. Finding a bank may become more difficult now that the state has licensed the first retail dispensaries and is preparing for hundreds of other businesses to join the industry, according to Su and others involved with marijuana trade groups.

“They are all going to rush the same two, three, four banks — depending on what region that they’re in,” said Su, of Roslyn Heights. “People will wait a long time to get an account.”

The compliance burden 

Banks have been slow to serve an industry that would require them to regularly report to the U.S. Treasury Financial Crimes Enforcement Network, which combats money laundering, fraud and other financial crimes. State-sanctioned cannabis companies’ transactions are generally still considered a crime under federal law. So banks must fill out suspicious activity reports for them. But in the reports, financial institutions can indicate that the activity abides by state regulations, and therefore, isn’t an enforcement priority for federal authorities. No bank or credit union has been fined or sanctioned just for serving state-licensed cannabis companies since 2014, according to Su.

Nonetheless, financial institutions are discouraged by the amount of due diligence needed to work with marijuana businesses, Su said. Typically, they will have to assign one employee to every five to eight cannabis companies — a labor commitment far larger than is normal in other industries, he said. Su said software created by Green Check Verified or its competitors can be a solution for financial institutions that may otherwise not make money on accounts with cannabis companies.

The Financial Crimes Enforcement Network estimated that 755 institutions provided financial services to marijuana-related firms in September 2021, according to the most recent data released by the network. But many in the industry think that figure is likely closer to 250, Su said. He estimates that 10 banks and credit unions will work with marijuana businesses in New York. Some serve only certain regions.

“For big banks like Chase or Bank of America, having a handful of these state-licensed accounts doesn’t really move the needle,” said Jeremy Unruh, who is on the executive committee of the New York Medical Cannabis Industry Association. “The juice is not worth the squeeze for them.”

Chase didn't respond to requests for comment. 

Bank of America doesn't serve cannabis companies because "we follow federal law," spokesman Bill Halldin said. 

New Jersey-based Valley Bank, a $54 billion firm authorized to operate around the nation, launched a cannabis banking business more than two years ago, according to Brett Rawls, senior vice president and head of correspondent and specialty banking. He said catering to an underserved industry fulfilled Valley's mission of giving people and businesses what they need to succeed.

Valley has so far been able to meet the demand for marijuana-related bank accounts in New York, said Rawls. He also believes more financial institutions will soon enter the cannabis space because there's a possibility that federal legislation will make doing so easier.

"Valley saw an opportunity, at the time, with an emerging market," Rawls said, noting that the firm's size allows marijuana businesses operating in several states to centralize their banking. "The size and the ability for us to scale it nationally has been a big deal."

Pony Express style 

Chicago-based PharmaCann Inc. started growing and selling medical marijuana in New York without a bank in 2015, according to Unruh, PharmaCann's senior vice president of public and regulatory affairs. For a few months, PharmaCann’s Verilife-branded dispensaries stashed tens of thousands of dollars in safes, Unruh said.

Eventually an employee connected PharmaCann to a Buffalo-area bank run by a relative. PharmaCann opened a bank account, but wasn’t able to find an armored car company to pick up cash, deposit it and then transfer an equal amount of money into PharmaCann's account, Unruh said. This type of transport service is widely available in other cash-rich retail sectors, banking experts said.

So PharmaCann workers spend six hours transporting the cash in locked boxes using cars with GPS tracking and cameras, Unruh said.

“We have to do everything Pony Express style,” he said, referring to a service using horses to deliver mail between the East and West coasts in the 1860s. “There is a safety and security risk.”

Already an 'undertaking'

More sophisticated financial services are now available to marijuana businesses, but the limited number of banks and financial institutions in the field makes accessing them hard, cannabis industry leaders said.

Farmers learned this first, Su said. When the state released the names of cultivators who were licensed to grow marijuana, he received “a bunch” of calls from growers who were dropped by their banks. On the East End, Route 27 Hempyard LLC lost its M&T Bank account during the “peak harvest” in September, according to Ryan Andoos, co-owner of the hemp, hop and cannabis farm. Andoos said he and his staff spent about 20 hours a week on bank account applications for a month. Ten weeks later, a financial institution has conducted a site visit of Route 27 and is nearly ready to provide the farm with a bank account, Andoos said.

“It’s definitely been an undertaking,” said Andoos, who has been using personal funds for business and payroll expenses. “[Banks] are educating themselves … They’re going from training wheels to riding the bike all at once.”

