The cannabis industry, both medical and recreational, is continuing to grow throughout the United States. From newly-legalized medical marijuana states to established recreational states, the industry is facing similar problems across the country. States like Colorado and Washington are the faces of professional retail marijuana, yet, their industries are suffering from some severe growing pains. While both states are having problems with the price of their cannabis, Colorado seems to have the primary issue of banking figured out. Washington’s marijuana banking is a little behind Colorado, but the state is making it work with what it has.
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Why Marijuana Banking is Necessary
One huge challenge legal marijuana markets face, is the confusion between federal and state law. Not only is it challenging to find the balance between these two governing bodies, but it makes conducting efficient and legal business nearly impossible. Marijuana banking is a significant factor in sustaining a compliant cannabis market. Without legal banking for the marijuana industry, dispensaries will continue to conduct cash-only business, which is not easily regulated. This way of business is unsafe for the employees and leaves cannabis companies vulnerable. Cash-based companies, without any banking, make ensuring the safety of profits difficult and leave an open door for internal and external theft.
On top of creating an unsafe work environment and an unreliable method of business, not having marijuana banking makes regulating the market tricky. The inability to track the cash-flow within the state leaves room for black market transactions and even money laundering. However, if an established marijuana market does not have a set regulation and compliance program, it makes it hard for banks to create a compliant banking method. Compliance and banking go hand-in-hand and are vital to a thriving cannabis industry. Without a regulated market, banks are at risk of working with noncompliant companies and breaking federal law. Both sectors need to work together to make it a win-win situation.
Established Marijuana Banks Setting Precedent
With Colorado’s marijuana market setting precedent for other states, it is the best place to examine marijuana banking. Thanks to Sundie Seefried, Partner Colorado’s chief executive, marijuana banking in Colorado is leaps and bounds ahead of most markets. Partner Colorado and Seefried created a division within their credit union called, Safe Harbor Private Banking. Safe Harbor Private Banking established a legal and compliant method of banking in the cannabis industry. This credit union, within a matter of three years, became one of the industry’s largest marijuana banks.
Steps of Safe Harbor Private Banking
- Applying for a Safe Harbor checking account is a detailed process. Any cannabis company applying for an account will undergo background checks and an interview process. This step allows for the credit union to understand the cannabis company and how it functions.
- The applicant submits the following documents:
- List of Owners
- List of Vendors and Customers
- Financial Statements and Tax Forms
- Business Plans
- State Licenses
- Leases
- Company Handbooks
- Cash Handling Procedures
- After these steps, the account is either approved or declined. If approved, they are required to be inspected by Safe Harbor’s bankers every three months. Not only are they checking on cash-handling procedures, but they assure that the company is following all state compliance laws. This process is why legalized states must have a stable regulatory system for marijuana banking to be successful.
- Along with routine compliance checks, accounts are monitored at all times making sure to track every dollar that comes in and goes out.
Seefried’s Safe Harbor Private Banking program is beginning to set a precedent for other established markets. While Washington marijuana banking still has some issues, there are a few local banks that proudly serve the state’s marijuana market. The two Washington banks that have been working with the cannabis industry since 2014 are Timberland and Salal Credit Union. Both have similar procedures to the Safe Harbor banking program and are doing their best to provide legal banking to the local industry.
Update on Washington Marijuana Banking
While there are a few small banks that attempt to work with cannabis companies, many are fearful of federal backlash. A majority of the large banks refuse to touch the industry as long as the federal prohibition remains. Washington’s cannabis industry relies on its small banks to provide safe and legal banking. Timberland and Salal Credit Union are two of the few banks that have figured out a way to provide marijuana banking safely (as safe as possible at least). By following similar methods of Seefried’s program, these local banks offer a multitude of banking services to the cannabis market. However, with Jeff Sessions reforming the Cole Memo and pulling most protections for the industry, marijuana banking has not been secure this year.
Luckily, the recent pass of the Commerce, Justice and Science Appropriations Bill has given the state medical marijuana programs certain federal protections. The only problem, is there are still no recreational protections in place. The banks that have faith in programs like Safe Harbor Banking will likely keep pushing marijuana banking forward. Nevertheless, it is going to take time for enough banks following these procedures to serve Washington’s massive marijuana market. As federal reform continues to gain traction, and potential federal legalization is on the brink of becoming a reality, we will hopefully see marijuana banking become more distinguished and efficient for all parties.
Stay informed on the progression of state marijuana banking, here!
