Cash only: Attorneys general push banking access for cannabis industry

KAILUA-KONA — Marijuana businesses in the United States are struggling with a conundrum of color. There exists no concern or ambiguity about what to do with the green they grow and sell legally to customers, but the green that comes back in return is another story.

Hawaii Attorney General Doug Chin — and 18 other attorneys general from across 29 states and the District of Columbia where cannabis is sold legally for medicinal and/or recreational purposes — implored Congress Wednesday to engineer and pass legislation protecting depository institutions that wish to bank with the industry.

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As the law stands, federal banking regulators have within their purview the power to eliminate or curtail an institution’s deposit insurance if it banks with the marijuana industry. The Safe Banking Act, introduced by Sen. Jeff Merkley of Oregon, would prohibit that practice.

Assembly Joint Resolution 28, which came out of California last week, urges the federal government to consider passing more sweeping industry protections to legitimize the financial side of the lucrative marijuana trade that accounts for billions in revenue annually.

“Banks and other depository institutions are currently hindered by federal law from providing financial services to cannabis businesses,” Chin said in a release from the Hawaii Department of the Attorney General Wednesday. “This encourages a cash-only, gray market that hurts law enforcement and tax collections.”

Current federal law classifies cannabis as a Schedule I narcotic, meaning institutions that provide banking services to state-licensed marijuana businesses leave themselves open to criminal and civil liability despite legal status at a state level.

Mel Ventura, executive vice president of Hawaii Community Federal Credit Union, said his institution does not bank with the marijuana industry for that exact reason.

He added those financial institutions that do could open themselves up to charges of money laundering, aiding and abetting of tax evasion and the illegal distribution of drugs, as well as racketeering, depending on the circumstances involving the particular cannabis-based businesses to which they provide services.

A letter from the AGs to Congress promotes the establishment of a “safe harbor” to protect depository institutions engaged with the cannabis industry to allay these concerns, as well as to protect the substantial tax revenues generated by the multi-billion-dollar industry.

“The goal of financial institutions is to promote transparency and accountability in all transactions,” Dana Viola, special assistant to the attorney general of Hawaii, wrote in an email. “It is harder for law enforcement to regulate or enforce against industries that operate on a cash only, non-traceable basis.”

The the AGs’ letter also referenced a U.S. Department of Justice decision to rescind the Cole Memo, which provided guidance to depository institutions as to how to bank with the cannabis industry while remaining in compliance with federal law. The AGs said the move by the DOJ makes the legislation they’re requesting even more imperative.

Banking in the Aloha State

Viola said licensed dispensaries in Hawaii are trying to work with a financial institution on the mainland to conduct cashless transactions, but recent DOJ action puts that process at risk.

Eight licensees across Hawaii are just beginning to navigate the financial roadblocks, as they open or prepare to open their doors to card-carrying customers.

Outlets like Maui Grown Therapies, Aloha Green and Noa Botanicals are already operational on Oahu and Maui, while Hawaii Island dispensaries have a few hurdles yet to clear — primarily construction permitting obstacles.

Zachary Taffany, chief operating officer for Hawaiian Ethos, one of two Big Island licensees, said the dispensary’s “aggressive goal” is to open by late spring — at the earliest.

As to how Hawaiian Ethos will deal with the financial side of its business when it begins distribution, Taffany said the company will do its banking with a legitimate, American-based depository institution but declined to provide its name.

He did confirm the institution is not based in Hawaii.

Taffany added that according to the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury, there are 400 financial institutions serving cannabis organizations across the country — 100 banks and 300 credit unions.

“None of those institutions are really publicly advertising that they’re serving (the cannabis industry), and so it takes a ton of groundwork to find those,” Taffany explained. “And once you find a bank that is serving, you do not jeopardize that relationship by disclosing (its name).”

Viola said thus far, major Hawaii-based institutions are reluctant to follow suit. Ventura explained that is at least in part because the industry is so new to Hawaii.

Mainland institutions banking with the marijuana industry have done more due diligence to make the practice as legitimate as possible. Some of the 400 also may be regulated by state agencies and not federal agencies, he said.

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Ventura added while he’s unsure if Hawaii-based banks and credit unions that wanted to do business with the marijuana industry would be required to report such banking activity, it would be a “very good idea” to do so, as they are federally regulated, federally insured and federally examined annually.

“It would be very lucrative because these (marijuana) businesses are cashflow rich and there would be a lot of financial services that they would use,” Ventura said. “But until such a time that the federal government comes out and says that this is perfectly legal, we will not bank with these types of businesses. It is just too risky.”