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Medical cannabis could be opportunity for bankers – but a risky one


Mississippi bankers can gain rewards in a medical marijuana market but risk a possible shift in U.S. Treasury Department policy that could harm their institutions.

Any jeopardy posed by the 1970 Controlled Substance Act aside, the chief executive of leading U.S. legal cannabis payments provider CanPay expects at least one or more Mississippi community banks or credit unions will work with medical marijuana companies should state voters approve a constitutional amendment Nov. 3.

“Rarely in a new market launch is there not at least one bank willing to back cannabis businesses in that market,” said CEO Dustin Eide, whose digital CanPay application offers legal marijuana buyers free debit transactions at otherwise-cash-only cannabis retail shops and dispensaries in 26 states and Washington, D.C.

Around 65 community banks and credit unions in legal cannabis states serve licensed marijuana retailers. Among the most openly cannabis-friendly CanPay client institutions are Safe Harbor Private Banking, a division of partner Colorado Credit Union; Severn Bank of Annapolis, Md.; and Salal Credit Union of Seattle.

Whitt Steineker

Dustin Eide

The banks and credit unions must adhere to a pile of regulatory requirements and report each cannabis-related transaction.

Regulatory reporting and rivers of paperwork are just part of the apprehension of the banking sector. The rules on reporting accompany a risk that Treasury officials could follow the lead of former U.S.  Attorney General Jeff Sessions and rescind a 2014 Obama administration order seen as a green light for financial institutions to do business with the cannabis industry.

Proclaiming a “return to the rule of law” in January 2018, Sessions deep-sixed the Department of Justice’s guidance document known as the Cole Memorandum. The policy memo written by Deputy Attorney General James M. Cole suggested a hands-off approach to the financial sector’s cannabis involvement in states in which the herb in its many forms is legal. More specifically, Cole advised that prosecutions in those states may not be “appropriate” when banks do business with marijuana entities, the New York Times reported Feb. 13, 2014.

Sessions erased Cole from DOJ’s playbook, but Treasury guidance known as FinCEN remains in place. FinCIN, written in part by the agency’s Financial Crimes Network, directs federal regulators to prioritize targeting only financial institutions that stray from the guidance.

FinCIN did not much comfort Frank Keating, president of the American Bankers Association. “While we appreciate the efforts by the Department of Justice and FinCEN, guidance or regulation doesn’t alter the underlying challenge for banks,” Keating said in a press statement.

“As it stands, possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions,” he warned.

The National Cannabis Industry Association is likewise fearful of new federal recriminations. Operating at the whim of Washington scares away a lot of people in the state-legal pot  industry, said Association spokesman Morgan Fox.

He said the lengthy list of restrictions make it “very difficult for banks to do their regulatory reporting” knowing a change in enforcement policies would put them “front and center as a criminal organization.”

The effect, Fox said in an interview, has been continued growth of an illicit market in states that allow either adult-use marijuana sales or medical marijuana sales.

Whitt Steineker, co-chair of the Cannabis Industry team at Bradley Arant Boult Cummings LLP in Birmingham, said he advises banking clients to weigh whether profits from marijuana are worth taking on “serious bank secrecy and money-laundering concerns.”

Steineker said the problem is that banks servicing marijuana entities must risk the fickleness of Treasury Department policy instead of the firmness of federal law. “You’re relying on law enforcement and take your compliance with these guidelines as being sufficient when there is a possibility you will be subject to enforcement action,” Steineker said in an interview.

CanPay’s Eide, meanwhile, is confident his Littleton, Colo.-based company would find banks to work with in Mississippi, just probably not from among the 4-year-old CanPay’s current lineup of cannabis partner financial institutions. Most are too small to expand into other states, though some are approaching regional market size, he said.

“It’s possible some will come into the market” Eide said. “Bur more likely Mississippi will have at least one (cannabis) financial institution that is very much localized.”

A state’s legal marijuana sector must have a FinCIN compliant bank before gaining CanPay’s debit card services, Eide said.

Traditional credit card companies such as Visa and MasterCard prohibit cannabis transactions on their networks. Eide supposes that the U.S. legal cannabis market of $11 billion to $15 billion “is not enough of a needle mover yet for them.”

CanPay gets its access to banks through participation in the Automated Clearing House network. The network, Eide said, lets individual financial institutions determine what type of transactions may occur.

If and when a Mississippi dispensary wants to offer its customers CanPay’s debit services, Eide’s company will charge the dispensary an interchange fee on each transaction. Today’s fee is about 2 percent, Eide said.

CanPay users can make debit transactions in any of the states the company serves.

Edie said CanPay is so popular among cannabis banks, the banks often refer their dispensary clients to him. That’s helped the company gain dispensary business in medical marijuana states such as Florida, where 98 percent of dispensaries accept CanPay, Eide said.

“We’re reaching that critical mass,” he said, “where it can be challenging in some markets to go without CanPay.”


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