M&T doesn't serve businesses "directly involved in the growth, manufacturing, or distribution of cannabis," spokesman David Samberg said. The bank will serve employees of licensed marijuana businesses "unless they have a significant role in ownership or management," he added.

Opening accounts has been a challenge even for Long Islanders involved with cannabis trade groups and relatively well-informed about the industry’s idiosyncrasies. The Cannabis Place, a retail brand opening a dispensary in New Jersey and applying to start a second one in New York, called 40 or 50 financial institutions and three agreed to discuss an account, according to CEO Osbert Orduña, a Suffolk County resident. 

Orduña, who is co-chair of the tristate chapter of the National Hispanic Cannabis Council trade group, had to provide his bank with contractual documents, operational terms and information on investors and shareholders. Marijuana businesses typically need to submit dozens of pages of paperwork, including their entire license application, Su and Orduña said. The bank will likely spend at least a month assessing their application, whereas experienced entrepreneurs in other fields get an account in one day with a few documents, Su said.

Accounts come at a premium 

These cannabis-related accounts will likely come with more costs and stipulations. Monthly fees begin at roughly $500, according to Dan Livingston, executive director of the Cannabis Association of New York trade group. Research suggests the average monthly cost is about $1,000 nationwide, Su said.

Banks that work with cannabis companies and software providers that help them serve that industry say they’ve smoothed out many of the obstacles for clients. These businesses can access standard online money management tools, transfer money on wire services and access the Automated Clearing House system used by government agencies and financial institutions, said Rawls, the Valley executive. Marijuana firms may use debit cards for non-cannabis expenses like pens and receipt paper, said Abaca president and co-founder Brian Bauer. Dispensaries can now have armored cars pick up their cash, they said.

Curbing the volume of cash at dispensaries remains a challenge. Major credit card networks prohibit transactions involving pot. Retailers are finding ways to accept payments through debit cards and apps, but they're not widely used yet, Su said.

Shoppers use cash for 50 to 60% of transactions at dispensaries and debit cards for about 40% of purchases, Bauer said.

That's the reverse of general payment practices. Consumers use cash for about 20 to 30% of "everyday" transactions at grocers, gas stations and drugstores, according to Beth Costa, partner in the consulting firm Oliver Wyman's payments and retail banking in the Americas practices.

Banking on a few 

The financial institutions serving the marijuana industry already seem strained, business owners said. These owners declined to name their banks, noting that they didn’t want them flooded with inquiries or that the institutions had told them that they couldn’t take on more cannabis clients.

They pointed out that just a few firms were willing to work with a $200 million social equity fund the state is setting up. Four organizations — Dime, Valley, Ponce Bank and Five Star Bank — submitted proposals to provide banking services to the fund before the state canceled its search and restructured its banking plan, according to the website of the Dormitory Authority of the State of New York, which is overseeing the project.

“Even the state itself is having difficulty with this issue,” said Daniel Johnston, general counsel for Gotham Growth Corp., a Hauppauge business seeking a license to process cannabis.

DASNY spokesman Jeffrey Gordon didn't directly respond when asked to comment on whether the fund struggled to secure a bank through the request-for-proposals process.

Banking access won’t improve without help from the federal government, Johnston said. He hopes Congress will pass the Safe Banking Act, which would protect banks from regulatory penalties for serving state-licensed cannabis companies and limit how many suspicious activity reports they must file. The House has passed the measure several times in recent years, but it has stalled in the Senate.

Stress spreads beyond the biz

Acquiring an account and routing number doesn’t solve all of businesses’ problems. PharmaCann had to institute elaborate workarounds to provide pension funds to unionized workers, Unruh said. About five times a year, Unruh gets calls from employees who were notified that their banks are closing their accounts and now need help opening new ones. This tends to happen when workers apply to refinance or take out mortgages and banks notice that they work for PharmaCann, Unruh said.

Cannabis companies’ business partners can also face complications. A lawyer, real estate broker and others in businesses that never touch the plant or its products, say they’ve had business and personal accounts shut down.

Bob Gunn, an energy advisory consultant who lives in Washington State, couldn’t get his home refinanced, despite primarily getting paid by utility companies, not cannabis firms.

“We saved up a whole bunch of cash to do a remodel. We had like four times the balance on our mortgage,” said Gunn, who helps firms get grants from utility companies to offset the cost of more energy-efficient equipment. “Hard no — four times in a row.”

By Sarina Trangle

sarina.trangle@newsday.com@SarinaTrangle

Sarina Trangle covers affordability and cost of living issues and other business topics. She previously worked as an editor and reporter at amNewYork.