After Banking Memo, More Questions than Answers

The banking memorandums issued Friday by the federal government have left the cannabis industry with more questions than answers. Many in the industry hoped the memos, which provide banks with an outline for how to work with the marijuana industry, would open the flood gates for cannabis businesses to begin accessing traditional banking services.

But as the dust settles, there are some indications that the guidance might not have real-world implications, at least for now. Many mainstream financial institutions and banking organizations said they will need to see concrete changes to marijuana’s federal classification under the Controlled Substances Act before they will work with the industry. On the other hand, there are some in the industry who believe the guidance will help loosen up the banking situation – in time – while others are worried about a possible rise in fraudulent banking schemes.

Major Banks See Memo as a Red Light In the days following the joint memos, major U.S. banks and banking institutions have upheld their refusal to work with the industry.

A spokeswoman from Wells Fargo said the bank is reviewing the government’s new guidelines but would continue to ban cannabis businesses because, based on federal law, “the sale and use of marijuana is still illegal.”

Frank Keating, the president and CEO of the American Banking Association, released a similar statement, saying banks that work with cannabis businesses can still face “prosecution and assorted sanctions.” The organization even released a Q&A-type document outlining why it will not work with the cannabis industry.

The Colorado Bankers Association (CBA) took its denial of cannabis businesses one step further, saying that the memorandum actually spells out why banks should not work with cannabis businesses.

A spokesperson with the CBA said the organization does not believe any banks can safely work with marijuana businesses based on the guidance.

“Instead of providing banks with leniency related to prosecution as we had expected, this guidance instead told banks to operate at your own risk,” she said.

Not All Doom and Gloom Michael Rupkalvis, president of the payment processing company The Transaction Group, believes smaller, regional banks will move forward, but it will take time. “There’s just way too much money at stake for banks to ignore the industry,” Rupkalvis said. However, he cautioned, “things won’t change overnight.”

Rupkalvis said he expects it will be several months before banks begin working with cannabis businesses. He believes local banks in legal cannabis states will first roll out business checking accounts for marijuana businesses, and then credit card companies will then follow.

Within six months, he said, the industry should see traditional swipe-card accounts being offered to businesses, although it may take longer for internet or phone accounts to be established.

“Believe me, card processors want to work with this industry,” he said. “Most of these businesses do great revenue with very few dispute/chargeback problems.”

Lance Ott, CEO of the payment processing company Guardian Data Systems, said cannabis business owners should begin preparing for local banks to begin offering accounts. He said these banks will likely limit the number of accounts offered to the industry, so competition to open an account could be high.

“Make sure you have a business license and the required documents in place,” Ott said. “The more experienced businesses will probably be [first] to get accounts.”

Beware of Fraud and Charlatans Ott said cannabis entrepreneurs should be extremely cautious of scams and false banking opportunities during the coming weeks and months. He said he’s already been pitched on several false banking opportunities by third-party salespeople.

“We got an anonymous call saying Wells Fargo in Phoenix is allowing them to operate merchant services and banking,” Ott said. “I called my contact at Wells Fargo and she confirmed that is absolutely not true.”

Ott said these companies probably will send the money to an offshore account, or into an aggregate account under the businesses’ name. Both banking practices are illegal.

The best practice, Ott said, is to work with a trusted financial adviser, or to speak directly with a bank.

“Make sure you are speaking with a [bank] manager, an executive or someone who has the authority to make decisions,” he said.