Are Cannabis Business Bank Accounts Brand-Damaging?

Is Banking in the Cannabis Industry Brand-Damaging?

Banks often blame the law for not being able to provide banking-related services to businesses in the cannabis industry. But is that actually the real reason? Are cannabis business bank accounts actually breaking the law?  They say that they fear losing their FDIC insurance due to the federal illegality of the products in question. However, banks can provide services to marijuana-related business if they want to, as long as they follow strict anti-money laundering practices set forth by the Financial Crimes Enforcement Network (FinCEN). Still, they claim that the ability to do this through the guidelines of the Cole memo are just that — “guidelines”– and that is not “law”. They say that the risk is too high, and that they may be prosecuted for money laundering if the federal government changes its mind and decides to let the Department of Justice come down on anyone involved in the cannabis industry. But is that the real reason?

Here is the real reason banks won’t do business with the cannabis industry.

It’s not just cultivators who are growing cannabis and dispensaries who sell it that are being judged for their chosen business type. Ancillary services are also punished by the banks. Ancillary services are businesses that do not actually sell or deal in cannabis or its derivatives but may deal with people who do. Ancillary businesses may include lawyers, lighting manufacturers, extraction equipment manufacturers, packaging systems, testing laboratories, and even t-shirt makers, and they are routinely having their bank accounts closed or are being turned down for merchant accounts. So if they are not selling a “federally illegal product,” then why won’t banks allow them to hold an account or provide them with credit card processing?

The real reason is that banks believe working with the cannabis industry will damage their brand.

A company’s brand is the image that the consumer has of them, or what defines their reputation. If you are a T-shirt producer and you have a bunch of cute puppies on your shirts, then you will have no problem getting a merchant account and selling your T-shirts, but if you have even one T-shirt for sale that depicts a pot leaf, you will be turned down for that merchant account on the basis that it promotes an industry they believe would be damaging to their brand. Of course, that’s not what the banks will publicly state.

Scotiabank of Canada recently closed the bank account of a 10-year customer who owns a pipe shop. There is nothing illegal being sold in the shop. The bank account was closed specifically because they are considered by the bank to be “related” to the marijuana industry. In a statement to the Huffington Post, Rick Roth, spokesperson for the bank, blamed it on strict risk management practices. He explained to the Post that risk management “…is why the bank has taken the decision to close existing small business accounts and to prohibit the opening of new accounts for customers classified as ‘marijuana-related business.’” They are really just worried about their reputation.

Walid Hejazi, associate professor of international business at the University of Toronto’s Rotman School of Management agrees, “…so these two banks did their due diligence and came up with the conclusion that in their position, there is some risk and that risk can be reputational.”  Khurram Malik, an analyst with Jacob Capital Management Inc., a company that advises on the the global cannabis sector, points out,“They’re the most conservative organizations in the world and they protect their brand very diligently.”

So the real reason banks are afraid to do business with legitimate companies that are associated with the cannabis industry is to protect their reputation.  They are afraid it will hurt their brand. They are afraid they could lose potential business due to the perception that people who do not support marijuana reform may have of them.

The fact that they’re worried that being associated with the cannabis industry would damage their reputation is laughable.

They publicly maintain the position that it is because the industry is federally illegal and that dealing with the money is “money laundering,” but big banks have long participated in money laundering practices. Catering to VIP clients and helping billionaire customers commit international tax evasion is common practice for big banks. They have been seen turning the other way because the fines they pay when they get in trouble is a fraction of what they make by assisting these VIP’s in laundering their money. Former Federal Prosecutor Richard Elias recently filed a suit against HSBC, stating that “HSBC knowingly serviced the cartels, including the Sinaloa, Juarez and Los Zetas cartels, aided by a pervasive culture of ‘recklessness and corruption…”

These big banks have been participating in such quasi-legal practices for years with nary a slap on the hand from the government. And don’t forget that bankers have the government in their pockets, with their huge donations to politicians. Talk about brand damaging!

Ironically, Wells Fargo also thinks doing business with the cannabis industry is damaging…

Cristie Drumm, Wells Fargo Rocky Mountain Regional spokeswoman, announced, “It is currently Wells Fargo’s policy not to bank marijuana businesses, based on federal laws, under which the sale and use of marijuana is still illegal.” What a bunch of hypocrites!

This is the same Wells Fargo that has been all over the news recently for the scandal involving employees who were opening fraudulent and unauthorized accounts without the knowledge of their customers. But this really isn’t anything new, as this has been going on for years, with internal fraud and illegal activities within their own company, forcing low-level employees to open new accounts without the customer’s knowledge in order to increase the company’s stock value. “Sandbagging,” as the the employees refer to it, is a routine practice that they use when pressured into performing and meeting unrealistic sales goals at the risk of losing their jobs.

Wells Fargo has a long history of “risky and reckless” behavior which has gained them the attention of bank-reform activists for years. The activists have been seeking action for more than a decade in regards to Wells Fargo’s unscrupulous practices, testifying in courts and demanding that state legislatures investigate the company and demand that they no longer engage in these unscrupulous practices and sales tactics.

Their own personal stock portfolios increased significantly during this scam. The CEO, John Stumpf, certainly enjoyed his own personal stocks increasing $200 million during the time this scandal was in action. And, before stepping down as CEO, he sold off millions of stock shares right before the announcement of the settlement in the scandal, raising red flags and possibly bringing allegations of insider trading. And they are worried about doing business with the cannabis industry!

Government agencies are now looking deeper into Wells Fargo’s dealings beyond client services.

If this kind of fraud can be so widespread with low-level employees, isn’t it possible that there is more widespread misbehaving in its other bank dealings and with higher-level management?

How can a company that basically promotes and creates an environment for fraud by their “team members” expect to simultaneously stand on a pedestal preaching, “One of our top priorities is protecting customers’ confidential data and information. Customers trust us…”

The “Vision and Values” pamphlet for the bank reads like a speech from Mother Theresa. It is littered with statements like “Honesty, trust, and integrity are essential…They’re not just the responsibility of our senior leaders and our board of directors. We’re all responsible.”  And they also say, “Our vision has nothing to do with transactions, pushing products, or getting bigger for the sake of bigness. It’s about building lifelong relationships one customer at a time.” They constantly spew out words like integrity and principles: “We strive to be recognized…as the standard..for integrity and principled performance.”

Meanwhile, they foster an environment that promotes illegal action and fraud, all in the name of making money. It’s not just Wells Fargo that acts without integrity, these kinds of predatory sales tactics exist across the entire banking industry. Employees are being pressured to sell unnecessary lines of credit targeting low-income or under-educated consumers, and this runs rampant in the banking industry.

These banks have the nerve to believe that doing business or being associated with an industry such as Cannabis will damage their reputation, as if people in the cannabis industry don’t retain morals or ethics. They try to blame their inability to provide cannabis bank accounts on the federal illegality of the product.

On Wells Fargo’s website, on the page describing the company’s values, you will find a big blue quote next to John G. Stumpf, where the (former) Chairman and CEO’s smiling face is, and it says, “Everything we do is built on trust. It doesn’t happen with one transaction, in one day on the job or in one quarter. It’s earned relationship by relationship.” That also seems to be the way you lose people’s trust, one day at a time, one transaction at a time.

Wells Fargo’s website warns, “If you want to find out how strong a company’s ethics are, don’t listen to what its people say. Watch what they do.” Oh, we’re watching, alright.  But I think they said it best themselves: “Corporate America is littered with the debris of companies that crafted lofty values on paper but, when put to the test, failed to live by them.” Well, Wells Fargo, you’ve accomplished exactly that!

Maybe, however, Thomas Jefferson said it best: “I believe that banking institutions are more dangerous to our civil liberties than standing armies.”